While U.S. lawmakers and regulators talk about reining in Big Tech, the European Union has taken action. The EU's latest salvo against U.S.-based tech giants is the upcoming Digital Markets Act.
The act, now pending with the legislative bodies of the European Commission, would limit the market power of the largest digital platforms operating in Europe. It targets Big Tech players Amazon, Apple, Facebook, Google and Microsoft — which it refers to as "gatekeepers." The act seeks to spur new competitors to enter digital markets.
The Digital Markets Act covers online search engines, app stores and social networks. It also targets messaging services, operating systems, advertising, e-commerce, cloud services and more. It has the potential to shake up those markets and crimp sales and earnings growth for Big Tech firms.
The act is up for likely approval the week of July 4. Enforcement of the regulations probably would begin in spring 2023. Other nations are expected to follow Europe's lead in regulating Big Tech.
EU Filling The Void In Big Tech Regulations
The European Union is stepping up to regulate Big Tech because U.S. lawmakers haven't had the will to do it, said Scott Cleland, a veteran internet policy analyst. Those giant tech companies have enormous lobbying power in Washington, he added.
"The U.S. wasn't going to do this on its own," Cleland told Investor's Business Daily. "The EU has filled the gap."
Europe sees Big Tech as "a superpower" with unchecked control over major swathes of the digital economy, he said.
"The EU is closing the loopholes and weaknesses that Big Tech has exploited for the last decade," Cleland said.
Google, Facebook Likely Most Affected
In a recent report to clients, Evercore ISI analyst Mark Mahaney predicted that the Digital Markets Act would have the biggest impact on Alphabet unit Google and Meta Platforms unit Facebook. It also would have a negative impact on Amazon and Apple, he said. Microsoft has the least regulatory exposure to the act, Mahaney said.
Among other things, the act would prohibit companies like Google from collecting data from different services to offer targeted ads without users' consent. It also would bar Amazon from using data collected from outside sellers on its services to make competing products. Further, Amazon would have to stop prioritizing its own goods over third-party products.
Apple could be forced to allow third-party app stores and payment systems on its iPhones and other devices. Plus, large messaging services such as Meta's WhatsApp and Apple's iMessage may have to interoperate with each other and smaller services.
The act would prohibit the bundling of software and services. It also gives consumers the power to choose the default apps on their devices and change them anytime.
Violators of the law would face fines of up to 10% of their total worldwide turnover in the prior year. Additionally, fines would increase to 20% for repeat violations.
Digital Markets Act Seeks Fair Competition On Internet
"The Digital Markets Act puts an end to the ever-increasing dominance of Big Tech companies," Andreas Schwab, European Parliament's Internal Market and Consumer Protection Committee rapporteur, said in a news release.
"From now on, they must show that they also allow for fair competition on the internet," Schwab went on to say. "The new rules will help enforce that basic principle. Europe is thus ensuring more competition, more innovation and more choice for users."
The Digital Markets Act comes nearly four years after the EU implemented the General Data Protection Regulation, its first sweeping set of rules impacting Big Tech. GDPR focuses on data protection and privacy for consumers in the EU.
Meanwhile, the European Commission is working on another set of regulations called the Digital Services Act. It would force social media companies like Meta to police their platforms more aggressively. It also has set its sights on regulating artificial intelligence and companies that employ gig workers.
The European Union's Digital Markets Act comes amid increased scrutiny worldwide over the power and influence of Big Tech firms. Legislative action to rein in Big Tech also is occurring simultaneously to antitrust investigations and lawsuits against those companies.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
