EU vs. Big Tech

Margrethe Vestager is serious. The EU Commissioner wants to regulate large tech companies with the Digital Markets Act (DMA). In recent weeks, they’ve fired warning signs at Apple, Microsoft and Meta. They’ve made it clear, draft plans aren’t enough.

It’s the right thing to do and important. There needs to be an effective antitrust law. US politicians are also largely in agreement on this. But their dysfunctional system seems powerless. It pays lip service to new laws and can barely enforce existing ones. That’s why the EU’s stepping in. They have to remain consistent and act with good judgement.

Monopoly in real life

State intervention in the economy turns many people defensive. The most common counter argument you’ll hear: «Just stop using their product then!» This logic is based on a radical belief in economic liberalism – the free market will ensure the best products prevail.

However, the model reaches its limits as soon as a company has established a dominant market position. The company then becomes a puppeteer with its hands in the free market – one that no longer functions. If a monopolist binds customers within its ecosystem, it becomes insurmountable for competitors to break through those barriers. If it’s an essential product too, the company can set the price almost as high as it likes.

This is exactly what antitrust laws should be protecting consumers from. They don’t prevent any company from winning. But as soon as they’ve accumulated a certain amount of market power, stricter rules apply than before. In this case, a company isn’t allowed to make it more difficult for competitors to enter the market. The same applies if they’ve achieved a dominant market position with fair methods and good products.

The calculations behind the deterrent

The Digital Markets Act (DMA) is a special type of such antitrust law. It applies to just a few large tech companies. The EU is calling them «gatekeepers». For more details, see here.

But Apple, Meta and the like are reluctant to implement the new rules. Makes sense. Because in the EU, it threatens the fat profits that companies generate with certain quasi-monopolies. That’s why the companies are reluctant to implementing the DMA and do so on a minimalistic level. With every decision they consider the following:

«Should we implement the new rules?»

• [chance of a lawsuit] × [expected penalty] > [expected profit] → Yes
• [chance of a lawsuit] × [expected penalty] < [expected profit] → No

In its home country big tech is used to the second answer. In the USA, antitrust lawsuits usually come to nothing. And even when one’s successful, the penalties are hilariously small. This means there’s no mathematical incentive to comply with the law.

It’s different in the EU. There, Commissioner Margrethe Vestager is keeping a close eye on whether the DMA is being implemented as intended. If not, an investigation will be opened which will lead to a judgement within one year. Several of these are already underway – the EU recently published preliminary results for three of them:

• Apple makes it more difficult for app developers to direct users to external websites to purchase subscriptions. At least that’s what the preliminary investigation report says.
• Microsoft has, in the opinion of the Commission, integrated the Teams platform too closely with Microsoft365. Even after it’s removed the Messenger app from the subscription.
• Meta violates the DMA’s Federal Act on Data Protection according to the European Commission. It doesn’t give users a real choice to reject personal data being used for advertising purposes.

The threat of penalties should certainly frighten the companies concerned. Big penalties. Massive, in fact: up to 10 per cent of the global annual sales – and in the event of a repeat offence up to 20 per cent. These are costs that even the richest companies on the planet can no longer pay out of their petty cash. They’d lead to a massive slump in profits and falling share prices.

Passive aggressive retorts

Silicon Valley responds with reassurances. They say they definitely want to continue working closely with the EU. They believe that the DMA has been implemented correctly. And they only want the best for consumers who voluntarily buy or use the products.

The second response to the threating regulation resembles a ten-year-old’s reaction: Apple announced it would withhold the new «Apple Intelligence» in the EU because of «regulatory uncertainties that the DMA entails» (page in German). It’s not clear to what extent the AI functions would be affected by the law.

Mark Zuckerberg is blowing the same horn. Meta also withdraws new AI features from Europe. This comes after the EU criticised the unnecessarily complicated opt-out option for user content usage. Instead of simplifying the process, Zuckerberg prefers to make passive-aggressive threats of a «second-class experience for Europe».

Whoever blinks first loses

Actions like these are probably intentional so the EU Commission loses the support from the public and implements its rules less strictly. It’s a power struggle between politics and the private sector. Whoever blinks first, loses.

Margrethe Vestager won’t be discouraged by the passive aggressive reactions. It seems to be a matter of time before the EU issues the first concrete fine. Only then will big tech realise that the EU are being serious. The gatekeeper companies have three options:

1. They continue to ignore the DMA. The price: potentially high fines in the event of a conviction.
2. They withdraw products or certain features from the EU. The price: guaranteed loss of sales.
3. They implement the DMA the way the EU wants it. The price: potentially less market power and therefore less profit and more competition.

Companies are first and foremost committed to their shareholders. You choose the option that costs the least – which in most cases will be the third option. The first is just too expensive. The second would be a big surprise. After all, Europe and its affluent clientele is a lucrative market.

The EU can’t get carried away

From the consumer’s point of view, it’s a positive development. On the one hand, the DMA is already ensuring more data protection and forcing big tech to open up ecosystems. Current cases show this. On the other hand, it could have a preventive effect. The regulatory threat is becoming a factor in the design of future products and features.

The commission can’t overdo it now. It’s their responsibility to create a functioning market. At the same time, it must ensure the laws don’t lead to poorer products or safety risks. They can’t give the impression that the EU is simply trying to fill its public purse. There’s a fine line between consumer protection and political theatre.

So far, Margrethe Vestager has lead the way with confident steps. She argues rationally, calmly and from the customer’s perspective. She doesn’t shy away from conflict, but gives the companies in question room to defend themselves – and grants grace periods for rectifying errors. A fair process is important for the support of the population.

Apple in particular has a loyal following who feel comfortable in their closed ecosystem. They appreciate the close integration of several products and services. And Vestager should continue to allow this. The solution lies in other providers integrating voluntary options. This is possible, even if Apple likes to claim the opposite.

The next few months will show which direction the power struggle is developing in. It’s possible that Silicon Valley will take its chances with fines for the time being – and only give in when they become a reality.