EU confirms six (mostly US) tech giants are subject to Digital Markets Act

The European Union has named six tech giants whose market power it hopes to rein in by applying a new set of proactive, pro-competition rules on how these gatekeepers can operate designated "core platform services". The six so-called "gatekeepers" are: Alphabet, Amazon, Apple, ByteDance, Meta and Microsoft.

The Commission says a total of 22 core platform services operated by the six gatekeepers have been designated under the Digital Markets Act (DMA).

Here's the full breakdown: Four social networks (TikTok, Facebook, Instagram, LinkedIn); six "intermediation" services (Google Maps, Google Play, Google Shopping, Amazon Marketplace, iOS App Store, Meta Marketplace); three ADS, or ads delivery systems (Google, Amazon and Meta); two browsers (Chrome, Safari); three operating systems (Google Android, iOS, Windows PC OS); two N-IICS, or Number-Independent Interpersonal Communication Service in the regulatory jargon, (WhatsApp, Facebook Messenger); one search engine (Google); and one video sharing platform (YouTube).

The DMA takes a proactive approach to competition concern once a certain threshold of market power is achieved -- including giants having 45 million+ active local users. Other gatekeeper criteria include a turnover of €7.5 billion+ in the last three financial years and a market capitalization that exceeds €75BN, although the Commission has a degree of discretion in making designations to ensure the law is able to target platforms that look set to gain an "entrenched and durable" position in the "near future".

The regulation technically started to apply in May, after the final details had been agreed by EU lawmakers earlier this year. That accord followed lengthy negotiations between the European Parliament and Council on the Commission's late 2020 proposal to reform its approach to digital competition.

Seven tech giants -- Alphabet/Google, Apple, Amazon, ByeDance/TikTok, Meta/Facebook, Microsoft and Samsung -- had said they expected to be subject to the regime. But Samsung isn't on today's official list, so TikTok's parent ByteDance is the sole non-U.S. tech giant listed.

In another couple of surprising omissions, also not listed as core platform services are Google's web-based email service, Gmail; and Microsoft's rival webmail offering, The omission of any webmail services from the get-go is certainly notable. There are also no cloud storage platforms listed.

"[T]he Commission has concluded that, although Gmail, and Samsung Internet Browser meet the thresholds under the DMA to qualify as a gatekeeper, Alphabet, Microsoft and Samsung provided sufficiently justified arguments showing that these services do not qualify as gateways for the respective core platform services," the EU wrote. "Therefore, the Commission decided not to designate Gmail, and Samsung Internet Browser as core platform services. It follows that Samsung is not designated as gatekeeper with respect to any core platform service."

Asked why no webmail or cloud storage services have been designated, a spokesperson for the Commission said none of the companies providing cloud computing services which had been in discussion with it regarding DMA notification had considered these services meets the thresholds.

But it added that it continues to monitor market developments, including as regards the provision of cloud computing service.

"As regards Gmail and, these core platform services have been notified by Alphabet and Microsoft respectively, together with arguments why they should not be considered gateways. Following an assessment of the arguments, the Commission considers that based on these arguments, which have been sufficiently substantiated, Alphabet and Microsoft respectively demonstrated that Gmail and do not constitute important gateways and has therefore not designated them," it added.

Key provisions the DMA applies to core platform services include a ban on self-preferencing or gatekeepers requiring business users to make use of their own services and a ban on gatekeeping app stores preventing the installation of rival stores. Gatekeepers also cannot ban business users from offering and promoting competing services and they have an obligation to share with them information that their platform usage generates.

There are also data portability and service interoperability requirements, including specific interoperability obligations for messaging giants and choice screens-style obligations for OSes, browsers, search engines and virtual assistants. Plus there's a ban on gatekeepers tracking and profiling users for ad targeting unless they obtain their consent; a ban on stopping users from un-installing gatekeeper preloads; and a requirement to apply FRAND terms for general access (and avoid discriminatory T&Cs) for fair dealing with business users.

Giving a speech at a digital conference in Estonia yesterday, the EU's internal market commissioner, Thierry Breton, summarized the bloc's aims for the regulation. "We know that some tech giants have used their market power to give their own products and services an unfair advantage and hold back competitors from doing business and creating added value and jobs. These practices distort competition, undermine free consumer choice and hold back SMEs' innovation potential notably arising from Web 4.0 and virtual worlds," he said.

"It was high time that Europe sets its rules of the game upfront, providing a clear enforceable legal framework to foster innovation, competitiveness and the resilience of the Single Market, rather than having to rely on lengthy and not always effective antitrust investigations. The DMA does just that."

Penalties for breaching the regime can scale up to 10% of global annual turnover -- or even 20% for severe repeat offences.

