DMA has its head in the Clouds

This week, the European Commission (EC) announced that Amazon’s AWS and Microsoft’s Azure Cloud services are being preliminarily designated as “gatekeepers” under the Digital Markets Act (DMA).

Never mind that AWS and Azure don’t meet the DMA’s own quantitative thresholds, are not the multisided consumer platforms the regulation was designed to govern, and operate in a highly competitive market.

Don’t take my word for it. When it opened the investigation late last year, the Commission itself acknowledged that the services did not meet the DMA’s gatekeeper thresholds for size, user numbers, or market position. In this week’s preliminary designation, the Commission wrote that, “this is the case despite them not meeting the DMA’s quantitative thresholds for designation.” It seems that the thresholds written into the DMA don’t really mean anything. Under this logic, if the companies in question are big – but not big enough for the letter of the law – and successful in the market, that must mean there is market failure and onerous regulation is triggered.

The DMA was created to regulate large platforms: intermediaries that connect businesses to end users who act as the gatekeepers between them. It applies when those platforms hit certain thresholds, including 45 million monthly active end users in the European Union. Companies that have hit those thresholds include Alphabet, Amazon, Apple, Booking.com, ByteDance, Meta, and Microsoft. But AWS and Azure Cloud don’t have any end users, let alone 45 million of them, because they are business-to-business services, not intermediary platforms. There is no gate to keep. There are only contracts with terms. The EC may dislike those terms, but the platform-centric DMA is certainly not the proper tool to address those concerns.

The DMA is being employed as a handy mechanism for bypassing the ordinary requirement to prove competitive harm. The cloud market in the EU looks to be competitive: AWS claims a 29 percent market share, Azure has 20 percent, and Google Cloud has 13 percent, with several single-digit players filling in the rest. Neither AWS nor Azure hits the 40 percent share mark typically used by the European Court of Justice as an indicator of market dominance. Given those numbers, invoking the DMA looks a lot less like protecting competition and a lot more like an extension of the protectionist Tech Sovereignty package recently introduced in Brussels.

Europe may be right to worry about how far behind its tech industries are, but arbitrarily punishing and overregulating American firms is not a sound policy solution.