If you live in Europe, you may have noticed issues with some familiar online services. From consent forms to reduced functionality and new fees, there is a sense that platforms like Amazon, Google, Meta, and Apple are changing the way they do business.
Many of these changes are the result of a new European regulation called the Digital Markets Act (DMA), which seeks to increase competition in online markets. Under the DMA, so-called “gatekeepers” must allow rivals to access their platforms. Having taken effect March 7, firms now must comply with the regulation, which explains why we are seeing these changes unfold today.
But all is not well. When it was passed, European policymakers like Margrethe Vestager and Thierry Breton assured the public that the far-reaching regulation would not compromise security, lead to costlier services, or otherwise degrade users’ online experience. They also argued that it would be fast and easy to apply, thus avoiding the lengthy litigation that has come to be associated with competition enforcement.
As the effects of the DMA start to play out, however, these promises appear increasingly fanciful.
The biggest concern is that Europeans’ online safety is being compromised. Apple has warned that it will not be able to guarantee the safety of rival app stores and payment systems that can now access its ecosystem. If this sounds abstract, it is worth noting that these sorts of security flaws facilitated the Oct. 7 attacks carried out by Hamas. They also increase more mundane risks of identity theft and fraud.
Similarly, Amazon will struggle to exclude nefarious goods, sellers, and shippers from its online marketplace. Commenting on similar issues in the United States, the company surmised that it risked losing “customer trust by advertising something that is not a good deal for them.” This loss of consumer trust would, in turn, harm the bottom lines of the roughly two million businesses that rely on the platform.
The DMA is also making it increasingly difficult for platforms to offer certain functionalities in Europe. Google has been forced to remove features like maps, hotels bookings, and reviews from its search results. Until it can accommodate competitors who offer similar services (if this is even possible), these specialized search results will remain buried several clicks away from users’ general searches. Not only is this inconvenient for consumers, but it has important ramifications for business users. Early estimates suggest that clicks from Google ads to hotel websites decreased by 17.6% as a result of the DMA.
Last but not least, the DMA is forcing firms like Meta and Google, who operate several interrelated platforms, to gather user consent for run-of-the-mill targeted advertising (such as using data from one service to advertise on another owned by the same platform). This may sound like a feature of regulation, but the reality is more problematic.
Targeted advertising has important benefits. A 2023 study by Nielsen found that users are 68% more likely to click on personalized ads than non-personalized ones. Research has also shown that users are more likely to click through Google search results when ads are mixed in with organic results. Thus, both consumers and websites are better off when ads are displayed. Unfortunately, the DMA limits platforms’ ability to explain these benefits to users, as this may be construed as interfering with their “freely given” consent.
And because untargeted ads are less likely to hit their mark, they generate less revenue for platforms. Not only will this undermine investment in online services, but it will also accelerate the trend toward paid tiers. To wit, Meta’s introduction of subscriptions for European users is widely perceived as a response to the DMA and the GDPR.
This has knock-on effects for other players in the ecosystem. Research shows that GDPR enforcement, which requires firms to gather user consent for data processing, has a negative impact on startup investment. There is every reason to believe the DMA, which contains similar provisions, will have similar effects.
All of these harms would not be so problematic if the DMA actually delivered on its promise of increasing competition online. But there, too, doubts are starting to creep in. For instance, rivals like Meta and Epic Games are finding it harder than they expected to offer competing app stores or payment services.
At least some of this is due to the reality that offering safe online services is a costly endeavor. Apple reviews millions of apps every year to weed out bad actors. Replicating this business is easier said than done.
But instead of acknowledging these difficulties, officials and rivals are cutting an increasingly combative figure. Thierry Breton said the European Commission would take “strong action” if Apple’s compliance plan was not “good enough”. And there is mounting discontent from rivals. All of this suggests that there is little room or appetite for compromise. Litigation is looking increasingly likely.
The upshot is that the DMA was passed with great haste and fanfare, but there is mounting evidence that too little thought was given to its likely consequences. Addressing these issues is a thorny problem, but acknowledging that they exist and taking responsibility for them is a necessary first step. Whether policymakers do so is another question. On this score, alas, the European Commission does not have a reputation for introspection.