Entering a new era of platform regulation

After years of speculative discussion, major regulation that focuses on digital platforms is now at our doorstep in both Europe and the UK, courtesy of the Digital Markets Act (DMA) that has recently passed in Brussels and the Digital Markets, Competition and Consumers (DMCC) currently being discussed in Westminster.

Speaking to a sold-out crowd at the Platform Leaders conference in November, Tom Smith of Geradin Partners set the scene for the upcoming regulatory changes.

“Over the last 15 years, the big tech companies have brought in amazing innovations and grown their market power, and they now occupy really central positions in the world economy,” he says. Tom dates the serious conversations about regulation to about five years back, particularly regarding large platforms like Google, Apple, Meta, Amazon and Microsoft.

“Regulators […started] to worry about the position [these platforms] occupy and whether they hold life-or-death power over smaller companies —whether they mean to or not.”

 

Tom Smith, Partner, Competition Law and Digital Regulation, Geradin Partners

“As everyone knows, a company will struggle to do well if it doesn’t appear relatively near the top in the Google search results.”, Tom continues. This degree of market power could allow certain firms to preference their own products, or even push competitors out of business.

Platform regulation: no longer if, but how much

The response has been to design regulatory measures to mitigate the anti-competitive effect of such concentrated market power. “[At] conferences over the last few years, we debated whether new regulations should be brought in for tech companies. Really, that debate is over,” says Tom. “Competition policy has moved more into the political limelight in recent years.”

Europe and the UK may be writing some of the most expansive and effectual regulations in the English-speaking world, but they are far from the only governments to respond. “Australia has proposals, South Korea has an app-stores law already enforced. Germany has a law that it’s already enforcing, which regulates the big tech platforms,” Tom adds. And, across the pond: “America […] is doing it in a slightly different way, but there are big blockbuster cases: the Department of Justice is taking on Google in Washington [and] the Federal Trade Commission is taking on Amazon in two very important cases.”

This wave of competition policy serves as the backdrop for the evolving discussion around platform regulation, as Tom outlines. “What is this going to mean now that [regulations] come into force? Will it help smaller companies to grow? Will it provide clarity to the big tech firms who are fighting these antitrust battles all over the world? Will we all now know the rules of the road, and can we get on with innovating products instead of talking to competition lawyers? Or will the new regulations dampen innovation, increase costs and do all the bad things that people who don’t like regulation think might happen?” he asks frankly.

A closer look at the Digital Markets Act

Answers to these questions remain speculative, but Oliver Bethell, Head of Competition EMEA at Google, offers a practitioner’s perspective on the structural characteristics of the DMA.

“The Digital Markets Act identifies particular companies based on their size –things like the number of users they have” he tells us. For those companies, the act also identifies which of their services are governed by the new rules. “It’s not a piece of legislation that is enforceable against everyone,” Oliver explains. “It focuses on […] gatekeepers and their core platform services: Google and search; Apple and Safari and iOS as their platform; Amazon and the marketplace; Meta and the Facebook social network.”

According to Oliver, the companies under scrutiny are taking a variety of tactics in their engagement with regulators in Brussels. “Some of those designations are – how can I put this politely – open to debate between the regulator and some of those companies. Google is not involved in those kinds of conversations,” he clarifies, “but there are some ongoing discussions with Microsoft, for example, as to whether Edge is a browser that ought to be subject to these rules, [and] some conversations with Apple in relation to iMessage.” And, he adds, there is a finite amount of time for companies to raise any concerns before the DMA comes into effect. “The big date is March 6, 2024. From that point forward, we all need to be in compliance, and so begins – or continues, I suppose – our regulatory dialogue against the backdrop of potential enforcement.”

