Roundtable Discussion: "The Digital Markets Act – Protecting the Consumer Interest"
On 19 November 2021, we had the pleasure to host the fourth in a series of roundtable events on the Digital Markets Act (DMA). This fourth edition explored how best to achieve the overall objectives of the DMA, as well as the Commission's broader ambitions to make Europe fit for the Digital Age, discussing how amendments put forward in the European Parliament’s Internal Market and Consumer Protection Committee (IMCO) can have?unintended consequences for consumers. IMCO voted on and approved its position on Monday, 22 November.
We were delighted to welcome expert speakers: Gareth Shier, Principal at Oxera, who presented the preliminary findings of Oxera’s research analysing the potential unintended consequences for consumers of amendments to the DMA proposed by IMCO and the Council (slides attached), and who co-authored Oxera's previous report on the DMA, How platforms create value for their users: implications for the Digital Markets Act; and Professor Annabelle Gawer, Chaired Professor in Digital Economy at the University of Surrey and Director of Centre of Digital Economy (CoDE), who is a fully independent academic and leading expert on the platform economy and the dynamics of platform-based innovation ecosystems. Professor Gawer authored several books on the topic,?advised the?European Commission?as a member of the?Observatory of the Online Platform Economy?Expert Group (2018-2021), and most recently authored a Report for the European Parliament titled “Online Platforms: Economic and Societal Effects”, which was released earlier this year.?David Reed, Senior Partner, Kreab Worldwide, moderated the discussion.
The discussion was structured around four key themes appearing in the DMA obligations, as amended by IMCO:?data separation, integrations and default-setting, interoperability, and business model choice.
Data separation
Art. 5(a) of the Commission’s draft DMA, as amended by IMCO, would prevent gatekeepers from cross-using or combining personal data generated across different products and services unless the user has given their explicit consent. While maintaining the option for users to consent to their data being cross-used and combined is helpful, the amendments IMCO proposes to recital 36 states that?platforms must ensure that the non-personalized service offered to those users that do not give their consent should not be of degraded quality compared to the personalized service (i.e., the one making use of cross-service data). In practice,?this could?prevent product personalisation and innovation to the detriment of end-user experience, because it misunderstands how platforms create value. Platform operators combine information generated by different services to improve services, or create new services for their users. For example, the Google Account Dashboard combines personal data from across all of Google’s devices and services so that users can view and update their information (such as privacy settings) in one place; while Microsoft combines and cross-uses information from across a user’s emails, services and devices to more effectively detect and contain cyber threats. These service improvement, by their very nature, cannot be available without a user’s consent to combine the required personal data. Under the amended recital this kind of improvement would not be possible.?Furthermore, as Professor Gawer explained,?the concept of ‘quality’ is subjective to every user: some users may give more importance to personalisation, while others to data privacy. It is therefore very difficult to apply a rule governing the ‘quality’ of these different services. What should be strived towards, Professor Gawer observed, is making end-users aware there is a trade off between personalisation and privacy, and that the decision must be up to users, not prescribed in law. It is up to platforms to communicate this to users in a meaningful way.
Integrations and default setting
IMCO’s amendments seek to extend the prohibition on gatekeepers favouring their own products and services, set out in Art. 6.1(d) of the Commission’s draft DMA, to include ‘other settings’ as well as rankings. However, this kind of?blanket prohibition on self-preferencing fails to account for the benefits that this practice can bring in terms of delivering a high-quality and integrated user experience. For example, by setting its browser and email client as defaults, Apple ensures that users are able to start enjoying their new iPhone ‘straight out of the box’. Moreover, the pre-installation of services such as geolocation on Android supports further innovation on the platform, by ensuring that third-party apps which rely on this system-wide resource will function correctly.
In addition to this, IMCO’s amendments to recital 48 stipulate that ‘…embedded display of a separate online intermediation service shall constitute a favouring…’, effectively prohibiting gatekeepers from integrating their own complementary services within a core platform service. For users, this could mean the loss of beneficial integrations—such as including local business information and reviews within search results.
Mr Shier and Professor Gawer agreed that the DMA should adopt a more tailored approach that allows for differences between platform business models, rather than a one-size-fits-all approach that denies consumers the choice to opt-in to receiving a more integrated experience.. This would be much more akin to the model being pursued in the UK, through its Digital Markets Unit.
