The editors of the Wall Street Journal remark on the Digital Markets Act:
Ask not why Europe doesn’t regulate digital companies more. Ask why Europe doesn’t have more of its own digital companies to regulate. That is the question Brussels should have considered as it prepared the new tech regulations the European Commission unveiled Tuesday.
The European Union’s bureaucratic arm is nothing if not ambitious. The proposals would create new mechanisms for regulating content such as violence or hate speech. They would formalize rules for relationships between platform companies and third-party software developers that the commission previously tried to impose via antitrust cases. They’d require new transparency about proprietary business practices such as ad targeting. And the commission wants to impose draconian penalties for violations, including fines of 10% of annual global revenue or the ability to break up tech giants.
The rules don’t explicitly say they’re aimed at U.S. companies. But the proposals are crafted narrowly enough that, wouldn’t you know, mostly very large American companies would fall under their purview. Not many social-media platforms reach at least 10% of the EU’s 450 million consumers, which is the threshold for some of the strictest new rules.
We have no special brief for American tech companies, and our parent company’s executives have tangled with firms such as Google over their sometimes casual approach to intellectual property. The U.S. companies can lobby as they wish in Brussels, and they will. Expect the EU’s new proposals to become law, if they ever do, only after years of wrangling.
Someone should ask, however, why European competitors haven’t emerged to the American behemoths. The commission and its boosters claim this is what the new regulations will do, by creating a “level playing field†for local tech entrepreneurs. But rules such as the commission’s proposal usually do the opposite.
I believe I can answer that question. A lot of it is marketing. Another factor is U. S. standards.
There are quite a few great European software products. SAP leaps to mind. It has considerable market penetration in the U. S. but not as much as Microsoft or Google do. Why not? I think the answer is that the European and American corporate markets are extremely different. The U. S. has a relative handful of enormous companies and an incredibly vast number of small to medium companies. A lot of the European software companies have enterprise customers as their marketing universe and aren’t particularly well-suited to companies with under $200 million per year gross revenue which here in the U. S. is most of them.
And then there’s the issue of standards. I’ll give you an example. Here in the State of Illinois we have a department called Central Management Services. It’s responsible for everything from janitorial services in state facilities to its rental and lease agreements to managing the state’s computer and network infrastructure. Not only is Illinois’s CMS a Microsoft shop, it’s a Microsoft shop firmly rooted in the 1990s. Basically, no software that isn’t Microsoft can be installed on any state computer from mainframe to desktop. CMS doesn’t like letting software and support contracts to anybody but Microsoft. That makes it darned hard for any other company to get a foothold in the state. I suspect Illinois isn’t alone in that regard.
Finally, Microsoft, Google, Facebook, Apple, and Amazon haven’t always been behemoths. Once upon a time they were all small startups. EU regulations make it a lot harder for small startups to become behemoths than U. S. laws and the U. S. market used to. If the computer market in the U. S. were the same in the 1970s as it is now, Microsoft would still be a virtually unknown startup in Seattle (and Seattle would be mostly notable as the home of Boeing). Nowadays, of course, U. S. laws and practices have caught up and it’s harder for a small startup to become a behemoth than it used to be here. That’s why so many small startups in the digital space have a business model that includes being acquired by one of the majors.