That said, new technologies such as generative AI pose an open question about whether provisions in the DMA will prove to have reasonable longevity. “I look at a provision […in the DMA] and think: how fit for purpose will that be when I think about the new variance on competition and information retrieval?” Oliver wonders. Given that generative AI operates on a fundamentally different premise of data aggregation than online search, Oliver, is paying close attention to how theories of harm may or may not transfer. “There’s a project in education that [regulators] need to go through first,” he says.“It can’t last forever, but that seems to be a precondition, a requisite to sensible regulation [of generative AI].” For now, the applicability of the DMA is centred around firms and technologies already long in operation.

Contentious though the specifics may be for some, Oliver takes a generous view of the regulators’ goals for the DMA. “What the [European] Commission is trying to achieve is fairness and contestability in the markets in which those core platform services are operating,” he says. “It is not about redistributing shares amongst various people who operate on the platforms. It’s about ensuring that these platforms are operating in a transparent, fair, contestable way, and the rules all drive towards that type of process outcome.” 

The CMA’s proposed platform regulation in the UK

Over at the UK’s Competition Market Authority (CMA), attention is tightly focused on its proposed legislation currently moving through the House of Commons. The DMA is often discussed in the same breath as proposed regulations in the UK, but the policies are differently constructed and will have unique implications. Whereas the DMA establishes specific conduct requirements for a defined set of products such as virtual assistants and online search engines, Oliver describes the UK government’s approach as creating a “no-fault environment” that leaves room for experimentation and encourages regulatory dialogue.

Matthew Braovac, a Director at the Digital Markets Unit (DMU) at the CMA, agrees: “[The UK legislation] is very similar in its overall goals to the European legislation but different in the way that it gets there.” Matthew is responsible for ensuring operational readiness for the new policy regime and sheds further light on the structure and aims of the UK regulations. “Unlike the very clear timetable that Oliver [Bethell] was able to set out in relation to the DMA, […] under the UK legislation, the ball is very much in the regulator’s court,” he says.

“The bill, if and when it passes, gives us the power to set rules, but then requires us to do an evidence-based piece of work, activity by activity and company by company, to actually establish: where is the market power that may be causing concern? What are those concerns?” Only then can the regulator begin a consultation and discussion process to put conduct requirements in place, which are “effectively, specific rules about the behaviour of those firms,” Matthew explains.

Revenue threshold for defining “gatekeeper firms”

Because the onus lies chiefly with the regulator, only a small subset of companies that meet certain criteria are likely to be scrutinised by the DMU. “In order to fall under this regime, gatekeepers have to have either £1 billion of UK turnover or £25 billion global turnover,” Matthew tells us. For firms that meet this definition, there is a set of quantitative rules, while qualitative rules will exist for firms that are determined to have “strategic market status,” he adds. “We have to think about whether or not they have a strategic position in the market, such that they actually set the rules for other company’s interactions with their customers or each other.”

Matthew adds that the regulation is designed to be pro-competition, including targeted interventions. Conduct requirements will lay out behavioural guardrails to avoid abuses of market power, he says, while “pro-competition interventions are [intended] to get to the heart of that market power.” The central question for Matthew and his team: “How can we actually improve competition fundamentally?” Just as Oliver sees the European Commission’s legislation as promoting fairness and contestability, the CMA hopes to foster a fairer, more competitive business environment with their proposed policies. “Platforms have brought a huge amount of benefit to consumers both in the UK and elsewhere, and we want to make sure that they can continue to do so,” says Matthew. “We are very keen to ensure that innovation remains. We’re very keen to make sure that we’re not stifling new business models, new competitors. What we want is to improve the markets such that small, medium and large companies can all compete fairly.”

Increased staffing at the DMU

In an effort to be appropriately resourced for discussions and interventions with the firms that will be under the regulatory microscope, the DMU has also been increasing their staffing, for example, by adding data scientists to the data team. “This is going to have to be a two-way conversation,” Matthew thinks. “We’re going to need to have the skills on both sides of the table in order to have a meaningful, evidence-based conversation both about what the issues are and also about what the areas are that we might need to address with these rules.”

