Europe Is in Danger of Regulating Its Tech Market Out of Existence

In June, Apple announced a new product called Apple Intelligence. It’s being sold as a new suite of features for the iPhone, iPad, and Mac that will use artificial intelligence to help you write and edit emails, create new pictures and emojis, and generally accomplish all kinds of tasks. There’s just one problem if you’re a European user eager to get your hands on it: Apple won’t be releasing it in Europe.

The company said in a statement that an entire suite of new products and features including Apple Intelligence, SharePlay screen sharing, and iPhone screen mirroring would not be released in European Union countries because of the regulatory requirements imposed by the EU’s Digital Markets Act (DMA). European Commission Executive Vice President Margrethe Vestager called the decision a “stunning declaration” of anti-competitive behavior.

Vestager’s statement is ridiculous on its face: A tech giant choosing not to release a product invites more competition, not less, and more importantly, this is exactly what you’d expect to happen given Europe’s regulatory stance.

The economist Albert Hirschman once described the two options in an unfavorable environment as “voice” and “exit.” The most common option is voice—attempt to negotiate, repair the situation, and communicate toward better conditions. But the more drastic option is exit—choosing to leave the unfavorable environment entirely. That’s more common for people or political movements, but it’s growing increasingly relevant to technology in Europe.

Apple’s decision isn’t the first time that poorly designed regulations have pushed tech companies to block features or services in specific countries. Last year, Facebook removed all news content in Canada in response to the country’s Online News Act, which resulted in smaller news outlets losing business. In 2014, Google News withdrew from Spain over a “link tax,” causing lower traffic for Spanish news sites, returning only when the law was changed. Numerous technology firms have left China due to the power the Chinese Communist Party exerts over foreign corporations.

Adult sites are blocking users in a variety of U.S. states over age verification laws. Meta delayed the EU rollout of its Twitter (now X) competitor Threads over regulatory concerns, though it did eventually launch there. The firm, in a move that mirrors the Apple Intelligence decision, has also declined to release its cutting-edge Llama AI models in the EU, citing “regulatory uncertainty.” Technology companies have traditionally invested large amounts of money in voice strategies, lobbying officials and trying to improve poorly written laws. But they are increasingly aware of their ability to exit, especially in the European context. And Europe’s regulatory approach risks creating a balkanized “splinternet,” where international tech giants may choose to withdraw from the European continent.

If that seems far-fetched, consider other recent cases. Europe recently charged Meta with breaching EU regulations over its “pay or consent” plan. Meta’s business is built around personalized ads, which are worth far more than non-personalized ads. EU regulators required that Meta provide an option that did not involve tracking user data, so Meta created a paid model that would allow users to pay a fee for an ad-free service.

This was already a significant concession—personalized ads are so valuable that one analyst estimated paid users would bring in 60 percent less revenue. But EU regulators are now insisting this model also breaches the rules, saying that Meta fails to provide a less personalized but equivalent version of Meta’s social networks. They’re demanding that Meta provide free full services without personalized ads or a monthly fee for users. In a very real sense, the EU has ruled that Meta’s core business model is illegal. Non-personalized ads cannot economically sustain Meta’s services, but it’s the only solution EU regulators want to accept.

Or consider the recent charges the EU levied against X. Under Elon Musk’s ownership, anyone can now purchase a blue check with a paid subscription, whereas blue checks were previously reserved for notable figures. EU regulators singled out the new system for blue checks as a deceptive business practice that violates the bloc’s Digital Services Act.

These charges are absurd. For one, the change in the blue check system was widely advertised and dominated headlines for months—as well as dominating discussion on the site itself. The idea that users have been deceived by one of the loudest and most discussed product changes in the site’s history is silly. And beyond that, the EU’s position is essentially “X cannot change the meaning of the blue check feature—it is permanently bound to the EU’s interpretation of what a blue check should mean.” This goes far beyond competition or privacy concerns; this is the EU straightforwardly making product decisions on behalf of a company.

A final example comes from France, where regulators are preparing to charge Nvidia with anti-competitive practices related to its CUDA software. CUDA is a free software system developed by Nvidia to run on its chips that allows other programs to more efficiently utilize GPUs in calculations. It’s one of the main reasons Nvidia has been so successful—the software makes its chips more powerful, and no competitor has developed comparable technology. It’s exactly the kind of innovative research that should be rewarded, but French regulators seem to view Nvidia’s decades-long investment in CUDA as a crime.

These examples all share a few key features. They’re all actions aimed at successful foreign tech companies—not surprising since the EU’s rules all but ensure there are no comparably successful European companies. They’re all instances of regulatory overreach, where the EU is trying to dictate product decisions or rule entire business strategies illegal. And crucially, the sizes of the possible fines in play are so large that they may end up scaring companies off the continent.

EU policy allows for fines of up to 10 percent of global revenue. Analyst Ben Thompson reports that Meta only gets 10 percent of its revenue from the EU and Apple only 7 percent. Nvidia does not provide exact regional numbers, but it’s likely that the EU provides less than 10 percent of its revenue as well. And this is revenue, not profit. A single fine of that magnitude would be more profit than these companies make in the EU in several years and destroy the economic rationale for operating there. With global-sized punishments for inane local issues, Europe is much closer than it realizes to simply driving tech companies away.

Europe’s regulators may insist that if companies simply followed the rules, they’d be able to make their profits without the threat of fines. This is patently untrue in the case of Meta, where the EU has ruled out every practical business strategy for funding its operations. But it’s also impossible writ large because the EU often doesn’t write clear rules in advance. Instead, the DMA requires businesses to meet abstract goals, and regulators decide afterward whether the company is in compliance or not. The burden does not exist on the EU to write concrete rules with specific requirements but on the companies to read the regulatory tea leaves and determine what steps to take. It’s an arbitrary and poorly designed system, and companies can hardly be blamed for looking to the exit.

Ultimately, Europe needs to figure out what it wants from the world’s technology industry. At times, it seems as if Europe has given up on trying to innovate or succeed in the tech sector. The continent takes more pride in being a leader in regulation than a leader in innovation, and its tech industry is a rounding error compared with that in the United States or China.

What few success stories it has, such as France’s Mistral, risk being strangled by regulatory actions. How would Mistral, a leading AI firm, survive if Nvidia exits the French market due to regulatory concerns? There is no substitute for Nvidia’s cutting-edge chips.

Europeans could end up living in an online backwater with out-of-date phones, cut off from the rest of the world’s search engines and social media sites, unable to even access high-performance computer chips.

As a sovereign body, the EU is within its rights to legislate tech as arbitrarily and harshly as it would like. But politicians such as Vestager don’t get to then act shocked and outraged when tech companies choose to leave. Right now, most tech companies are still attempting to work within the system and make Europe’s regulations more rational. But if voice fails over and over, exit is all that’s left. And in Europe, it’s an increasingly rational choice.