Rules for tech companies: What the “Digital Markets Act” is changing

From today onwards there will be more competition in digital offerings in the EU. From now on, large platforms must adapt to the rules of the “Digital Markets Act (DMA)”. What it’s all about.

What is the DMA?

The so-called Digital Markets Act (DMA) is a law on digital markets that was passed by the EU Parliament in July 2023. It is intended to ensure more and, above all, fair competition in digital services and better opportunities for new rivals. The basic assumption is that some large platform operators have become so powerful that they can cement their market position. The DMA should break this rigidity with rules for the “gatekeepers”.

As of today, March 7th, the 22 “gatekeeper” services of six companies must adhere to the new requirements. Violations of the DMA result in heavy fines and, in exceptional cases, even splitting up.

In September, the EU Commission published a list of the large corporations affected. Not surprisingly, these include the US heavyweights Apple, Amazon, Microsoft, Google parent Alphabet and the Facebook group Meta. The video app TikTok from the Bytedance company, which originally comes from China, was also added to the list. The companies listed had around six months to adjust to the stricter regulations.

What does the law mean for users?

Some editions particularly stand out. When the EU regulations come into force, the tech giants will, for example, have less control over which apps are pre-installed on cell phones or cannot be deleted. In addition, the iPhone manufacturer Apple, for the first time, must allow apps from sources other than the in-house App Store to be installed and applications from other providers’ marketplaces to be found there.

In addition, messenger services should become interoperable. Meta’s WhatsApp chat service, which is popular in Germany, is to be opened up to other services. This means that users can send messages or images between different apps for the first time.

How does WhatsApp want to implement the regulation?

Messages from other services should end up in a separate area. This should make it clear that other security standards could apply to the messages, WhatsApp manager Dick Brouwer told Wired magazine. The company uses Signal’s encryption technology – and this makes networking with other services that also use it easier. However, other reliable encryption protocols will also be supported.

While WhatsApp has to create access, competing providers such as Signal and Threema don’t want to network at all. Signal points out that the service goes beyond protecting content: “We have developed novel techniques to also encrypt sensitive metadata such as profile names and photos, contact lists, group memberships and information about who is sending messages to whom.” Other major apps “didn’t come close to meeting Signal’s privacy standards.”

At Threema it was said that WhatsApp specifies all the protocols, “and we do not know for sure what happens to the user data when it is transferred to WhatsApp, especially since WhatsApp is not open source”. There are also unresolved problems such as addressing, since WhatsApp uses the telephone number and Threema uses a randomly generated ID. This could potentially deanonymize Threema users.

How is this supposed to work with other app stores on the iPhone?

First of all: developers can theoretically leave everything as it is and distribute their app exclusively via the App Store. To date, Apple has required smaller developers and long-term subscriptions to pay a 15 percent share of sales. Providers with annual sales of over a million dollars must pay 30 percent. These commissions will now be reduced to ten percent and 17 percent – plus an additional three percent if the developers use the group’s billing system.

Alternatively, providers can make use of the new option and sell their application exclusively or additionally via other marketplaces. Then different conditions apply to them, namely a “nuclear technology levy” is due. In this case, developers have to pay 50 cents for each first annual installation that exceeds a download threshold of one million.

How do app providers want to proceed?

The gaming company Epic Games, whose “Fortnite” app was banned from Apple’s App Store after violating the rules, wants to bring its own download platform to the iPhone. “Fortnite” has not been able to download on iPhones for more than three years. Apple removed the game in August 2020 after Epic used a trick to avoid the 30 percent levy when purchasing digital content. Now Apple has to allow “Fortnite” back into the App Store in the EU.

The app marketplace Setapp, which allows applications to be used in a subscription model, also wants to launch its own store in April. Some companies, however, criticize the new rules harshly – such as the music streaming market leader Spotify. Apple’s implementation “doesn’t even come close” to meeting the requirements, said Spotify manager Avery Gardiner, who is responsible for competition. Among other things, the switch to a new fee structure and the “core technology levy” contradict the DMA from Spotify’s perspective.

The group would not only have to pay the levy for currently active users. Even if someone only has the app unused on their iPhone, it costs Spotify 50 cents for the first automatic update in a twelve-month period. Epic and Spotify, among others, criticize Apple for designing the new taxes in such a way that it is not attractive or affordable for developers to sell their apps through other stores.

What else is changing at Apple?

In parallel to the adjustments to the App Store, Apple is introducing further changes to counter the EU’s monopoly accusations. In the future, European users will be able to freely set the default browser in the iPhone. So far, the Apple browser Safari automatically opens all web links. Now this task can also be done by browsers such as Google Chrome, Firefox, Microsoft Edge, Brave, Opera or DuckDuckGo.

Competitors are no longer forced to use Apple’s favored “WebKit” technology to display websites in their apps, but are allowed to use their own “web engines”. In order to use the new options, the latest operating system version iOS 17.4 must be installed on the device.

Apple’s monopoly on contactless payment transactions with the iPhone is also falling in the EU. Until now, only the in-house payment service Apple Pay could use the iPhone’s NFC (“Near Field Communication”) function to make a payment at the supermarket checkout or other payment terminal. In the future, users will be able to determine which payment application should start by default.

What is Google changing, for example?

This week, Google also announced adjustments to its Internet search and some other offerings. The Alphabet subsidiary will present the results of special search engines in more detail. This involves, for example, comparison portals for flights, hotels or shopping offers, as the Internet company explained. However, some of its own functions “that help consumers find companies (directly)” have been removed. Google cites its flight search as an example of this.

In so-called carousel galleries for horizontal scrolling of search results, content from special search engines should be displayed if it is relevant to the user’s search query, it said. In a version of this for specific requests such as restaurants in Paris, information from different services can also be mixed. When information about a specific location is provided, data from Google appears on an equal footing with that from other sources. The display can also change depending on where a user starts a search from.

Meanwhile, Google has to make fewer changes to the DMA requirements for the smartphone market than Apple. The in-house Android operating system has long allowed apps to be loaded from various marketplaces. The option for app developers to use a provider other than Google to process payments has already been partially introduced.

Who decides whether “gatekeepers” meet the DMA requirements?

The EU Commission does this, including with the help of market studies and statements from other companies. EU Competition Commissioner Margrethe Vestager said compliance with the DMA rules would be examined as a top priority. Shortly before the guidelines have to be applied, Vestager also pointed out that the $1.84 billion fine imposed on Apple in the dispute over its handling of music streaming services was largely intended as a “deterrent” to demonstrate the Commission’s determination .

What happens at Non-compliance?

Violations of the DMA result in penalties of up to ten percent of annual turnover – and up to 20 percent in the case of repeated violations. The last option is to break up the property. In the end, courts could decide on possible punishments.

Are there exceptions?

Yes. The EU Commission grants exceptions for some services. This affects Apple’s messaging service iMessage, Microsoft’s search engine Bing, the browser Edge and the advertising service Microsoft Advertising, the Commission recently announced. According to this, these services are not relevant enough to act as so-called gatekeepers to influence the market and hinder fair competition.

With information from Till Bücker, ARD financial editorial team.