Google has already found the fatal flaw in the EU’s DMA
Hello, and welcome to Protocol Policy! Today, we look at how Google's response to the Digital Markets Act exposes a fundamental flaw in its approach to antitrust. Over in D.C., the Senate seems to finally be making progress on a skinny version of the Chips funding — and it might not just be the subsidies. And Twitter won its first battle against Elon Musk in court, but the games have only just begun.
The big problem at the heart of the DMA
I want to propose a new axiom for regulators: There’s no such thing as the “spirit” of the law. Sure, the spirit exists in the sense that reasonable people with opposing views can still understand the intention behind a particular rule. But it's meaningless in practice — and attributing any value to it probably does more harm than good, particularly when the entities you hope will abide by the spirit are savvy multinational corporations with billions of dollars at stake.
The latest example: App store regulations in the EU’s Digital Markets Act. The DMA, which is supposed to serve as the EU’s landmark Big Tech regulation bill, includes provisions requiring gatekeeper app stores to give developers access to third-party payments systems.
- The DMA attempts to create competition within app store ecosystems that, in theory, would force Apple and Google to reduce the 30% fees they typically charge big developers.
But Google responded by adding a third-party option with additional fees. In a blog post published on Tuesday, Google said it would preempt the DMA regulations by allowing third-party payment options in the EU with … a 3% reduction over the typical service fees.
- So Google will still charge developers 27% of their annual revenue beyond the first $1 million. And bear in mind, the developers would still have to pay any fees charged by a third-party payment provider, such as PayPal or Stripe.
- This pricing scheme is similar to what Google and Apple implemented in the Netherlands and South Korea in response to legislation in those countries mandating third-party payment options.
- Apple made the feature particularly unattractive for developers in the Netherlands: It charged 27% on third-party payments and also stuck a rather ominous label on those services warning that the app doesn’t support “the App Store’s private and secure payment system.” For a long time, it also refused to give access to dating apps, resulting in a series of fines totaling 50 million euros.
Under those terms, it’s hard to think of a case where third-party payments make much sense. Consider the fees of some of the most popular ecommerce payment processors: Stripe charges 2.9% per successful charge plus a $0.30 fixed fee, while PayPal charges around 3.5% plus a flat fee of $0.49 for its Checkout service.
- By adding a 27% fee, Google can push the total cost of many third-party payment options above the cost of its in-house offering. (Though this may not be the case for everyone, since payment processors offer volume discounts for bigger retailers.)
- There are benefits to third-party payments besides cost. For instance, third-party options can give developers more granular transaction data and greater control over refund policies.
- Still, there’s little room for upside with that 3% gap, and Google is betting developers will decide it isn’t worth the hassle.
More heavy-handed regulation doesn’t necessarily offer a solution. As Protocol Fintech editor Owen Thomas pointed out in March, Apple and Google provide real value to app store developers — it might not be worth 30%, but it isn’t worthless, either. So the EU may have been wise to not take the approach of, say, mandating zero fees on third-party payments. But their current approach doesn’t really do much either, as developers still effectively lack a second option.
Antitrust legislation continues to only address the symptoms of market concentration. Apple and Google are virtually the only two mobile operating system providers in the West. That gives them considerable leverage over companies that want access to mobile customers. Mandating third-party payment options doesn’t actually take away that power; it just limits one particular mechanism through which the power is exercised. This is a recipe for more of the same: It’s like thinking you’ll have a better shot at beating Magnus Carlsen in chess because he’s forced to move the pieces with his non-dominant hand.— Hirsh Chitkara (email | twitter)
A procedural vote in the Senate on Tuesday night signaled strong support for both $52 billion in chips subsidies and billions more in science funding. It was a victory for Senate Majority Leader Chuck Schumer, who had long championed both, but who, during days of reversals and bluff-calling by Republicans, looked like he’d only be able to pass money for semiconductors. It turned out enough GOP senators liked the idea of pouring money into the science and tech race with China, though of course Schumer had to lose on the Democrats’ signature climate and social policy initiatives for it all to come together. House leadership seems to like it too.
The House Judiciary Committee officially published its previously released report on Big Tech competitive practices. It also unveiled documents showing that, in the words of the panel, Meta “views itself as dominant in the social networking market and insulated from competitive threats” and Google “leverages its control over the Android mobile operating system to prevent smartphone manufacturers from introducing products or services that compete with Google’s family of mobile apps.”
