The Digital Markets Act: Paving the Way for Cyberspace in?Europe

In March 2022 the EU ratified a landmark piece of legislation that aims to crack open Big Tech’s control of the digital landscape, and it has the potential to ignite an online renaissance of new growth and innovation. The Digital Markets Act (DMA) is the European Union’s response to the chokehold tech giants like Apple, Alphabet (Google), Meta and Amazon have over the economic ways and means of the informational universe.

Currently, these “gatekeepers,” as they’re termed in the DMA, are able to use their control of online infrastructure like search engines, operating systems and messaging platforms to wield a competitive advantage over startups that looks authoritarian, at best. We’re not talking about a few million dollars, either. These companies are bigger than any other companies in human history have ever been.

The DMA defines a gatekeeper as a company that has enjoyed annually “at least €7.5 billion within the European Union (EU) in the past three years or have a market valuation of at least €75 billion”, has “at least 45 million monthly end users and at least 10,000 business users established in the EU”, and controls at least one core platform in three member states. Hats off to that “at least.”

That is an enormous privately controlled footprint for a service that’s essentially a public work, and indispensability is power. As the marketplace stands today, these behemoths use their leverage to undermine smaller companies that have to work through them, and they manipulate innumerable angles to maximize their position.

Putting Developers on the?Rack

A classic example of why monopolies threaten free markets arose in an American lawsuit from 2021 filed by app developer Zach Shakked . He developed an app that can help businesses find trending hashtags on various social media platforms. Unfortunately, an app without a device is pretty useless, so he was forced to pay Apple a whopping $1.5 million dollars just for the privilege of running it on iPhones. Obviously, that’s not ideal, but it’s an understandable business arrangement. Except it didn’t stop there.

As part of the bargain, Shakked was required to make his app funnel all of its financial transactions through Apple’s payment software so that Apple could take commissions off them. In fact, it banned all third-party software compatibility outright to privilege its own resources.

How did that happen? Simple: Apple used their leverage as a core platform to create a class of entrepreneurial serfs forced shop at the company store.

Although the lawsuit made this particular business practice illegal in the United States, there are still an infinite number of tricks like this that powerful gatekeepers use in order to constrict and control their customers on both sides of the economic pipeline. In addition to the above, the main areas of concern that have been broadly identified by the DMA are:

1. Gatekeepers using their platforms to unfairly advantage their own products, like Google’s search results privileging and displaying their own data during searches.
2. Gatekeepers making messaging services — which are used essentially as cell phones today — capable of communicating only within that company’s platform. If your friends use Whatsapp, I guess you’re getting Whatsapp, right?
3. Gatekeepers cannot use information they get from their clients to advantage their own business interests, and they cannot withhold that information from their clients. I mean, seriously, that’s just taking whipped cream off a baby’s sundae.
4. Business owners have a right to terminate services with core platforms without losing all of their data. Wish you hadn’t signed that prenup, don’t you?

These are serious issues and the DMA is going to usher in some big changes to tackle them, and it’s certainly a cause for optimism. However, we should proceed with caution.

Will it be good? Will it be bad? Will it make Big Tech feel sad?

Or is this just another example of bureaucracy sticking its fingers into the boiling pot of commerce? If this would have taken place fifteen years ago, I might have said yes, let’s try it. However, the digital world is no longer an endless frontier of unexplored opportunity. In recent decades, it has matured from murky electronic hinterlands into organized territory with rules and boundaries, and the principles that allowed it to blossom during its Wild West days no longer work well in the era of settled online suburbs.

In fact, the development of the American Frontier by railroad barons is as parallel a narrative as the rails it laid.

The Transmission of History, American-Style

For three hundred years after Jamestown was founded in 1607, the ambitious folks of the Old World could walk to the literal edge of Western civilization and peer out into the great unknown possibilities of social and economic freedom. People packed up their belongings and children to “Go West.” Those pioneers found themselves striding into a wild and unregulated environment full of gold, rich farmland, grisly death, and the freedom to grab any or all of it.

If the East Coast was the cradle of liberty, then the West was its playpen. To help move people and wealth back and forth as quickly as possible, railroad companies stretched their tracks from one end of the continent to the other. Oh, how the money flowed in. Cornelius Vanderbilt became the quintessential railroad tycoon, and by 1850 his trains and railways made him the richest human being on the planet.

However, controlling the transit lines also allowed him to control everyone who wanted to use them. In Vanderbilt’s day there were only seven companies that owned virtually 100% of the available rail, and they used that leverage to maximize profits in every way imaginable. Of course, progress is progress, and obviously someone had to put down tracks in the first place or there wouldn’t be a marketplace at all. To some extent, these things must be tolerated.

In the following decades, the exploratory spirit was gradually replaced with calls for civic and economic order as the wild frontier became assimilated into American territories and states. People began to realize that tightly controlled monopolies of services as necessary and common as rail lines actually hurt the free market, especially when civic boundaries are established. Why does visiting granny back East still cost so much even though we’re now a state with two senators? Gee, I wonder…

It was obvious to everyone by the 20th Century that the Frontier freedom model that made so many revolutionary good things possible had to evolve. The same pattern happens in almost all new economic landscapes where gatekeepers can arise. Whether it’s Vanderbilt’s railroads, Standard Oil’s pipelines or Google’s search engines, these markets all have to come to a healthy competitive reckoning as they become universal commodities and common cultural property.

Applying the Lessons of?History

The EU is assuredly on the right track in identifying this moment to usher the digital marketplace out of its monopolized adolescence and into competitive adulthood. Naturally, there is criticism coming from the likes of Meta and Alphabet about how this will harm advertising, harm innovation, and all the usual bluster dominant companies unload when their bottom line is under threat. In the end, the arguments are all some variation of “if we aren’t allowed to make as much money, we will get lazy and stop competing and everyone who uses our platforms will be sorry.”

Despite this grim projection, in an analysis of marketplace competitio n of gatekeeper companies, the Center for European Reform demonstrates exactly that the free market pressures faced by companies in the developing 90’s are simply not the same as the current mature environment under the DMA:

“[T]he relationship between tech firms is rather less antagonistic than big tech suggests. For one thing, many big tech firms’ core platforms are so entrenched that their reliance on other gatekeepers is merely inconvenient, not life-threatening. For example, when consumers started spending more money on mobile devices, Microsoft famously failed to successfully adapt — and the mobile sector is now dominated by Apple and Google. But [as our data shows] Microsoft did not suffer the same fate as Yahoo, AltaVista and similar tech firms which failed to adapt in the 1990s, and have since faded into oblivion. Instead, Microsoft has the highest profit margins of any of the largest platform companies. Even if consumers now spend more time on their mobiles, they still have personal computers and need pricey Windows and Office software.”

If there is one phrase an aspiring entrepreneur and proud capitalist should never want to hear, it’s “too big to fail.” That’s where the digital market is today. It’s a tough world out there for developers and businesses facing down Big Tech, but that’s about to change with the DMA. When this digital Magna Carta goes live in 2023 across virtually the entire European continent, the gatekeepers who control today’s feudal internet landscape will be forced to remove their knee from the neck of fair, free market competition.

What this means for consumers is that they can look forward to more of the exciting technology that always results from healthy competition. Even playing fields aren’t just democratic: they’re practical. The DMA shows that it’s an exciting time of growth and rebirth for any swashbuckling tech entrepreneur with a knack for innovation.