In contrast to the DMA, however, the outlook for platforms in the UK will not change overnight. “Even when the law is passed, [the UK regulator] has no power to do anything at all until it proves its case against each firm individually, writes a bespoke set of conduct requirements for each firm individually and survives all the appeals that may or may not follow,” Tom reiterates. “But it will change the dynamic in the tech sector as a whole.”

Adopting and adapting to new regulation

Personally speaking, Oliver welcomes the prospect of certain operational shifts at Google due to the forthcoming changes in the regulatory environments in Europe and the UK.

“Over the years, I’ve worked on many competition cases at Google, and there are things within Google that I would like to have had on a more permanent footing that, actually, this new regulated environment gives me the ability to establish within the company,” he tells us. There are three areas in particular where Oliver believes that Google will be continually working to adapt itself to the new landscape:

 

1. Availability of engineers, product experts and behavioural scientists for compliance measures and discussions with regulators

In Oliver’s experience, it has become steadily easier for regulatory or compliance discussions to find traction and resourcing within Google. “We have a function within the company called Choice Lab now, which anticipates that regulators want to talk to us in an evidence-based way about choice architecture. So we’re now directing a lot of resources to those kinds of teams and processes within the company,” he says.

2. Internal governance

In addition to specialised resources, increased regulation creates a need for a dedicated compliance business function. According to Oliver: “It’s relatively new for a company like Google to be thinking about how to build out a distinct and independent compliance function within the company that can talk in an informed and data-based way with the regulator.”

3. Approach to engagement with regulators

While other firms may choose a different, perhaps more litigious approach, Google is extending a metaphorical olive branch. “Now, we think about engineering for compliance,” says Oliver. “This is about engaging with regulators, choosing amongst different potential development paths and finding compliant solutions.”

A data-driven, transparent and regulated relationship

Tom notes that an increasingly regulated environment also offloads certain responsibilities from firms. “Google’s in a position where it’s got to decide what breaches privacy law or doesn’t, because it’s got to run its platform,” he observes. “It is not choosing to be a regulator, it’s just doing its job. But what Google says is okay and not okay […] really has almost  force of law.” Somewhat paradoxically, deferring to standardised regulation could clear a path for firms to spend more of their resources on innovation and development.

 

This is not to say that firms will not continue to test the boundaries, but the new regulated relationships between major firms and policymakers will be underpinned by data, in Oliver’s opinion. “This is not about exchanging slogans and themes and ideas,” he says. “It’s about the underlying data that’s motivated our decisions. […] As we continue to innovate, as we continue to launch products, as we continue to find efficiencies for our customers, […] people will be disrupted.” However, with higher frequency of contact between companies like Google and the bodies that regulate them, Oliver thinks there could be less likelihood of a pattern of entrenched litigation. “If we can be transparent as we move into those kinds of decisions, then it helps the regulator understand that not every complaint needs to necessarily result in intervention. […] It will give the regulator the opportunity to identify what is the right form of disruption.”

Broadly speaking, Oliver believes that the dynamic between firms and regulators will change in this new environment and calls the prospect a “happy relief.” The days of law firms parlaying for either side may slowly come to an end as well. “Alongside [the more adversarial approach], you’re going to have more and more of a day-to-day kind of engagement with the regulator,” he says.

The regulator’s role under the UK regime

For his part, Matthew also recognises a potential trade-off between flexibility and legal certainty, but regulators will be looking to strike a balance. “[The flexibility is] a real advantage of the UK regime if we use it […but] I think that we can establish that certainty,” says Matthew. “We’re not going to be going after absolutely everything from day one. We’re going to have to prioritise.” The mixture of qualitative and quantitative measures already mentioned will also serve as a solid foundation for the UK regime. And Matthew reminds us that even firms that meet or exceed the revenue threshold of £1 billion domestically/£25 billion globally will not automatically be scrutinised by the DMU once regulation comes into effect. “We will prioritise those areas where we think we can have the biggest impact for the biggest benefit to consumers, to the UK economy and to UK players in the ecosystems,” he says.

