UPDATED: Amazon Faces Tougher Scrutiny Under EU’s Digital Services Act (DSA)
UPDATE 07/17/2024: The European Commission has sent a new request for information (RFI) to Amazon, seeking detailed insights into the measures the ecommerce giant has implemented to comply with the Digital Services Act (DSA) obligations. This marks the latest in a series of RFIs targeting Amazon, emphasizing the region’s heightened focus on ensuring the platform’s adherence to stringent digital governance standards.
Focus Areas of the RFI
The Commission’s latest RFI centers on Amazon’s transparency regarding its recommendations engine and its parameters, the maintenance of an ad repository for compliance audits, and the execution of its risk assessment report. These areas are critical components of the DSA, which mandates online platforms to uphold a robust framework of accountability and transparency to protect users and maintain a fair digital marketplace.
Previous RFIs and Ongoing Scrutiny
This RFI follows earlier inquiries sent to Amazon, including a November 2023 request that focused on the company’s risk assessments related to the dissemination of illegal products and the protection of fundamental rights.
Additionally, in January 2024, the Commission sought more information on Amazon’s data access provisions for researchers. To date, Amazon has received three RFIs from the Commission, reflecting a sustained effort to scrutinize its compliance with DSA regulations.
DSA Compliance and its Importance
The DSA imposes various obligations on digital platforms, particularly those designated as very large online platforms (VLOPs), a status Amazon received in April 2023.
These obligations include stringent content moderation, transparency in recommendations systems, and proper maintenance of a repository of advertising data. The goal is to eliminate unfair practices, mitigate risks associated with the sale of illegal goods and ensure users’ fundamental rights are safeguarded. More on that below.
Potential Consequences for Non-Compliance
The stakes are notably high for Amazon. Any proven violation of DSA regulations could result in severe financial penalties, potentially up to 6% of the company’s global annual turnover.
Given Amazon’s full-year revenue of $574.8 billion in 2023, the regulatory risk could amount to billions of dollars. This major potential financial impact underscores the importance for Amazon to comply meticulously with the DSA requirements.
In a statement to Reuters, Amazon said it’s “working closely with the European Commission” and shares the goal of creating a “safe, predictable and trusted shopping environment.”
What This Means for Amazon Sellers
For sellers on Amazon, the implications of non-compliance with DSA regulations can be substantial. If Amazon fails to meet these regulatory standards, it could face increased scrutiny and operational changes that may affect the seller community. Potential impacts include:
- Increased Compliance Costs: Sellers might incur additional costs to ensure their listings and business practices align with enhanced regulatory scrutiny and Amazon’s compliance efforts.
- Operational Disruptions: Changes in Amazon’s operational policies to meet DSA standards could lead to disruptions in how sellers manage their listings, advertising, and customer interactions.
- Market Confidence: Sellers could face challenges related to consumer trust and market confidence if Amazon is perceived as non-compliant with significant regulations aimed at protecting users and ensuring a fair marketplace.
- Risk of Account Suspensions: Amazon may take a stricter stance on enforcement, leading to potential suspensions or delistings of products and sellers who do not comply with new requirements.
What’s Next
As the Commission continues to monitor and enforce DSA compliance, Amazon and its sellers must remain vigilant and adaptable to regulatory changes. Ensuring transparency, maintaining high standards of governance, and proactively addressing potential risks will be crucial for Amazon to navigate this regulatory landscape successfully.
The ongoing dialogue between the EU Commission and Amazon highlights the evolving nature of digital platform regulation and the need for continuous improvement in transparency and accountability practices.
Amazon sellers should stay informed about these developments and adjust their business strategies accordingly to thrive in a compliant and competitive digital marketplace.
UPDATE 09/06/2023: The European Union has intensified its efforts to curb the dominance of Amazon, Alphabet, Apple, Meta, Microsoft, and ByteDance in the region. This move involves the implementation of comprehensive regulations designed to provide consumers with greater choices and level the playing field for fair competition.
According to the Commission, a total of 22 core platform services operated by these six “gatekeepers” have been designated for regulation under the Digital Markets Act (DMA).
The DMA consists of a set of rules, or “dos and don’ts,” that aims to streamline users’ ability to:
- Transition seamlessly between rival services – for example, making it possible for WhatsApp users to send messages to others without needing to be concerned about which messaging platform they are using.
- Retain control over the use of their data for personalized advertising. Gatekeepers must ensure that performance data regarding ad campaigns and pricing information for ads are accessible to business users.
- Exercise a choice in selecting their preferred search engine or web browser rather than being constrained by default settings.
“The most impactful online companies will now have to play by our EU rules,” European Commissioner Thierry Breton said on X, previously known as Twitter.
“DMA means more choice for consumers. Fewer obstacles for smaller competitors. Opening the gates to the Internet.”
This also means Amazon could soon be prohibited from ranking their own in-house brands or services higher than their competitors in search results pages, as covered in the “don’ts” section of the DMA.
