Ep 72: Europe's DMA and DSA to limit gatekeepers , create an even playing field for business online

Ep 72: Europe's DMA and DSA to limit gatekeepers , create an even playing field for business online
Photo by Christian Lue / Unsplash

Part 1 Video start 0:13 - Digital Markets Act attempts to limit gatekeepers & create an even playing field for business online

Part 2 Video start 15:23  - The Digital Services Act attempts to create a safe and open environment for consumers.

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Transcript Ep 72:

Greg: Hi, everybody. Welcome to episode 72 of the Near Memo. And David Mihm is out this week ao it's just me and Mike Blumenthal here to talk about search, social and commerce through a local lens. And this week we kind of have a special edition. We decided we were going to unpack the two big pieces of legislation that were ratified this past week, it may have been at the end of last week, actually in Europe, the Digital Markets Act and the Digital Services act, which are two very, very sweeping and significant pieces of legislation, which will change how all the big tech companies and many companies in general operate in the European digital environment.

And they potentially have repercussions for the us market as well. Although. Legislation pending antitrust legislation pending, which may or may not ever make it out of Congress, depending upon what happens over the next couple of months. So we decided to focus in on these, these these two acts because they are very significant and it kind of comes on the heels of Mike's excellent piece about what would happen in the us.

If Google was forced to stop self-referencing around Google maps and the local pack. And so there. Some similar issues there in Europe. So, Mike, anything you wanna say in general before we dive in, let's just dive. Okay. So we're gonna, we're gonna go into the Digital Market act first, and then we'll talk about the Digital Services act after that.

Many people may have some familiarity. We have some European we have some people in Europe that listen and subscribe to the newsletter. So. Folks are probably quite a bit more familiar with than than many people in north America. But for those that are unaware, you can sort of broadly think about the DMA and the DSA as B2B and B2C, the DMA is really focused on competition and quote unquote, leveling the playing field against these big gate gatekeepers.

And the DSA is really about how consumers interact with content and how, and, and the platforms that publishes. So first the DMA, and I'm just gonna rattle off some very high level provisions. And then Mike, you can fill in the blanks if I, if I leave anything out. So it's going to the DMA, the Digital Markets act is going to ban practices used by large so-called gatekeepers, Google, meta, Amazon, apple Microsoft, and.

There'll be an enforcement mechanism, which we'll talk about. But it's directed almost exclusively at very large companies. And I believe that the user threshold is 45 million users and above

Mike: 45 million users in the EU, which is 10% of the EU population.

Greg: Right. And then it will. So, so that's fundamentally different than the DSA, which we'll talk about in a couple of minutes pertains to large companies.

it will ban self-referencing or favoring of a company's own products and services. So Amazon favoring the, the I forget what their white label product is called Amazon essentials. Is that what it's called? I forget what it's called. So something like Amazon favoring, its own white label brands, or you know, in the case of.

Google, Google's hypothetically putting a map at the top of search results, which we've talked about in the past. It also requires it also requires the, the big platforms to allow businesses to transact IE subscriptions or in-app payments off the the app store to take them out of the sort of 30% payment toll, or 15% in some cases.

So you'll have. They, they can't block people, directing, directing users to other places to, to pay. I think it, it opens up alternative app stores, the, the creation of alternative app stores. It requires interoperability between message messaging platforms so iMessage and WhatsApp and so on and so forth.

And. It allows people to CA to it prevents platforms from blocking the removal of reinstalled software. So it gives people more control over what's on their phones in particular. Mike, did I leave any, anything significant out?

Uh, Just a couple things. Gatekeepers are people who are market makers with this large presence, but also potential market makers.

And they noted that they may identify as many as 10 to 15 of them in total, who the smaller ones being in the role of emerging gatekeepers. Also, there's a significant fine of 6%. Yes, I'm sorry. 10% of annual global turnover. If there a violation is determined, so it's a pretty big. Hit it's not pocket change to these folks.

Right. yeah, so in, in, in that's that's right, so that's 10% DMA, 6% D DMA is 10%. DSA is 6% in, in Google's case, that would be 25 billion. And in Facebook's case would be something like 11 billion, right? 10, 10% of. Global revenues. So those are, those are some big teeth from an enforcement standpoint, although there, yeah, go ahead.


Mike: that the reg it's a regulation that will be managed by a commission task force with 80 officials and about $12 million for additional experts to help investigate. And manage compliance or investigate compliance enforcement over a four year period. So it's, it, it there's a regulation in place which replaces apparently 27 in EU 27 different current regulatory environment.

