What benefits do online platforms bring to the economy and society?
An ever-increasing number of EU citizens are using online platforms as part of their daily lives – a development that has been further accelerated by the Covid-19 pandemic, where social distancing requires many of us to spend much more time online.
The global nature of the pandemic has accelerated digitalisation at an unprecedented rate, with online platforms taking on an indispensable role in helping citizens transition to the new reality of living in a pandemic, and in enabling them to navigate their daily lives with as much normality as possible despite recurrent lockdowns.
As online platforms facilitate more and more of our interactions – whether in the classroom, at work or in our personal lives - our reliance on their services also increases: for news and entertainment, to connect and communicate, to express ourselves, to produce and access content, to find jobs, transportation, accommodation and much more.
Online platforms are as diverse as their different underlying business models, including for example online marketplaces, search engines, social networks, content-sharing platforms, app stores, communications services, or online travel and accommodation platforms.
Online platforms intermediate information and communication flows on the internet. They are also key enablers of digital trade across the Single Market and the globe. They increase consumer choice and convenience, improve efficiency and competitiveness of industry, and can enhance civil participation.
As key drivers of innovation in the digital world, the success of online platforms is closely tied to the success of a range of businesses that use platforms to reach customers. Platforms allow especially smaller businesses to extend their operations beyond their home state, catering for consumers across the entire Single Market.
The benefits to our economy and society are so significant, that the most successful online platforms have attracted hundreds of millions or even billions of users, making them the most frequently visited websites in the world.
Some facts and figures about online platforms
EU citizens are increasingly using online services, in particular social networks, online shopping, and online content consumption.
Online platforms come in many different forms and sizes. There is a large diversity of online platforms and other online services in Europe, with almost 10,000 high-growth SMEs trying to scale up in the EU.
- In 2020, online platforms have continued to grow at unparalleled rates in comparison to traditional business models. The total value of the world’s top 100 platforms increased by 40% between January and October 2020 to €10.5 trillion.
- Although there are over 10,000 EU platforms, most of these are start-ups and account only for 2.7% of the global total value.
- In order to be included in the global top 100, the minimum company value has now risen to €5.5 billion. There are 12 European companies in the global top 100.
Challenges and risks arising from the platform economy – and the EU’s regulatory response
Successful online platforms benefit from considerable economies of scale -once the number of users grows, so does the amount of data these platforms accumulate over time. This can lead to situations where a few platforms can influence the nature of our communications and interactions as well as become powerful gatekeepers to markets (which they often create themselves - thus determining the rules of the game for access to and the conditions on these markets). This allows a highly efficient matching of supply and demand in markets of unprecedented size, and the centralised power of online intermediaries opens a scope for different forms of abuse.
Dissemination of illegal content, products and services online, such as incitement to terrorism, illegal hate speech, child sexual abuse material, infringements of IP rights
Need to protect fundamental rights: freedom of speech, freedom to information, personal data of EU citizens
Manipulation of platform’s systems to amplify certain messages and behaviours leading to the deliberate misuse of the platforms’ systems for societal harms such as the instigation to violence or self-harm the spread of conspiracy theories, and (political) disinformation, impacting democratic participation
Unfair business conditions for business users, no redress in case of problems (imbalances in bargaining power, coupled with the economic dependency of many business users and customers on gatekeepers)
Abuse of dominant position and risk of weak competition in digital markets due to gatekeepers’ control over whole platform ecosystems
Unfair consumer commercial practices, consumer protection rules ill-suited to digital world
Ineffective supervision of services
In the past few years, the European Union has addressed many of these challenges. For instance, it has addressed privacy concerns, updated consumer protection rules, and has used its powers under competition law to address instances of abuses of dominant market power.
However, competition enforcement cannot always be effective in fast-moving markets, and despite of a range of targeted, sector-specific interventions at EU-level, such as the Audiovisual Media Services Directive, the Copyright Directive, and the Regulation on Terrorist Content Online, there are still gaps and legal burdens to address. The Platform-to-Business Regulation, the Digital Services Act and the Digital Markets Act aim to address some of these gaps and form three key legislative initiatives in the field of online platform regulation.
The platform-to-business regulation
Today, a huge array of products and services are at our fingertips and transactions increasingly take place online. A new ecosystem has emerged with these new consumption habits, often characterized by imbalances in bargaining power in the relationships between online platforms and smaller players conducting their business on their platforms.
From July 2020, EU rules make these relationships fairer and more transparent for businesses. The Regulation on promoting fairness and transparency for business users of online intermediation services or in short Platform-to-Business Regulation, is the first-ever set of rules for creating a fair, transparent and predictable business environment for smaller businesses and traders on online platforms.