Rather, the DMU will be focused on building their capabilities. According to Matthew, the intentions are twofold:

“Be on the front foot with learning and understanding the new issues and engaging with industry. Be rather more reticent on immediately coming in with rules.”

 

Matthew Braovac, Digital Markets Unit Director, CMA

He adds: “[It] is incumbent upon us to be part of that discussion […], but also to have enough humility to recognize we don’t know exactly how the market or the technology is going to develop.” And to those who may express concern about potential scope creep of the DMU’s regulation once it comes into effect, Matthew has some reassurance: “We are not going to regulate 500 firms.” The reality is quite the opposite, he says: “Digital markets have delivered enormous benefits to UK businesses and to UK consumers. The UK is one of the most advanced e-commerce economies in the world. […] We want a thriving digital market.”

A potential blueprint for future cooperation

The good news for entrepreneurs and policymakers alike is that this model of a collaborative, regulated relationship is already being tried and tested.

Oliver shares a recent example relating to Google’s Privacy Sandbox initiative, which he says raised important competition concerns for regulators. “We stripped away the lawyers and the policy advisors as quickly as we could and we brought our technical teams to engage with the CMA,” he remembers. “We’ve tried to create this environment where a team from Google and from the regulators […tried] to wrestle with this very difficult problem.” Oliver believes the result has been a positive one, particularly because it has led to a greater depth in technical expertise on the side of the regulators, and that this example is predictive of what is to come. “I think you’re going to see more and more of this [approach] moving forward,” he adds.

Matthew sees similar value being derived from a more cooperative style of engagement. “With the greatest respect: Other than lawyers, I don’t know anybody who really wants 10 years of litigation, and then [in the end] you win, lose or draw. It’s kind of all a loss,” he says frankly. “[Firms] could have been doing something else, could have been innovating, could have been building products, could have been building their brand and their engagement with consumers.”

Nevertheless, different companies and regulators certainly take their own approaches, and not all relationships will conform to this blueprint. Tom reminds us of legislation in Korea designed to regulate Apple’s App Store, followed by similar legislation in the Netherlands – neither of which resulted in the same operational changes to the App Store outside of these two jurisdictions. Yet, in Oliver’s opinion it is incumbent on firms to be proactive, asking, for example:“Have we engaged deeply with the UK regulator, but given short shift to the German regulator? Have we made the effort to ensure that there’s a proper sharing of information?” It remains to be seen whether other firms will respond in kind as the global regulatory environment evolves.

The goal: better digital markets

Regardless of how firms and regulators navigate their interactions with one another, Oliver, Matthew and Tom have high hopes for the outcome of the DMA and the UK regime. Within their respective workplaces, new regulation promises increased clarity.

“With that more targeted type of dialogue with a regulator, you can move a lot faster in product launches.”

 

Oliver Bethell, Head of Competition EMEA, Google

Oliver’s ideal outcome: “More efficient allocation of our resources and also a sense of predictability through the working week.” 

Meanwhile, Matthew paints a clear and simple picture of what he wants to see accomplished by the DMU’s policies: “Just better working digital markets, at the end of the day.” Ideally, placing data at the centre of their operational processes will help the DMU to make well-founded decisions. “We need to be data led […] not based on just a feeling that a certain firm may be too powerful,” Matthew adds.

Tom is equally optimistic about the potential consequences of expanded global regulation. “There are a lot of artificial restrictions in the tech sector at the moment that [are] holding innovation back,” he thinks, pointing to app developers who are currently subject to Apple’s 30% commission fee for offering their products on the App Store, as one example. As we look towards 2024 and the implementation of these long-discussed regulations, the takeaway for Tom is that better competition regulation could encourage innovation, not restrict it.

To go further

This panel with Tom Smith, Oliver Bethell and Matthew Braovac was part of the Platform Leaders event organised by Launchworks & Co on the 9th of November 2023 at the Science Museum. Check out the full list of speakers and agenda, as well as videos and articles.