Building a stronger and more competitive Digital Europe

CEO of EIT Digital, Willem Jonker, spoke to Innovation News Network’s Georgina Ryan about the European Commission’s latest legislative proposals: The Digital Services Act and the Digital Markets Act

As part of the European Digital Strategy, the European Commission has proposed two legislative initiatives: The Digital Services Act and the Digital Markets Act. The objective of the regulation is to address new challenges that have surfaced as the digital industry has developed. The Acts focus on providing a legal framework that ensures the safety of consumers, protects fundamental rights, and maintains a fair and open online platform environment. As well as this, they aim to tackle monopolisation within the digital industry, which leads to unfair conditions for businesses and less choice for consumers.

EIT Digital aims to strengthen Europe’s position in the digital world and drive forward Europe’s digital transformation by delivering innovative digital technology to European markets by offering technology, education, and support to entrepreneurs in the digital sector.

Its CEO, Willem Jonker, discusses how the Acts will bring greater independence to the European technology industry, outlining their compatibility with growth and innovation, how to challenge technology monopolies and what steps Europe needs to take to become a world leader in the digital sector.

How will the Digital Services Act and Digital Markets Act bring greater independence and autonomy to Europe?

The acts aim to achieve two things.  Firstly, better protection of citizens when doing online shopping, and e-commerce. Secondly, creating a more equal playing field and avoiding monopolisation or dominance of specific platforms. So, there is a dual objective that both acts, together, want to reach.

How it will work out in practice, of course, will remain to be seen, because this is the first proposal, and the proposal has to be negotiated with parliament and Member States, before it is cast into law, so there is a quite a bit of time to go.

You can expect that the existing players will, of course, try to influence the final outcome. but, also, it will be possible for them to adapt to the new regulation, because they have the resources and the means to do so. Therefore, in the short-term, we may not see much change.

The success of long-term change depends on the final outcome. However, it also depends on something as important as the regulation itself. The regulation aims to create a fair and more equal playing field but, European companies are highly underrepresented in this domain. So, you have to address this as well, and create the European players, because if you have an equal playing field, but you do not have the European players to operate n that equal playing field, you still did not achieve your objectives.

Ultimately, it is about digital sovereignty, and digital sovereignty in the end is about choice. In turn, choice is a matter of competition, and alternatives. Therefore, digital sovereignty is incompatible with monopolies or dominance of certain players. The notion of choice also has to do with the fair treatment that you get from the different actors, and that is what the two regulations together are focusing on. But once again, next to regulation, it is very important to stimulate the creation of the digital European players, partly by strengthening the existing players and making them more prominent, and also by creating new players.

If you look today at the top 50 companies in digital, there is about five European players. These players are all from the past century, and mostly quite old., whereas a lot of the new players are coming from outside Europe. In order to compete, Europe has to renew, it has to renew its digital industry, it has to build new digital guidance to impact it and of course, has to compete in a fair manner in a playing field that creates equal opportunities, but building those new European players is as important as regulating the market and services.

How has Europe’s position in digital been weakened by large technology giants that mostly come from outside of Europe and are dominating the marketplace? How would the Digital Services Act challenge that monopoly?

That, of course, is the big question and the combination of the Digital Services Act and the Digital Markets Act is not necessarily enough to break those monopolies. In the US, there is now a case starting to simply break up Facebook. This is something Europe also has available as a tool. Essentially, the breaking up of dominant players to make them smaller and creating a more equal playing field. So, it may be that Europe has to resort to this, as well, if current regulation does not do the job.

No matter where they come from, monopolies are never something that you would like to have in a good functioning marketplace. In reality, if monopolies see competing companies emerging, they buy them and integrate them in their own framework; this is what happened with WhatsApp, and Instagram, which were bought by Facebook. This is how they consolidate their position, of course, and you cannot blame companies for trying to keep being strong. Therefore, the best thing to do to challenge strong competitors is to be strong yourself. That is why we keep pushing for the building of a strong digital European industry.

Does Europe have the power to hinder these tech giants?

The power landscape is changing. Of course, the Commission has been acting towards perceived violations of competition law against Google and Microsoft, and there was a case in preparation against Amazon too. However, the cases have not led to a situation where things have significantly improved. Geopolitics plays an important role as well, by banning specific companies, from infrastructure or from services in the US, but also in Europe.

I think an important breakthrough is public opposition against the dominance of big tech. There have been public hearings, with the big tech companies in the US. The law makers are quite critical to towards it, and the same is happening in Europe. I think there is a growing understanding that something needs to change. This will make it more difficult for dominant players to maintain that position, because the political support for their dominance is significantly reduced, as opposed to, for example, five years ago. The landscape is changing and as a result, I think that lawmakers will be more successful.  It is also needed for the healthy development of the digital world. I think in the long run, even the dominant players will understand that themselves. The self-regulation did not bring a lot, so further measures need to be taken.

At the same time, companies look very much at their competitors. What is my competitor doing? Am I still competitive? If those competitors are not there then they have less incentive to change and to adapt, so it is very important for companies to have these competitors there, and again, that is why monopolies are not healthy, because this push towards further innovation is not there.

What actions does Europe need to take in order to secure the digital industry as its leading sector going forward?

