Europe is dropping the hammer on Big Tech (again)

The largest tech players in Europe — like SAP ($148B), Spotify ($60B), Adyen ($57B) — are minnows compared to competitors in:

• America: Apple, Amazon, Microsoft, Alphabet, and Facebook have market caps between $780B and $2.2T (with a ‘T’)
• China: Tencent and Alibaba are both worth $700B+

The Old Continent may lack punch on the business side — but it  compensates with a BIG hammer when it comes to regulation. And on Tuesday, the European Commission came out swinging.

2 proposed bills are meant to regulate tech

Here’s what’s on the table, per the Wall Street Journal:

• The Digital Services Act would require tech players that reach 10% of the EU’s population to “actively look for and mitigate risks” available on their platform
• The Digital Markets Act would ban behavior by “gatekeeper” tech companies (such as forced bundling of services) and create obligations to smaller competitors (such as price transparency)

The UK is rolling out similar legislation. And while no names were named, the EU’s “gatekeeper” cutoffs (e.g., minimum sales of ~$8B and market cap of ~$80B) sure make it look like it’s going after Big Tech.

The source of Europe’s influence: its massive economy

Countries in the European Union have a combined population of ~450m people and a GDP of ~$20T, right up there with China and the US.

In what is known as the “Brussels Effect” — which nods to the city where EU rules are made — Europe’s size allows it to create laws that the biggest corporations around the world must follow to access its market.

The last major hit was the General Data Protection Regulation (GDPR) privacy law, which has dished out $200m+ in fines for 2020.

The kicker for the new bills are the potential penalties

Violators can be hit with:

• Fines of 6% to 10% of annual worldwide revenue (10% of Apple’s revenue is $25B+, which is a touch more than the ~$550k Twitter just got fined for violating GDPR)
• Breakup of tech companies for abusive behavior

In one win for tech, the liability shield for content that passes through a platform would remain.

While there’s no guarantee the bills will get passed, Europe’s antitrust czar Margrethe Vestager sure had some ominous words: “We need to make rules that can bring order into chaos.”