Why the Digital Markets Act was inevitable and the path forward for Marketplaces (part 2)

Jan 27, 2023
Photo by Fidel Fernando

By Neal Riley, Founder of Salable

In part 1, Neal referenced how Atlassian (and it’s ecosystem) gained success through leveraging its Marketplace and why this model is a win-win. In part 2, he looks forward and suggests ways to improve things in the Digital Economy for all participants.

The success of these ecosystems and others, are predictors for what is to come

Atlassian’s ecosystem journey wasn’t unique in the Digital Workplace market, nearly every major platform at their scale has some kind of API/Integration ecosystem. In fact, with this lens, you can begin to see the world of platforms all around you; How many people buy an iPhone or an Android device and NEVER install an app? How many people open a new Windows computer and NEVER install an app? Your phone is a vehicle for innovative, evolving Apps. The same goes for many of your other devices.

It’s clear that this kind of shared-value-delivery strategy is pervasive. You could think of these as commercial ‘features’ of a platform, but what’s emerging is a situation where platforms are creating entire new economies. Steam, arguably one of the most popular online Marketplaces for Apps (in this case video games), hired Yannis Varoufakisto be their Economist in Residence (Yannis and Team Fortress) due to the scale of these new economies.

The giants aren’t playing fair

You’ve probably seen the press for Epic’s (maker of Fortnite) ‘battle’ with Apple and I won’t belabour it too much here. The whole case rests on hats (well…virtual outfits for Fortnite characters). It’s big money and Epic’s stance is that the restrictions placed on how money is taken through Apple’s platform is anti-competitive. Essentially in Apple’s walled garden, even if your app is free (as is Fortnite) to install, any purchase through Apple for add-ons requires paying the ‘Apple Tax’, a percentage paid for use of their service. When Epic introduced code that allowed for purchases that went through their own service, Apple kicked them off the App Store. Hence the lawsuit.

While the Judge in the California case brought by Epic (they sued them all over the world) did note that the profit margins and investment (or lack thereof) resembled that of monopolies in the time of Standard Oil, the actual impact to Apple’s bottom line is still unclear.

Apple isn’t the only company who operates their marketplace this way, facets of their approach can be seen across all of the tech giants. In many cases these gatekeeping practices are simply an emergent process of a system where the Platform controls the app ecosystem and the core applications/products.

The development of a Marketplace is not an insignificant effort and can be fraught with risk. If successful, another problem arises: the businesses building on these marketplaces grow to a size where the risk of building one’s own commercial infrastructure is worth the investment. The practices and platform are fit-for-purpose when starting a Marketplace (i.e. making it simple) but ends up acting as a ‘gatekeeper’ in the EU’s directive.

Governments are taking notice

In 2022 the European Union took their stand to protect EU citizens’ digital rights and curtail the potential practices that would render a digital economy unhealthy, by setting out restrictions on Gatekeeping practices in the largest technology companies. From the outset they’ve focused on the largest organisations, however there’s no doubt they’ll be expanding this (if GDPR is any example).

The Digital Markets Act (and its sibling the Digital Services Act) set out a number of restrictive gatekeeping practices that violate EU law, including search ranking, commercial modelling and payment providers i.e. platform providers cannot act as a ‘sole’ provider, or provide themselves a better experience/result (i.e. Amazon Basics always being at the top of searches).

The largest organisations are scrambling to combat this, and long-standing stipulations are starting to be chipped away. Apple first had to concede multiple payment providers in South Korea and The Netherlands and Google recently announced allowing multiple payment providers (while keeping a high ‘Google tax’ for purchases) through their platform. The EU has also sent an emissary to Silicon Valley to continue to ‘work together’ with these organisations.

The path forward

These are simply not going to be enough. The EU has taken the first step towards securing a healthy digital future, but what’s really needed here is a seismic shift in the Digital Economy. The innovation that SaaS platforms have brought us in the past 20 years has resulted in a structure which dis-incentivised innovation in commercial infrastructure — and this needs to change.

Two key areas of growth that will change the landscape from hinterland to healthy are:

- Reducing the barrier to entry to developing Marketplaces

- An open Marketplaces framework for interoperable and composable SaaS offerings

The Digital Economy needs Marketplaces to innovate new ways of delivering value<->wealth for our emerging makers and transformation industries. The Open Marketplaces framework needs to redefine the way the apps integrate, are sold and licensed, and how the customer experiences the buying journey. This needs the best and brightest from industries across the Digital economy, including platform providers and vendors.

It’s going to be a fascinating century, if you’re interested in joining us on this journey get in touch!

Tweet from Neal Riley saying "Commercial freedom and flexibility is a must for any digitally enabled business. @SalableApp gives you the tools to build your SaaS business."

Tweet from Neal Riley saying "Commercial freedom and flexibility is a must for any digitally enabled business. @SalableApp gives you the tools to build your SaaS business."