Digital Markets Act (DMA), what does this mean for your hotel?
The European Commission has initiated the implementation of a legal framework to regulate digital markets with the Digital Markets Act (DMA) of September 14, 2022, progressively applicable from May 2, 2023.
Internet giants, such as OTAs in the hotel sector, will have to comply with a set of obligations and prohibitions or face heavy fines. The European Union (EU) aims to break the hegemony of these behemoths by imposing rules that will benefit both European businesses and Internet users. According to HOTREC, the three giants of the OTA market are Booking Holding, Expedia Group, and HRS Group, with a combined market share of 92%.
The aim is to promote fairer competition between all digital players while encouraging innovation within the digital economy. The first impacts of these measures should be felt as early as the first quarter of 2024. This new European legislation could empower hotels and change the nature of relationships with online travel agencies. In this article, we explain what the DMA is and what impact it could have on the hotel industry.
What is the Digital Markets Act?
The aim of digital market regulation is to ensure fairness between digital players and to protect Internet users. The DMA is intended to combat the anti-competitive practices of the major technology platforms designated as “gatekeepers” of access to information. The goal is to correct the imbalances in their domination of the European market.
These major players have acquired a quasi-monopoly position: according to the European Commission, over 10,000 online platforms operate in Europe, but only the largest capture most of the value. As a result, a series of obligations and prohibitions have been put in place for these gatekeepers in order to:
- Open up competition, in particular for the benefit of SMEs and start-ups
- Boost innovation, growth, and competitiveness
- Offer consumers greater freedom of choice
With this legislation, the EU aims to become a global role model in the digital economy industry.
The legislation also includes regular monitoring and strict checks to ensure compliance by gatekeepers. In the event of a breach, the European Commission will have the power to impose severe sanctions, as well as bans on specific behaviors. Specifically, it will be empowered to impose fines of up to 10% of global annual sales in the event of proven non-compliance with the new regulations, and up to 20% in the event of a repeat offence. It will also be able to impose penalty payments of up to 5% of its total worldwide daily sales.
What is a “gatekeeper” according to the European Commission?
The DMA regulation focuses specifically on companies that act as gatekeepers at the Internet entrance. These players, whether based in Europe or elsewhere, have a significant impact on the internal market. They serve as major access points for end-user companies seeking to reach their customers, and they hold a solid, sustainable position.
Here are the official criteria:
- They offer one or more essential platform services in at least three European countries.
- They have very high sales or market valuation (several billion) over the last three years.
- They have more than 45 million users in the European Union per year over the last three years.
Companies meeting these criteria had until July 2023 to identify themselves to the European Commission. The latter officially designated six companies as gatekeepers in September 2023: Alphabet, Amazon, Apple, ByteDance, Meta and Microsoft. It is also able to designate companies that do not meet all these thresholds but are deemed too hegemonic according to certain criteria. The companies concerned will be able to contest this decision.
What does the DMA mean for your hotel?
Potential impact on the hotel digital ecosystem
This regulation should enable hoteliers to better control their online distribution and negotiate fairer terms with platforms. It will also bring unprecedented changes to the DMA’s requirements for gatekeepers, with as yet unmeasurable consequences for the hotel industry.
The obligations and prohibitions applied to gatekeepers may have several beneficial consequences for your hotel:
- Transparency: Platforms will have to increase their level of transparency in the way they rank and present accommodation choices to users. Hotels would have access to data on how their name, content, and ARI feed are used by OTAs. OTAs will have to provide more data on your ads, including their performance on metasearch and in paid search.
- Restrictions on data use: Limitations will be put in place to regulate how platforms can exploit the data collected via their services.
- Interoperability and data portability: Hotels would be able to easily transfer their listings and customer information from one platform to another.
- Prohibition of unfair commercial practices: For example, it will be forbidden to impose price parity clauses on hotels.
- Third-party access: Platforms will have to authorize other travel service providers to access their platforms in order to offer complementary services.
Booking.com as a non-gatekeeper
Booking.com has publicly announced its position as a non-gatekeeper with regard to the DMA regulation. The Commission has validated Booking.com’s self-designation, so the platform is in an advantageous position: by avoiding being subject to the control of the new regulation, it increases its power over hoteliers.
However, as mentioned above, the Digital Markets Act allows the European Commission to designate a platform as a gatekeeper, even if it does not meet all the criteria. Perhaps the European Commission will subsequently revisit this decision as the market evolves. Should this be the case, it could radically change the dynamics of the hotel industry, giving hotels back control over their rates and data to increase direct sales.
With the implementation of these new regulations, even though no OTA has been designated a gatekeeper yet, there’s no doubt that the dynamics of hotel-OTA partnerships are about to be transformed. A similar scenario could soon unfold for American hoteliers, given the comparable scope of the American Innovation and Choice Online Act. This significant step in the regulation of the digital ecosystem promotes fair competition between market players, as well as better protection for Internet users.
For hoteliers, this regulation has the potential to rebalance the relationship of power with OTAs, thanks to greater control over their online distribution and partnership with platforms. Considering the importance of the hotel industry to European economies, the DMA has implications for direct distribution and the profitability of hotel establishments. Although the exact consequences of this regulation are not yet known, its implementation will directly influence the distribution of hotel establishments and the presentation of options to end customers.