So on the one hand, it seems to, to the us, I, as a radical. Of legislation, but to a company doing business in Europe, having to deal with 27 different regulatory bodies, in some ways it makes it easier for both bigger and smaller companies to wrap their heads around what the regulations actually are.


Greg: That's the, that's the arguable silver lining. In a, in a otherwise relatively strict regime, which these big tech companies had lobbied against and it's worth noting that many of the features of the DMA in the DSA are present in us antitrust. Legislation that's pending. They're not identical, but there's a there's upend diagram overlap in many of these cases.


Mike: so let's one presumes that these large companies would favor a consistent regulatory environment worldwide, the likes of Google and Facebook. Don't like having to change things for one area of the world. So in some senses, this. And they are better able to change things. But they don't like it either.

So in some senses it will, it will serve them. A couple of questions though, or comments. One is on messaging. Does messaging interoperability, usually interoperability is lowest common denomination. So take iMessage right now, it can interact with Google messaging or say whatever it's called, whatever Google named it this month by through SMS is a very low common denominator, but is that enough interoperability or will it require more?

Do I have to give blue bubbles or reply features or thumbs? God forbid feature. That's

Greg: the competitive advantage.

Mike: blue. There's that question. And in terms of self-referencing

Greg: to me, oh, wait let's. Before we, before, before we move on to self-referencing, which I think is, is a really important and interesting topic.

Okay. Just on this interoperability point, the larger point that you raise, I think is really valid and important. A lot of the details, I don't think are present. This idea of what, how do you define interoperability what's required? Is it this lowest common denominator approach or is there something more?

I think that that point pertains to a lot of these. Provisions, there's gonna be gray areas. There's gonna be ambiguity. And I think it's gonna play out over time. And in many cases, perhaps in a, in a, in a, in an enforcement context so going in there'll be some attempt to comply. And many of those attempts I think will prove to be insufficient.

And then there'll have to be adjustments after the fact, but let's, let's go onto self-referencing cuz I think that that's. From our point of view, that's a really super interesting and important topic of, of course, that you just wrote about last week,

Mike: right? In, in a B2B sense, self referencing hurts the likes of companies like Yelp because Google puts their local results above Yelps.

I would, there is a interesting contradiction there too, though. If they're putting small business results above Yelp. And help is helping small businesses with greater visibility.

Greg: Is that self-referencing

Mike: exactly. So who is, in other words, Google is making an editorial decision to favor small businesses directly, rather than forcing a user to go to Yelp, to see ads and then find a small business.

Greg: And that really pertains. And that really pertains to all kinds of verticals, right? Yes. Hotels. Home services, all of these vertical directories that have an interest in trying to get traffic acquire traffic and then show ads or whatever their business model is there's that you you've hit on. I think the fundamental tension in this, in this program, which is Google's local pack is being seen as a Google product.

And to some degree it is, but as we discussed, I think last, last week, A couple of weeks ago, if Google were simply to remove the map and put lo just local business information, essentially keeping the local pack intact, but not sending people to the Google business profile. Would that sufficiently address self-referencing and then it gets into this question of the directories versus the businesses themselves.

I mean, I think it's really kind of a. Authority and difficult issue. Yeah. I mean

Mike: just some people directories are a middle man, a rentier. So rentier so to speak, who is looking to arbitrage the market for profit, as opposed to Google, who's looking to arbitrage the market for profit. I mean, it's just a question of where you put, draw the lines and clearly Yelp has been very influential in for informing us.

Perhaps international policy in this matter, I don't perceive their user experience. All that. Great. Sorry to say

Greg: Yelp, but well, all these directories would argue. They, they have value added features, right? RFPs and Yelp's case or reviews as the case may be, which Google also has. Of course. So, but I think it's, I think it'll be, I think this is a situation where Google is going to be compelled.

To try a number of approaches and then, you know, see what happens, see what the, what the enforcers, what the bureaucrats say. And there is, there is this concern that was raised in a Reuters article about whether or not the 60 or 80 people that you referred to is gonna be sufficient to do all the enforcement that's gonna be called for.

But putting that aside, I mean, I think, you know, Google. Google has tried, you know, we we've seen a preview of this in the past when Google is trying to avoid antitrust penalties, way, way, way back when they, they had a an approach called rival links where they put essentially in a, in a carousel, I don't even remember what the pages looked like.