Beyond that, the Commission has the power to apply additional remedies -- such as requiring a gatekeeper sells a business or parts of it, or banning gatekeepers from acquisitions of additional services related to "systemic non-compliance". And, on this front, it's notable that the EU's competition division, which has been investigating Google's adtech business since 2021, warned this summer the only effective remedy if its concerns are confirmed would be to break Google up.

The new rules are expected to create new opportunities for competition on major platforms -- such as from independent app stores, alternative payment services and upstart search engines -- while simultaneously cracking down on directly abusive behavior by gatekeepers, such as arbitrary enforcement of T&Cs.

Early out the gate with a statement welcoming the official designation of gatekeepers was payment unicorn Paddle. CEO Jimmy Fitzgerald dubbed today's announcement as "as a step towards fair competition, increased consumer choice, and true business innovation." "Asking large industry players to introduce third-party app stores and third-party payments systems, without the 'self-preference' of their own products, will be extremely beneficial for software developers, allowing them to choose where and how to sell their products without losing a percentage on every sale," he added.

The new regime could also encourage the development of less exploitative business models, as consumers should have more wiggle room to slip the noose of platform giants' lock-ins. Although how effective the pan-EU regime will be at rebalancing a digital playing field that Big Tech not only still firmly dominates but has essentially defined and configured in its interest over decades remains to be seen.

Diluting the influence of powerful network effects is also likely to take time as consumers are probably going to continue to view the biggest names as the most trusted brands for some time to come. Yet innovative and determined startups should expect to have better odds than ever at breaking GAFAM's grip on tech users. Or at least that's the newly disruptive regulated reality for entrepreneurs launching services in the EU.

There's also still some time until the bulk of the DMA compliance deadline bites: Designated gatekeepers have six months to ensure they meet all the legal requirements -- so early March 2024 is when the real EU vs Big Tech reckoning starts. Although the Commission notes there are some obligations that apply from designation -- including the requirement to inform it of any "intended concentration" (aka, M&A).

"It is for the designated companies to ensure and demonstrate effective compliance. To this end, they have 6 months to submit a detailed compliance report in which they outline how they comply with each of the obligations of the DMA," it added.

The Commission is the sole enforcer of the DMA so gearing up to take on such a massive extra oversight role in short order is also no small ask for the EU's executive.

The bloc's competition unit has been ruling over tech giants for many years, of course. Including, most notably, a string of major enforcements against Google, as well as a number of investigations into Apple, Amazon, Meta and Microsoft. But the DMA represents a step change from just doing traditional ex post antitrust investigation and after-the-fact enforcement -- to bolting on ongoing ex ante surveillance and coming up with preventative measures too. So EU regulators are also having to step up several gears. Albeit, at least in theory, the DMA may reduce the volume of (classic) competition investigations the EU undertakes on Big Tech -- assuming it proves effective at proactively curbing a broad range of unfair tactics.

At the same time, there are early signs designated gatekeepers may not quietly submit to the EU's new playbook. And formal challenges seem likely as the new rules bed in.

Yesterday the FT reported that Apple and Microsoft were fighting the Commission's designation of iMessage and Bing, respectively, as core platform services in scope of the DMA -- with the pair claiming the services are insufficiently popular to qualify. Bing has a very small regional marketshare (of just 3%), as Google's search engine continues to massively dominate in Europe. While, per the FT's reporting, Apple had argued iMessage does not meet the 45M+ user threshold to qualify as a core platform service -- which would obligate it to interoperate with rival messaging services. And the newspaper reported the Commission was still deliberating over the inclusion of Bing and iMessage.

In the event, the EU looks to be taking a cautious approach to this early pushback -- since, as noted above, both Bing and iMessage are not on the initial list of 22 core platform services. Instead, the Commission has agreed to take a closer look at Apple and Microsoft's arguments that these services should be excluded.

In all, the Commission announced it's opened four market investigations to "further assess" submissions from Microsoft and Apple arguing that, despite meeting the DMA thresholds, the following four core platform services do not qualify as "gateways": Microsoft's search engine Bing, browser Edge and Microsoft Advertising; and Apple's iMessage.

"Under the DMA, these investigations aim to ascertain whether a sufficiently substantiated rebuttal presented by the companies, demonstrate that services in question should not be designated. The investigation should be completed within a maximum of 5 months," the Commission added.

The omission of iMessage means Apple has dodged a bullet as it will not -- for now, at least -- be required to comply with an interoperability obligation the DMA applies to designated messaging platforms which could have seen it forced to let users of other messaging services, such as WhatsApp and Messenger, send messages to iMessage users from within those rival services.

While Microsoft had warned that forcing Bing to comply with the DMA and show choice screens to users could -- paradoxically -- have led to Google's massively dominant search engine increasing its regional share.

In addition to this early push back on designations, formal legal challenges may follow as tech giants accustomed to setting their own rules and terms of service seek to test the robustness of the EU's countervailing rule-making.