The Consumer Financial Protection Bureau will ask Zelle to better support fraud victims. The CFPB is preparing to send new guidance to banks over their role in helping support customers who mistakenly send money to fraudsters using the digital payments systems, the Wall Street Journal reported.
The FBI warned about fake crypto apps, saying it already knew of nearly 250 victims who lost almost $43 million to such scams. Many of the apps appeared to operate under the names of legitimate businesses, and the bureau recommended financial institutions periodically search their names and logos to see if that was occurring.
The Federal Housing Finance Agency set up an office to collect information on fintech risks that apply to homeownership. Proptech came under particular scrutiny as firms like Zillow began to snap up U.S. homes, even though the market has since begun to retreat.The FTC and NLRB announced a new partnership to move forward “on key issues such as labor market concentration, one-sided contract terms, and labor developments in the ‘gig economy.’” The MOU will allow information sharing, cross-training and investigative partnerships.
A MESSAGE FROM ALIBABA
Alibaba — a leading global ecommerce company — is a particularly powerful engine in helping American businesses of every size sell goods to more than 1 billion consumers on its digital marketplaces in China. In 2020, U.S. companies completed more than $54 billion of sales to consumers in China through Alibaba’s online platforms.
In the courts
Twitter got its wish for a fast-tracked trial against Elon Musk. A Delaware judge ruled that Twitter could proceed with a five-day trial in October, saying that the company’s original pitch for a September trial was a bit too ambitious but the risk of harm to Twitter if the court dawdles too much is very real. Musk had been advocating for a trial next year.
Uber settled a Justice Department lawsuit alleging its wait time fees, when applied to people with disabilities, violated the Americans with Disabilities Act. DOJ said Uber will credit back two times the fees charged to 65,000 riders who signed up for a waiver program, plus more than $1.7 million to riders who complained.
Amazon wants to crack down on pay-for-review groups on Facebook. The ecommerce giant filed a lawsuit against the administrators of over 10,000 Facebook groups that recruited people to give fake (or at least biased) product reviews in exchange for payment.
Apple reached a $50 million settlement over claims it covered up defects for “butterfly” keyboards. The settlement, submitted on Monday, still needs to be approved by the San Jose judge. The customers claim that Apple knowingly hid issues with the keyboard, and often serviced broken keyboards by giving replacements that had the same problem.Whoa, meta … A company that’s been called Meta since back when Meta was called Facebook is suing the (big) Meta for its name change to Meta, arguing the former Facebook damaged the (small) Meta’s brand and business.
Meta and Google place restrictions on abortion groups abroad. In Poland and dozens of other countries, Google doesn’t allow any abortion ads to run. Similar restrictions may soon come to the U.S., but there are key differences — such as Section 230 — that will impact any action from the tech giants.
The extreme heat in Europe shut down data centers. Google and Oracle both experienced partial outages for London data centers due to the unprecedented high temperatures.
Around the world
China is prepared to hand DiDi a fine of more than $1 billion. The fine may actually come as a relief to the company, as it will likely conclude an intense period of regulatory scrutiny that contributed to a cratering of the stock price. After the ban, China’s government is expected to ease restrictions it placed on DiDi during the regulatory review, including an outright ban of adding new users.
Tech groups are lobbying against India’s plans for government content moderation. In June, India proposed a new set of rules around content moderation for social media firms, including a stipulation that the government could have the final say in any content moderation decisions. Meta, Twitter and Google are among the companies lobbying for change as part of the The Asia Internet Coalition.
46.7%: That’s the percentage of “underrepresented people” — defined by Meta as including women, people of color, veterans and people with disabilities — within Meta’s global workforce. A diversity report issued yesterday by Meta showed it met its diversity goals early. Chief Diversity Officer Maxine Williams told Bloomberg that there wouldn’t be new diversity goals due in part to the hiring pause.
A MESSAGE FROM ALIBABA
Using economic multipliers published by the U.S. Bureau of Economic Analysis, NDP estimates that the ripple effect of this Alibaba-fueled consumption in 2020 supported more than 256,000 U.S. jobs and $21 billion in wages. These American sales to Chinese consumers also added $39 billion to U.S. GDP.
Saving Moore’s Law
Move over, giant chips — there’s a new hottest design element in town: chiplets. Well, chiplets aren’t exactly new, but they could be critical in saving Moore’s Law and reducing the amount of energy consumed by data centers. Chiplets are made by stitching together several smaller chips rather than trying to pack everything on one large piece of silicon. The concept was critical to AMD’s success, and it might soon be critical for everyone else.
Thanks for reading — see you Friday!