The EU is about to adopt a regulation called the Digital Markets Act (DMA). For many of you, this isn’t news. The news is that what’s coming will completely scramble the app market; how you build apps, how you get them to market, and whether you can make a living doing it.
What changes are we talking about?
The goal of the regulation is a highly fragmented and contested app economy replacing today’s ecosystem. The current ecosystem will be disassembled, so developers will no longer be able to rely on platform companies to align the many stakeholders and technical inputs. Instead, individual companies will provide the many niche components and services that today come from ecosystem owners. The vision is hundreds of unrelated specialist companies competing for each API and service that makes up your app business.
The first step will be to break apart and silo all the various services that today’s platform companies provide. App stores will be separated from the OS, and the device and essential apps and APIs from the OS owner, leaving app developers to deal separately with dozens of different providers to integrate functionalities such as maps, search, authentication, payments, ads, security, and so on. With the legislated ability for users to delete default apps, device configurations will be random and unknowable, pushing many essential functions off device.
This scale-up in complexity and friction in service management will make it harder and more costly for developers to serve a broad user community. A fragmented user base will drive up marketing costs. The regulation’s limits on targeted advertising and siloed user data will restrict monetization options, at the same time that the loss of cross-subsidized platform services will increase the cost of working with the many new partners involved.
Device neutrality might sound good, but users themselves will struggle with the burden of managing their devices. Without trusted ecosystems, extensive user education will be needed to help them manage their own apps and operating systems unassisted. Overall consumer trust in devices and software is likely to erode, and the experience for EU consumers will quickly diverge from those in other parts of the world.
Despite the upheaval ahead for the vast majority of developers, some large software developers have heavily lobbied for these changes. With ecosystem owners reduced, and business systems capable of bridging the gaps already in place, they see a future where the mighty fall and the large become mighty.
Small and medium-size developer businesses will simply have to pay more to reach smaller audiences, wrestle with hundreds of new, proprietary APIs, and navigate a maze of transactions and partnerships on their way to market. New barriers to growth will include the regulation’s severe restrictions on mergers and acquisitions by larger companies. Only the well-capitalised will survive.
What does the new regulation do?
Dismantles ecosystems, silos services, bans cross-platform subsidization and removes any central coordination between the partners required to get an app to a user. Makes business practices illegal online that are legal and pro-competitive in the brick and mortar marketplace.
The companies that invested in and orchestrated the mobile app ecosystems are considered “gatekeepers” (in a bad way) and therefore subject to a series of obligations and prohibitions meant to make their businesses contestable by other companies. These are very rigid rules, and they go beyond what’s acceptable for offline, traditional businesses (e.g. a supermarket promotes their own branded products, but an OS and app store owner won’t be allowed to do the same). The ‘gatekeepers’ will have to adjust how they are doing business in a way that they enable competitors through access to their assets and sharing the market with them while removing their ability to benefit from their scope and scale to compete.
Tear-down ad-supported business cases.
Targeted advertising could be heavily restricted (or completely banned if proposed amendments are adopted), as the European Parliament wants to tackle “surveillance capitalism”. This could be enacted in the DMA, but also in a parallel proposal for content regulation, the Digital Services Act (DSA).
Ban large tech companies from buying start-ups.
Mergers and acquisitions will be strictly supervised and restricted, no matter the size of the transaction or motivation for the deal.
The app economy is about to face dramatic changes driven by the EU’s DMA. The market will be smaller, more fragmented and complex, and very unstable for the foreseeable future. Entering the market by simply coding a great app and submitting it to the app store will no longer be an option. Business development, legal and strategic capabilities will now become the foundation for app economy participation. Everybody should start to rethink their business models and how to rebuild their apps, their operations, and their markets.
We’re constantly reaching out to policymakers and raising awareness on the impact of new laws on developers’ ability to succeed. We called on the EU to avoid the unintended effects of the DMA: weaker cybersecurity, market fragmentation, increased costs, higher barriers to entry, and entrenchment of large competitors. While informed minds may differ, all we asked for was the opportunity to explain the logic of our predictions, and then to hear their rebuttal.
Rather than engaging with stakeholders and crafting a regulation that balances the many trade-offs, they have chosen to play politics. Throughout this process, the small developer perspective has been ignored despite the obvious damage these regulations will cause. The people you elected to represent your interests have made the very conscious choice to ignore you.
While many businesses will be disrupted, software developers will inevitably adapt to the new market conditions the politicians are imposing. Adaptability has always been key to developers’ success and we don’t see that changing anytime soon. At the same time, representative democracy only functions when policymakers are made accountable for their actions. We encourage you to reach out to your local elected officials and have them explain whether they support the changes that threaten to upend your livelihood.
We remain committed to helping you to stay informed and bring your voice to market regulators. How will DMA effect your work? Pleas let us know.