EC Digital Services Act is Intended to Curb Hyperscaler Power: Will it?

The European Commission’s Digital Markets Act and Digital Services Act are intended to create a safer digital space and promote a level playing field for competitors. 

https://digital-strategy.ec.europa.eu/en/policies/digital-services-act-package 

As always, there are issues, some expected, some that will likely be unexpected. Implementation might be more complicated than expected, for example. “Intermediary services” are covered, including internet access providers, domain name registrars, hosting services, online platforms and marketplaces and “Very large online platforms.

Of course, in reality, some parts of the ecosystem will be affected more than others. At its core, the DSA is a regulatory framework that will impose rules around how platforms moderate content, advertise and use algorithmic processes.

Not many ISPs, hosting providers or some online platforms or marketplaces will have issues with content moderation, advertising and algorithms. Hyperscalers such as Facebook and Google are really the target. 

Though “safety” often is said to be among the desired outcomes, the DSA also represents an effort to restrain the market power of the hyperscalers. 

We shall see how well it works. Historically, big firms are better able to manage the costs of compliance than small firms. So, ironically, it often is small firms that suffer more from compliance costs than dominant firms that are the target of new regulations. 

Ironically, the new regulations should actually reduce effective competition and innovation because smaller firms will not be able to handle the compliance costs. Regulation increases the cost of doing business. 

So, ironically, and despite its intentions, the DSA is likely to be ineffective at restraining the market power of hyperscalers. If and when markets change, it is likely to be because new needs and suppliers arise that favor new firms that eventually displace the present leaders. 

In computing, for example, the leaders of any particular computing era do not retain that leadership in the next era. If you recall the market leaders in prior eras, leadership changed when the eras changed. 

source: Morgan Stanley

If IBM led during the mainframe era, DEC led in the minicomputer era, while Microsoft and Intel led in the PC era. Leadership arguably shifted to applications in the early internet era (Facebook, Google, Amazon). In the mobility era we saw more of a shift to social media. In the next era leadership will shift again. 

source: Deloitte  

Technology might not be destiny, but market leadership reflects such changes. Leaders in a mainframe or minicomputer era did not lead when the “desktop computing” era developed. 

Those leaders might not be the same leaders in the mobility era, and might change again in the coming era (which we do not uniformly agree on, in terms of characteristics or terminology). 

At least so far, consumer applications have defined leadership in the internet era (desktop and mobile). It is not so clear that this remains the case in the next one or two eras, when enterprise apps could lead, and produce a next generation of market leaders.