As of July 5th, the European Parliament voted on two new pieces of legislation, each with its own goal. Protect the fundamental rights of online users and level the playing field for online businesses.
The legislation comes in the form of the Digital Services Act Package. It includes the Digital Services Act (DSA) and the Digital Markets Act (DMA). Each has its own objectives, but it all comes down to online user safety. The DSA aims to guarantee transparency and user safety. On the other hand, the DMA aims to define more explicit rules for how large online platforms should operate.
Both pieces of legislation within the Data Services Act Package will significantly impact all businesses across Europe. They’ll be setting the new standard for digital consumer business.
Once the Digital Services Package is published in the Official Journal, the regulations set forth by the DSA and DMA will be officially adopted across the European Union (EU). This could result in similar rules and regulations finding their way to the United States.
How these new regulations impact businesses will depend entirely on the type of business in question, and several other factors. The impact will, however, be fairly different from the impact of the General Data Protection Regulations (GDPR), as well as other data privacy regulations. Something all players in the ad tech industry are still taking lessons from.
What is the Digital Services Act?
The Digital Services Act aims to regulate digital platforms acting as “intermediaries” offering goods, services, or content to EU consumers. Its restrictions will go into force 15 months after being voted into law or on January 1st, 2024, whichever is later.
In practice, the DSA will cover very large online platforms (VLOPs) and very large online search engines (VLOSEs). Think Meta, Google, and Spotify. Basically, any platform or search engine having more than 45 million monthly EU users will come under the DSA’s purview.
The overall goals of the DSA include the following:
- To better protect consumers and their fundamental rights (online).
- To establish better transparency and more accountability within the frameworks for online platforms.
- To foster and promote innovation and growth as well as competitiveness within a single market.
Put simply, the DSA will hold all marketplaces, search engines and platforms, accountable for policing the content on their sites. These platforms need to demonstrate that they’re protecting the integrity of their products, services, or content by preventing manipulation from bad actors.
Once again, it all comes down to online user safety.
What is the Digital Markets Act?
The Digital Markets Act legislation aims to limit the market power of huge online platforms (“gatekeepers”). This legislation will target businesses with over €8 billion in revenue turnover in the European Economic Area (EEA). Additionally, it will look at businesses with a market capitalization of over €80 billion, more than 45 million monthly users, and more than 10,000 business users.
What is a gatekeeper?
Gatekeepers are companies that create bottlenecks between businesses and consumers — sometimes even control entire ecosystems — comprised of various platform services such as online marketplaces, operating systems, cloud services, or online search engines.
This would include companies like Apple, Google, Amazon, Facebook, Alibaba, Microsoft, and even Booking.com, among many others.
While most businesses may not be directly affected, they will indirectly need to work with the consequences.
How do gatekeepers cause bottlenecks?
When gatekeepers favor their own services or prevent their platform users from reaching consumers, they create bottlenecks. For instance, when Android mobile users see Chrome auto-installed on their device.
Alternatively, a gatekeeper may engage in unfair practices like preventing app installations from other sources through their native app store. Effectively depriving end users of the benefits that these services may have shared.
Essentially, the DMA will aim to ensure a level playing field amongst these gatekeepers. They will be subject to a number of clearly defined obligations and prohibitions to discourage practices that strengthen barriers for other companies. The overall goal is to ensure the contestability of gatekeepers’ digital services.
For example, users will be able to uninstall Chrome on their Android phones. What’s more, the DMA will also force messenger services to guarantee interoperability with other messaging services across all platforms — including open APIs.
These rules could impact services such as Apple’s iMessage as well as advertising data compilation methods by Google and Meta.
The effects of the DMA
There will be other rules and regulations under the DMA that ensure effective portability of the data generated through a business’s activity when it comes to the end user. Overall, the DMA can be described as one of the first initiatives of its kind to regulate gatekeeper power by the largest digital companies to ensure fairness to all eCommerce businesses and content platforms.
