EU’s faster, harder stick will whack U.S. big tech – Reuters.com

The logos of mobile apps, Google, Amazon, Facebook, Apple and Netflix, are displayed on a screen in this illustration picture taken December 3, 2019. REUTERS/Regis Duvignau – RC2VND9O022Y

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NEW YORK, March 22 (Reuters Breakingviews) – Regulators around the world have been trying to crack into the dominance that big technology firms like Apple (AAPL.O) and Google parent Alphabet (GOOGL.O) have created. So far, they have been too slow and toothless to prevent them from growing. Europe’s Digital Markets Act, which might be agreed upon this month read more according to European Commissioner for Competition Margrethe Vestager, gets closer to changing that.

Scale creates momentum at technology firms through aspects like networks effects. The more people use a site, like Meta Platforms’ (FB.O) Facebook, for example, the more others want to engage. Often that scale helps profit, too, as upfront costs to penetrate a market with new tech can be high. The payoff comes when a company gains market share and momentum, so tech firms are motivated to push for a monopoly as fast as possible.

Regulators are often behind. They work at a slower pace by nature, but also heading off a monopoly at a tech company before it is established is nearly impossible. And because innovative tech, by definition, is new, regulators are often forced to redefine markets before they can crack down.

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So far attempts to dent tech firms’ dominance haven’t worked. Take Alphabet’s fight with the European Commission, which started in 2010. It resulted in nearly $10 billion in fines, but the firm’s operating profit grew seven-fold since that period, to over $300 billion. Moreover, Alphabet has yet to actually pay those fines, and Google retains about 90% of the European search market.

The proposed rules in Europe impose a set of “do and don’t” obligations, like saying companies cannot prefer their own products or services and must allow interoperability with third-party software. The exact limitations and penalties are still under discussion, but firms that break such rules might be fined up to 20% of annual revenue and repeat offenders may be broken up. These are solid threats more damaging than other penalties read more that have been enacted.

Compliance will be costly. If apps become available outside Apple’s store, its margins could fall. Amazon.com’s (AMZN.O) own-label products might see slower expansion, and Alphabet’s users may click away from Google more often.

Yet Europe is a huge market, making up roughly a quarter of revenue at Apple. So companies don’t have the option to walk away. Vestager may ultimately not be able to enforce as stringently as she would like, but she’s getting much closer to cracking big tech’s dominance.

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CONTEXT NEWS

– New European Union legislation that reins in the powers of Alphabet’s Google, Amazon.com, Apple, Facebook and Microsoft could be completed by the end of March, European antitrust chief Margrethe Vestager said on March 16.

– The Digital Markets Act imposes “do and don’t” obligations on so-called “gatekeeper firms” such as saying the companies cannot prefer their own products or services and must allow interoperability with third-party software.

– Issues still under discussion include the thresholds at which firms become gatekeepers, what interoperability entails, and penalties.

– Companies that don’t comply could be fined. The European Parliament has proposed fines ranging from 4% to 20% of worldwide revenue under the Act. Gatekeepers that systematically violate their obligations may be required to divest businesses.

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Editing by Lauren Silva Laughlin, Sharon Lam and Pranav Kiran

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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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