They put alternative directories to their own content up and. You know, people had objections to it and didn't like it for various reasons, but we've seen little experiments in the past that that may preview some new approach that they take. But I I'm gonna bet that Google is gonna modify the existing local pack and remove the Google branded features of that as a first, first effort here and see, see what happens.

We'll. It's

Mike: hard to know. The other part of that self-referencing is around pre-installed software and apps. Yep. The rules will prevent companies from having those removed or forcing them to be installed. I'm not sure which, but then you run into an interesting question. For example, on safari, on the iPhone, Google apple has a rule that all web browsers have to use web kit.

As their core technology, and then they can change the UI. Yeah. Which they claim is around privacy and security and their ability to control that because web browsers open up a whole new vector for attacks. So there's this tension there, even though you may get innovative web browser products using different browser engines, apple has decided to limit the choice in browser engines, but to allow other.

browser interfaces. So it, are they going after that, for example? And what will

Greg: that mean? I think, yeah. So I think that that's gonna be an issue that comes up because it's an, it's a known issue. Obviously people are frustrated by it. So I think that that's something that the European commission. And the, and the legislators that drafted this probably didn't, you know, there's, there are many issues that probably didn't get addressed or thought through entirely.

And I think that that will will arise because that does seem like a, a, you know, apple using its competitive leverage to shape the market. And so I think that inevitably will be a question and somebody will have to adjudicate or make a determination. About that. And you've got, I mean, you, you, you know, you raised this in a coup a couple of different contexts.

You've got this balancing of interests you know, competition versus security and privacy. The, the interests of businesses versus directories and intermediaries that are smaller than Google. I mean, I think there's gonna be a lot of. trade offs and tensions that play out as this, this legislation is enacted or these rules are enacted.

So let's move on to DSA. Yes. Yes. Excellent point. I was gonna say that myself, I beat you to this to say you did. You did. All right. So as we said DMA, B2B DSA is B2C. So the DSA, the Digital Services act, which has penalties of 6% of, of global annual revenue is a is, is directed toward. Creating safety and security online and guaranteeing fundamental rights.

It's designed to address content, illegal products or services and content. It's trying to make the web a quote, unquote, safer and more transparent place for users. It applies to most companies, but it's gonna have specific application to larger companies. The 45 million. User threshold I think is present in that as well.

Is that correct, Mike, for certain parts

Mike: of the act, I'm not quite sure which parts of the act apply to everybody and which parts apply, but there is a threshold right in there where,

Greg: so in general it'll have broad application, but certain parts of it probably having to do with ads and algorithms are gonna apply to the largest largest companies.

So just a, kind of a quick list of things that this takes aim at content moderation and, and disinformation. It gives users some control over the algorithms that show them personalized content. They get the ability to choose an alternative presentation. So for example, algorithmic or personalized versus chronological in the case of Instagram or, or Twitter targeted ads are banned in sensitive categories like sexual orientation, religion, and ethnicity.

Although, interestingly location is not part of, part of that. It's not banned. It's not a, even though it is a sensitive category based on what you can do with location data, it's, it's exempted. And there's also a prohibition against use of dark pattern. So for example, when you get a cookie banner that says except all, or doesn't give you an easy way.

Block unnecessary cookies, that kind of thing. Or for example, when you are allowed to sign up for a subscription with ease, and then you can't cancel that subscription without jumping through a whole bunch of hoops, but there are a lot of the, the

Mike: example in the news this week was Amazon agreed in Europe to get rid of their dark patterns on unsubscribing from prime.

Which apparent I've never tried to do it, but apparently it's very difficult to do and still difficult to do in the us. There's an example of a dark pattern, right. Being used to make life for a company that makes returning so easy that's because they can push that off on somebody else. They make unsubscribing from crime very hard, apparently.

Greg: So. Right. And which, which again, sort of implicates this, do these patterns take a global approach or do they, they sort. Create a, a wall between north America or rest of world and Europe. DSA also will give a private right of action to individuals who've been D damaged by any of these violations or suffered losses.

And then the, the big platforms. And this, this goes to the, the point about the 45 million user threshold. The big platforms are going to have to. Willing to submit to an audit every year around risk mitigation. So in other words, having a program or plans in place that will make illegal content, illegal products, disinformation, less likely to happen so that when those things do kind of sneak through you know, it's not, it's not millions and millions of fake products or millions and millions.

You know, fake reviews, which is something that's not explicitly mentioned, but we, we, we want to, we want to talk about, did I leave anything out?

Mike: I, you know, there's so much in this, I'm not sure. Whether we've left anything out or not.

