In a recent interview, French President Macron said, “The United States has the GAFA [Google, Apple, Facebook, and Amazon], China has the BATX [Baidu, Alibaba, Tencent, and Xiaomi]. And Europe? We have the GDPR. It’s time to have our own technological sovereignty and not depend only on American or Chinese solutions!”
As we recently analyzed in this report, the European digital economy must act boldly — or it will die slowly. Regulation is one of the many components to Europe’s digital renaissance since it will be key to move from protectionism to innovation. That said, today’s announcement from the EU Commission is a first bold move into Europe’s digital renaissance.
The “directive on electronic commerce” dates back to 2000. At that time, Amazon was primarily a bookseller and Facebook did not even exist. Fast-forward 20 years later, and the market capitalization of Alibaba, Alphabet, Amazon, Apple, Google, Microsoft, or Tencent alone is higher than the total asset valuation of many independent states. For example, combined, the valuation of the five US digital platforms represents about 45% of France’s total assets. Beyond their economic power, these platforms have a huge political and societal impact. Their ability to access citizens’ private data, control the way information is accessed and shared between citizens, build infrastructure (e.g., Google’s plan to connect Saudi Arabia and Israel via a fiber-optic network), and even create new currencies is infringing on countries’ sovereignty.
It was about time for Europe to evolve its regulation. Today, the European Commission will present new regulatory measurements with the Digital Services Act (DSA) and the Digital Markets Act (DMA). The DSA will reinforce the responsibilities of digital platforms in the fight against illicit content and fake news and how it is spread. The DMA is a new regulation arsenal for antitrust regulation.
This new regulation will change the game for global digital platforms and is a bold move because it:
- Establishes clear “ex ante” regulation principles enabling faster regulation. These new regulations will be based on basic principles: “With great power comes great responsibility”; “what is forbidden offline should also be forbidden online.” Instead of a “general monitoring” ex ante, the new regulation will force digital platforms to act quickly on content signaled as illicit, based on the “notice and action” principle. The objective is to be able to regulate much faster.
- Sets out clear criteria to define digital platforms over time. The regulation defines a “platform” as having more than 45 million users. Why? Because it represents 10% of the total EU population post-Brexit. The number of clients will also matter (think the number of firms that are part of the Amazon Marketplace) as well as the ability to cumulate activities (think Google Search and Google Shopping). Market valuation will also be a criterion. Why? Because even with limited revenues, some future platforms could leverage their market cap to make significant acquisitions.
- Lays out a clear deterrence against violations, including a “nuclear option.” Fines will be significant and notified much more quickly than before. Most importantly, the EU Commission gives itself a nuclear weapon: the possibility to break down one of the digital platforms or to ban it from the EU market.
- Protects the integrity of platforms from disinformation campaigns and illegal content. The DSA includes an interesting mandate to implement risk management procedures to protect against the use of manipulative techniques. The EU is taking a leadership role in forcing technology platform providers to take responsibility for illegal content and disinformation campaigns (e.g., election campaign disinformation, criminal activity and terrorism, or fake news amplification). This is due to be backed up by stiff penalties for noncompliance. This is a bold step by the EU that is going to be watched closely around the rest of the world.
- Improves transparency around sources of advertising and access to data. The act also requires platforms to provide immediate information about the source of an advertisement (i.e. who commissioned the advertisement and ultimate customer”). It also improves the level of transparency over how platforms collect, use, and safeguard consumer data and segregate business information of competitors from use in its own operations. This is to counter accusations of platforms using their power to feed their own competitive offerings, disempowering consumers and smaller European competitors in the process.
Given that the DSA and DMA are not “directives,” they should be implemented at a country level after the vote of the European Parliament and the agreement of member states. It’s needless to say that discussions between states and intense lobbying will prevent the new regulation from being fully implemented for at least two years. Once implemented, these new antitrust and regulation frameworks will need new independent watchdogs with significant resources.
(coauthored with Paul McKay)