By: Kaylie Scalze
The European Parliament passed the Digital Services Act (DSA) in July 2022, requiring several major tech conglomerates to implement stricter safeguards on their online markets, social networks, and content-sharing platforms. The DSA recently began fully applying to all VLOPs (Very Large Online Platforms) within the European Union. Companies like Meta, Google, TikTok, and Amazon are among the tech companies deemed as such.
The European Commission describes the DSA as a law that “[a]ims to create a safer digital space where the fundamental rights of users are protected and to establish a level playing field for businesses.” The main objectives of the regulations within the DSA are to create more transparency and accountability in the primary online sphere that sees the most traffic volume. Other significant pieces of law include a requirement that forces companies to give users at least one option to opt out of recommendation systems and profiling based on their personal data. This comes in addition to the ban on targeting advertising based on a person’s sexual orientation, religion, ethnicity, and political beliefs. Companies like Google have already begun releasing reports expanding their transparency regarding how their ads are targeted. Parents and concerned citizens across Europe can feel better about their children surfing the web thanks to the DSA’s restrictions on targeting advertisements to children. Meta, the parent company of Instagram, Facebook, and WhatsApp, to name a few, announced that teens between the ages of 13 and 17 across the globe will no longer be targeted by ads based on their activity within Meta apps. Several other companies that fall under DSA regulation have followed suit with many publishing reports and changing ad policies on their services across the globe.
To fall into the category of online business that must now adhere to the Digital Services Act, a company must be characterized as a “Very Large Online Platform” or “VLOP.” The European Parliament required companies to report their monthly user numbers by February 2023 so as to give the European Commission time to assess the designations. Any European company that sees an average of 45 million monthly users or more falls under the purview of the DSA. On April 25, 2023, a list of nineteen VLOPs was released, and companies that found themselves on that list had four months to comply with their new obligations. Companies are compelled to update their user numbers every six months to keep up to date. If a platform has less than 45 million monthly users for an entire year, they’ll be removed from the current list of VLOPs.
Almost immediately after the list of VLOPs was released, Amazon filed a petition to have the EU reevaluate its classification, claiming it is getting “unfairly singled out.” In addition to Amazon, popular German retailer Zalando filed a lawsuit claiming to have received similar unfair prejudice.
What does the Digital Services Act mean for companies within the United States? The impact on Silicon Valley companies has already begun. Many companies have started to implement the EU requirements across the board as it’s expected the US will follow suit shortly with a similar set of tech regulations. The EU is known for being the world’s leading authority on tech regulation as one of the most prominent legislative bodies in the world, in addition to being the second biggest commercial market in the world, so it is not surprising that European leaders are taking the lead in this regard. European Parliament has emphasized its hope to encourage companies that don’t fall under the VLOP distinction to implement these regulations for the betterment of a shared online community. Considering many of the companies that make the DSAs current list have headquarters in the US, companies would do well to incorporate the new requirements across all covered territories as users will soon be aware of the changes being made across the sea.
With new rules and regulations for tech giants come new ways of doing business for brands, and the blow to many companies’ digital marketing strategies could be significant.
Due to the new transparency requirement that must be implemented regarding companies’ algorithms and the mandate requiring at least one option to opt out of specific algorithm use, businesses that use social media and content platforms as a significant source of marketing and connection with their customers may need to reevaluate their digital marketing strategies. Companies often rely on a platform’s algorithm to get their products in front of the audiences their brand most closely caters to, in addition to attempting to acquire new customers that may otherwise not have been able to be reached if they have exceptionally niche products. The impact of the DSA could see many European users opting out of many social media feeds algorithmic creation based on their browsing history and personal information. With the potential for mass abandonment of the current data collection many companies rely on, companies will need to find innovative ways to keep their current fan base’s attention, and principally important, will be the need to find forward-thinking ways to attract new consumers. The Business of Fashion suggests that brands may need to emphasize direct channels with their customers, such as email, text messaging, and company apps that consumers use on their phones.
An alternative option for brands is to double down on a familiar marketing approach that has seen a significant increase in popularity since the COVID-19 pandemic in 2020 – Influencer marketing. According to Influencity, the influencer marketing sector was valued at $16.4 billion worldwide at the end of 2022. With the shift in the way brands will be able to make the algorithm work for them, considerations may be made on how to reach their target audiences despite these regulations, and tapping into the ever-growing realm of influencer marketing might be the way to go. Data from back in 2019 indicated over 130 million users tapping on shoppable posts through Instagram on a monthly basis. With more and more ways to shop online, brands may need to rely more heavily on their influencer relationships to stay on their target niche’s feed. Specifically, brands should lean into the growth in the nano-influencers or micro-influencers. Nano influencers are influencers with a following of less than ten thousand. Due to their small following size, however, nano-influencers tend to have more dedicated audiences. Working with these creators might increase a brand’s chance of getting in front of the right group of customers despite no longer having such broad access to user data and boosts from websites’ algorithms.
While the Digital Services Act may sound like a nightmare for the Very Large Online Platforms it currently affects, the DSA, in all likelihood, is taking a giant leap in the right direction towards a better digital environment. Optimistically, the DSA is about protecting users and leveling the playing field regarding online business platforms. The future of digital marketing may forever be changed, but how significantly users will see this effect is another question entirely, one to watch.
Student Bio: Kaylie Scalze is a second-year law student at Suffolk University Law School. She is a staff writer on the Journal of High Technology Law and is a member of the Executive Board of the Business Law Association serving as the Social Media Chair. Kaylie received a Bachelor of Arts in Legal Studies from Suffolk University.
Disclaimer: The views expressed in this blog are the views of the author alone and do not represent the views of JHTL or Suffolk University Law School.
