The Digital Markets Act’s “Statler & Waldorf” Problem
DMA enforcement begins today. The middlemen companies who lobbied for the law will never be satisfied.
Remember Statler and Waldorf? They were the grumpy old Muppets who were always complaining from their balcony, never satisfied with the performances on stage.
The European Commission enforcing the EU’s new Digital Markets Act (beginning today) is about to learn that the complainant companies who lobbied for the law — Yelp, Spotify, Epic Games, Booking.com and others — will, like Statler and Waldorf, never be satisfied with its implementation.
I wrote previously about the ways that Europe’s Digital Markets Act degrades products for European consumers. Now that we’re moving into the DMA’s enforcement stage, in this post I’ll discuss why the “Statler & Waldorf” companies won’t ever be happy unless they can fully redesign platforms’ products or businesses.
Who Wanted the Digital Markets Act?
It wasn’t consumers or European citizens who clamored for the Digital Markets Act — it was mostly “middleman” services that hoped to get better placement on iPhones and Android devices, in app stores, or in Google search results. Content aggregators like Yelp, Tripadvisor, and Booking.com. Big app makers like Spotify, Epic Games, and Match.com. Rival search engines like Ecosia, Yandex, and DuckDuckGo.
The companies largely achieved their results: a law that bans big tech services from vertically integrating their services — even if those integrations help consumers.
EU bureaucrats are remarkably open about the DMA’s aim: not to help consumers, but to help “pawns” (Epic, Spotify, Yelp) turn into “kings”:
Now that the DMA is entering its enforcement period, the European Commission is responsible for enforcing it. In a normal law enforcement or regulatory environment, the EC would assess each company’s compliance based on the letter of the law itself.
But that’s not what the EC is going to do.
Instead, they are going to judge DMA compliance by putting their thumb in the wind, inviting these same complainants to share their opinions on Big Tech platforms’ compliance plans. They’re even organizing “workshops” where complainants can come and, well, complain:
Past EU competition cases show that this approach is a mistake, and won’t result in consistent enforcement but a series of ever-moving goalposts. But the EC likely won’t realize this for years.
What Complainants Want: Equal Outcomes, Not just Equal Opportunity
Kay Jebelli of Truth on the Market recently wrote:
Competition law protects the process of competition, not “fair” outcomes for rivals (as the latter increases the risk of regulatory capture, which some have dubbed “swampetition”).
This distinction between a fair process and fair outcomes is even more important under the DMA. Commission officials have stated that the DMA is about creating the opportunity for platforms’ business users and rivals to take advantage of the DMA’s access provisions. But the coming months will test whether they stick to their guns.
If the goal is to have a fair process — rather than particular outcomes — then successful enforcement (and compliance) does not require that rivals actually take advantage of the opportunities offered by the DMA, nor that users choose to switch to their services.
Put differently, the Digital Markets Act directs Big Tech companies to redesign their products to give their rivals more opportunity — in the form of alternative app stores, guaranteed links and visibility in search results, and mandatory de-linking of integrated services.
But early indications are that the complainant companies won’t be satisfied with more opportunity. They are already complaining that DMA will be a failure unless it can create the equal outcomes that they desire.
Here are some examples:
Rival search engine Ecosia unhappy with search engine choice screens
Under the DMA, iOS and Android must present consumers with a search engine “choice screen” to give more visibility to rival search engines:
But despite this, the CEO of small search engine Ecosia told the Financial Times that he:
fears the rules risk leaving his company worse off than before the rules were in place because Google is still able to offer its own services alongside less familiar alternatives. He has already seen evidence that traffic will go straight to Google. “You can’t assume that someone who has been using Google for 20 years will choose something else,” Kroll says. He adds: “The reason this law was made was to repair the damage done to competition. This is not happening. It might even be damaging us.”
By Ecosia’s measure, the DMA-mandated choice screens will only be successful if Google search is excluded and Ecosia’s market share dramatically increases. What Ecosia wants isn’t “equal opportunity” — it’s vengeance.
Spotify unhappy with Apple’s app store changes
The DMA requires Apple to allow rival app stores on iPhones. But the DMA also states that privacy and security are important, so Apple has announced that it will charge a 50-euro cent fee for each iOS app downloaded through third party app stores — in order to support app “notarization.”
Apple’s plans are well within the boundaries of the DMA. Yet Spotify — which has agitated for years against Apple’s fees — complained to the Associated Press that Apple’s changes are “utterly at odds with the very purpose of the DMA.”
So what would Spotify prefer? A redesign of the App Store’s business — and presumably a world where Apple is forbidden from charging any commission at all. But as former Congressman Paul Hodes notes, this isn’t about consumers at all — but about Spotify’s margins:
“Spotify’s CEO, Swedish billionaire Daniel Ek, is personally appealing to American lawmakers and EU regulators, urging them to make changes to app store rules that would make his company money.[…] However, those questionable tactics haven’t produced the results executives want, and now the company is hoping lawmakers will step in and change the rules in Spotify’s favor.”
Yelp: Google changes aren’t delivering more traffic
The DMA required Google to change its search results page to provide more prominent links to middleman sites like Yelp, TripAdvisor, and Booking.com:
These mandatory changes create more clutter on Google’s pages and make it harder for consumers to get a quick answer — but they reflect what the complainants lobbied for.