Interoperability
IMCO’s amendments seek to broaden the DMA’s interoperability requirements beyond just those hardware and software features used by a gatekeeper’s ancillary services. Instead, the amended Art. 6.1(f) would grant third-parties access to all hardware or software features controlled by a gatekeeper operating system; and would require that access be provided free of charge.?This would, in effect, force gatekeepers to function as open platforms, while preventing them from charging a fee for using their infrastructure. This risks a chilling effect on innovation incentives and future platform development, as the options for revenue generation become more constrained.
Furthermore, imposing blanket interoperability requirements with no consideration of the specific circumstances of the platform’s commercial incentives; the third-party seeking access; of the specific impact on users risks inhibiting gatekeepers in their role as ecosystem governors, with negative consequences for users.
For instance, in the wake of the Cambridge Analytica scandal, Facebook rebalanced the degree of interoperability and access it granted to third parties, making the platform more secure for its users.?Both panelists agreed that gatekeepers need to have some flexibility in controlling the borders of their ecosystems. Though different arguments arise as to how much flexibility is warranted for these private enterprises, both agreed that it should be more than the current DMA—as amended by IMCO—would permit.
Business model choice
The issues around interoperability are closely linked to other issues that arise in terms of business model choice. In particular, IMCO’s amendments to recital 49, would restrict how gatekeepers can bundle ‘core platform’ and ‘ancillary’ services, by requiring that each product or service be treated ‘as a separate commercial entity that is commercially viable as a standalone service’.?This would effectively prohibit cross-subsidisation between services—leading to the disappearance of many free services, to the detriment of consumers.
For example: the Android mobile OS is offered to OEMs for free, while Google earns revenue from the Search, Chrome and Play Store apps that run on Android handsets. If the Android OS had to be commercially viable on a standalone basis, handset manufacturers would likely have to pay a licence fee for using it, increasing handset prices for consumers. Similarly, the wide range of services included in the Amazon Prime bundle is only possible at the current price levels because of Amazon’s business activities as a marketplace operator.
Furthermore, the increasingly blurred lines between different digital services would make enforcement of this obligation difficult and increase uncertainty for platform operators. For example, which aspects of Facebook’s evolution from a basic profile page with text updates, to today’s service—including photo and video sharing, a marketplace, a messaging service, events planning, a jobs board and a host of other features—should be considered as standalone commercial entities, and which are simply new features in the existing social media platform? Professor Gawer highlighted the difficulty in drawing a line between a core service and an ancillary service, and emphasised that these amendments would move?the DMA away from its original goal, which is not limiting?ex ante?what business models platforms can pursue, but to create an environment fostering competition and fair market access.
Overall conclusions and takeaways
A central theme that arose in the discussion was the importance of preserve choice, while still implementing the protection called for by the DMA. For consumers, this means choosing how they use platforms and the extent to which they prefer personalised services or privacy protections. For platforms, this mean preserving a choice over the business models they adopt, recognising that different business models in different economic settings result in different incentives, meaning that a blanket one-size-fits-all approach is insufficient. Mr Shier highlighted that this is just as true online as it is offline, a point that came through strongly in Oxera’s prior research on the DMA.
As for improvements that can be made: the Commission’s draft DMA and the amendments from IMCO already include some provisions for gatekeepers to justify a given behaviour, which promotes dialogue between the gatekeepers and the enforcer—and these types of references should be expanded. That would help arrive at a DMA which provides a suite of tools that can be applied in a more tailored manner, depending on the specific case, market, and business circumstances.?
In her closing remarks, Professor Gawer underlined that she passionately wants a good regulation of digital platforms, as they have obtained substantial economic and political power, and as such need to be regulated. However,?the right way to regulate digital platforms is not through a bloated DMA which cuts at the heart of how platforms create value?(i.e. by combining streams of data to identify complementarities between users and businesses, and creating network effects). Professor Gawer explained that we are witnessing a revolution, similar in its effects to the industrial revolution, following which we will have new organisations and actors that will thrive in a new ecosystem: and platforms are the first such bodies.
We cannot go back to how it was before, we have to take the positive developments platforms have brought, while mitigating the abuses taking place.?What we need, Professor Gawer concluded, is a case by case, tailored approach,?with?the necessary resources in order to be enforceable on the ground without causing harm.