How Europe’s Digital Markets Act (DMA) Impacts Big Tech

In recent times, there has been a string of antitrust lawsuits against all major players that constitute “big tech.” Of those lawsuits, some notable include the Epic vs. Google case and the various antitrust lawsuits against the Google Play Store’s monopolistic policies. Despite hefty fines, however, not much has changed for smaller players as big sharks continue to dominate their competition while also defending themselves in the court.

Europe’s Digital Markets Act (DMA) is the first time that the big tech finally seems to feel the heat under the government’s strictness. So, what exactly is the DMA, and what changes can you expect in your day-to-day interaction with technology? Will the DMA create a difference, or is it another failed attempt at taming the untamable? Also, what do smaller players think of the DMA? Why is WhatsApp skeptical of the DMA’s unusual interoperability rule? We explore plausible answers to all of these questions in this article.

European Union flag

A brief introduction to Digital Markets Act

On 24th March 2022, Europe’s Parliament, Europe’s Commission, and the EU Member States concluded their trialogue negotiations to agree upon bringing a new regulation to govern how technology companies interact with consumers. The result was Europe’s Digital Markets Act (DMA), which aims to curb the domination of big tech companies in the European markets.

In the words of France’s digital economy minister, Cédric O, “If America’s Antitrust Motto is to break up Big Tech, Europe’s version of the Antitrust motto is now: ‘Don’t break them up, break them open.

The new regulation is expected to take effect in October 2022, according to Margrethe Vestager, who is the European Commission’s vice president and digital chief.

Who will the DMA affect?

It was already certain that the European Union (EU) planned to create the DMA only to put a hold on the big technology companies’ monopoly. As per the EU, DMA will only apply to large companies that deal with providing one or more “Core Platform Services.” The core platform services include primary tech services such as:

  • Search engines
  • Social media platforms
  • Cloud computing services
  • Operating systems
  • Any online intermediation services
  • Video exchanging and sharing platforms
  • Number independent interpersonal communication service
  • Advertising services by a provider of other services on the list

Samsung smartphone with popular apps such as Snapchat, Instagram, Whatsapp, YouTUbe

As numerous small, medium, and large technology companies fall under one of the above-listed categories, the EU defines some qualitative and quantitative criteria to determine the companies under the DMA. The companies that are governed under the DMA are called “Gatekeepers” — of user data — by the EU.

As per the EU’s qualitative criteria for marking a company as a gatekeeper:

  • The company should significantly impact the market, and it can influence the market trends.
  • Its operations involve providing one of the above-mentioned core platform services.
  • The company enjoys a comfortable position in the market or may in the near future.

Other than this, the EU also mentions some quantitative criteria for labeling gatekeepers:

  • The enterprise should have a market capitalization of more than 65 billion euros (approximately Rs. 52,500 crores) in the previous financial year or yearly revenue of more than 6.5 billion euros (approximately Rs. 5,250 crores) in the last three financial years.
  • The enterprise operates a core platform service with more than 45 million monthly users from the European Union and more than 10,000 business users in the previous financial user.

It is clear from the criteria mentioned above that the DMA plans to specifically target the companies that occupy the topmost positions in the food chain. Bluntly speaking, the DMA specifically targets Meta (formerly Facebook), Google, Apple, and Amazon alongside a few others.

How the DMA impacts companies and consumers in the EU

Here are a few notable points from the Digital Markets Act that directly or indirectly affect major big tech players:

Users can uninstall any pre-installed software on Core Platform Services

The Digital Markets Act believes that when a person buys a smartphone, they should have total control over its hardware and software. In line with this argument, the DMA restricts any platform from forcing pre-installed apps onto users. This essentially means users will now be able to uninstall any app from their smartphone, including ones from Google and the respective OEMs.

apps on a Samsung Android smartphone

Smartphone manufacturers use pre-installed apps as another source of revenue. Most Android smartphones from recent times come with a ton of bloatware (unwanted apps that occupy storage space on the smartphone) and third-party applications that already consume a significant amount of internal storage. While you can uninstall most of this bloatware, certain apps including those by Google and the OEM might not be removable – unless you have the root privilege on your smartphone.

Android gives you the option to disable such applications on your smartphone, but that seems more like a compensatory step rather than a solution. The disabled apps continue to take up storage space on your device, and that defeats the purpose of disabling them in the first place.

With the DMA in place, device manufacturers will have no right to force any apps on their users. You can even uninstall apps such as Safari, Microsoft Edge, or even the Google Play Store if that’s something you want to do. Another implication of this policy includes having a clear unsubscribe option on any core platform service that you sign into.

App Developers can use their preferred payment gateways

The Digital Markets Act prohibits app stores and app distributors from forcing a particular payment method onto app developers. This policy directly attacks Google’s and Apple’s monopolistic policy of prohibiting developers from using anything but these companies’ payment gateways on which the developers have to pay hefty commissions. Big tech companies do their best to milk every bit of profit from the developers that add variety to their stores.