Greg: Undoubtedly, we have, let's just say that we have, we can be sure that we didn't address all of it, but did you, so I, I, there a

Mike: couple, a couple points.

Yeah. One to me is, go ahead. The, is the limit on, on what types of Targeting can be done and you can no longer target based on political belief based on religion, based on race based. And you can't target children, which is interesting to me. You mentioned this, the exclusion of location. Google has. May has clearly made the decision for many years now to focus on localization, to deliver unique individual results, as opposed to other forms of behavioral personalization.

And it appears that their advertising is not impacted by this, even though it. Ultimately more personalized in some ways, if I'm standing on the corner of Lawrence on state street in downtown Han and I search for restaurants, nobody else is standing anywhere near me. It is very personal result in the sense that it is unique to me and my location.

And it changes every 400 yards, 300 yards, which is interesting and yet that's exempt. So I think that's, that's interesting to me

Greg: and that's, and that's very powerful for Google, obviously. I mean, they have, they have built an entire, you know, significant part of their business around mobile advertising and locally.

Results and ads. And so that's, that's a big win for them. Arguably, you know, it's, it's just as quick digresion into personalization. You know, there was a discussion, a number of weeks ago about Google personalizing versus not personalizing their search results. And periodically this debate comes up and Danny Sullivan said, we, we don't personalize, but we do localize.

As you point out localization is a form of personalization and some cases, a very powerful and one to one form of personalization that has always been sort of there and kind of hiding in plain sight if you will, but Google simply doesn't. characterize it as personalization, but it is, they've been in fact

Mike: just the opposite.

They've been very careful to characterize it as not personalization over the years. In other words, they've seen this time coming and they've been preparing for it in exactly this way. And they're in an advantage, it speaks to their strengths of owning Android. And having a, you know, in embed relationship with apple, where they gather all this information in a way that local localization, local information, location, information that nobody else can to deliver these ads.

So it really strengthens their hold in a million ways. And they've been playing to this. Positioning for a long time. Oh, it's not personalization. It's localization. It is on one level semantics and I love the level. It's true, but it does give Google a huge advantage in the end.

Greg: Yeah. And I wonder, you know, that presumably other platforms will be able to continue to do local, locally targeted ads.

Equally Facebook, for example, without, without concern about violating the violating the rule the, the, the algorithm thing I just wanna touch on for, for a minute, because that's potentially very powerful since there's been so much discussion about how algorithms and the, the filter bubble and the, the way in which algorithms show users, content that's designed to.

Outrage them agitate them to get them to be, to engage and to spend more time on the platform. There will have to be an alternative choice for people. That's probably gonna just be chronological by default in most cases. But the question arises, how many people will opt out the algorithm. I suspect the algorithm will be the default choice and the chronological or non algorithmic option to see content will be.

A, it'll be like an opt out of use of personal data or something. I'll, I'll have to jump through a couple of hoops in order to opt out, unless it's just a toggle. And so it'll be interesting to see how many people actually do try and take control of their feeds or their, the way the content is presented.


Mike: don't know. Well, I've had this ongoing battle with Twitter. Every time they change clients on me, they default back to. their algorithmic display. And I grew up with Twitter in a time based display and I don't, I prefer it that way and I periodically have to reset it, although they haven't made it very difficult to find fortunately, but it'll be interesting to see what Facebook does with this.

This certainly impacts Facebook more than most, I think.

Greg: Yes, absolutely. I agree with that. So in our, in our remaining time, let's, let's talk about two topics. well, it is really one, one big topic that leads into another discussion. So content moderation, disinformation. So this is a huge, huge topic that we don't have time to completely unpack today.

So one of the beyond illegal content, which goes to copyright trademark and pro prohibited categor. So, which

Mike: largely is about Amazon and fake products or right. Fake products,

Greg: anything, it's a lot about fake products, counterfeit products, and, but, but the

Mike: disinformation, which benefits a whole class of businesses, as much as it benefits consumers, to know that they're not buying a fake

Greg: product, but.

That's that's that's right. And so counterfeit products will presumably be removed, although in practice, we'll see what happens, but, but the disinformation piece of this is, is very interesting. Because as we, as you and I were discussing, before we started this recording, there are gonna be a lot of gray areas for one, one person's disinformation.

Piece of content is another person's opinion. So without getting into a lot of specific examples, I think it's gonna be, that's gonna be an influence that's because

Mike: we tried to go into a specific, we tried to go into a specific example in our pre-talk and it's it's. It's a rat's nest of complexity to distinguish between what's true.