Concretely, the platform-to-business regulation ensures that the terms and conditions of online platforms:
Have to be drafted in plain and intelligible language.
Cannot be changed without an advance notice of at least 15 days.
Need to exhaustively spell out any reasons that could lead to the delisting of a business user.
Have to list the main parameters that determine the ranking of search results.
Have to include information about any ways in which a platform that sells on its own marketplace might give preferential treatment to its own goods or services.
Have to be clear about the data policy of the platform – what data it collects, whether and how it shares the data, and with whom.
In addition, the Regulation makes it easier for business users to seek redress in case of problems:
Platforms have to immediately provide business users with a statement of reasons when they delist (some of) their goods or services.
They need to provide an effective and easily accessible complaints handling mechanism (e.g. to challenge delistings).
They need to engage in good faith in any mediation attempts.
Organisations representing business users have the right to take actions before national EU courts to stop or prohibit non-compliance with the Regulation
The Digital Services Act and the Digital Markets Act
As an answer to the array of complex challenges arising from the platform economy, the European Commission has decided to propose an ambitious set of new rules for the digital space: the Digital Services Act and the Digital Markets Act.
This new rulebook, published in December 2020, provides a comprehensive and horizontal framework for the regulation of all digital services, building a foundation for already existing or new sector-specific regulation. The Digital Services Act and the Digital Markets Act will apply to all digital services, including social media, online market places and other online platforms that operate in the European Union.
The new rules will create a safer and more open digital space for all users, where their fundamental rights are effectively protected. They will also lead to fairer and more open digital markets for everyone by fostering innovation, growth and competitiveness.
The scaling up of smaller platforms, small and medium-sized enterprises, and start-ups will be supported by facilitating access to customers across the whole single market. Furthermore, the new rules will prohibit unfair conditions imposed by online platforms that have become or are expected to become gatekeepers to the single market.
Concretely, the Digital Services Act will introduce a series of new, harmonised EU-wide obligations for digital services, carefully calibrated to the services' size and impact, such as:
Measures to counter illegal goods, services and content online.
Strong protections for users’ fundamental rights and freedom of expression.
Safeguards for users whose content has been erroneously deleted by platforms.
Wide-ranging transparency obligations on a variety of issues, including on online advertising and on the algorithms used for recommendations.
New obligations for very large platforms to take risk-based action to prevent abuse of their systems.
Access for researchers to key data of the largest platforms, in order to understand how online risks evolve.
New rules on traceability of business users on online market places, to help track down sellers of illegal goods or services.
An innovative oversight structure to address the complexity of the online space and to ensure effective enforcement across the single market.
The Digital Services Act proposal is complemented by the European Democracy Action Plan, which aims at making democracies more resilient by promoting free and fair elections, strengthening media freedom and pluralism, and countering disinformation.
The Digital Markets Act will set out harmonised rules defining and prohibiting unfair practices by gatekeepers and providing an enforcement mechanism based on market investigations. With the Digital Markets Act, the transparency and fairness principles set out in the Platform-to-Business Regulation are complemented by strict fairness disciplines for gatekeepers.
Concretely, the Digital Markets Act will:
- establish a set of objective criteria for qualifying a large online platform as a so-called “gatekeeper”;
- be well targeted and thereby only apply to certain large, systemic online platforms, which are most prone to unfair practices;
- require gatekeepers to proactively put in place certain measures, such as targeted measures allowing the software of third parties to properly function and interoperate with their own services;
- prohibit a number of practices which are clearly unfair, such as blocking users from un-installing any pre-installed software or apps;
- will allow the Commission to carry out targeted market investigations to designate companies as gatekeepers and to assess whether new gatekeeper practices and services need to be added to these rules, in order to ensure that the new gatekeeper rules keep up with the fast pace of digital markets.
Outlook for the future
The platform-to-business regulation is an adaptive regulation and is being evaluated in the course of 2021 in order to adjust it to changing technological needs.
The European Parliament and the Member States will discuss the Commission's proposals for the Digital Services Act and the Digital Markets Act in the ordinary legislative procedure. If adopted, the final texts will be directly applicable across the European Union.
Online platforms operate in a very dynamic environment. For this reason, the Commission set up an EU Observatory on the Online Platform Economy to monitor the evolution and identify emerging challenges. Among the topics the Observatory is looking at are issues related to data access and use, non-discrimination as well as algorithmic decision making or ranking.