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Europe leads the way in re-empowering the consumer

19th Jul 2022
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The European Union and European Parliament have adopted landmark legislation to overhaul the legislative environment for the digital market and services in Europe. The failure of extensive lobbying from platform providers such as Amazon, Google, and Microsoft illustrates the potential threats to their business models that they perceive from this legislation. The legislation covers rules and regulations for online platforms and the use of data that they collect and gather. It also includes novel rules regulating providers roles in preventing the spread of harmful online content and embeds a number of transparency initiatives over algorithm review and independent audit. Stringency of the rules is dependent on the size of the platform, with the most stringent only applying to platforms or online services with more than 45 million users or recipients in the EU. The implications for CIOs and CMOs and B2C professionals are that: 

  • Platforms will not be able to ring-fence business user activities within the platform or favor their own products and services. Platforms will have to allow business users to promote and link customers to businesses outside the platform and will not be able to promote or rank their own products and services more favorably. These platforms will also be required to give business users access to data (compliant with privacy rules) generated from customer interactions on the platform. This will do much to alleviate an ongoing pain point for many brands who want better access to sales and consumer data from marketplaces. If done well, this will encourage more brands to engage in marketplace sales, as they will have greater access to valuable first-party data at a comparable level to what they generate from their own brand’s direct-to-consumer sites. 

  • Marketers will be more restricted in their ability to capture sensitive data for microtargeting. Marketing executives utilize data from platforms and their own services to offer personalized advertisements to customers. Whilst that will still be allowed to continue, the new acts contain stipulations restricting the use of sensitive data to be used for direct marketing. Marketing executives will need to review the act carefully — specifically how it defines sensitive data — check which of this data they use, and develop an action plan to comply with the new legislation. 

  • Platform providers will have more responsibility to remove harmful content. Online safety is a key outcome that the digital markets package seeks to deliver. Providers must now flag potentially harmful content and in many cases are mandated to remove it and prevent this content from being viewed by children. This provision is ambitious, and we expect much failure to comply with this and difficulties with platform providers in responding quickly to such content, given the noted difficulties with existing automated moderation mechanisms and a lack of scalability of a human-moderator-based system. 

  • The Commission gets a beefed-up role in regulating large providers. The EU Commission has also gained many new powers beyond its prior competition remit. The legislative package allows the EU to perform independent audits of technology providers with more than 45 million EU-based subscribers. In addition to the increased transparency and ability to investigate the outcomes delivered by platform providers’ algorithms, the EU commission will become much more powerful in its ability to enforce abuses of the new regulations. For large platform providers (those with more than 45 million subscribers), the EU Commission can levy fines of up to 6% of global turnover for violations of the Digital Services Act, with local member states regulating smaller platforms. 

  • Digital leaders have no choice but to invest more in user experience (UX). The regulation condemns misleading techniques such as dark patterns and requires digital platforms to take an ethical stance, providing clarity on how personal data is used. CMOs who overfocus on conversion funnels — possibly using questionable practices that make it harder for users to opt out — should feel caught red-handed. It’s time to take a stand on shady design practices. But as UX professionals are already in high demand, the costs will be steep. 

We previously wrote about the potential for a digital renaissance in Europe. The proof of whether this legislation turns the balance of power between big tech and consumers will rest solely in the quality of its implementation. Much of what is contained in the regulations is well intentioned and difficult to argue with but will prove fiendishly difficult to implement and enforce in practice. Other governments, notably the USA, will be playing close attention to whether this experiment with taking on the power of big tech is ultimately successful. 

This post was written by Principal Analyst Paul McKay and it originally appeared here.

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