As of March 7, tech’s biggest gatekeepers have had to comply with the EU’s Digital Markets Act (DMA). The law primarily impacts U.S. tech giants (Alphabet, Amazon, Apple, Meta, and Microsoft). As ITIF and other experts have repeatedly warned, the DMA will stifle innovation and harm European SMEs. Despite the warnings, the European Commission (Commission) has proceeded with the law. Gatekeepers have recently published reports outlining how their conduct will change in Europe, which sheds light on the true scale of the DMA’s concerning effects on consumers and businesses alike. Indeed, the Commission has already announced investigations into Alphabet, Apple, and Meta, and given indications that an investigation against Amazon may also be on the way. The stakes are colossal for targeted businesses: The EU can fine firms violating the DMA with fines of up to 20 percent of global revenues.

Open App Store

On January 25, Apple announced a significant update to its operating system: European iOS users can now download apps outside Apple’s App Store. Margrethe Vestager, the European commissioner for competition, celebrates an open app ecosystem, stating: “If you don’t like one shop, you can go into another one.” But while ensuring app marketplaces are competitive is a noble goal, forcing Apple to open its app ecosystem raises significant risks—risks that the Commission refuses to recognize. An open app ecosystem notably increases the threat of malware and other harmful content on Apple devices at a time when consumers care more than ever about device security. The DMA could thus destroy the consumer value of Apple’s closed model (often called a “walled garden”) in favor of a forcibly open ecosystem that already exists elsewhere. If iOS apps suddenly migrated to a patchwork of app store platforms, users could lose the unique simplicity of the iPhone as a secure, easy-to-use model where the App Store is the one-stop shop. And of course, users valuing open app ecosystems are free to choose alternatives, like Android, that offer sideloading (the ability to download apps from multiple app stores). These differentiated models exist because of competition, not the absence of it.

Moreover, although Apple agreed to allow alternative app stores in the EU, critics remained dissatisfied. Under the new model, iOS apps distributed from the App Store and/or an alternative app marketplace pay €0.50 for each first annual install per year over a 1 million threshold. Pundits quickly bashed Apple for introducing a so-called “junk fee”—even though developers derive massive benefits from Apple’s ecosystem. It is important to recognize that there is no such thing as a free lunch; developers should not expect to benefit from Apple’s massive investments in hardware, software, and cybersecurity without paying for it.

Choice Screens

Internet users in Europe will soon encounter choice screens (brief informational displays offering a selection of web browser alternatives). For Android users, this screen will appear during the device setup process. iPhone users will instead encounter it upon opening Safari after installing iOS 17.4. Indeed, the EU’s Investigation of Apple includes concerns about whether it is complying with its obligation to “prompt users with choice screens which must effectively and easily allow them to select an alternative default service, such as a browser or search engine on their iPhones.”

Despite their goal, choice screens are unlikely to work. In response to a €4.3 billion fine from the EU commission in 2018, Google introduced browser choice screens on Android. These screens spectacularly failed at unseating Google’s dominance in search; their market share remained stable at 97 percent before and after the introduction of choice screens. In other words, even when consumers were presented with a choice, they chose Google. Perversely, choice screens create more costs for up-and-coming search engines because they have historically had to buy their way into the choice screen in costly auctions. So, in its frenzy to loosen the grip of big tech companies, the Commission may be reinforcing its dominance and merely causing wealth transfers from small search engines to larger rivals.

Changes to User Experience

Consumers in the EU have already been subject to burdensome changes in their user experience. For Google, the familiar “Maps” button that once appeared below the search bar, along with “Images” or “News,” no longer appears. The same is true for the “Flights” button. These changes, made in compliance with the ban on self-preferencing, which is the focus of the Commission's DMA investigation into Google’s compliance efforts, make Google considerably less user-friendly, destroying much of its value to consumers. Rather than being able to view restaurants on a map with a single search, European users must now undertake multiple searches to find results on a map. This will be costliest for less tech-savvy users, including many low-income users, who benefited most from the seamless integration of Google’s service.

Another touted benefit of the DMA is greater privacy. The DMA is able to prevent businesses like Meta from sharing data across platforms like Instagram and Facebook, but this stance against data sharing does not address actual privacy harms. Indeed, the Commission has opened an investigation into whether Meta's “pay or consent” approach provides “a real alternative in case users do not consent.” However, the Commission's stance only makes data collection less efficient, materially harming the revenues of advertisers (including thousands of SMEs) and platforms alike: An overwhelming 93 percent of 1,380 surveyed European SMEs reported in 2022 that targeted digital advertising (mainly through gatekeeper platforms) was useful for their business.

Conclusion

The EU’s DMA is attempting to chip away at the alleged dominance of the so-called tech giants, but not for the better. And while the full extent of the DMA’s negative consequences will become more evident following the outcome of the Commission’s investigations, early indications suggest a troubling impact. American tech firms contribute massively to the European economy, and European consumers and businesses rely heavily on gatekeeper products and platforms like the iPhone and Google Search to drive their economic activities, especially since COVID-19 accelerated digitalization. Instead of persecuting American technologies, the EU should redirect its efforts to nurturing European innovation from within its borders. As the EU confronts a growing productivity gap with the United States and strives to recover from economic challenges stemming from the pandemic and geopolitical turmoil, the DMA risks hindering the very innovation that is essential to Europe’s digital growth.