Under the DMA, these companies will be required to:
- Ensure that users have the right to unsubscribe/uninstall core platform services.
- Not require that their software (such as internet browsers) be used by default alongside their proprietary operating systems.
- Ensure that any messaging systems and service’s basic functionalities provide interoperability.
- Allow app developers equal and fair access to any supplementary functionalities of smart devices, like NFC chips.
- Provide sellers with access to their marketing or advertising performance data directly on their platforms.
It all comes down to ensuring that all online businesses have a fighting chance to compete with one another to stay operable.
The DMA is now subject to formal approval by the two co-legislators, the European Parliament and the Council. Once adopted, the DMA regulation will be applicable across the EU and come into effect 6 months after entry into force.
How do the DSA and DMA impact advertising?
It goes without saying that what affects search engines, online businesses, and content websites will undoubtedly affect the ad tech industry which has a firm relationship with all of the above.
The following are the major impacts that the DSA and DMA will have on the advertising world:
- The targeting of minors will be banned. While the European Parliament did not want to implement a total ban on the use of personal data for targeted advertising, they are set on banning the profiling of minors for advertising purposes. Essentially, if advertisers fail to take the proper cautions when parsing user data, they could get experience severe penalties should they be caught utilizing the personal information of minors online.
- The use of sensitive data will also be banned. There will also be more rigid protections for all users’ personal data. Therefore, there cannot be any ad targeting based on special categories of sensitive data as outlined in the GDPR. Sensitive data includes racial or ethnic group origins, political opinions, religious or philosophical beliefs, health, sexual orientation, and so on.
- More transparency will be required. There must be greater transparency concerning who is placing ads and which criteria were used to target the users. Providers of all online platforms will be required to prove where their information came from. They will also need to showcase their targeting methods used for presenting ads. Larger online platforms will have additional transparency requirements, including a mandate to maintain a public library of ads they’ve delivered.
- Dark patterns will be banned. Dark patterns refer to online actors that manipulate methods to cause people to do things they wouldn’t otherwise do. Therefore, any providers of intermediary services online are prohibited from deceiving users from the initial point of the autonomy they have in decision making.
Why should publishers care?
While this new legislation is in favor of fairness for businesses of all kinds, its stricter privacy and transparency regulations will affect publishers. These new rules could change how advertisers invest in their ad spend among a variety of platforms.
Why? Because greater transparency means that the buy-side will now have to disclose how they collect user data and the algorithms they use, which can be considered trade secrets. This could lead to ad agencies and other brands uncovering their coveted marketing strategies. As a result, they might work with fewer publishers than before.
What’s more, publishers will also have to take preventative measures concerning how they parse user data to ensure they remain compliant with this new legislation.
Essentially, we’re about to see a whole new world of ad tech. And it may be more hurtful than it is helpful to the players involved.
On July 5th, 2022, the European Commission welcomed the adoption of the Digital Services Act and Digital Markets Act by the European Parliament. These new rules will apply across the EU and aim to create a safer, more open digital environment. Dubbed as the Digital Services Package, these two new pieces of legislation are meant to set rules on online platforms that most users access on a daily basis.
The Digital Services Act (DSA) will act as an intermediate within the EU to regulate digital platforms. It will address a wide range of policy areas from online marketplace requirements to the protection of minors accessing the internet. The Digital Markets Act (DMA) looks to limit the market power of huge online platforms, or “gatekeepers,” of eCommerce and content.
While these pieces of legislation are meant to cover all EU businesses, there are a few important takeaways that directly affect the digital advertising space.
- The targeting of minors will be banned.
- The use of sensitive data will be banned.
- More transparency will be required.
- Dark patterns will be banned.
- Certain ad platforms may be recognized as “gatekeepers” (Google, Meta, Apple, etc.) and will be further regulated.
While these restrictions are better for the general public, publishers need to start expecting limitations on targeting with regards to their EU traffic moving forward.
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