Yesterday, the European Commission announced the names of six companies that would be targeted with new technology regulations. Spoiler alert: They were mostly U.S. companies.

The European Commission (a governing body of the European Union) passed the Digital Markets Act (DMA) which imposes new restrictions on tech firms in an effort to increase competition. Based on the simple–though misguided–philosophy that big is always bad, this measure joins other antitrust efforts aimed at Big Tech. However, the new E.U. restrictions will have the effect of slowing the growth of American businesses as they operate in Europe which disadvantages them against their competitors from Europe and other countries, especially China.

Cracking down on anticompetitive behavior to ensure all companies compete fairly is a good intention. However, American innovation is the envy of the world and in this case, it appears that Europe is simply trying to give its domestic companies an advantage over America.

What happened

The E.U. designated Alphabet (parent company of Google), Amazon, Apple, ByteDance, Meta, and Microsoft as “gatekeepers” under the Digital Markets Act. In total, 22 core platform services provided by these gatekeepers face new restrictions. 

To be designated as a “gatekeeper” a company’s active user base must exceed 45 million and it must exceed a market cap of €75 billion (around $80 billion). 

Gatekeepers will be required to comply with new regulations on core platform services over the next six months or face stiff penalties. Those restrictions include:

  • a ban on self-preferencing (prioritizing the use of their own services)
  • a ban on gatekeeping app stores preventing the installation of rival stores
  • allowing business users to offer and promote competing services along with the obligation to share with them information that their platform usage generates
  • a data portability and service interoperability requirement
  • a ban on tracking and profiling users for ad targeting unless they obtain their consent
  • a ban on stopping users from uninstalling gatekeeper preloads

As the Verge explained, new regulations will depend on the core business model that is designated.

… the likes of Google Search (and Bing, if it ends up being included) will have to give their users a choice of other search engines, while operating system providers will need to offer the ability to uninstall pre-installed apps and change system defaults like virtual assistants and web browsers. Gatekeepers will be banned from self-preferencing their own products and services compared to other companies on their platforms. The commission has put out a pretty extensive FAQ listing all the obligations.

In many ways, the E.U. is demanding that these companies prop open the hood of their platforms for competitors to see and it is forcing them to give their competitors a jump start.

Senator Ted Cruz explained the impacts of the DMA on American competitiveness:

By virtue of how the law defines “gatekeeper” companies, the DMA targets American firms; European and Chinese companies can for the most part operate as usual, if not better, with their competition effectively weakened.  Second, the EU approved the Digital Services Act (“DSA”), which imposes certain requirements on all online service platforms […] Again, non-U.S. companies are largely off the hook.   

Taken together, the DMA and DSA objectively discriminate against U.S. companies by imposing enormous regulatory compliance costs and penalties on them, while handing companies from other countries—especially China—a competitive edge.  These concerns are real: a recent study determined that “new compliance and operational costs” resulting from the DMA on U.S. companies could range from $22 billion to $50 billion.5  It also found that 16 percent of European companies surveyed would switch from an American tech provider to a Chinese tech provider because of those anticipated costs.

What it means for you

Companies could face pressure to apply some changes for American consumers. Many of the restrictions mirror those that congressional lawmakers and regulators at the Federal Trade Commission (like Chairman Lina Khan) would like to see implemented here in the U.S.

It may be that smaller companies and tech developers will gain an advantage as they try to take on bigger companies or develop new apps and services. However, the increased compliance costs and changes to gatekeepers’ core service models will burden their operations, product, engineering, and business teams. The results would likely be fewer and lesser quality choices and services and at high prices for consumers. 

As I noted in a statement yesterday:

Conveniently for the EU, the list of companies designated to be “gatekeepers” are largely U.S. companies that generate voluminous value to the global economy. They create platforms for individuals, families, communities, and societies to engage in communication, education, commerce, and information sharing. Women know that the companies the European policymakers consider gatekeepers are in fact gateways to their economic freedom and financial security. 

The E.U. ‘s DMA and sister regulation, the Digital Services Act (DSA), spell bad news for American firms and are nothing to replicate here. While tech firms are the target, what’s to stop foreign policymakers from targeting other large U.S. businesses in retail or other industries? That undercuts America’s competitiveness.