[Student IDEAS] by Pieter Jan Motmans - Master in Data Sciences & Business Analytics at ESSEC Business School & CentraleSupélec
Let’s start with a little thought experiment. When a digital platform shows you an ad for a product or service that really interests you, does the platform help you find what you are looking for or does it try to influence your preferences? The answer of course depends on who you ask, but an increasing number of people believe that those platforms try to gain profits by changing user behaviour.
The recent increase in the amount of data and the proliferation of algorithms based on these data have given rise to a new form of capitalism based on surveillance of consumers. Surveillance capitalists1, hereafter called gatekeeper platforms, can modify user behaviour to create profit from sales or advertising. How this happens is well illustrated by looking at how Meta earns money from for example Facebook and Instagram.
Users do not pay for the services offered by Meta, it is the advertisers who pay Meta proportionally to how well users respond to their advertisements. Meta therefore has an incentive to not only predict, but also modify the behaviour of users to optimise their response to offered advertisements. Users therefore trade their data and attention for access to Meta’s services.
This analysis becomes highly relevant when exploring the consequences of the Metaverse, a virtual world populated by avatars that users can create. In the Metaverse, the scale of data collection will increase enormously. To provide an illustration of how far this can go: Meta has patented technology to track eye-movement and brain activity through their Oculus VR-set.
This article starts from the premise that surveillance capitalism is to a certain extent undesirable for society. The way gatekeeper platforms are incentivised to collect more data with higher predictive value conflicts with human privacy and autonomous decision making. How exactly does this happen? Tracking users’ internet activity across websites or tracking brain activity is arguably a breach of personal privacy that comes close to surveillance. As stated before, this data is used to influence purchase or (in the case of Cambridge Analytica) voting decisions. To come back to the initial thought experiment: people who feel that digital platforms influence preferences have a solid argument.
In what follows, the focus is on one aspect that enables gatekeeper platforms to thrive: most of them create a so-called walled garden ecosystem. After setting the stage, we will explore pathways to a Metaverse without walled gardens. The hope is that by opening these ecosystems up to fairer competition, consumers will get more decision power to step away from gatekeeper platforms that misuse their data. In case this works, firms would get a new set of incentives that align more closely with consumer interests.
Walled gardens
Walled Gardens is a term used to refer to digital ecosystems created by some gatekeepers. It is easy to enter the ecosystem, but once inside, users will find it hard to exit.
The ecosystem created by Apple is a good example. Once a consumer buys an Apple device, it becomes more convenient for them to purchase other Apple products. Once in possession of a MacBook, Iphone and Ipad, it will be inconvenient to switch to another brand due to the difference in operating systems that make communication and data transfer cumbersome with devices outside of the Apple ecosystem. This goes for the chargers that are different, to data that is stored on Apple servers. Within the Apple ecosystem, the company has complete control over the consumer’s data.
This convenience comes at a cost though. Due to the power Apple has over the mobile game market, the company charges app developers a commission of 30% on every transaction made through the app store, an issue that was recently brought to court.2 App developers currently have very few alternatives to bring their apps to consumers.
Another example can be found in the advertising business, where Meta, Google and Amazon combine for a total share of 60% of all digital advertising revenue generated in the United States. These Big Tech firms are in full control of the ecosystems they have created. They succeed very well in offering convenience to consumers. Once you start buying products through Amazon, they will become increasingly better at offering the products that you respond to. The more convenient it is for consumers, the harder it becomes to switch to an alternative. Consumers that find this undesirable should be able to switch to alternatives. 3
The Metaverse
The main idea behind the Metaverse can be summarised by the desire to enable as many activities as possible (work, social gatherings, events...) from the physical world to happen in the digital world. Thereby removing certain frictions present in the physical world like distance and space limitations. In this endeavour, certain characteristics emerge that should be fulfilled before we can speak of a Metaverse.
- It should be persistent. That is, it should feel like reality, it shouldn’t end at a certain point, neither should it pause. Most games now pause when the user exits, a Metaverse shouldn’t.
- It should be synchronous, enabling an unlimited number of users to interact in real time
- There should be an economy in which goods and services are exchanged.
- There should be interoperability of data and digital assets, allowing items to be used across the whole metaverse.
Each characteristic raises certain challenges. Solving these will take time, that’s why many people believe that the Metaverse is not yet around the corner. To ensure synchronous experiences for example, millions of people should be connected in real time, current infrastructure has problems connecting more than a hundred.
That being said, some of the biggest companies in the world are heavily investing in an attempt to not get left behind. Microsoft will try to extend its dominance for work-related activities, Facebook's name change into Meta speaks for itself and some of Google's investments like virtual assistants and wearables seem to fit perfectly with the Metaverse.
By starting this article by explaining the concept of Surveillance Capitalism, I hope to have made the reader aware that this form of capitalism poses certain threats, but also that it will pose many more in case the Metaverse becomes mainstream. Initiatives that could tear down one of the preconditions of surveillance capitalism are therefore worth exploring.
