There are more than 10,000 online platforms in the EU, 90% of which are small or medium size. These platforms experience tough competition and are forced to play by the rules imposed on them by large marketplaces.
On December 15, 2020, the European Commission introduced a new step in creating a safe and fair digital environment. The new rules are described in the Digital Services Act (DSA) and Digital Markets Act (DMA).
These acts mean a shake-up for the whole eCommerce industry which involves marketplaces and web applications. Those who do not comply with the new rules risk losing up to 10% of their annual revenue in fines; they might even be banned. At the same time, the new regulations give a boost to small businesses and startups who have not been able to compete with the industry gatekeepers.
What should business owners and startups get ready for? How to update your platform in accordance with new rules? Let’s find out!
What are DSA and DMA?
In just three decades, the Internet has become an arena for both good and bad content.
The European Parliament is trying to protect digital space and its users. In recent years, we have witnessed a number of new rules and acts in an effort to make the Internet safer by protecting the user’s sensitive data, banning inappropriate content, defining illegal actions of website owners, and preventing counterfeit goods and monopolies.
One of the most important acts was the General Data Protection Regulation (GDPR), implemented in 2018. The aim of the Regulations was to create specifications for the collecting, storing, and transferring of EU and EEA personal data.
When the Act came into effect, there was a lot of uncertainty on how to apply the new rules and how they would impact the platforms. The entire Greenice team — from developers to managers — studied the regulations and looked for suitable methods to make our clients’ websites comply with the requirements of the GDPR. Today, we develop new web apps with the regulations in mind.
DSA and DMA may soon demand new reforms from technical companies; even if they don’t come today, or even tomorrow, we want to be prepared, so we are not waiting.
The Digital Services Act (DSA) is designed to prevent harmful online content and the trade of illegal goods and services. The DSA also demands fair, transparent conditions for all businesses.
The Digital Markets Act (DMA) is aimed to put an end to the unfair business environment created and maintained by large online platforms — also known as ‘gatekeepers.’ They are large platforms with strong, stable economic positions, that have the ability to unfairly dominate other market players. The criteria for gatekeepers are the following:
- companies with annual European revenue of 6.5 billion euros ($7.9 billion) over the last three years.
- companies that had an average market capitalization in the last financial year of 65 billion euros while operating in three or more European countries.
- platforms used by more than 45 million active monthly users in Europe, and more than 10,000 active yearly business users.
Creating a modern legal framework should stimulate the economy, innovation, and competitiveness. It should facilitate the growth of startups and small businesses that have been suppressed by the unfair rules set by the giants of the industry.
What should you do to comply with DSA and DMA?
The DSA and DMA will impact platforms like online marketplaces, social networks, app stores, and travel websites working in European countries as well as non-EU businesses providing services within the EU.
Depending on the size of the platform, DSA requirements differ. Small and middle-size online platforms should do the following:
- Establish transparent reporting
- Take into account the fundamental rights of users in terms of service
- Cooperate with national authorities
- Provide an easy way to contact platform administration or legal representatives
- Provide users with the information they require
- Establish a mechanism to register complaints and solve disputes out-of-court
- Provide users with tools to flag illegal content, goods, or services
- Take measures against abusive material
- Verifying third-party suppliers by “KYBC” protocol
- Establish transparent online advertising
- Report criminal offenses
Platforms that cover more than 10% of the EU’s population will have obligations that involve a systematic risk assessment, and elaborate crisis management measures.
According to DMA, the following obligations will be imposed on platforms defined as gatekeepers:
- They are not allowed to unfairly rank their own services above other businesses
- They should not prevent consumers from reaching out to businesses outside the platform.
- They cannot block users from uninstalling any pre-installed software or app
- They must provide fair tools for advertising to all businesses
- Gatekeepers will be obliged to get permission from the European Commission for acquisitions and mergers.
Benefits of DSA and DMA
The implementation of DSA and DMA should benefit all parties.
The main aim of the Acts is to prevent the spread of harmful or abusive content such as hate speech, radical political content, child sexual abuse material, or the sale of illegal goods. In addition, 85% of Internet users claim that their freedom of expression is violated when platform owners delete content without explanation.
The new rules should give consumers:
- a wider choice of goods and services at lower prices
- the ability to flag and immediately remove illegal content
- access not only to paid ads, but rather relevant to their search
- the protection of their fundamental rights
Previously, selling their goods through the platforms, businesses had no idea how algorithms rank their listings and advertisements. That created fertile soil for unfair competition as platforms could rank anyone who pays more or attracts more traffic higher. Eighty-eight percent of businesses encountered unfair trading conditions on large platforms. The new rules will allow businesses to have:
- a wider choice of platforms, fair advertising conditions for all sellers, and smaller commissions
- easier access to markets around the EU
- better protection from counterfeit goods
- platforms with transparent internal processes (access to sales performance data, direct communication with customers, and no more unfair rankings)
All these measures should lead to an increase in competition, more innovation, expansion of cross-border trade, and better quality service.
For Platforms Owners
Before, it was nearly impossible for new marketplaces to enter highly competitive industries because they were controlled by a few large marketplaces. The rules of these gatekeepers were unregulated by any authority. The new regulations will mean:
- equal conditions and fair rules for all market players throughout the EU
- that European marketplaces will be able to start-up and expand in a more amicable atmosphere.
Penalties for non-compliance and who will be in control
A special Commission will carry out market investigations and define platforms as gatekeepers. The gatekeepers that do not comply with the new regulations can be fined up to 10% of their total global annual revenue. If a gatekeeper continues to violate the DMA obligations, the Commission can apply additional penalties.
DSA and DMA signify a new era in the European eCommerce environment. Will these reforms be a success? Time will tell. The rules are still being discussed and they may not come into effect quickly. It’s never too soon, however, to start preparing for changes.
If you are a startup, you can include DSA requirements in your list of priorities, and incorporate their features into your plans.
Those who already run a marketplace should examine their existing terms and conditions to make sure they are transparent and fair for all the parties; they should also maintain, or improve, their safeguards against illegal and abusive content.
At Greenice, we are going to monitor the changes in the digital world, and update our performance when new information and regulations come online.
Need help with checking up your online platform for compliance with regulations?