New EU regulations assume that digital businesses are like any other business – but are they?

New EU regulations assume that digital businesses are like any other business – but are they?

This past Wednesday, the European Commission issued a new proposal for regulating digital platforms. The objective is to create a “level playing field” between traditional actors and digital ones. At first glance, the regulations seem fair. But are they really appropriate for or relevant to today’s digital economy?

The objective: level the playing field

The new measures cover a broad scope of issues relevant to a wide variety of digital players. Some of these new regulations include:

  • Requiring search engines like Google and social media platforms like Facebook to do more to protect minors online;
  • Imposing new minimum “European content” quotas for video services like Netflix;
  • Enforcing consumer data protection protocols for digital communications services like Skype;
  • Imposing tighter controls on “geo-blocking” practices whereby ecommerce platforms like Amazon discriminate between customers based on their country of origin.  

The EU’s move to regulate comes as no surprise, and in many ways, makes a lot of sense: we should act to re-establish a sort of balance between today’s most powerful digital players – Netflix, Youtube, Skype, and Amazon, amongst others – and their brick-and-mortar counterparts existing within the traditional economy. Indeed, traditional TV broadcasters have clear rules in terms of sensitive contents for children and must ensure a minimal volume of local content; telecommunication companies must observe strict customer data privacy and security rules; retailers cannot discriminate against the origin of consumers within the EU. Why should the same rules not apply to digital players?

Will these rules create the desired effect?

Some of these rules won’t likely cause a stir. Most Europeans will agree that protecting children and limiting their exposure to violence and pornography is important. And allowing the free circulation of goods within the EU by ending “geo-blocking” practices will benefit all European consumers.

Other rules will certainly ruffle a few feathers. Is enforcing minimum volume of European content a good idea? After all, when consumers want a certain type of content, they create a market for it. Therefore, some argue that these rules protect less-desirable, lower-quality content. However, this issue is more complex than that. The web is a winner-takes-all world. “Virality” dictates that content with some success in the recent past, will mechanically enjoy more success in the near future. The winner is winning simply because he won in the past. From “Gangnam Style” to “Keyboard Cat”, internet fads impact us every day. For a short time a viral video might be everywhere and all anyone can talk about. Meanwhile, higher quality content might disappear under our radar because it failed to reach a critical volume in terms of audience quickly enough. There’s a strong argument in favor of protecting a certain diversity and ensuring that the small gems aren’t entirely overshadowed by the big blockbusters.

Data protection also opens up many complex questions. We all want a certain level of data privacy and security. However, we also want to use search engines like Google that use our data to improve their services. In fact, many of today’s major digital success stories – Amazon, AirBnB, Uber, Facebook, and others – analyze, leverage, and otherwise rely on customer data. We want security, but we also want our service providers to know us well enough to give us the best service. Can we have our cake and eat it, too?

What’s important is finding the right balance between data utilization and data protection. And in most of the EU, there is a general consensus that the market is not above the law, and that the state has the responsibility to protect common good. So the fact that regulators are “meddling” in the affairs of media, telecommunication, or retail actors comes as a relief to most EU citizens, and not a surprise. It’s seen as a question of fairness: if digital service providers are competing with traditional ones, shouldn’t they all play by the same rules? Isn’t it totally normal that within the same sector, the same regulations apply?

Is the concept of a “business sector” still relevant in a digital world?

The digital world is an organic one where the very concept of sectors becomes obsolete. Indeed, the dynamic of digital platforms leads companies to constantly reconsider their business model and the world they are in. For example, Amazon started-out selling books, and quickly morphed into a generalist retailer. Then, because of all the computers they needed to optimize their supply chain, they decided to move into the cloud business and provide computing power and storage to the rest of the world. Today, Jeff Bezos’ company pulls in major profit as a media company by displaying ads…

Digital platforms have networked business models, and networks evolve organically. They are always adapting and evolving. A platform company needs to constantly explore new business opportunities and accept the sudden birth or death of their business ventures…

Under these conditions, platforms will naturally always go beyond the limit of their sector of origin. And by diffusion, it’s all the business sectors that are now overlapping and mixing with each other. Faced with this reality, regulators may decide to adapt after the fact. But by doing this, they’ll be signing up for a race where they can’t possibly keep up.

In today’s complex and organic business world, regulators should instead consider embracing the digital business model by adopting a similarly organic conception of regulation. Tomorrow’s state should become the platform of platforms: the meta-platform.

ESSEC Knowledge on X