End of the Platform Era?

End of the Platform Era?

New legislation on both sides of the Atlantic threatens to upend the business models of big tech. How far-reaching will the consequences be?

For many technology start-ups, building a market-dominant platform is the aim of the game. Platform has become a buzzword among investors seeking the next unicorn. Founders are looking for the ability to scale, and platform effects are seen as an easy way to achieve this ambition.

As a result, a small number of technology platforms have been ubiquitous in the daily lives of internet users across the globe. Some such firms have attracted close attention from regulators as they attempt to disrupt mature markets. Uber and Airbnb have become hugely controversial in many of their largest markets because of their impact on local taxi and housing markets. Microsoft, Google and Apple have attracted anti-trust scrutiny on both sides of the Atlantic.

Digital Markets Act

Now, a new wave of legislation threatens to make life even harder for the largest technology giants. In the EU, the oft-mooted Digital Markets Act is poised to curb the benefits enjoyed by being the largest players in their particular spaces. While in the US, reining in Silicon Valley is one of the few causes that still enjoys bipartisan support in a deeply divided Congress.

The scope of the proposed regulations is narrow. Lawmakers are keen to protect the highly competitive technology sector by eliminating barriers to entry for start-ups seeking to take on the giants. The Digital Markets Act will only apply to companies with a market capitalisation of more than €75bn, or European revenues of more than €7.5bn. That is a high bar that will impact no more than a dozen household names.

Break Open

In recent years, the biggest players have attempted to protect their positions against each other by building lock-in into their products. App store restrictions are the most famous examples of this. Apple and Google have used security concerns to control app distribution on their platforms, with the aim of maximising service income and raising barriers to switching platforms. Social media networks have increasingly restricted their APIs, in an effort to increase advertising revenue by forcing users to access their services only through official apps.

These are tactics that the digital markets act is explicitly intended to stop. Data interoperability will now be mandatory. Third-party access will be protected. Self-preferencing will be banned. As such, it's no surprise that tech executives are alarmed by developments and are looking to push back against legislators in the name of customer experience. Apple greeted the act by criticising its impact on privacy and security, a familiar refrain when facing scrutiny surrounding their business practices. Google warned about its impact on innovation.

Not all the smaller players are happy either. The requirement for interoperability between messaging platforms has faced opposition from the likes of Signal and Threema, because it could impact their business models. Signal would need to weaken the security of their platform to comply, which kills their USP. Threema expressed concerns about their ability to monetise their app if people can just message Threema users from WhatsApp.

Break Up

Instead, the critics want the EU to go further and break the tech giants up. This goal has been explicitly rejected by Brussels, whose aim is to encourage competition from EU based start-ups. Their mantra is to break open, rather than break up. That's not necessarily the case in Washington. A very different conversation is taking place on the other side of the Atlantic, but the legislative outcome looks to be fairly similar.

The Senate Judiciary Committee recently approved a bill that bans online services from self-preferencing their services. Tech giants would be forced to give competitors equal access to their platforms. This means that Google would be barred from preferring their own services on search results. Amazon would not be able to use purchase history when deciding whether to launch own-brand products on their marketplace.

Few things get broad bipartisan majorities in Washington these days. The American Innovation and Choice Online Act does, as did the Open App Markets Act, a bill requiring app stores to accept third party payment providers. It will take time for these proposals to complete their passage through Congress, let alone become law. However, the direction of travel is clear.

Externalities

Technology giants are under closer scrutiny than ever. In the past, the White House has lobbied for them against proposed EU regulations, as well as in EU Antitrust investigations. No longer. Now Washington is home to their fiercest foes. Apple, Google and Meta all have positions of power, but have yet to adjust their cultures and business models accordingly.

A large groundswell of opposition has risen up against the impact of technology firms on the day-to-day lives of regular people. Big tech is seen as arrogant and ignorant of the consequences of their action. This is inherent in cultural differences between Silicon Valley and the wider community. Silicon Valley was built on the principle of move fast and break things. That doesn't work when politicians see democracy as being among the things being broken. However, there is a risk that regulators don't break the technology industry in an effort to protect the broader marketplace. Let's hope that doesn't happen.

Banner Photo by Michael Fousert / Unsplash

Written by
Marketing Operations Consultant and Solutions Architect at CRMT Digital specialising in marketing technology architecture. Advisor on marketing effectiveness and martech optimisation.