Impact of EU digital competition rules on online travel companies (and thereby hotels)

In our detailed article on distribution trends 2023, one of the trends highlighted included the range of EU directives and regulations.

And during Hedna Milan last summer, I had the opportunity to have a fireside chat with a leading expert on EU legislation, Caroline Hobson where we touched upon a number of these topics.

It has been over six months since and things have moved on further. Here is the latest:

As we have noted, the digital landscape is continuously evolving, and with it, the rules and regulations that govern how companies operate online. In the European Union, the introduction of the Digital Markets Act (DMA) has marked a significant shift in how digital competition is regulated, with profound implications for online travel companies among other sectors. This new piece of legislation aims to foster a fair and competitive digital market by setting out specific rules for ‘gatekeeper’ platforms, which are essentially large companies that control access to key digital services. The main objective is to prevent these corporations from abusing their dominant positions, ultimately ensuring that consumers have more choices and that smaller tech providers have the opportunity to thrive.

As these rules come into effect, it’s crucial to understand how they’re impacting the digital ecosystem, especially for online travel companies that rely heavily on visibility and accessibility through larger platforms. Here we take a look at the effects of the EU’s digital competition rules on online travel and accommodation platforms, and try and throw some light on the challenges and opportunities that emerge in this new regulatory environment.


The Digital Markets Act (DMA) and Its Repercussions

The DMA is a really important legislative move by the European Union. Its main goal is to create a fair and balanced digital market while also making sure that users have a safer online experience. Together with the Digital Services Act (DSA), it forms a complete legal framework that aims to promote innovation, growth, and competitiveness within the EU. At the same time, it seeks to protect users’ fundamental rights.

The DMA focuses on what are called “gatekeeper” platforms. These are platforms that play a crucial role in the market and act as intermediaries between businesses and consumers. The objective is to address the power imbalance and prevent any unfair practices that could harm fair competition or limit consumer choice. By doing this, the DMA wants to ensure that the market remains open and competitive, benefiting both businesses and users.

Immediate Effects on User Experience and Online Services

Since the DMA came into effect, consumers and businesses have noticed some immediate changes in how they interact with digital platforms. For example, European users have been sharing their experiences with services like Google Maps, where previously simple features have become more complicated. These changes were made to comply with the requirements of the DMA, but they have also caused frustration among users. It’s understandable that people would be annoyed when something they were used to becomes more difficult to use.

In addition, the tech giants are now facing closer scrutiny from regulators as the EU launches investigations into their compliance with the DMA. The focus is on practices like self-preferencing and data sharing between their different services. This increased attention on the tech giants shows the tension between meeting regulatory requirements and providing a smooth user experience. It’s clear that the DMA is already having a significant impact on both service providers and consumers.

Investigations into Compliance by Major Tech Companies

The European Commission is now digging into some big tech companies like Apple, Google, and Meta. They want to figure out if these companies are playing by the rules of the DMA.

The investigators will be looking into all sorts of stuff, like how these companies collect data, whether they give themselves special treatment in search results, and how their different services work together.

The results of these investigations are going to be important because they can set the standards for how digital competition laws are enforced. It might even lead to some major changes in how these companies do business in the EU. So, it’s a pretty big deal.


Impact on Online Travel Agencies and Hotel Bookings

The Shift in Traffic from Direct Suppliers to Intermediaries

It seems like the DMA has had some unintended effects, and one of them is that online traffic is shifting away from direct suppliers, like hotels, and towards big intermediaries and aggregators. Google made some changes to its search features to comply with the DMA, but those changes appear to have led users to aggregators instead. This is causing direct suppliers like hotels to worry because they’re concerned about losing out on even more revenue to these platforms.

This shift in online traffic has the potential to change the dynamics of the online travel market. Right now, the balance of power already heavily favours large online travel companies and intermediaries over the direct providers. But with this shift, may get worse before it gets better.

The Reaction of Hotels and Online Travel Agencies to DMA Changes

The responses from hotels and online travel agencies to these changes have been varied. Hotels, who are already frenemies with aggregators for direct bookings, are worried about the potential impact on their revenue. They fear that their market share could further decline as a result of these shifts.

On the other hand, online travel agencies have a more mixed outlook. Some of them might actually benefit from the increased traffic that is being redirected their way. However, others have concerns about the broader implications these changes might have on the market. They worry about the possibility of facing more regulatory scrutiny and the need to make additional adjustments to comply with the mandates of the DMA. In short, it’s a bit of a mixed bag for online travel agencies, with both potential opportunities and challenges on the horizon.

Concerns Over Reduced Consumer Choice and Increased Reliance on Aggregators

The fact that consumer traffic is being redirected towards big aggregators is causing some major concerns about consumer choice and market diversity. Critics argue that this situation goes against the DMA’s goal of creating a digital market that’s competitive and fair for everyone. They worry that relying too much on a few dominant platforms could result in too many similar options, stifle innovation, and reduce the motivation for direct providers to improve their services and prices.

