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Sunday, July 3, 2022

WTF is the Digital Markets Act?

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Attempts to regulate the digital market are a bit like alien life: It’s probably possible, but no one’s actually seen it. The European Union’s Digital Markets Act (DMA) could settle the matter once and for all. 


Which is to say it’s unlike any previous attempt to bring order to the market. Whereas those attempts focused on the symptoms of the market’s imbalance, such as the General Data Protection Regulation’s attempt to give people back control over their personal data, the DMA focuses — or at least tries to — on the cause of that imbalance: the platforms. Encouraging as the DMA sounds, a lot will depend on the details: how specific the act is and how willing legislators are to enforce it according to the spirit in which it is intended. Only time will tell. 

So what should marketers do now? At present, there’s very little they can do. The DMA isn’t due to arrive until October, and a draft of it won’t be ready before the end of the month. That said, it’s worth digging into what has been shared, given that European lawmakers hope to ratify the law before the end of the year. 


WTF is the DMA? 

Put simply, it’s the latest set of dos and don’ts for companies operating in the digital market across the European Union. Like the General Data Protection Regulation, these rules try to limit the market power of the big online platforms that it dubs “gatekeepers”.

Unlike the GDPR, however, the DMA won’t regulate the market broadly and disproportionately affect small to medium-sized businesses — at least that’s the plan. Instead, the DMA is aimed at tech giants with market caps of €75 billion ($82.3 billion). For context: Facebook’s market cap is around $636 billion, and Google’s value is $1.9 trillion.


This focus is clear in the DMA’s plan to force the biggest and most influential tech companies to let their users use other apps and services on their platforms. So someone with an Apple device could go somewhere other than the App Store — where developers pay a fee to the manufacturer — to download an app. With that, competition between apps from independent developers and Apple’s own is actually competitive. New entrants and underdogs will be able to make much more significant headway and play on a theoretically more even field with the tech giants.


This is the stuff of fairy tales for any company that isn’t making tens of billions of dollars per quarter from digital advertising. For years, the growth of these smaller companies has been stunted by how easy it’s been for the larger ones to combine and cross-utilize user data from disparate parts of their business to sell targeted ads.

That’s not allowed under the DMA.

Or to put it another way, a gatekeeper’s ability to use location data to determine a person’s religion based on where they go to worship could be curtailed — a bitter pill for any tech giant CEO to swallow. 

“It’s a progression,” said  Farhad Divecha, managing director of digital marketing agency AccuraCast. ”It appears to be much more broad-based regulation in terms of the impact specifically on the tech giants than what we’ve seen so far.”

Is there one bit of the legislation that will be more consequential than others for the ad industry?

It’s more about the sum of its parts, but some parts are more consequential than others. Take the fact that the DMA limits interoperability; tech companies will no longer be able to share data between services without expressed consumer consent. For example, Meta could be restricted from sharing data between Facebook and WhatsApp or Instagram.

No more using legitimate interests as a legal basis for intrusive profiling of people online.

Perhaps, the most significant part of the DMA is the bit that seeks to regulate “self-preferencing” and discriminatory search rankings, data sharing and portability. Essentially, it would block the use of non-public data by gatekeepers for both business users and end-users. It’s vaguely written (for now), and the DMA has hinted that it may assess provisions in the article on a case-by-case basis. In a nutshell, this is the DMA’s attempt to prevent the so-called gatekeepers from gathering data that other organizations can’t access.

It means advertisers don’t have to accept selective — and sometimes inaccurate  — numbers from platforms on the strength of their word alone. They get to access more marketing and performance data on their customers and campaigns. 

Is the reference to “self-preferencing” and discriminatory search rankings bad news for Google and Amazon?

It could be. Where the DMA relates to “self-preferencing”, it is creating rules that bar gatekeepers from giving preference to their products in search rankings, said Tara Dezao, product marketing director of ad tech and martech at software company Pega. For instance, if someone searches for a digital assistant on Amazon, Dezao said the tech behemoth would be prohibited from treating the Alexa product preferentially or differently than say Google Home or Apple HomePod in the search results.

Should the platforms be scared? 

The DMA’s fines will have raised a few eyebrows among big tech CEOs. It would impose penalties of 10% of global revenue and 20% for repeat offenders — a far cry from the up-to-4% cuts from worldwide annual revenue that can be enforced under the GDPR. 

So the DMA is great for anyone who isn’t facing an antitrust lawsuit? 

It’s too early to say so with any real certainty. After all, time and again regulation has been an enabler of big tech’s dominance, not an inhibitor of it. On the one hand, it’s clear already how the DMA could breathe life back into competition across digital media that has been snuffed out by consolidation. On the other hand, the DMA could do more harm than good.

Say, an iPhone owner starts downloading apps from alternative app stores; doing so could expose the device to more risk of fraud, malware and other issues that Apple’s walled garden approach has been able to prohibit.

Similarly, the DMA promises stronger privacy controls for people by ensuring that the platforms must obtain explicit permission from someone to use and (or) combine their personal data for targeted advertising. That sounds great, but the flipside to it could be an unending parade of opt-ins. “We’re all tired of accepting cookies on every website we visit, this will only get worse and affect more touchpoints. We’ll be opting in over and over,” Pega’s Dezao said.

‘Sigh’ — It’s the hope that kills you. 

Indeed, it is. History shows us how these things go. Ever since Microsoft killed Netscape by bundling Internet Explorer with Windows, regulators have realized that they need to use competition and antitrust law to control large technology companies. The problem is that regulators can’t be seen to be stifling innovation, so they can’t act too quickly.  By the time they act, the technology company is earning so much revenue that it has hired a team of very expensive lobbyists to work in Brussels and Washington, D.C., to limit the effect of any legislative change or enforcement action. By this stage, the technology company is also a publicly traded company with responsibilities to its shareholders to grow revenue.

“The tech giants have a lot of incentives and the means to find loopholes that allow them to do the bare minimum to be compliant, but not enough to actually effect change,” said AccuraCast’s Divecha. 

In fact, there’s a chance the DMA stifles competition, not fosters it. If the platforms are being encouraged to open themselves up to smaller companies, then there’s a chance that they become incentivised to ensure those companies survive at all costs. This dependence is the new monopoly opportunity going forward, and it’s one with greater scale because entwines the fates of smaller companies with the fate of the platforms. Life after the DMA could look similar to life before it.  

What does this mean for advertisers?

For starters, the DMA could be a headache for any marketer bereft of a diversified media plan or data strategies beyond the largest platforms.

They will have to learn how to deal with more silos, making an already complex job even more complicated.

Granted, there are many marketers already trying to tackle this problem given how fragmented it’s getting to track and profile people at scale sans third-party data, which more often than not is contained in third-party cookies. The DMA does, however, up those stakes. 

It’s not all doom and gloom for marketers, though. Marketers for specific apps, products and services that historically have been limited by the closed ecosystems employed by the largest platforms — think the smaller messaging services, apps that compete with Google’s own productivity suite and smaller ad platforms — will have more parity with them.

The growth of their businesses will be more about the strength of the marketing than the whims of the platforms.



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