What's disinformation. Although I suppose they call dis they say disinformation, hoaxes and manipulation. So I suppose manipulation and hoax could take something that's half true and turn it into something that's

Greg: illegal. Well, I think, I think, you know, in, in Europe there may be broader consensus about.

Content in some respects than in this, in this country, but it raises the interesting question about in about whether there's gonna be a global approach or market specific approach. So for example, Elon Musk has said that he wants to make Twitter a free speech. For, you know, libertarian fund zone which would, which would fly in the face of these rules in Europe.

And he's pledged explicitly to adhere to these rules in Europe. So he's gonna have to assuming that he succeeds in completing the transaction. He's going to have to manage a content in one way in Europe, and that's gonna be very different than what he wants to do in the United States. So is he gonna separate those two?

And how do you do that? Are you gonna block people in Europe from commenting on us tweets and vice versa? I mean, I think that's gonna be very, very challenging for Twitter to do in particular as a kind of a instance of a larger problem.

Mike: And it reflects attention in the regulation at the highest level between speech and fiction or her harm.

You know, the it's just speech is, is, it's just very difficult and it's this very complicated problem to

Greg: gets into a lot of philosophical issues about it does about subjectivity opinion, facts, all of that. Right.

Mike: I mean, as I mentioned in the pre talk though, I lean towards more free speech, but more balance in discuss.

in other words, I don't have a problem with Fox saying some crazy thing, as long as they had some non crazy person to counter it. Simultaneously that to me would be an appropriate

Greg: context, which you inherently can't do, which you inherently can't do on, on a platform like Twitter, unless you take Musks approach, which is just to make it a free for all.

And assume that the quote marketplace of ideas will play itself out. And you know, the different viewpoints will be represented. That seems unlikely though. Yes. So in the, in, in, in the final couple of minutes here, I want to address the issue of fake reviews in particular, because I think that this. This is a very interesting question that I, I, we didn't see this mentioned explicitly in any of the, in any of the text of the, of the statutes, but certainly it's a big issue in Europe as it is in north America.

The, the, the annual audits and risk mitigation processes that are supposed to supposed to be in place will presumably impact reviews and beyond the ability to remove. Protest the removal of, of reviews on an individual basis, either my review as a, as a, as a user or a business, having re reviews removed as in the case of Yelp, I'm, I'm interested in the kind of systemic view of this, does this mean that Google and Amazon and Facebook, for example, and TripAdvisor and others, trust pilot are gonna have to do much, much more.

Block fake reviews than they have been doing. I, I would say the answer to that is yes, that's my that's my belief.

Mike: It, it appears so it users will be empowered to report illegal content in an easy and effective way. A privileged channel will be created for trusted flaggers. Entities which have demonstrated particular expertise and comp and competence to report illegal content.

And when enabled by members let's see, and they have to, and, and platforms will have to react with priority, which is not how they work. I mean, in case Facebook's case, they talk about how the reviews they've taken down. Meanwhile, there's they don't take down reviews. Google takes some reviews, but it's almost all algorithmically with little human.

So it, it does pretend a big change on both, both those

Greg: parties. Well, I, I think that's, that's a good, that's a good note to end on because I think these two pieces of legislation are gonna be a radical shift, represent a radical shift in how things are done in Europe and they will potentially bleed over into the north American market.

Depending upon what happens with the legisla. Here. Is there anything you'd like to add as a final note, Mike,

Mike: other than it sounds to me like this commission will become a lobby. Center. And obviously we will be seeing companies go up against each other with competing needs to impact outcomes. And so to some extent, while it is potentially radical, the devil is in the details of enforcement as to whether it really makes a difference and like their privacy rules instead, it just made things more complicated.

Didn't make things better. And so all it, it comes down to implementation as to whether it really makes our lives.

Greg: That's a hundred percent true. And I just want to add that the GDPR, when it was passed was supposed to be this radical privacy and user control regulation that really just was, became a sort of an irritating experience of more and more cookie banners.

And it didn't really do. At all. I mean, there was perhaps a lot of preparation work behind the scenes on the, and a lot of money spent by companies, but from a consumer standpoint, it really had very, very limited impact. And so there's always, I suppose, as you, you point out the, the, the risk that this will not play out as anticipated, and it will have less of an impact.

But I, but I, I tend to think that there's so many provisions here and they're so sweeping that it's, that at least some of them will, will, will have a major impact. Okay. And with that, I think David will be back with us next week and we wish everybody a good weekend. Good week. Thanks for listening.

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