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X invoked tanking ad revenue to remove threat of DMA gatekeeper designation.
Following an investigation, Elon Musk's X has won its fight to avoid gatekeeper status under the European Union's strict competition law, the Digital Markets Act (DMA).
On Wednesday, the European Commission (EC) announced 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."
Since March, X had strongly opposed the gatekeeper designation by arguing that although X connects advertisers to more than 45 million monthly users, it does not have a "significant impact" on the EU's internal market, a case filing showed.
A gatekeeper "is presumed to have a significant impact on the internal market where it achieves an annual Union turnover equal to or above EUR 7.5 billion in each of the last three financial years," the case filing said. But X submitted evidence showing that its Union turnover was less than that in 2022, the same year that Musk took over Twitter and began alienating advertisers by posting their ads next to extremists' tweets.
Throughout Musk's reign at Twitter/X, the social networking company told the EC, both advertising revenue and users have steadily declined in the EU. In particular, "X Ads has a too small and decreasing scale in terms of share of advertising spend in the Union to constitute an important gateway in the market for online advertising," X argued, further noting that X had a "lack of platform power" to change that anytime soon.
"In the last 15 months, X Ads has faced a decline in number of advertising business users, as well as a decline in pricing," X argued.
In another case filing in the EU, X argued that it's also much smaller than its competitors when it comes to monthly active users in the EU. According to X, it's about 133 percent smaller than Facebook or Instagram, 60 percent smaller than LinkedIn, and 27 percent smaller than TikTok. While the EU noted that X's data "shows considerable discrepancies" based on the argument the app is making, X had submitted enough to show "low and decreasing user engagement."
Additionally, X argued that unlike other DMA gatekeepers like Meta or Google, X primarily deals in brand advertising, "as opposed to direct response advertising which requires superior targeting and measurement of advertising tools." And because X "only offers first-party advertisement on the X online social networking," X can't crunch user data like other gatekeepers tracking users off-platform. This means that X "does not have the same possibility" of "verifying advertising effectiveness across several first and third-party properties" like other companies seemingly posing a greater risk of monopolizing the ad industry, X argued.
"Based on this evidence," as well as "the low and decreasing scale of usage by business users," the Commission concluded that "X Ads is not an important gateway for business users to reach end users."
X may become a gatekeeper if ad boycott ever ends
While this is clearly a win for X—as other big tech companies wish they could avoid DMA compliance too—the continued ad boycott of X over fears of extremist content proliferating on the platform is seemingly keeping X from achieving some of Musk's biggest ambitions since purchasing the platform.
Musk has vowed to turn X into an everything app designed to be the only app that users would need. But progress on that front has seemed to slow after Musk claimed that everyone would be banking on X by the end of 2024.
Instead of rolling out promised new features, X has seemingly been focused this fall on wooing back some major advertisers after Fidelity recently estimated that X is worth about 80 percent less than when Musk initially purchased the app.
Last week, X announced that Unilever would resume advertising, promising that forming that partnership was just "the first part of the ecosystem-wide solution" for advertisers on X.
"We look forward to more resolution across the industry," X said.
For X, wooing back more advertisers might be hard as long as it maintains a lawsuit targeting advertisers for boycotting the platform. In that legal challenge, X accused advertisers of conspiring "to collectively withhold billions of dollars in advertising revenue."
But many advertisers have maintained that Musk's content moderation changes at X have caused more harmful content to spread on the platform, and some even think Musk is part of the problem by seemingly amplifying misleading or objectionable content, including one post condemned by the White House.
Over the weekend, The New York Times published a deep dive showing how once-suspended Twitter conspiracy theorists that Musk reinstated on X (like Alex Jones or Marjorie Taylor Greene) after purchasing Twitter have benefited from Musk engaging with their posts—concluding that "Musk plays a big role in what spreads" on X.
Whether Musk can turn X's revenue around is still unclear as ad revenue hits new lows, and his everything app dream that will supposedly spike revenue seems to be deprioritized. The EU Commission has said that it will continue monitoring changes at X in case ad revenue bounces ever back to a level that would put DMA gatekeeper status back on the table.
Ashley is a senior policy reporter for Ars Technica, dedicated to tracking social impacts of emerging policies and new technologies. She is a Chicago-based journalist with 20 years of experience.
