How tech giants must change to comply with Europe’s new regulations 

Six of the largest tech companies will be forced to make changes to their products and services this week as Europe’s new sweeping tech regulation largely goes into effect.  

The European Union’s Digital Markets Act dictates how platforms minimize self-preferencing and allow for inter-operability, meaning how they prioritize their services over rivals and how service operate between ones run by other companies, among other measures. Companies that fail to comply will face hefty fines.  

Five of the six companies designated as “gatekeepers” are U.S.-based: Amazon, Apple, Facebook’s parent company Meta, Google’s parent company Alphabet, and Microsoft. The other is Chinese-based ByteDance, which owns TikTok. The gatekeepers are designated by having annual turnover equal to or more than 7.5 billion euros in each of the past three years and at least 45 million monthly active EU users.

The change comes after years of global momentum to hold massive tech firms accountable for actions that may have led to their dominance in the market. But this week marks a key milestone as the significant regulations that curtail practices the platforms have used for years go into effect.  

“This is an inherently experimental venture,” said William Kovacic, a former Federal Trade Commission member from 2006 to 2011.  

“Nobody involved in the process has absolute confidence that it will yield a specific result,” he added.  

That uncertainty means the European regulators will have to constantly evaluate the impact of the rules and the companies’ compliance as it unfolds, he said.  

The constant monitoring is at the core of how the Digital Markets Act is laid out.

The gatekeepers have until Thursday to craft compliance reports about how they will adapt their services to meet the new standards of the rules. Regulators will also review whether new companies fall into the definition, or any of the six fall out, as the law takes hold.  

Once the reports are in, they will be reviewed by EU regulators to see if the firms are complying. Any discrepancies will trigger a review that could last up to a year. Companies that are found to have violated the rules face fines up to 10 percent of the company’s total worldwide annual turnover, or 20 percent for repeated infringements.  

How are the companies changing?  

The changes required under the Digital Markets Act will require companies to make critical changes to their platforms and services for users in the EU.

A core aspect of the rules limits companies from preferencing their own products and services compared to those offered by third parties. That could impact how an online marketplace like Amazon places its own Amazon Basics products on its site, or how a search engine like Google places its own tools on the search page.  

For example, Google is removing some features from its search results page, such as the Google Flights unit, to comply with the rules, the company said in a blog post.  

Apple said that when users first open the company’s Safari web browser using an updated iOS system, a screen will prompt them to choose a default browser from a list of options. 

The Digital Markets Act also requires dominant app stores to make changes, including allowing for options for third-party app stores on devices and letting businesses promote their offers to customers beyond the constraints of the gatekeeper’s platform.  

Apple has pushed back strongly for years on the idea of offering third-party app stores on its devices, arguing it poses security risks. But the company’s latest mobile operating system, iOS17.4, was released Tuesday and allows EU users to install apps from alternative marketplaces. 

However, Apple’s app store changes, first announced in January, create an alternative set of business terms for apps to follow, including paying a new set of fees, in order to have the capabilities for alternative distribution and alternative payment processing. Developers can also choose to stay on Apple’s existing terms.  

Nearly three dozen companies and trade associations, including Spotify and Epic Games, argued in a letter to the European Commission last week that Apple’s proposed App Store changes “make a mockery” of the law.  

In response, Apple said the changes in the EU give developers choice.  

“Every developer can choose to stay on the same terms in place today. And under the new terms, more than 99% of developers would pay the same or less to Apple,” Apple said in a statement. 

Another key requirement of the Digital Markets Act is an interoperability requirement, which will force some tech companies to allow third parties to interoperate with their services in certain situations, including for messenger services.  

For example, Meta will have to change to give users an option on Messenger and WhatsApp to send and receive messages from other third-party messaging services.

The interoperability provision for messenger services requires that the level of security and encryption offered by the gatekeeper will not be reduced. It will also only need to be made if a third party requests the interoperability function. 

Based on the significant technical changes necessary for interoperability, gatekeepers will have between six months and four years to implement them. They have less time to make the changes for text messages between individual users, and more time for audio and video calls.  

Companies can also appeal their designations.  

ByteDance is challenging the designation of TikTok as a gatekeeper in social networks, arguing that its designation risks undermining the law’s only stated goal by protecting gatekeepers from newer competitors. As the appeal process goes on, though, TikTok announced changes that would allow the platform to comply with the rules in the meantime.  

TikTok said it launched a new data and portability API that allowed registered developers to request user permission to transfer a copy of their TikTok data. The platform will also create a new webform for business accounts that allow users to provide feedback on features related to the compliance of the law and future developments. 

What impact will it have in the U.S.?

Tom Wheeler, former Federal Communications Commission (FCC) chair during the Obama administration, said the Digital Markets Act will be “monumental,” especially given the lack of tech regulation in the U.S.  

“That absence of leadership has left the European Union to define what regulatory policy will look like,” Wheeler said.  

A bipartisan push in Congress for revamped antitrust laws gained steam in 2021, but it failed in the face of immense lobbying from the tech industry.

The Digital Markets Act establishes a “new baseline” for discussion about tech regulation, Wheeler said.  

And although the required changes are being made for European users, there are chances of spillover effects globally, including in the U.S.  

The companies that fall under the compliance standards will have to choose between setting a common business practice or to keep changes only to the European market, which may prove to be more costly, Wheeler said. 

Although the U.S. has been slow to regulatory changes, antitrust regulators in the Biden and Trump administrations have been active in launching lawsuits targeting tech giants, such as Google and Meta.  

Kovacic said there is also a “feedback loop” in both directions, meaning that the ongoing cases in the U.S. can provide information to European regulators about the implementation of the law, and the implementation of the DMA could provide possible solutions to courts in the U.S.  

It could also impact how regulators weigh new cases, he said, such as one the Department of Justice is reportedly weighing against Apple. 

“It’s an experiment with a new package of remedies and a new set of rules which could inform what takes place in some of these other cases,” he said.