Six of the biggest tech companies will be forced to make changes to their products and services this week as Europe’s new sweeping technology regulations largely come into effect.
The European Union’s Digital Markets Act prescribes how platforms minimize self-bias and enable interoperability, meaning how they prioritize their services over rivals and how services function between services operated by other companies., among other measures. Companies that do not comply with the rules risk high fines.
Five of the six companies designated as ‘gatekeepers’ are US-based: Amazon, Apple, Facebook’s parent company Meta, Google’s parent company Alphabet and Microsoft. The other is China’s ByteDance, owner of TikTok. The gatekeepers are designated with an annual turnover equal to or more than €7.5 billion in each of the last three years and with at least 45 million monthly active EU users.
The change comes after years of global momentum to hold big tech companies accountable for actions that may have led to their market dominance. But this week marks a major milestone as major regulations curbing practices the platforms have used for years come into effect.
“This is an inherently experimental endeavor,” said William Kovacic, a former member of the Federal Trade Commission from 2006 to 2011.
“No one involved in the process has absolute confidence that it will produce a specific outcome,” he added.
That uncertainty means European regulators will have to continually evaluate the impact of the rules and companies’ compliance as they unfold, he said.
The constant monitoring is at the heart of the way the Digital Markets Act is designed.
The gatekeepers have until Thursday to prepare compliance reports on how they will adapt their services to meet the new standards of the rules. Regulators will also assess whether new companies fall under the definition, or whether any of the six are left out, once the law comes into effect.
Once the reports are received, they will be assessed by EU regulators to see if the companies are complying. Any discrepancies will lead to an assessment that can take up to one year. Companies that have broken the rules face fines of up to 10 percent of the company’s total global annual turnover, or 20 percent for repeated violations.
How are the companies changing??
The changes required under the Digital Markets Act will require companies to make critical changes to their platforms and services for EU users.
A core aspect of the rules prevents companies from favoring their own products and services over those of third parties. That could affect how an online marketplace like Amazon lists its own Amazon Basics products on its site, or how a search engine like Google places its own tools on the search page.
For example, Google is removing some features from its search results page, such as the Google Flights unit, to comply with the rules, the company said in a blog post.
Apple said that when users first open the company’s Safari web browser with an updated iOS system, a screen will ask them to choose a default browser from a list of options.
The Digital Markets Act also requires dominant app stores to make changes, including allowing third-party app store options on devices and allowing companies to promote their offers to customers outside the restrictions of the gatekeeper’s platform .
Apple has for years strongly opposed the idea of offering third-party app stores on its devices, arguing that doing so poses security risks. But the company’s latest mobile operating system, iOS17.4, was released on Tuesday and allows EU users to install apps from alternative marketplaces.
However, the changes to Apple’s App Store, first announced in January, create an alternative set of business terms that apps must meet, including paying a new set of fees, in order to have the capabilities for alternative distribution and alternative payment processing. Developers can also choose to stay with Apple’s existing terms.
Nearly three dozen companies and industry associations, including Spotify and Epic Games, argued in a letter to the European Commission last week that Apple’s proposed changes to the App Store “pistolize” the law.
In response, Apple said the EU changes give developers freedom of choice.
“Any developer can choose to remain on the same terms today. And under the new terms, more than 99% of developers would pay Apple the same or less,” Apple said in a statement.
Another key requirement of the Digital Markets Act is an interoperability requirement, which will force some tech companies to allow third parties to interoperate with their services in certain situations, including for messenger services.
For example, Meta will have to change to give users on Messenger and WhatsApp an option to send and receive messages from other third-party messaging services.
The interoperability provision for messenger services requires that the level of security and encryption provided by the gatekeeper is not reduced. This only needs to happen if a third party requests the interoperability feature.
Based on the significant technical changes required for interoperability, gatekeepers will have between six months and four years to implement them. They have less time to make the changes for text messages between individual users, and more time for audio and video calls.
Companies can also appeal against their appointment.
ByteDance is contesting TikTok’s designation as a gatekeeper in social networking, arguing that its designation threatens to undermine the law’s sole purpose of protecting gatekeepers from newer competitors. However, as the appeals process continues, TikTok announced changes that would allow the platform to comply with the rules in the meantime.
TikTok said it has launched a new data and portability API that will allow registered developers to request permission from users to transfer a copy of their TikTok data. The platform will also create a new web form for business accounts that will allow users to provide feedback on features related to legal compliance and future developments.
What impact will it have in the US?
Tom Wheeler, former chairman of the Federal Communications Commission (FCC) during the Obama administration, said the Digital Markets Act will be “monumental,” especially given the lack of tech regulation in the US.
“The lack of leadership leaves the European Union to determine what regulatory policy will look like,” Wheeler said.
A bipartisan push in Congress for updated antitrust laws gained momentum in 2021 but failed despite massive lobbying from the tech industry.
The Digital Markets Act creates a “new foundation” for the discussion about technology regulation, Wheeler said.
And while the required changes are being implemented for European users, there is the potential for spillover effects globally, including in the US
The companies covered by the compliance standards will have to choose between adopting a common business practice or keeping changes only in the European market, which could prove more expensive, Wheeler said.
While the US has been slow to make regulatory changes, antitrust regulators in the Biden and Trump administrations have been active in filing lawsuits against tech giants, such as Google and Meta.
Kovacic said there is also a “feedback loop” in both directions, meaning that ongoing cases in the US could provide information to European regulators on the implementation of the law, and that the implementation of the DMA could provide possible solutions to courts in the US.
It could also affect how regulators weigh new cases, he said, such as one the Justice Department is reportedly weighing against Apple.
“It’s an experiment with a new set of remedies and a new set of rules that can inform what’s happening in some of these other cases,” he said.
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