5 Essential Facts for Fashion About EU’s Digital Services Act

The European Union’s Digital Services Act, which took full effect Friday, has already succeeded in throwing Big Tech back on its heels.

For months, the world’s biggest platforms have been implementing changes to comply with new rules that seek to reshape the way the online world conducts itself across content moderation, privacy and transparency.

More from WWD

Considered groundbreaking, the DSA is billed as the most comprehensive set of online reforms, and it’s poised to change the way tech companies and online marketplaces operate on fundamental levels. The implications are far-reaching for both consumers and the brands that court them through these channels.

“It is a big deal not just for European tech companies but for all tech companies that operate in the EU, and it will have a significant impact on the experiences Europeans have when they open their phones or fire up their laptops,” wrote Nick Clegg, president of global affairs at Meta, in a blog post in late August.

Platforms Must Sniff Out Bad Content, Comply with New Limits for Ad Targeting

The new rules hold tech platforms accountable for identifying dangerous or illegal content and services, in a bid to stymie illegal online content and hate speech.

Very large online platforms and search engines are required to offer an optional system for recommending content that isn’t based on profiling. They are also mandated to implement risk mitigation efforts to undermine the spread of misinformation, disinformation or other content that endangers fundamental rights, electoral processes and other issues.

What may be most relevant to brands are restrictions in the use of personal data for targeted advertising. There are new limits to the way platforms can use sensitive data in ad-targeting based on gender, race and religion, and they can’t use personal data to target children at all.

The DSA Affects the World’s Top Platforms and Marketplaces (and Therefore, Nearly Everyone)

At first blush, the target seems rather narrow, only 19 platforms. But for a group that includes search, social and marketplace giants — including Google and its various shopping and other services, Meta’s Facebook and Instagram apps, TikTok, Twitter (now X), Bing, Amazon, Zalando, AliExpress, YouTube, Snapchat, Pinterest and more — the effect is extensive, spanning more than a billion consumers and countless brands. That’s just in stage one alone.

On Friday, platforms with more than 45 million users are on the hook, but the scope will expand in February, when the DSA will apply to more platforms of different sizes.

The penalty for breaking the rules is a hefty fine of up to 6 percent of the violating company’s global business. Multiple offenses could block the firm from operating in Europe entirely.

The DSA Is Not a Panacea for the Web’s Ills

The Electronic Frontier Foundation is generally a fan of the DSA, but while it may be the most comprehensive approach to holding large tech platforms accountable, it’s not a foolproof solution.

One of the issues the group highlighted is that there’s quite a lot of ambiguity over how tech platforms are supposed to evaluate systems and mitigate risk. According to the EFF, “much will depend on how social media platforms interpret their obligations under the DSA, and how European Union authorities enforce the regulation.”

This is Just the Beginning

When it comes to the tech sector, the EU has little patience for what it sees as excesses, short-sightedness or simply bad behavior. But the crackdown doesn’t end here. The DSA is part of a package of legislation teed up by European lawmakers, which includes the Digital Markets Act and the AI Act to foster competition, choice and innovation, as well as ensure responsible development of artificial intelligence, respectively.

In the EU press release announcing the DSA, Jozef Sikela, Czech Republic Minister for Industry and Trade, said he was “convinced it has the potential to become the ‘gold standard’ for other regulators in the world” to establish “a safer and more accountable online environment.”

There’s A Lot at Stake for Online Fashion Sales

Few might question the need for regulation, including the tech companies themselves. Meta, for instance, has given a lot of lip service to calling for broad-based and transparent tech oversight through the years — which is ironic, as it is among the operators that have been the most penalized by the EU and others.

But, as the EFF noted, there’s ambiguity in the rules, which leave it up to the platforms to determine how they’ll adapt. If the EU takes issue with the changes, tools or policies hatched by Google, Meta, Amazon and others in response to the DSA, this effect will ripple out to brands that rely on them as well.

It’s hard to estimate this impact. According to Statista, e-commerce accounts for 20.8 percent of total retail sales, with a year-over-year boost of 4.9 percent anticipated further out. For fashion retail specifically, e-commerce sales are projected to total 24 percent of the market by 2026. In every meaningful way, tech companies hold the wallet for the online fashion sector’s revenue, which means that the changes can determine whether it opens wide or slams shut.

Where they roll out new tools and updates can also change the equation. Some may tackle that on a regional basis, but historically, some platforms have avoided those complexities by universally implementing new policies. This matters to the global fashion industry, particularly in key markets. E-commerce fashion sales in Asia, a priority for both mainstream and luxury apparel, are estimated to hit roughly $600 billion by 2025. That’s nearly double that of North America.

Brands that have grown dependent on an online platform for sales and marketing now — or dependent on artificial intelligence in the future — may want to revisit a bit of conventional retail wisdom and diversify their channels. Think of it as putting many oars into the water: If one breaks on this or another EU regulation, at least it won’t sink the entire ship.

Best of WWD

Click here to read the full article.