How the DMA is Reshaping Ad Tech for Better or Worse

With the aim to curtail the unchecked dominance of big tech firms and foster a more equitable space, the DMA has stirred both apprehension and optimism within the ad tech industry. We take a look at some of the intricacies and implications of this landmark legislation, armed with insight from ICLE’s Lazar Radic.

Gatekeepers of the online world

At its heart, the DMA targets the "gatekeepers" of the online world. These are the behemoths that control access to vast digital landscapes. Think of companies that are household names, platforms where billions congregate. The criteria for this designation? A mix of market impact, financial muscle, and user reach. If a firm has a strong grip on market access, it's in the spotlight.

The DMA is aiming to curtail the effects of these advertiser monopolies that have remained unfettered, as we all know by now. Through key provisions like Articles 5 and 6, the DMA prohibits platforms from favouring their own services and requires them to maintain a level playing field for all market participants. The DMA enforces these rules with substantial fines, up to 10% of global annual turnover for non-compliance, as outlined in Article 10, and grants the European Commission significant investigatory powers under Article 12 to ensure adherence. 

ICLE’s Lazar Radic calls what the DMA is trying to achieve ‘the Brussels effect’ - “a regulatory contagion from the EU to other places. This would turn it into something like what you have called “the world’s digital police,” at least within the boundaries of the conduct covered by the DMA,” he explains. 

Why does this matter for advertising? The stats paint a clear picture. A few giants command a staggering share of digital ad revenue - north of 70% in some markets. This concentration of power stifles competition and innovation, and the DMA wants to do something about it.

The DMA vs Big Tech

We’re seeing the EU hold Big Tech to standards set out by the DMA in real time. Just a few days ago, the European Union launched investigations into Meta, Apple, and Alphabet for potential violations of the DMA, scrutinising their practices for anti-competitive behavior. 

These investigations follow the recent €1.8 billion fine imposed on Apple for competition law breaches and come amidst broader global scrutiny over tech monopolies. With possible fines up to 10% of annual turnover looming, the companies have expressed intentions to engage constructively, highlighting efforts to comply with the DMA's regulations.

This action by the EU, particularly against such high-profile companies, emphasises the significance of the DMA in ensuring open and competitive digital markets, reflecting the EU's proactive stance on digital market regulation ahead of the 2024 European Parliament elections.

What about YouTube?

YouTube's designation as a "gatekeeper" under the Digital Markets Act places it squarely under the microscope for how it manages access to its vast video inventory, which is the largest in Europe. The DMA's stipulation that gatekeepers must not favour their own services or products in ranking over third-party offerings raises critical questions about YouTube's exclusive partnership with Google's Demand Side Platform (DSP), DV360. This arrangement, which restricts third-party DSPs from accessing YouTube's ad inventory directly, could potentially conflict with the DMA's intent to ensure fair competition and equal access on digital platforms.

If YouTube's exclusive deal with DV360 is interpreted as providing undue preference to an owned and operated (O&O) ad tech product, thereby limiting competition and choice in the digital advertising marketplace, it may indeed be viewed as a breach of DMA rules. The crux of the matter lies in determining whether this exclusivity constitutes "unfavourable" treatment of third-party services and products, challenging the principles of open and contestable digital markets that the DMA aims to protect.

Potential consequences for advertisers

Though well meaning, much is still unaccounted for. Especially for advertisers.

For advertisers, adapting to managing additional silos can further complicate an already tricky task. With the fragmentation of tracking and profiling individuals at scale without relying on third-party data, which is frequently stored in third-party cookies, many marketers are already grappling with this challenge. Radic describes this as “...clearly designed to drive a wedge in gatekeepers’ ad tech model, preventing them from cross-using data between a core platform services and any other service provided by the gatekeeper - for example, between an online search engine, a messaging app, and a social networking app.”

This could also potentially hinder the relevancy of ads. If the foundational goal of ad tech is to deliver the right ads to the right audience, the DMA’s stipulations are in direct conflict to this. Advertisers' capacity to organise data for the purpose of creating more targeted ads will be undermined, as restrictions prevent them from combining data from various core platform services and utilising data generated by business users on those platforms.

 “Gatekeeper’s ad tech might become less effective, and their ads less relevant. This hurts gatekeepers. In turn, given gatekeepers’ loss of control of advertising on their own platforms, end-users might be exposed to more irrelevant, random advertising noise from third-parties,” explains Radic. “This hurts consumers. The DMA could also impact gatekeepers’ incentives to invest in their platform, seeing as how the regulation purposefully facilitates third parties from free-riding on those investments. This, in the end, hurts everyone.”

Where does this leave the industry?

To look on the hopeful side, advertisers may rejoice at the thought of a more diverse and accessible playing field, where the best case scenario is one which sees smaller ad tech firms thrive. Yet, this comes with a sting: the increased compliance and potential operational complexities could strain resources, especially for smaller players. Could this be a double-edged sword? Certainly. The DMA promises a fairer market, but not without demanding a new level of agility and adaptability from advertisers. There are also concerns that consumers will be treated like an afterthought, due to heavy restrictions on data control and a strict compliance framework. The DMA could very well be the catalyst for a new era of innovation, or the harbinger of badly planned, stringent constraints. The litmus test for the DMA's efficacy ultimately lies in the market's evolution or stagnation - a baptism by fire of sorts for the ad tech industry.