Recalibrating policy for digital platforms in the EU Digital Single Market

Europe's prosperity and competitiveness are lagging behind other major economic blocs. The EU Digital Single Market (DSM), which is seen as an important enabler of progress on both these fronts, remains hampered by regulatory complexity, including fragmentation in the adoption and enforcement of rules across EU member states. The remaining gap between the vision set out by European policy makers and the reality of today’s DSM is evident in the persistent cross-border trade barriers and the scarcity of successful high-tech digital businesses in the EU compared to the US. This contributes to lower spending on research and development (R&D) in the EU compared to the US, which hinders European innovation and growth.

Efforts by European policy makers to foster the DSM have not fully achieved their intended outcomes. Policy measures have largely focused on improving connectivity and mitigating perceived harms. The General Data Protection Regulation and the Digital Services Act, as well as other regulations, have set a high standard for the protection of online users and their fundamental rights, but have also increased the regulatory risk and cost for companies operating in Europe. The uncertainty associated with these risks and costs affect most European start-ups and scale-ups, further harming Europe's potential long-term competitiveness.

Despite the perceived risks that European policy makers associate with large global platforms, these companies have been instrumental in helping consumers and businesses within the current version of the DSM. They innovate, facilitate cross-border trade, and support European businesses through providing services and tools. This allows these European businesses to operate efficiently, support their own innovation and growth, and enables them to compete globally using state-of-the-art technology.

To help foster long-term prosperity, EU digital policy should support innovation, by reducing regulatory complexity and encouraging businesses to adopt globally competitive tools provided by digital platforms. Policy makers can reduce fragmentation in the adoption and enforcement of regulation and focus on enabling private-sector investments in emerging areas of digital technology, including 'deep tech' sectors such as AI, where innovation can support Europe’s global competitiveness. This will involve helping European businesses find a balance between using technology building blocks from global providers that are already well established (e.g. cloud) and fostering cutting-edge innovation and capabilities within Europe to pursue global leadership in more nascent fields (e.g. AI).

By creating a regulatory environment conducive to innovation and equipping European companies with the best tools, Europe can bolster its open strategic autonomy and leverage technology to address significant challenges.

This new report, sponsored by Meta and produced independently by Analysys Mason, explores these points in detail. We hope this can contribute to the ongoing efforts by European policy makers and the private sector to improve the DSM and find ways to work together for the benefit of Europeans, their prosperity and economic security.