The Epic vs. Google Play Store lawsuit was monumental in exposing the plight of app developers and bringing the issue out in the open. For those who don’t know, Epic Games was all set to bring out their legendary title Fortnite for smartphones in early 2018. The game was released as expected, but suddenly Epic Games decided to remove it from the Play Store. Soon the official statement by the game manufacturer and distributor was out, and Epic Games accused the Play Store of taking a massive commission on each in-game payment through the Google Play Services.

Cryptocurrency coins ncluding bitcoin, ethereum.

Moreover, the Play Store restricted (and, as a matter of fact, does it even now) app developers from providing other payment options in their apps. The apps had only one option; to use Google’s payment platform and surrender 30% of their income to the Play Store. Even after a long and fierce lawsuit, things haven’t changed much for the app developers. Sure, the antitrust case against Google by 36 US states was a significant step in promoting this debate, but the ground reality is more or less the same for app developers.

The Digital Markets Act does a great job of protecting app developers’ rights by giving them the option to use their own payment methods. But there is a long way to ensure a fair playing ground for them. Google and Apple can still continue taking their usual 30% cut on payments made through their payment gateway. Moreover, these app stores restrict apps that don’t encourage their revenue models, making it extremely hard for users to switch to third-party app stores. Only time will tell if the DMA will actually break the back of the big tech and their ability to manipulate app rankings in the store.

No default apps out-of-the-box

The Digital Markets Act prohibits manufacturers from assigning default apps on any operating system. Platforms such as Android and iOS include certain default apps for popular app categories such as browsers, navigation apps, email clients, and more. On Android, you are likely to see the combination of Google Chrome, Gmail, and Google Maps as the combination mentioned above. The same combination changes to Safari, Mail, and Apple Maps on iOS.

Big tech companies like Google and Apple promote their products by making them default apps on their platforms. This, in turn, brings more footfall to their products, but it becomes technically impossible for smaller competitors to thrive in the market. With little to no competition to disrupt the big tech’s business, companies like Google and Apple have become even more fearless in milking user data and bringing anti-competitive policies.

The Digital Markets Act will put an end to this monopoly, and according to the act, no core platform service can promote their products by making them default in the system UI. At the start of every user’s journey with a new product, they will be given the option to choose their choice of apps — like a search engine or web browser. With no default apps on devices, users will have the power to choose the products they prefer right from the beginning of their smartphone experience.

DMA’s impact on alternative app stores

Both Android and iOS do their best to dominate alternative app stores on their platforms. These platforms gain a massive share of their revenues by selling apps on their respective app stores and do their best to eliminate competition. Google makes the Play Store the default app store on every Android device, and the OEMs don’t even have the right to change this setting.

Despite having numerous benefits such as lower app prices, better privacy policies, and the choice of various app versions, third-party app stores suffer due to the monopolistic policies of the big tech companies. With the DMA in place, users will choose their default app store right from the beginning, as smartphones won’t come with preset default apps. It is a strong possibility that users may choose alternative app stores over the conventional options after experiencing their unique features

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It will also be interesting to see how Apple reacts to this change as the tech giant has always been skeptical of accepting app installations from alternative sources, citing security reasons. Moreover, it is very cumbersome to use a third-party app store or even install an app from third-party sources without doing some hackery on iOS. If appropriately implemented, the DMA can open a whole new industry for third-party apps and app stores on iOS.

However, the DMA still doesn’t stop Google and Apple from including their app stores on their platform. Please note that users will have to download and install a third-party app store, but they will find Play Store and the App Store already on their device. Moreover, users that have been using the default options for a while might struggle to adapt to the UI of other app stores and might resort to using the conventional app stores only.

Interoperability among different messaging providers

Take a moment to think of a few messaging apps you use in your daily life. If you are one of the many regular users, your answers should include WhatsApp, Facebook Messenger, or iMessage. The big tech companies that dominate other markets, such as operating systems, search engines, and social media, seem to dominate the messaging space, but is this just a coincidence? One might argue that these messaging apps provide the best services and hence experience such massive footfall. While there is no doubt that these messaging apps offer numerous features and users enjoy using these services, everything is not so black and white. There is a long list of caveats to using these messaging services, such as lousy privacy policies and excessive milking of your data.

On the other hand, there are some fantastic alternatives to these popular apps, such as Signal and Telegram. These alternatives offer similar or better functionality in each use case but experience a way lesser user base than the popular messaging services. So why is it that better apps still don’t find the traction they deserve, and the popular ones continue to dominate the markets?

Poster shows common communication and social media apps.

The biggest reason for this unfair user distribution is the nature of messaging apps in their current form. Even if you don’t like the features of a popular messenger, say WhatsApp, you cannot shift to a less popular app, say Signal, as you might lose many of your connections that don’t use Signal. Moreover, moving to a new messaging app will erase all your previous chats with a person, and you will still have WhatsApp on your device, just to have those previous messages intact.

The situation might seem like a dead-end for smaller players but imagine a situation where all the messaging apps share their messages with each other. You could switch to Signal and still see your chats from WhatsApp and vice versa. That’s precisely what message interoperability means! DMA obligates every messaging app that falls under it to open its app for message interoperability. This policy can change the entire messaging scene and let smaller yet excellent messengers like Telegram and Signal grow in their userbase. Users will also get a seamless experience in shifting apps, and businesses can operate better without tracking and managing progress from multiple platforms.

