The Missing Clause(s): Redefining Business User Under the DCB (Part 2)

This guest post is authored by Vivek Kumar, Research Fellow with the Corporate Law and Financial Regulation vertical at Vidhi and Kunaal Hemnani, a 3rd-year member of CASCA

Towards a Complete Definition of Business User

To understand how a complete definition of Business User can come about, a discussion of the objectives for creating a distinction between Business User and End User is called for. There can be various explanations behind the distinction, such as:

Firstly, business users and end users have distinct roles on a digital platform. While the former drive business by providing goods and services to end users and business users, the latter help attract more business to the platform. By virtue of their distinct roles, they are exposed to different kinds of restrictions by the Gatekeeper. With regards to the end users, the objective of the Gatekeeper is to retain them on the platform by engaging in conduct such as lock-in and prevention of multi-homing; while business users are exposed to a multitude of exclusionary and exploitative conduct aimed to drive them out of the market. To improve the contestability of the market and ensure fairness for end users, tailored regulatory intervention is required for both, which is achieved by creating this distinction.

Secondly, the DMA aims to formulate an objective method of identification of digital enterprises that have substantial market power by evaluating platforms that constitute “an important gateway for business users to reach end users.” This criterion can help distinguish between platforms that require ex-ante regulation from those who do not.

However, a more fundamental rationale is implicit in this distinction which merits special consideration. Accordingly, the most important reason for creating a distinction between the two types of users on a platform is the need to trace the cash flow to properly identify where money is being made on a platform. Most Big-Tech companies exhibit a high level of vertical integration, which means they are present on various levels of the ecosystem. For instance, Amazon owns and operates its marketplace Amazon.com, which acts as an intermediation platform for third party sellers to sell their products to consumers. However, Amazon also competes against these third party sellers by also acting as a seller on its own platform, thereby establishing its presence on multiple levels of the supply chain. This understanding is essential as the objective of the Gatekeeper is to expand, both vertically and horizontally, and monopolize the revenue stream that is flowing on various levels of its platforms. Hence, the delineation becomes necessary to create tailored safeguards to counter the monopolistic tendencies of the Gatekeeper.       

Clear delineation of demand and supply sides on multi-sided platforms is difficult, as users are simultaneously supplying and creating demand for players acting on other sides of the platform. Diagram 3 gives a graphical representation of this conundrum:

This diagram illustrates the complicated web of demand and supply activities on a digital platform, wherein different players are simultaneously supplying and creating demand for other players.

This distinction is indeed important as users on the supply side face different restrictions than the users on the demand side; and this distinction becomes important to address these side-specific restrictions. Further, another objective of the ‘DMA’ is to avoid monopolization of the revenue stream to make markets more competitive and contestable, and allow businesses the benefits of their innovation. On a digital platform, most business happens on the supply side, since the service itself is offered to the user free of charge, it is the supply side that is most vulnerable to restrictive conduct by the Gatekeeper. Thus, clear identification of users that constitute the supply side becomes a prerequisite. Despite inherent complexities, delineation of supply and demand side on the platform can be done in two ways.

Accordingly, the approach, which is being utilized under the ‘DMA’, takes the conduct of the user as a proxy to identify the supply activities on a platform. The usage of the clauses “acting in a commercial or professional capacity” and “using core platform services for the purpose of or in the course of providing goods or services to end users” are aimed squarely to identify the scope of such supply activities by scrutinizing the conduct of the user.

However, this approach suffers from a major flaw in its excessive reliance on case-to-case analysis. Such reliance invites inconsistency between decisions, fostering regulatory uncertainty for stakeholders, which contradicts the objective of timely intervention embedded in digital market regulations. When read alongside the self-reporting obligations under these acts, the absence of an objective framework could further exacerbate disparities between how ‘SSDEs’ and the Commission assess quantitative thresholds, resulting in substantial delays in the designation process. 

Even though this approach is objective by virtue of it being based in evidence, it can significantly increase the burden on the regulator. This problem intensifies in digital markets, where innovation evolves rapidly and data remains asymmetric, forcing regulators to engage in continuous evidence collection and analysis. The self-reporting obligations further amplify this issue because any room for subjectivity would require regulators to independently verify compliance, leading to an excessive and unsustainable workload.

Another approach, which is being proposed in this blog, is to focus on the revenue stream on a platform to objectively delineate supply and demand sides. In simple words, everyone who is commercializing a platform beyond a certain threshold should be a Business User. As noted in above discussions, DMA, and DCB, both aim to prevent the monopolization of the revenue stream so that other players can benefit from it. In such a situation, the definition of Business User should necessarily follow a revenue-based approach, rather than a conduct-based approach.

There can be various benefits of employing this approach.

1. It removes the need for case-wise basis assessment

One of the glaring flaws of the EU approach is the need for a case-to-case basis evaluation to assess whether the user is acting in a commercial or professional capacity or not. Not only can this delay the designation process, it can also significantly increase the burden on the regulator.

On the other hand, the revenue approach removes the need for case-to-case basis evaluation, as it is extremely objective. Under this approach, the sole consideration for designation of business user as such becomes: whether the user is making money on the platform above a certain threshold? Since it is essentially a binary question, the scope for case-to-case basis evaluation becomes diminished, if not, extinguishes completely.

Further, a minimum threshold of earnings per month or per annum, coupled with the requirement that the user generated revenue for a specified time preceding the designation decision, can be employed. A better way would be to set the thresholds on the average revenue produced by the user per day over a month. The relevant thresholds can be determined by identifying average monthly/daily earnings on the platform by users that are commercializing (drawing revenue) on the platform. This would allow a determination of specific thresholds for each platform, further reducing the probability of mis-classification. This would help distinguish between users on platforms where end users appear to be acting in a commercial capacity (such as by listing their products on marketplace or by self-identifying as business users on TikTok), but lack the habituality of trade to qualify them as business users.

The above diagrams illustrate how the supply side i.e. the business users can be identified easily by tracing the revenue stream on a platform. Here, the entities inside the dotted blue line receive revenue, and hence would qualify as a business user.

2. Prevention of False Positives and False Negatives

   
   

False positives and false negatives, in this context, mean the erroneous identification of an end user as a business user, and the failure to identify a business user as such respectively. The risk of encountering these falsities are more in the EU approach as the human intervention makes the identification less objective and more prone to error. Further, approximation may be needed, as seen in the ByteDance decision, with the EU approach, the need for which would be completely removed by the revenue method.    

Conclusions

The comparison between the two definitions of Business User highlights certain deficiencies, which expose the designation process to the risk of misclassification of business users, and would end up overburdening the regulator. In pursuance of this, the blog proposes a revenue-based approach to ensure a clear delineation of Business User and End User. The proposed approach significantly reduces the need for case-to-case basis analysis; and minimizes errors such as false positives and false negatives.

By adopting the revenue approach, a more tailored definition can be formulated which help regulators like CCI make the designation process more objective, and meet its goals of ensuring contestability, fairness, and innovation in the digital markets