As a result, even though the DMA is intended to promote competition and safeguard consumers, it’s facing challenges in its implementation. These challenges highlight the complicated relationship between regulation, market dynamics, and user experience. It’s a tricky balancing act to strike the right balance and ensure that the DMA achieves its intended outcomes while also considering the complexities of the digital market.


Digital Services Act (DSA): A Complementary Framework

The EU’s Digital Services Act (DSA) is a significant regulatory framework that addresses user safety, data privacy, and fair competition in the digital marketplace. It complements existing competition laws and specifically targets the operational aspects of digital platforms to ensure greater accountability and fairness.

Key provisions of the DSA focus on protecting users’ fundamental rights, combating illegal online content, increasing transparency in information display, and holding online platforms accountable. The overall goal is to create a safer digital space that promotes innovation, growth, and competitiveness within the EU and globally.

The DSA applies to a wide range of digital services, including large online platforms and search engines with over 45 million monthly users in the EU. These entities face the most stringent obligations due to their significant impact on the digital market and potential influence on public discourse. Examples include popular social networks, online marketplaces, and content-sharing platforms.

The DSA aims to enhance the safety and fairness of digital services by establishing clear responsibilities for platforms. This includes taking swift action against illegal content, implementing measures to protect users’ rights, and providing mechanisms for users to report and appeal platform decisions. It also requires greater transparency in content moderation practices and algorithmic decision-making, empowering consumers with more information about the digital content they consume.

Specifically Targeted Services Under DSA

The DSA covers a wide range of digital services, including both basic websites and complex online platforms. It sets specific rules for very large online platforms and search engines, defined as those with over 45 million monthly users in the EU. These platforms have the highest obligations under the Act due to their significant impact on the digital marketplace and potential to shape public discourse. This includes popular social networks, online marketplaces, and content-sharing platforms, among others.

The DSA aims to enhance safety and fairness in digital services by establishing clear responsibilities for platforms. It requires platforms to promptly address illegal content, strengthen systems to protect users’ fundamental rights, and provide mechanisms for reporting and appealing platform decisions. Additionally, it emphasises greater transparency in content moderation practices and algorithmic decision-making, ensuring consumers have more information about the digital content they consume.


Consumer Rights and Business Innovations Under New EU Laws

The DSA and DMA laws in the EU bring about a new era for consumer rights and business innovation in the digital landscape. These regulations aim to enhance competition, expand consumer choices, and promote transparency.

Consumer Benefits: The laws provide consumers with more choices and transparency. They can freely select default browsers and explore alternative app stores, giving them greater control over their digital experience. Platforms are required to disclose their data-sharing practices, empowering consumers to make informed decisions.

Opening Opportunities for Smaller Businesses: The DMA focuses on leveling the playing field for smaller businesses by curbing the dominance of tech giants. Unfair practices are restricted, ensuring that gatekeeper platforms do not hinder competition. This fosters innovation and growth among European startups and small enterprises, creating a more vibrant and competitive digital ecosystem.

A More Competitive Digital Marketplace: The DSA and DMA combine to reshape Europe’s digital landscape, fostering a competitive, innovative, and fair marketplace. Fair competition benefits smaller players, stimulates technological innovation, and offers diverse services to consumers. By addressing existing monopolistic structures, the EU sets an example for global digital regulation, promoting a healthier and dynamic digital economy.


Challenges and Criticisms of the DMA and DSA

The DMA and DSA face challenges and criticisms from various stakeholders, including tech giants, online travel companies, and end-users. Allegations of ‘malicious compliance’ by major technology companies pose a significant concern, as they may superficially adhere to the regulations while undermining their intended impact. There are concerns about the real-world effects on digital competition and user autonomy, with compliance measures potentially reinforcing dominant positions of tech giants.

The effectiveness of these laws in enhancing online safety is also debated, with questions about practical enforcement, unintended consequences, and potential limitations on freedom of expression and information. Balancing diverse interests will require continuous dialogue and adaptation of the regulations.


Conclusion – Hotel Companies are Caught in the Middle!

The DMA and DSA have brought significant changes to the digital landscape, impacting online travel companies and Big Tech entities. While the objectives of protecting user rights and ensuring fair competition are commendable, unintended consequences and user frustrations have emerged – especially for hotels.

Changes to Google’s search functionalities, aimed at enhancing competition, have inconvenienced users and led to dissatisfaction. Online travel companies face both opportunities and challenges, with a potential for a less constrained competitive environment but also immediate impacts on visibility and revenue streams due to compliance measures prioritizing intermediaries over direct providers like hotels.


References:

  • https://www.politico.eu/article/european-union-digital-markets-act-google-search-malicious-compliance/
  • https://www.euronews.com/next/2024/03/07/here-are-the-changes-tech-companies-are-implementing-to-comply-with-eu-law
  • https://digital-strategy.ec.europa.eu/en/policies/digital-services-act-package
  • https://www.bloomberg.com/news/articles/2024-03-25/apple-google-meta-probed-by-eu-in-test-of-new-digital-law
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Tags: Booking channels, Distribution Trends 2023, OTA Distribution

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