Commenting in a statement, Miranda Cole, partner, antitrust and competition, at the law firm at Norton Rose Fulbright, said: "The identities of the gatekeepers aren't a surprise but it is now about to get interesting in terms of who appeals the designations, who makes Article 10 requests for exemptions, and the outcomes of the Article 16 market investigations opened today.

"The exemptions and preliminary findings following the market investigations will be key, as the DMA's quantitative thresholds take no account of market presence through frequency of usage, among other things. The fact that the European Commission opened market investigations today into Microsoft's Bing, Edge and online advertising services, which have de minimis market shares under or around 5%, suggests that it is alive to this issue. One thing is certain, the designations today are just the 'starters for ten'."

The bloc can also continue to designate (more) gatekeepers, as market conditions evolve. So more tech giants and platform services may be added to the list in the coming months and years. The Commission is also required to review existing designations at least every three years to check whether platforms still qualify.

Some of the gatekeepers that have been designated today are already expected to have aligned with the DMA's sister regulation, the Digital Services Act, as they have previously been designated as either VLOPs or VLOSE under that wider pan-EU digital governance regime (and the DSA's compliance deadline for larger platforms was late last month). So in-house policy teams at the world's most valuable tech companies are certainly being kept busy.

This report was updated with further comment from the Commission on the lack of any webmail and cloud storage designations

Update: Alphabet, Amazon, Apple, ByteDance, Meta and Microsoft have been contacted for a response to the DMA designations.

Alphabet/Google has published a blog post with its response to today's news, in which it writes:

We have always believed in offering people and businesses choice and control, and competing on the merits of our services. The DMA will require Google and other companies to make various changes to the way their products and services work. For us, for example, that will mean building on the work we have done to provide consumers with information and opportunities to switch platforms or manage their data (such as Google Takeout and our Google Transparency Reports) and remind people about their choices (such as the choice screens we now offer in Europe).

As we develop our compliance solutions ahead of the deadline next year, we will continue to work closely with the European Commission and other stakeholders. Our aim is to make changes that meet the new requirements while protecting the user experience and providing helpful, innovative and safe products for people in Europe. This means consulting with researchers, engineers and product designers to get this balance right.

We appreciate the open dialogue that people have offered us as we work to get ready for the compliance date and beyond. In the meantime, we will review our designation decision and assess its implications.

An Amazon spokesperson sent us this statement: “We note the designations that the European Commission has made and are committed to delivering services that meet our customers’ requirements within Europe’s evolving regulatory landscape. We will continue to work constructively with the European Commission as we finalise our implementation plans."

A spokesperson for Apple also responded, saying that as regards the DMA designations: “We remain very concerned about the privacy and data security risks the DMA poses for our users. Our focus will be on how we mitigate these impacts and continue to deliver the very best products and services to our European customers.”

The company sent a second statement regarding the opening of a market investigation into iMessage:

iMessage is a great service that Apple users love because it provides an easy way to communicate with friends and family while offering industry-leading privacy and security protections. Consumers today have access to a wide variety of messaging apps, and often use many at once, which reflects how easy it is to switch between them. iMessage is designed and marketed for personal consumer communications, and we look forward to explaining to the commission why iMessage is outside the scope of the DMA.

Apple also points out it offers a bespoke messaging service for business users -- literally called Messages for Business -- though that might not stop SMEs using iMessage to reach customers.

We have also been sent this statement by Microsoft:

We accept our designation as a gatekeeper under the Digital Markets Act and will continue to work with the European Commission to meet the obligations imposed on Windows and LinkedIn under the DMA. We welcome the Commission's decision to open a market investigation to consider our application to exempt Bing, Edge, and Microsoft Ads -- which operate as challengers in the market -- from the DMA.

While a Meta spokesman said: “We are evaluating the Commission’s designations and will set out further information in due course as we work to comply with the DMA.”

A TikTok spokesman also responded with a statement in which it writes: "We support the DMA's goal of creating a competitive playing field in Europe but fundamentally disagree with this decision. TikTok has brought choice to a space largely controlled by incumbents and this decision risks undermining the DMA's stated goal by protecting actual gatekeepers from newer competitors like TikTok. We're extremely disappointed that no market investigation was conducted prior to this decision and are evaluating our next steps."

In further remarks, the video sharing platform fleshed out the reasons for its particular disappointment, arguing it's a relative newcomer that brought competition and choice to a market controlled by incumbent giants which have multiple, heavily used products and services, whereas it has just one core platform service that's popular in the region.

TikTok also notes it has never been investigated over competition concerns in the EU and argues the list of DMA 'dos and don'ts' reflect the past abuses of rival platforms. It also rebuts the suggestion its video sharing platform is entrenched or durable as it says it has been extensively cloned by rivals. Plus it denies operating a lock-in strategy, saying TikTok videos can be posted on other platforms and linked to different third party accounts.