$38B to Stop the Steer
Have you heard? Big tech might be leaving the EU.
It’s dramatic to put it that way, but it’s a distinct possibility.
Why? What just happened?
A few weeks ago, Apple got hit with an enormous fine -- $38B.
Let’s put that into perspective… when BP was fined in 2013 for the Deepwater Horizon oil spill, their fines were $4.5B.
The wrongdoing Apple is being accused of is anti-steering. But for that to make any sense, we need to talk about what steering is.
Let’s use Candy Crush as an example.
You can download the Candy Crush app for free (so the company avoids paying Apple the 30% fee for App Store purchases). But when Candy Crush swindles you into buying extra lives, they might be tempted to try to avoid Apple’s 30% fee on those transactions too (because that maximizes their revenue).
To do that, many apps have resorted to “steering”. They ask users to go make the purchase anywhere other than in the app. Personally, the method I’ve seen most is linking-out to my phone’s browser.
From Apple’s standpoint, this is no bueno. They argue that they’re helping protect users’ security and privacy by managing the app store (and building the hardware), so they should get their cut of revenue.
And because that’s how they feel, Apple has done their best to stop the steer. They banned external links, they required all purchases to use Apple’s payment systems, etc. But in 2020 Epic Games sued and won, giving precedent to the idea that steering should be OK. And that same idea was incorporated into the DMA when it got passed in 2022.
Um… what the hell is the DMA!? Fair point.
Reader, Meet the DMA
The Digital Markets Act (DMA) is the EU’s landmark set of tech regulations passed in 2022.
It’s designed to promote competition, but it makes the lives of big tech companies harder.
Here’s a high-level summary of the two things the DMA does:
Defines Gatekeepers – the DMA essentially says that online platforms with the power to shape the tech ecosystem and impact most users (think big tech) are “gatekeepers”
Lists Rules for Gatekeepers – there are many… here are the biggest ones:
Must allow steering (hey, we know that one!)
Must not rank their own products above 3rd party products
Must be transparent about advertising metrics and performance
Must allow their core tech to interoperate with other software
Must allow users to uninstall pre-installed software
The list goes on, but you get it. These are a lot of rules!
And as I’ve written about before, Apple fought back and published scary papers with cyber-pirate beetles on the cover, trying to prevent the regs from getting passed.
But clearly, since they are being fined into oblivion, that pushback wasn’t successful.
And Apple isn’t the only one.
Meta was the 2nd gatekeeper to get hit with a fine a few days ago, and any of the other four gatekeepers (Alphabet, Amazon, ByteDance, and Microsoft) could be next.
OK… I hear you saying… but why would that mean big tech companies leave the EU!?
Good question.
Incentives Drive Action
Thought exercise for you!
Let’s (hypothetically) say that I speed on the way to work, and I’m incentivized to do it because it saves me time. In the last 10 years, I have not gotten a ticket. Am I (hypothetically) likely to stop speeding? Probably not.
On the other hand, let’s say I get a ticket tomorrow. I’ll probably slow down, at least for a few weeks. But let’s say I start getting a ticket every single day, for speeding and lane changes and everything you can think of, even when I’m 100% focused on following the rules. Or let’s say the tickets start to cost $10K each.
Is it possible that I stop driving altogether? Hypothetically Absolutely.
And the same logic applies for gatekeepers under DMA.
To help me explain, I’ll borrow from Daring Fireball (by John Gruber, a fellow tech fan/writer):
The DMA allows the EC to fine gatekeepers up to 10 percent of global revenue (which would hit a hardware-based company like Apple particularly hard) for a first offense, and up to 20 percent for subsequent fines. But the EU represents only 7 percent of Apple’s revenue.
Ok… so I’m not saying Apple and other “gatekeepers” will immediately pack their knives and go, but 10-20% of global revenues!? For the privilege of operating in a market generating 7% of those revenues!?
The math is not math-ing, as the kids would say.
Already, we’re starting to see Apple slow down, trying to avoid these massive speeding tickets (and also sending a message to EU regulators). According to Bloomberg:
The company announced [June 21st] that it would block the release of Apple Intelligence, iPhone Mirroring and SharePlay Screen Sharing from users in the EU this year, because the Digital Markets Act allegedly forces it to downgrade the security of its products…
Wrapping Up
For the EU, penalizing Apple and the five other gatekeepers with fines this large could backfire in several ways.
First, because they acted alone (they are ahead on tech regulation compared to the US), they’ve created a good cop, bad cop situation. Tech companies can just press-on in other geos, leaving the EU’s users worse off.
Second, because the perception is that it’s backfiring, they’re making US regulators even less likely to pass anything comparable.
Third, the existence of the gatekeeper designation creates strange dynamics for the EU’s homegrown tech scene. As an EU founder, would the idea of “graduating” to gatekeeper status feel more like a reward or a punishment? Or would this become yet another reason to start your company in the US instead?
Bonus Bullets
Quote of the Week
“Chase the vision, not the money; the money will end up following you.”
— Tony Hsieh, Former Zappos CEO
Quick News Reactions
It’s ya birthday – Threads just turned one year old, and Meta’s Twitter clone is doing pretty well. It’s still smaller than X, with 175M monthly active users to Elon’s claimed 600M, but that’s not too bad considering Twitter launched in 2006.
The ban is banned – The US FTC passed a law in April 2024 banning non-competes, which was set to go into effect September 4th. But a federal court in Texas blocked it this week. In a sea of difficult news for tech workers and tech job seekers (layoffs, hundreds of applications to land jobs, etc.), I thought this ban was a decent win for labor… but maybe I got my hopes up.
Back to school – Apparently the US State Department is training diplomats on cybersecurity and digital strategy, as part of making them more effective – and more modern – in how they carry out their duties. I absolutely love this. I don’t want to over-index on one write-up, but the program it describes sounds like exactly the sort of thing we need. Honestly, something similar might be the only way we end up with thoughtful, effective tech regulation in the US.