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Can We Control the Digital Platforms?

The digital market has matured over the last 20 years, and it is no longer an excuse for governments to do nothing with the aim to let new markets and innovations emerge without immediate regulatory oversight.

It has become clear this period is now well and truly over. The European Commission has already launched several lawsuits against the digital giants. Regulation, in general, is known as “ex-post” (after the deed has been done). This is set to change, as I will explain later.

My colleague Scott Marcus from the economic think tank Bruegel based in Brussel participated in a very interesting discussion on this topic. I will tap into their information in my article.

The digital platforms that have emerged are successful because they are very big, indeed. They make their business sector different from others as the digital sector can grow very big quickly without requiring massive investments. Compare this, for example, with other global sectors such as the car or airline industry. Furthermore, the digital giants operate across traditional industry sectors, and as gatekeepers, they have a massive impact on the overall economy.

Just splitting the digital giants up, the European Union argues, would take away the universal services that are available over these platforms. Consumers would be confused and no longer interested if there were dozens and dozens of such services with the need to achieve a similar service outcome. It is like telecoms, electricity, and water—the fact that these services are ubiquitous makes them so successful.

As governments now have a good idea about the pros and cons of these platforms, it becomes possible to look at how to best regulate them to avoid the range of illegal and harmful activities that are being conducted over these platforms.

It is rather useless if all 200+ governments around the globe start issuing their own regulations. Australia’s attempt to just address one aspect of it, getting the platforms to compensate the local press, is clearly not the best way forward. Firstly, it only addresses one small issue, and secondly, they are doing this as one of the 200 governments.

It makes far more sense to start looking at these digital giants more strategically and, at the same time, see if this can be done in a more unified way across nations.

The EU is trying to do this. They already took the lead in the General Data Protection Regulation (GDPR), which has now been adopted widely across the globe. This time, they have introduced two Acts aimed at stopping illegal activities over these platforms, requiring the giants to come up with measures to stop harmful content and at the same time to open the platforms so competition will be made possible on top of them. The European Commission has now proposed two legislative initiatives: the Digital Services Act (DSA) and the Digital Markets Act (DMA).

The DSA and DMA have two main goals:

  • to create a safer digital space in which the fundamental rights of all users of digital services are protected; and
  • to establish a level playing field to foster innovation, growth and competitiveness, both in the European Single Market and globally.

This is aimed at the platform gatekeepers and only at the large ones, which are measured by several parameters, a key one being that they provide services to at least ten percent of the European Union citizens (an average of 45 million users monthly).

While it looks certain that these Acts will indeed be put into law, this could easily take one or two years and will include one of the most serious lobbying activities ever seen in Europe—the stakes are enormous, and the giants are very powerful.

Key elements in the Acts are that they are ex-ante; they will have to be implemented beforehand instead of action being judged afterward. The reason for this way of regulating the gatekeepers is that as they wield great powers, they also must accept great responsibility, which means that they have obligations.

Because of the complexity and the proprietary nature of these platforms, governments have very little insight into the illegal activities taking place on them. For that purpose, the Acts will force the gatekeepers to be more transparent. In relation to harmful content, the Acts opt for co-regulation. They will ask the gatekeepers how they will address these issues and will require them to provide half-yearly or yearly reports on their progress.

On the competition side, the Acts requires the gatekeepers to open their platforms. The issues have been divided into a blacklist and a whitelist.

The blacklist requires them to:

  • not use data from businesses who use the platform to compete with them;
  • not self-preference their own services; and
  • not use their strong market position over their competitors.

On the whitelist side, gatekeepers should allow third parties to integrate their systems with their own ones and allow businesses to export data related to their own services from the platform. As competing with the giants currently is close to impossible, interoperability would allow for more competition over the platform.

A key element now will be to start a dialogue with the new U.S. Administration to come up with an overall policy. The platforms are a great addition to our society and our economy, but at the same time, we need far more transparency, interoperability and the ability to compete on top of these platforms. Will this undermine the economic viability of these large platforms; are they moving into utility territory?

I am looking forward to the discussions that are going to take place. If we combine our brainpower, we can surely come up with better outcomes. So, interesting times ahead. It is great to see Europe taking the lead in the thinking process behind this as they have nothing to lose, unlike the USA and increasingly China, where these platforms reside. This is a delicate situation with different national interests. Can industry and government come up with mature and good solutions? Yes, they can, but are we willing to do it?

By Paul Budde, Managing Director of Paul Budde Communication

Paul is also a contributor of the Paul Budde Communication blog located here.

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