• On 24 March, the three EU legislators (European Commission, the European Parliament and the Member States) agreed on the final text of the Digital Markets Act (DMA).

• The DMA levels the playing field for innovative SMEs in the digital space, strengthening competition in the digital environment. The European DIGITAL SME Alliance strongly welcomes this turning point in digital legislation, and congratulates the EU for acting swiftly to ensure fair competition for the benefit of SMEs and consumers.

• “We should not rest on our oars, but take the next steps to ensure an innovation-friendly environment, which will allow digital players and SMEs in Europe to scale and grow”, said Dr. Oliver Grün, President of the European DIGITAL SME Alliance.

Last Thursday, the three EU legislators (European Commission, the European Parliament and the Member States) agreed on the final text of the Digital Markets Act (DMA). The DMA has been approved in just a little over a year, after having been presented in December 2020. This shows how seriously the legislators considered the challenge, and a high degree of unity and agreement among all parties concerned. The law will likely enter into force in October 2022, after a final vote in the European Parliament in September. “The Digital Markets Act puts an end to the ever-increasing dominance of Big Tech companies. From now on, they must show that they also allow for fair competition on the internet. Europe is thus ensuring more competition, more innovation and more choice for users”, said Andreas Schwab, the Parliamentarian who represented the European Parliament in the negotiations with the European Commission and Council.

What are the consequences for smaller companies and consumers?

Small and medium-sized enterprises (SMEs) will not have to comply with any of the provisions – SMEs are explicitly exempted – but the DMA will ensure that large online platforms treat SMEs more fairly. For instance, the tech giants will no longer be allowed to preference their own services and products in search results, or to pre-install and bundle their apps on smartphones. This can help to level the playing field for innovative digital players, such as app developers or competing platforms.

The DMA targets only those large online players that are so powerful that they set rules for smaller digital players and consumers. Solelycompanies with an annual turnover of at least 7.5 € billion will be affected (as a reminder, an SME has a maximum turnover of 50 € million). This will likely only be around 15-20 companies in total, including Google, Amazon, Facebook, Apple, Microsoft, but also a number of European players such as Booking.com, or Chinese company Alibaba. If those companies do not comply with the provisions in the DMA, they will have to face high fines of up to 10% of their annual global turnover, and 20% in case of repeated infringement.

In the future, as a consumer, you will be able to communicate with your friends and contacts across different messaging apps. For instance, if you are using WhatsApp, but your friend is using Signal, you will still be able to send an encrypted message to your friend. Also, when purchasing a phone, users will be able to choose their browser and email programme. This can help to open up opportunities for alternative browsers and apps: At the moment, an Android phone would come with Chrome and Gmail pre-installed, or an iPhone would come with the relevant Apple products and services. Under the new rules, users will be able to pick the browsers and email programmes freely, and also download apps via different app stores besides the one pre-installed. “Lock-in effects have kept competition away from large tech companies. With the DMA, the ‘gatekeepers’ will have to face fair competition for the best product”, said Frank Karlitschek, CEO of Nextcloud, an SME providing cloud and online collaboration services.

What does Europe’s digital economy need now?

The devil may lie in the details of enforcement: the European Commission, which will be tasked with enforcing the rules, has seen little to no increases in its budget in the past years. If the rules are supposed to be followed and gatekeepers monitored, EU Member States need to ensure that the European Commission will have the manpower and teeth to do so and provide sufficient financial resources.

The DMA is an enormous step, and sets a precedent across the globe. However, Europe’s policy-makers should not stop short here. “We should not rest on our oars, but take the next steps to ensure an innovation-friendly environment, which will allow digital players and SMEs in Europe to scale and grow,”, said Dr. Oliver Grün, President of the European DIGITAL SME Alliance. Digital SMEs from across Europe continuously bring about innovation. Europe’s schools, training institutions and universities help talented individuals to excel in much-needed areas of research and innovation. However, innovative companies and talented individuals often turn elsewhere (e.g. the US or China) for capital to scale up and grow, or for attractive employment. In the past, many innovative start-ups and SMEs were bought up by larger competitors. Access to capital to scale and grow in Europe remains difficult. Therefore, Europe’s innovation ecosystem needs wider support: 1) access to capital, 2) measures to retain talent and foster an innovation culture, 3) limiting regulatory burden. For instance, in the upcoming law to regulate  Artificial Intelligence in Europe (the European AI Act), DIGITAL SME advocates for a regulatory framework that will ensure that SMEs can innovate and thrive in an innovation-friendly environment.

If you would like to continue following our activities in support of competitive and fair digital markets, or are simply interested in learning more, you can check out our dedicated web page: https://www.digitalsme.eu/competitive-digital-markets/