What the EU’s Digital Markets Act means for the middle market

In my previous article on the EU’s Digital Markets Act (DMA), I examined how it works, who the gatekeepers are, and how it is progressing. However, the DMA's effects extend beyond purely the designated gatekeepers and open up a range of possibilities and shifts in the middle market.

To summarise, the DMA aims to implement some checks and balances on large digital platforms and service providers, known as 'gatekeepers'. The designation of gatekeeper has been imposed by the European Commission on titan organisations like Alphabet (Google), Amazon, Meta, and Apple. The Act provides a regulatory framework of obligations and prohibitions designed to create a fairer and more balanced digital market landscape. The aim is to ensure that smaller organisations have a better and more equitable chance of succeeding by limiting gatekeepers' potential abuse of their immense market control.

Despite much of the focus and buzz around this Act being directed towards how it will affect the gatekeepers, the DMA is just as much about giving smaller companies a foot up as it is about limiting the power of the big players. So, let's take a look at how this landmark legislation will affect small and medium-sized enterprises (SMEs) and the middle market at large.

The DMA’s implications for the middle market

The Act's implementation will be hugely significant for middle-market businesses. By modifying smaller companies' relationships with big digital platforms, new opportunities for growth and success are almost inevitable.

The DMA prevents gatekeepers from favouring their own products or services on their platforms. This allows SMEs to compete more fairly with large companies on digital markets such as search engines, online marketplaces, or social networks. Medium-sized companies now have more chances to see their products or services better positioned and visible to end-users. Additionally, the gatekeepers are now required to guarantee greater interoperability between their services and those of third parties. This means that medium-sized companies can innovate and develop solutions that more easily integrate with the dominant ecosystems, whether it be applications, software, or services interconnected with the platforms of large tech companies. This also encourages a greater diversification of offers and a more extensive range of choice and freedom for end-users/consumers.

Medium-sized companies are often dependent on large platforms to reach their customers or distribute their products. With the DMA seeking to limit the power of these platforms to impose restrictive conditions or force SMEs to use certain services (such as internal payment systems), they can choose their tools and business partners more freely, consequently improving their margin of manoeuvre. Further to this, the DMA stipulates that gatekeepers must share relevant data with business users, giving SMEs a valuable opportunity to access strategic data that they can use to understand their customers better, customise their offers, and make more informed business decisions. Finally, SMEs stand to improve their bottom line through the DMA. Gatekeepers now have limits on the fees and commissions they can impose on third-party companies.

All in all, the middle market stands to benefit significantly from the Act. The introduction of mechanisms for monitoring and sanctions against anti-competitive practices by gatekeepers means that medium-sized companies are better protected against abusive behaviours such as blocking access to certain markets or technologies. Companies can also use complaint mechanisms if they feel they are victims of such practices, improving transparency and reinforcing fair competition.

What happens if the gatekeepers are non-compliant?

As discussed in the previous article, some of the gatekeepers have not necessarily been strictly compliant and are currently under investigation by the European Commission for this reason. Non-compliance with the DMA could mean that middle-market businesses lose the previously mentioned benefits and protection that it seeks to provide, potentially leading to (or caused by) anti-competitive practices.

To leverage the DMA’s capabilities, medium-sized companies have a role to play and should actively monitor the practices of gatekeepers and report any violations to the relevant regulators. Medium-sized businesses may also collaborate with professional associations or industry groups to strengthen their collective voice and ensure that DMA violations are quickly brought to the attention of authorities.

For their own protection, SMEs should diversify their distribution and sales channels. By relying on multiple platforms, they can reduce the risks associated with potential DMA violations by a single dominant actor.

Start-ups and middle-market businesses should begin (or continue) investing in innovation to remain competitive. This could include developing services or products that do not entirely depend on gatekeepers or creating new business models that can fully take advantage of the opportunities offered by the DMA, such as interoperability and access to data.

The future of the digital landscape is looking bright

The DMA is still in its infant years, only just becoming fully operational. There will undoubtedly be some defects or loopholes to work out, but it is a promising start to a fairer and more competitive digital era. Because of its infancy, I don't expect us to see any significant changes in the middle market in the short term. We should not expect the effects of DMA to be felt for at least another four or five years. In the longer term, the opportunities should be numerous for SMEs through the rebalancing of the digital landscape and limiting the power of large digital platforms.

Whilst there is some time between now and when we can see the fruits of this groundbreaking legislation, its ramifications could ripple beyond just European businesses, potentially influencing other regions to follow suit. The precedent being set by the European Commission is clear: the digital marketplace of the future should be fair, balanced, and free for all to participate in.