I think what we need is an offensive policy rather than a protective policy. We have to look at areas where we have opportunities, a right to play and a right to win. And there are areas where we have a right to win, like the digitisation of industry. Europe has a very advanced manufacturing industry, by successfully digitising that industry, we can make it much more competitive and make sure we remain world class.

Another area where Europe should invest is healthcare; Europe has a great healthcare system that is also quite balanced. Across the board in Europe, everybody has access to the same healthcare services, and this is a strength of Europe, and it is also an industry where Europe can play a leading role. Europe should apply digital technologies in those domains to strengthen its position and to be competitive.

Europe was once dominant in mobile with Nokia, that position in Europe is completely gone. In general, European technology has disappeared a lot from the consumer space. In audio video, Europe was once very dominant, but this is no longer the case. There are hardly any audio TV set suppliers left in Europe. And sometimes the brand is still there, like in the case of Philips, but it is licensing to an Asian company. Looking at the internet, the social media platforms, the web shops, the search engines, consumer-oriented services, Europe has largely disappeared.

So where is Europe strong? Philips, for example, purposely moved out of the consumer space into healthcare, where it now a strong healthcare player. The other area where Europe is still strong is semiconductors. ASML, of course, is a world leader, but it is a business-to-business company. The other company, when it comes to data is SAP, but it is also a business-to-business company. Nokia had a business-to-consumer component with its mobile phones, but that disappeared. It is now a network company, selling operators, so it too has become a business-to-business company

Europe has moved away from the business-to-consumer technology, into the business-to-business technology. Therefore, Europe’s stronghold is less visible to the public because you do not interact immediately with them. Whereas, with Facebook, Apple, Amazon, you interact. Microsoft, a little bit less, but Microsoft also sells desktops, so consumers see it through its desktop sales and see it is still there. This is where Europe should find its way back into the consumer space because that’s where you immediately connect to the consumer. Europe has disappeared from this space and this needs to be rebuilt.

In my view, the strategy should be offensive building in the domains that I mentioned, as well as in the domain of food and food health. The other area is the digitisation of the industry and at a higher level, we go for green, where Europe is really championing.

We should develop a strategy around digital for the consumer, the digital consumer space, which we have to regain. We have been there in the past and it is an important place to be, especially when you talk about the Digital Service Act, because it is also an act that is about digital services provided to consumers to a large extent. So that is where the strategy should be focused on to strengthen Europe’s digital position across the board.

Are innovation and growth compatible with the new regulation?

Innovation and complex regulation are not necessarily a good pairing. Regulation should be kept simple. We now have 200 pages of regulations for two acts, which is quite complex. This is worrying because incumbent players are normally better positioned to defend themselves in a highly regulated environment. The more complex the regulation, the more difficult it is for new players to enter the markets. Therefore, regulations must be kept simple.

As well as this, there is not a one-size-fits-all approach. If you look at GDPR, it is one large regulation on data, however, medical data is very different from IoT data, which is very different from advertising data. If regulation attempts to cover all of these areas it becomes again, very complex, which might hinder innovation in certain areas, because certain areas have to follow regulation that was actually not tailored to that specific domain. For example, machine data processing is hindered sometimes by GDPR regulations, when it has nothing to do with privacy. I If you drive a car and your speed indicator reads out a sensor on the wheel, what is problematic around that? It is a closed system. However, if you do that through the cloud, and you share that data with others, all of a sudden, there’s GDPR rules applying on data that, by definition, does not even get touched by it.

I have experienced two obstacles due to this new regulation. First of all, the complexity and I am a small company, I cannot hire a lot of lawyers to find a way to move through it. And secondly, I am facing the issue of data privacy. I deal with data from rail tracks, trains, and weather conditions. There are no privacy issues related to this at all so why do the data regulations apply to me? I would like to see less stringent rules, more specifically tailored to machine data.

How will the Acts create a safer, more open digital space?  What benefits will this bring to the consumer and will it have an impact on citizens’ control over their individual personal data?

The aim of the Digital Service Act is to build in certain guarantees towards consumers when they are purchasing online, with the way that data is treated. The act is fully geared towards protecting the consumer by giving additional rights with respect to returning goods and having more information, but also having clarity over what is done with their data and what kind of data is stored about them. It aims to improve services, reduce fake offerings, poor quality offerings, and improve transparency on what data is given and what is done with it, giving the consumer more transparency about how the market is functioning online.

Do you have any final comments for our readers?

Regulation is good. But it is equally as important to build and invest in a strong European digital industry. Another important aspect is looking into the existing regulations on how to deal with monopolies. Going forward, more focus needs to be given to the definition of the market and to how the market functions. This is a big issue, because if you have a discussion with Amazon and you define the market as retail, Amazon will tell you, ‘well, if you look at the global retail market, we only have 1%, we are not a dominant player at all, because there is a lot of physical shops, other channels, and so on’. This is true. That being said, if you look at the digital platform delivery of retail, Amazon probably has a position close to half of the market, maybe even more, and it is expanding still, so it is all about market definition.

Willem Jonker

Professor Willem Jonker
CEO EIT Digital
https://www.eitdigital.eu/
Contact: Vanessa Perez – vanessa.perez@eitdigital.eu



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