New legislation unveiled by the European Union last week could reshape the tech market landscape.
Legislators have proposed legislation from Australia to the United States that limits the reach of tech giants such as Alphabet (NASDAQ: GOOGL) and Meta (NASDAQ: FB). However, the Digital Markets Act (DMA) is shaping up to be the most extensive attempt to date. The DMA doesn't specify companies by name but seeks to regulate the influence of firms it deems "gatekeepers." Based on the wording used by European officials in statements, "gatekeepers" seems to refer to firms that maintain major platforms for tech development, such as app stores.
The DMA deeply regulates practices currently widespread throughout the tech sector, such as companies showing a preference for their own products. For example, gatekeepers would no longer be able to restrict apps from using their app store's native payment processing services. Third-party payments, such as PayPal (NASDAQ: PYPL), would circumvent the fee that companies such as Apple (NASDAQ: AAPL) and Google (parent company Alphabet, (NASDAQ: GOOGL)) take out of any purchases.
One of the more notable aspects of the DMA is the regulatory package targeting instant messaging systems. The act would force firms to develop greater interoperability between messaging apps such as iMessage or WhatsApp.
Cross-party messaging, however, has drawn criticism from security experts over concerns that interoperability won't necessarily ensure safety. Since apps utilize their own security protocols, messages sent from one app to another would be unsecured for the brief transfer from one protocol to another. However, some experts have also noted that open-source protocols could be used, and new protocols could be developed.
The scaling penalties of the DMA put increasing pressure on violating "gatekeepers" with repeated violations, including "structural penalties" for European-based companies. While the law nominally only applies in Europe, the difficulty in launching different regional products could result in the effects of the law trickling down to U.S. consumers and beyond.