An early analysis found that consumers aren’t clicking on the new mandatory links to Yelp and TripAdvisor:
Unsurprisingly, Yelp immediately began complaining that the DMA-mandated changes were a failure because they didn’t result in guaranteed traffic to Yelp:
Yelp proposed to EU regulators that to produce more fair outcomes, Google should instead amend the map widget on results pages to show business listings and ratings from numerous providers including Google’s directory, Yelp, or others based on how the search algorithms rank them.
Yelp couldn’t be more clear: they’re not looking for a “level playing field”; they want “fair outcomes.” And they’ve called on the European Commission to open an investigation and force a redesign of Google’s search page:
Online travel agencies already unhappy with Google’s travel redesign
I wrote previously about how the DMA forced Google to eliminate Google Flights, which helps consumers quickly find flight options. As Wired reports, “Google is testing a new design in Europe that replaces the Google Flights widget with a more compact listing of options lower down the page that links to airlines rather than Google Flights:
Once again however, the complainants are unhappy:
Annalaura Gallo, a spokesperson for the EU Travel Tech Alliance, which represents Skyscanner, Airbnb, Expedia, and several others, says it hasn’t done any user research studies, because the design is blatantly out of step with the DMA. “From our perspective, this is already illegal,” she says, pointing to how the new listing is still a distinctive feature on Google’s redesigned results page. “They need to treat everyone the same.”
Of course, search engine results have never “treated everyone the same.” The value of search engines to consumers is to prioritize the sites that it thinks consumers will find more useful. The goal of search engine “fairness” to websites is an unattainable mirage.
But travel industry sites will continue pushing the European Commission to redesign Google’s search results:
Stables of [online travel agency] Kelkoo says Google’s proposed changes for shopping searches, which include a new “Compare offers” button, are also problematic, because Google Shopping results still capture most of the real estate. “Consumers like convenience, but not at the expense of choice, because that creates monopolies and high prices,” he says.
Stables’ quote is telling. Like all the complainants, he pretends to call for policy in the best interest of consumers, before accidentally saying what he really thinks out loud: the DMA always was, and always will be about a thumb on the scale for complainants.
Mozilla unhappy that Apple browser changes apply only in the EU
As The Verge reported, “Apple’s new rules in the European Union mean browsers like Firefox can finally use their own engines on iOS.”
Good news for Mozilla, right? But you know the drill by now:
Although this may seem like a welcome change, Mozilla spokesperson Damiano DeMonte tells The Verge it’s “extremely disappointed” with the way things turned out. “We are still reviewing the technical details but are extremely disappointed with Apple’s proposed plan to restrict the newly-announced BrowserEngineKit to EU-specific apps,” DeMonte says.
In short, Mozilla is upset that the EU’s law only applies within the EU. But as industry veteran Steven Sinofsky writes, “it’s how jurisdiction works. The EU can’t mandate software design and functionality where they do not govern and have accountability.”
“Malicious compliance”complaints = “More product & business changes please”
As the Big Tech platforms’ compliance plans have come out publicly, the Statler & Waldorf complainants have resorted to labeling them “malicious compliance”:
But as analyst Benedict Evans notes, this label is really about the gulf between what the DMA mandates and all the changes that the complainants want to see:
When you see articles about companies complaining about platforms’ DMA compliance plans — and you will, for months on end — keep in mind that the platforms are doing what DMA specified, just not as much as the complainants want.
We’ve seen this movie before
EU antitrust chief Margrethe Vestager recently told Reuters that she has “reservations as to whether or not we will have full compliance.”
But Vestager has also set up a system where “compliance” is determined by the complainants’ happiness — and she should know from past cases that their happiness will never come.
Take the EU’s Google Shopping case.
It began as a way to “level the playing field” between Google and comparison shopping sites. But after Vestager had imposed a remedy, the comparison shopping sites commissioned a study calling the remedies a “failure” because it had not meaningfully increased their revenue or traffic.
Or take Vestager’s case against Google for preferencing its search engine within Android.
At the urging of rival search engines like DuckDuckGo, Vestager mandated a search ballot screen. But when the ballot screen led to consumers choosing Google, DuckDuckGo’s CEO deemed it a failure — because it had failed to improve DuckDuckGo’s market share.
That’s one reason why former DuckDuckGo exec Megan Gray — no fan of Big Tech — recently declared “ballot screens” a failure:
Of course, the Digital Markets Act applies the ballot screen approach to nearly all of big tech’s products — providing more visibility to rivals. But the complaints are already howling about not receiving “equal outcomes” — more traffic or revenue.
As the Financial Times put it:
Industry groups representing travel apps such as Airbnb and Booking.com, and entertainment apps like Spotify and Deezer, complain the tech companies are focused on the letter of the law rather than the spirit of it, and it is having no meaningful impact on their businesses.
Commissioner Thierry Breton — one of the DMA’s architects — said that “[i]f the proposed solutions are not good enough, we will not hesitate to take strong action.” But when will the solutions ever be “good enough,” especially for those rivals who continue to fail the marketplace? At the very least, this seems to contradict claims that the DMA would be deemed successful if companies complied with its “clear list” of obligations.
The European Commission will soon find that its Digital Markets Act is built upon a no-win trap: forcing changes that hurt consumers, but which help middleman companies — only to find that those middlemen will never, ever be happy unless they can redesign Big Tech’s products to achieve a “meaningful impact” on their own businesses.
