EU goes after Big Tech with Digital Services Act
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Following marathon negotiations over the weekend, European lawmakers finally approved regulation that will force tech giants to monitor online content more aggressively. The Digital Services Act will compel companies like Meta (NASDAQ:FB), Twitter (NYSE:TWTR) and Google (NASDAQ:GOOG) (NASDAQ:GOOGL) to tell regulators exactly what they are doing to combat misinformation online and quickly rid their platforms of illegal content (such as incitement to terrorism and child sexual abuse). Tech giants will also be obligated to provide transparency about the algorithms they use to recommend content and can be required to take certain measures in the event of a crisis (like the Russian invasion of Ukraine).
Bigger picture: The new proposal, set to come into force as early as 2024, is the second part of the EU's dual approach to protect internet users. The first, called the Digital Markets Act, has yet to be approved, but will go after the "unfair market dominance" of Big Tech. Failure to comply with the rules may result in a fine of up to 6% of a company's global annual revenue, meaning multibillion-dollar penalties for violations.
This time around, there was even a big drive for an outright ban on "targeted advertising," though Google (GOOG) (GOOGL) and Facebook (FB) pushed back, arguing that it would end up hurting local businesses among other concerns. A compromise eventually came together banning the targeting of minors, or the use of gender, race or religion to target users. So-called dark patterns - manipulative schemes that drive people to click on content - will also be banned, while e-commerce players like Amazon (AMZN) will be obligated to prevent the online sale of illegal goods.
Outlook: The European Union is the first bloc in the world to comprehensively put together a digital agenda for how tech giants should operate, starting with GDPR privacy rules back in 2018. In fact, the EU has already leveled a combined â¬8.2B in fines against Google (GOOG) (GOOGL) over antitrust violations, and has several active investigations into Amazon (AMZN), Apple (AAPL) and Meta (FB). Lawmakers in the U.S., Canada and elsewhere are also looking to copy some of the key aspects of the EU's tech regulation to protect user rights and prevent a fragmentation of the internet.