Recently, the European council and parliament reached an agreement on the Digital Markets Act (DMA) and the Digital Services act (DSA).4 The DMA imposes new obligations on so-called gatekeeper platforms, mostly US firms, that provide core platform services such as search engines, social networking services and advertising services. The rationale is that due to advantageous conditions like network effects, lock-in effects and economies of scale, certain industries are now characterised by weak contestability of the dominant firm and unfair business practices towards users. The DSA stresses that “what is illegal offline, should be illegal online”. It tackles illegal content, and imposes transparency regarding advertising and recommender systems. Users should for example be able to choose the data that recommender systems can use to make recommendations.
The DSA’s main focus is on limiting the negative consequences of gatekeeper platforms. The aim of this article and the DMA is to explore pathways to an economy where gatekeeper platforms face more competition. In what remains, the focus will therefore be on the DMA. However, I deemed it necessary to also mention the DSA, as both should be seen as a unified effort to make digital ecosystems a fair and safe space.
The DMA hopes to open up the walled garden ecosystems to allow more competition, to offer more choice to users and to ensure fairness. Non-compliance can lead to fines of up to 20% of turnover in case of repeated infringement, in comparison to 4% in case of GDPR breaches. For Google and Meta, this could respectively go up to $50 billion and $23 billion.
Because the DMA is not designed specifically for the Metaverse, questions arise about how the Metaverse fits into this regulation. The DMA applies to ‘core platform services provided or offered by gatekeepers to business users in the Union or end users established or located in the Union’ (article 1.2.). The DMA does not contain a general definition of core platform services. Rather, article 2.2. lists types of services such as social networking services, search engines, intermediation services etc., most of which are based on existing legislative definitions. The Metaverse aims to integrate various core platform services and to add new, not yet identified services. Therefore, it remains to be seen how the regulation will apply. Especially since article 19 states that the Commission may add core platform services after conducting market investigations.
For this article, we will examine some of the obligations and outline their impact on the Metaverse. In this way, the aim of the DMA becomes clear.
Article 5.2b): “The gatekeeper shall not combine personal data from the relevant core platform service with personal data from other core platform services or from any other services provided by the gatekeeper or with personal data from third-party services.”
Article 5.2b) gets to the core of what gatekeeper platforms do: use personal data to predict and possibly change behavior. Because these companies are the owners of a whole ecosystem, they aggregate data from various sources. The aim of this obligation is to limit the extent to which these platforms can create walled gardens. Practically, data collected from the different services integrated in the Metaverse should be stored separately.
Article 5.5): “The gatekeeper shall allow end users to access and use, through its core platform services, content, subscriptions, features or other items, by using the software application of a business user, including where those end users acquired such items from the relevant business user without using the core platform services of the gatekeeper.”
This clause gives developers access to the users of gatekeeper platforms without having to necessarily use all the gatekeeper’s payment or advertising services. The problem Epic Games raised about Apple's commissions is tackled in this way. By imposing this, an opportunity is created for small companies to monetise their creations.
Article 6.5): “The gatekeeper shall not treat more favorably, in ranking and related indexing and crawling, services and products offered by the gatekeeper itself than similar services or products of a third party. The gatekeeper shall apply transparent, fair and non-discriminatory conditions to such ranking and related indexing and crawling.”
In the past, gatekeeper platforms have been blamed for favouring their own products. The DMA clearly sets out to eliminate this unfair practice. It is complementary to the previous article as third-party products will gain visibility.
By zooming in on these three clauses, the aim of the DMA becomes clear. It hopes to make markets fairer and more competitive for existing firms, new entrants and business/end users. At the same time, the DMA looks to change the current incentive system in the digital world. If it becomes public that a company misused data, users will be empowered to choose a different service provider.
The DMA has great potential to limit the extent to which gatekeeper platforms are able to maintain walled gardens. There is a willingness to look at their activities, and to render illegal those that are most harmful. On the other hand, the obligations are written up retrospectively. The activities targeted in the three clauses have taken place before, and the DMA offers an efficient framework to punish them.
However, questions remain about its global impact. The DMA is a European piece of legislation which will mainly impact US firms, it therefore seems unlikely that the United States will replicate it domestically. It remains to be seen how other countries will react.
Conclusion
The Metaverse is as of now uncharted territory with enormous potential when it comes to profit and data collection. Ensuring fair competition is therefore of the utmost importance. The DMA might prove to be effective in tackling the current walled gardens, but in its current form it offers no guarantees that walled gardens will not arise in the future. However, if fitting changes are made, it might prove a pathway to a Metaverse without walled gardens. As such, the DMA could take away a foundational building block that allows gatekeeper platforms to thrive. Limiting their power is already very important now. In the Metaverse, I believe this will become absolutely essential.
Footnotes
- The definition of surveillance capitalists is not limited to big platforms, but for this article the term gatekeeper platforms is more fitting. Gatekeeper platforms are defined in the Digital Markets Act based on market capitalisation, annual turnover and number of users.
- An initial verdict stated that Apple is not a monopolist, but should allow third-party payment options on their app store. The decision has been appealed.
- For those interested in possible solutions to this challenge, I suggest The Ownership of Data by Wilfried-Sand Zantman and Anastasios Dosis. It explores different ways to increase welfare when faced with the trade-off between data monetisation and privacy.
- This article is based on the text of the proposal for the DSA and the text of the DMA that was approved by negotiators from the European parliament and council. Both are not yet definitive and therefore subject to change.
