Elon Musk's X dodges gatekeeper status amid ad revenue slump

European Commission to maintain vigilance

Elon Musk's X achieved a major victory this week by avoiding gatekeeper status under the European Union's Digital Markets Act (DMA).

On Wednesday, the European Commission ruled that X does not qualify as a gatekeeper under the DMA. The decision exempts X from the strict antitrust regulations imposed on dominant tech companies.

The DMA, which took effect on 7th March 2024, seeks to curb the dominance of large tech companies by imposing strict rules on those designated as gatekeepers.

These companies must ensure their messaging platforms are compatible with competitors, allow users to manage pre-installed apps, and avoid giving preferential treatment to their own services over those of rivals.

Non-compliance could result in heavy fines, up to 10% of a company's global annual revenue.

Tech giants like Alphabet (Google), Amazon, Apple, Meta, Microsoft, and ByteDance have already been named as gatekeepers.

In May, the European Commission launched an inquiry into X after the company presented its case.

X had vigorously opposed the gatekeeper designation, arguing that its impact on the EU's internal market was insignificant. The company cited declining advertising revenue and user engagement as evidence.

The European Commission now says its investigation revealed that X's advertising business, X Ads, was indeed not big enough to qualify as a gatekeeper.

"Following a thorough assessment of all arguments, including input by relevant stakeholders, and after consulting the Digital Markets Advisory Committee, the Commission concluded that X does indeed not qualify as a gatekeeper in relation to its online social networking service, given that the investigation revealed that X is not an important gateway for business users to reach end users," European Commission said.

X's share of advertising spend in the EU was significantly lower than that of its competitors, and its ability to track user data and verify advertising effectiveness was limited compared to other tech giants.

Ad boycott on X

Meanwhile, the ongoing ad boycott, fuelled by concerns about extremist content proliferation, continues to hinder X's growth and Musk's ambitious plans.

Musk has long envisioned X as an "everything app," a one-stop destination for users' needs. However, progress on this vision has stalled as the platform struggles to attract advertisers.

In recent months, X has made concerted efforts to woo back major brands, with Unilever recently announcing its return.

Despite these efforts, the ad boycott persists. Many advertisers remain concerned about the potential for harmful content to spread on X, citing Musk's relaxed content moderation policies.

A recent investigation by The New York Times revealed that reinstated conspiracy theorists have benefited from Musk's engagement with their posts, suggesting that he plays a significant role in shaping the platform's content.

The imminent change to block functionality on X is also likely to have an impact on advertising due to the number of X users who are likely to permanently desert the platform if this functionality is removed.

While X has avoided the strict regulations imposed on gatekeepers, the European Commission has indicated that it will continue to monitor the platform's development. If X's ad revenue were to rebound significantly, it could potentially be reassessed for gatekeeper status in the future.

In April, the European Commission designated Apple's iPadOS as a "gatekeeper" after an eight-month investigation, adding it to the list of Apple's services already subject to the DMA, including iOS, the Safari browser, and the App Store.

In March, Google announced a series of changes to align with the DMA requirements.

Alphabet's services, including Google Search, Maps, Ads, Shopping, Android, and YouTube, are all affected by the regulations.