What will Message Interoperability mean for encrypted messaging services like WhatsApp?

The DMA’s message interoperability policy aims to create a fairground for smaller players in the messaging industry. However, apps like WhatsApp have put a lot of their resources into providing end-to-end encryption (E2EE) to each of their users. An end-to-end encrypted message is virtually impossible to crack by anyone other than the receiver of that message. Features like E2EE give users the confidence to comfortably use WhatsApp without thinking much about a potential chat leak.

The process of merging one’s messages into the other is not less complicated than mixing a burger with sushi.

As per the DMA guidelines, WhatsApp will have to incorporate support for other messaging apps while allowing other companies to view its messages. As simple as it may sound, every messaging app uses its own protocol to send and receive messages. The process of merging one’s messages into the other is nothing less complicated than mixing a burger with sushi. Linking WhatsApp’s messages with other apps might break or weaken its end-to-end encryption in implementing message interoperability. The end result could let more than a billion WhatsApp users and their messages vulnerable to hacking attempts.

As per the experts, it is just not feasible to reconcile two different encryption standards without making some significant changes in one or both of the participating platforms. Moreover, it will be a mammoth task to just include messages from other apps, let aside incorporating and supporting the unique features of each messaging app. The end-user might not have an experience as seamless as you want.

Another downside to this approach is that the standard system of exchanging messages will have the vulnerabilities of the weakest link in the chain. Also, this system would need a complete overhaul of the messaging industry which would mean investing in creating better methods for the smaller players.

Common chat apps

An alternate method of using a common or at least compatible encryption standard is using a server to decrypt and re-encrypt messages. However, using this method has its own downsides. For starters, this system would require creating an intermediate server that decrypts the messages from one platform, then encrypt them according to the standards of the other and resend them to the second app’s servers. Creating a server that stores and handles the decryption of messages is nothing less than calling hackers to feast on the data.

Some other users have pointed out that interoperability is not as tempting as it sounds. Platforms like iMessage already have the feature to view and send SMS from the app, and most people simply ignore the feature. Users generally prefer having a separate SMS app, which raises the question of whether we actually need interoperability.

How will the EU punish breaches of the DMA?

The DMA is quite different from other existing antitrust laws, primarily due to its proactive approach. Existing antitrust laws are often slow in finding monopolistic behavior and taking action against it. Still, the DMA aims to prevent such happenings entirely by carefully monitoring the big tech’s behavior.

Google

Unlike other antitrust laws, the DMA gives the authorities the right to conduct investigations and penalize breaches. Another major differentiator that makes DMA worth noting is its penalty rates; existing antitrust laws may ask for a one-time payment of millions, but that penalty is nothing compared to the billions that the tech giant makes in revenue. On the other hand, the DMA comes up with an innovative way of penalizing the tech giants; the sanctions can include up to 5% of the daily turnover, or 10% of the company’s total worldwide turnover. Moreover, the European Union can ask for 20% of the company’s total worldwide turnover in the case of a repeat offense.

What will the future be with Digital Markets Act

The optimistic view

Be it any industry, more competition is always beneficial for the end-user. But on the other hand, having a monopoly encourages it to make more anti-user policies and milk the user for their money and data. With the DMA in place, the big tech companies won’t have as many advantages over smaller companies as they have at the current time.

Imagine a situation where Google and Apple can’t have their app stores set as default on Android and iOS, respectively. Even if only a tiny portion of users start using a third-party app for cheaper apps, Google and Apple will face significant revenue losses, and they may decrease their commission for the app developers.

With more in-hand revenue, app developers can focus more on developing better features that will eventually benefit the end-user. Moreover, the alternative app stores will also see more growth, and they too can develop more features for their platforms. The above scenario was just an example, but increased competition will have many more amazing implications for the end-user.

The pessimistic view

Contrary to the above argument, some believe that the DMA is too late to take action. According to this view, the big tech companies have already created a userbase that has the habit of using their services. A user that has the habit of using the Play Store for apps, Google for online searches, and Amazon for online shopping, won’t shift to any other service, whatever the case.

Smaller competition won’t have any massive advantage as the users already have their favorite services in place. Take the example of Microsoft Bing, a search engine with another tech giant, Microsoft, behind its back. The search engine could not gain traction even after multiple attempts by the tech giant as people were already accustomed to using Google as their search engine. Moreover, the message interoperability might lead to numerous data leaks as message encryption will become weak or null in the new system.

Conclusion

The big tech companies have dominated the tech industry for a while now, and the situation hasn’t improved much, even after some recent government interventions. European Union’s Digital Markets Act seems to finally give the tech giants a hard blow with stringent policies and excessive penalties.

The DMA can ease the game for smaller players in the tech industry and make way for better innovations in the future. Message Interoperability is the most controversial part of this policy as it might weaken or nullify WhatsApp’s hard-earned end-to-end encryption.

The above article compiles everything you should know about the DMA in its current form and its future implications.


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