Europe Is in Danger of Regulating Its Tech Market Out of Existence

🌈 Abstract

The article discusses how Apple's decision to not release certain products and features in the European Union due to regulatory requirements imposed by the EU's Digital Markets Act (DMA) is an example of tech companies increasingly choosing to "exit" unfavorable regulatory environments rather than trying to "voice" their concerns and negotiate. The article provides several other examples of how EU regulations have pushed tech companies to block features or services in specific countries, and argues that Europe's regulatory approach risks creating a "balkanized 'splinternet'" where international tech giants may choose to withdraw from the European continent.

🙋 Q&A

[01] Apple Intelligence and EU Regulations

1. What is Apple Intelligence, and why is it not being released in Europe? Apple Intelligence is a new suite of features for the iPhone, iPad, and Mac that uses artificial intelligence to help with tasks like writing and editing emails, creating new pictures and emojis, etc. Apple is not releasing it in European Union countries due to the regulatory requirements imposed by the EU's Digital Markets Act (DMA).

2. How does the EU's regulatory stance contribute to Apple's decision? The article argues that Apple's decision is exactly what you'd expect to happen given Europe's regulatory stance. The economist Albert Hirschman described the two options in an unfavorable environment as "voice" (attempt to negotiate and communicate) or "exit" (choose to leave the unfavorable environment entirely). The article suggests Apple is choosing the "exit" option by not releasing certain products in Europe due to the regulatory requirements.

3. What is the EU's perspective on Apple's decision, as expressed by Margrethe Vestager? EU Executive Vice President Margrethe Vestager called Apple's decision a "stunning declaration" of anti-competitive behavior. The article argues that Vestager's statement is "ridiculous on its face" because a tech company choosing not to release a product invites more competition, not less.

[02] Tech Companies Exiting Europe

1. What are some other examples of tech companies blocking features or services in specific countries due to regulations?

• Facebook removed all news content in Canada in response to the country's Online News Act
• Google News withdrew from Spain over a "link tax" law, though it later returned when the law was changed
• Numerous technology firms have left China due to the power the Chinese Communist Party exerts over foreign corporations
• Adult sites are blocking users in various U.S. states over age verification laws
• Meta delayed the EU rollout of its Twitter (now X) competitor Threads over regulatory concerns, and declined to release its Llama AI models in the EU

2. How are technology companies responding to unfavorable regulations in Europe? The article states that technology companies have traditionally invested large amounts of money in "voice strategies" - lobbying officials and trying to improve poorly written laws. However, they are increasingly aware of their ability to "exit" unfavorable regulatory environments, especially in the European context.

3. What are the risks of Europe's regulatory approach, according to the article? The article argues that Europe's regulatory approach risks creating a balkanized "splinternet," where international tech giants may choose to withdraw from the European continent entirely. This could lead to Europeans living in an "online backwater with out-of-date phones, cut off from the rest of the world's search engines and social media sites, unable to even access high-performance computer chips."

[03] Regulatory Overreach and Business Impacts

1. What are some examples of regulatory overreach by the EU, according to the article?

• The EU is trying to dictate product decisions or rule entire business strategies illegal for successful foreign tech companies.
• The EU required Meta to provide a free, non-personalized version of its social networks, even though non-personalized ads cannot economically sustain Meta's services.
• The EU singled out X's new blue check system as a deceptive business practice, essentially telling the company how it must manage its product features.
• French regulators are preparing to charge Nvidia with anti-competitive practices related to its CUDA software, which the article describes as "exactly the kind of innovative research that should be rewarded."

2. How do the potential fines under EU regulations impact tech companies' decisions? The article states that the EU's policy of allowing fines of up to 10% of a company's global revenue is a major concern. Since the EU only accounts for a small percentage of revenue for many tech giants (e.g. 10% for Meta, 7% for Apple), a single large fine could be more profit than the company makes in the EU in several years, "destroy[ing] the economic rationale for operating there."

3. How does the article characterize the EU's regulatory approach as arbitrary and poorly designed? The article argues that the EU often doesn't write clear rules in advance, but instead requires businesses to meet abstract goals, with regulators deciding afterward whether the company is in compliance. This places the burden on companies to "read the regulatory tea leaves and determine what steps to take," rather than having clear, concrete requirements from the EU.