The retail giant already started providing European shoppers with more choices when it settled antitrust investigations by agreeing to giving sellers equal treatment on the platform’s Buy Box and adding another “buy box” with a different delivery option or price for the same product.
To enforce compliance, fines of up to 10% of the company’s global revenue loom overhead, and there’s even the potential for the tech giants to begin to divest specific segments of their operations in order to secure their foothold in the European market.
DMA is set to take full effect in six months, during which the six gatekeepers will be required to communicate their strategies for compliance with the digital act to the Commission.
Related: Amazon Faces Backlash for Alleged Abusive Practices, FTC Lawsuit Alleges Amazon of Tricking and Trapping Customers into Recurring Prime Subscriptions
A cohort of corporate giants, including Amazon, Apple, and an additional 17 industry leaders, have been identified and classified by the European Union (EU) as “very large” online platforms or search engines.
Consequently, these companies are subject to enhanced scrutiny and more stringent regulatory measures, accompanied by the possibility of substantial fines should they veer from the newly established Digital Services Act (DSA) within the region.
Obligations Under the DSA
In late 2020, the European Commission, the executive body of the EU, laid out a fresh set of services-related regulations aimed at intensifying oversight of tech behemoths.
These regulations, known as the Digital Services Act (DSA), have been in effect for approximately four months now, granting regulators the authority to actively monitor online content, curbing the spread of harmful comments, and establishing guidelines for the utilization of AI.
This significant step highlights EU’s commitment to fostering a safer online environment and ensuring responsible practices by big tech operating within its jurisdiction. These platforms are defined as entities that reach a significant number of users (more than 45 million active users) and that have a significant impact on the EU market.
The DSA intends to impose various obligations on these major platforms, such as:
More user empowerment and protection
DSA aims to empower users and protect their rights online. Users will have clearer information about recommended content and the ability to opt-out of profiling-based recommendation systems.
Platforms must diligently process reports of illegal content from users. Advertisements based on sensitive user data are prohibited, and platforms must label ads and disclose the promoters. Tech giants are also required to provide easily understandable summaries of their terms and conditions in the languages of the Member States where they operate.
Overall, the DSA prioritizes user empowerment, combating illegal content, protecting privacy, enhancing advertising transparency, and improving communication online.
Increased transparency
Platforms will be required to provide clear information about their terms and conditions, content moderation policies, and advertising practices. They may also need to undergo third-party audits to assess their compliance with the DSA’s requirements.
Strong protection of minors
Platforms will be required to undertake significant system redesigns to prioritize the privacy, security, and safety of minors. Specifically, platforms must implement measures that safeguard children from targeted advertising based on profiling techniques, ensuring their online experiences are free from such practices.
To assess the potential risks to minors’ mental health and well-being, platforms will need to conduct special risk assessments. These assessments must be provided to the Commission within four months of designation and, at the latest, be made publicly available within a year.
By doing so, platforms will contribute to a better understanding of the potential negative effects on mental health associated with their services.
Content moderation and removal
Platforms will be expected to implement effective measures to combat illegal content, hate speech, and disinformation. They will also be required to provide mechanisms for users to appeal content removal decisions.
The companies falling under the scope of the DSA regulations are given a grace period of four months to facilitate a smooth transition, enabling them to adapt the new antitrust policies and procedures within a reasonable timeframe.
Non-compliance with these provisions may result in significant consequences, including potential fines amounting to 6% of the company’s global turnover.
In more severe cases of persistent non-compliance, platforms could face temporary bans from operating within the EU. These stringent measures underscore the importance of adhering to the DSA guidelines and reinforce the commitment to ensuring a responsible and accountable digital environment.
Impact of EU’s Digital Acts on American Online Service Providers
In this report dated November 2022, economist Kati Suominen estimates that the EU’s DSA and Digital Markets Act (DMA) would cost leading US digital service providers like Amazon between $22B and $50B in additional compliance and operational costs. 🧐
As a result, this might force them to either pass the added costs to their customers or let go of crucial business opportunities in the region.
Suominen also believes that “if US digital services increased their costs on American companies by just 5% due to EU regulation, US companies could incur over $97B in new costs, with $45B carried by SMEs.”
Sellers currently selling in or planning to expand to the EU should watch closely how Amazon will respond to its DSA obligations. More importantly, sellers should brace for any potential cost increases once Amazon starts implementing new compliance requirements related to these digital acts.
Related: EU Advised by NGOs to Refuse Amazon’s Flawed Proposal for Antitrust Settlement, Amazon Faces Backlash for Alleged Abusive Practices, Why Amazon Wants You to Lobby Congress
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Chelsea Cohen is an Amazon seller, speaker & consultant. An Amazon expert, her regular clients include 7 & 8-figure sellers. She has been featured on AM/PM Podcast, 7-Figure Sellers Summit, and the Prosper Show & Amazing Summit stages, among others.