The Future is Regulated

by | Jun 4, 2019 | Commerce, Politics, Technology

Quote

“I’m a big believer in the free market. But we have to admit when the free market is not working. And it hasn’t worked here. I think it’s inevitable that there will be some level of regulation.”

Tim Cook, CEO of Apple

Summary

Regulation has started, and will continue to plague the tech industry. Nonetheless, the opportunity is still there for growth—especially for newcomers that capitalize on the privacy driven trend that has battered the giants.

For decades now, the tech industry has enjoyed the hands off treatment from politicians and thought leaders alike.

Viewed as the untouchable engine of the new economy, most government officials gave tech founders all the space they needed to whip up the newest billion dollar companies and markets.

Tax breaks, incentives, exceptions from previous laws—the strategy was to let the “nerds from Silicon Valley” innovate to their hearts content—after all, they weren’t hurting anyone, and they were printing out money that flowed freely to the rest of us.

Sure, there were early scuffles, where the tech industry made it out with a few bruises here and there, but all the way until the mid 2010s, they fared much better than any financial or energy counterparts, who had regulators across the globe constantly breathing down their necks.

If it’s tough to remember that golden time, it’s because the pendulum has shifted dramatically towards an all out assault on the tech industry by the traditional media and regulators alike.

Prior to 2017, tech CEOs only visited D.C. to receive congratulations from the President on the merits of their entrepreneurship.

From 2018 onwards, some of those very CEOs made frequent visits to our nation’s capital—only this time they had to sit through hours of verbal lashings from our legislators.

Thus far, the amount of talk has far surpassed the amount of action in the U.S. at least.

Europe has had early success in passing regulatory measures, but not without a concerted fight from the tech giants—who spent years and poured millions in to lobbying efforts to argue that prospective laws would stifle their company’s growth, along with the growth of burgeoning startups who have severely less resources to comply with restrictive measures.

Most notably, we’ve seen the passage of GDPR which intends to give users much more control over how their data is used by the tech companies they interact with. Companies have had to reform how they use, store, and collect data as a result.

More recently, the European Parliament passed the Directive on Copyright in the Digital Single Market. The most contentious part is Article 13, which places the liability on tech platforms to police the copyrighted material being shared illegal amongst users. Concerned advocates argue that this would only lead down a darker path where tech companies have to create highly restrictive filters for uploads.

The American regulators have managed to take one significant victory thus far, in California with the California Consumer Privacy Act that was signed in to law last year. Through rounds of iteration, the language in the act managed to be watered down to the point of mild concern to the tech companies (who consistently have to battle with politicians from the local to the state level in their own backyard).

Still, the CCPA has the spirit of the European laws, and the itchy feet around the country suggest that more states may be following California’s lead. A multi-state patchwork of differing laws seems like a very real headache emerging on the horizon.

If there’s one thing for certain, it’s that there’s money to be made in helping tech companies navigate the confusing and uncertain landscape—whether that is directly through lobbying efforts, or operationally through product/features that help with compliance (e.g. Cockroach Lab’s geo-partioning of data).

In all fairness, there are very real concerns that need to be dealt with in the tech industry—and some of those concerns MAY need government intervention to be addressed.

The social networks have their own specific set of issues regarding the policing of inflammatory/divisive content, and balancing censorship with protection for users.

More broadly, as Twitter CEO Jack Dorsey has often repeated—there has to be a greater focus on improving the health of the space, and creating an experience that doesn’t leave a user with a greater sense of social anxiety and an external validation based addiction.

I’m of the opinion that the true answer here is competition: some upstart founder creating an alternative to the platforms that dominate our time and fading them in to oblivion with a new privacy focused and tight-knit group based product (something I’m working on personally with Collie).

The -sharing companies (Uber, Lyft, AirBNB) don’t have content to worry about, and instead must focus on their underlying business models and incentive structures. Regulators are aching to pounce on these companies for the easy win on the supposed exploitation of their contractors, and an “unfair advantage” of the surrounding markets they compete in (housing/lodging, transportation).

Then there’s the companies that stand in their own categories/situations—like Amazon and Tesla for example—both can trace most of their public attacks to their bombastic CEOs who have a tendency to work themselves and their company to the bone to compete in their cutthroat markets.

It doesn’t help that most of the faces of the most prominent companies are either largely absent/withdrawn (Sundar at Google), or unpersonable (Mark at FB). Even the most likeable tech CEOs can often come across as eccentric and out of touch to the average person (Elon).

Tim Cook is a notable exception here, and his calming presence is largely understated (and part of the reason why Apple has been ahead of the curve).

Mark my words, the next big tech company to explode and weather the regulation storm needs a charismatic, bulletproof CEO—someone in the vein of Jamie Dimon, who is a master of maintaining a positive public image. He knows exactly when to give and take in the regulatory arena, and gives off a reassuring image to politicians, investors, employees, and customers/clients alike.

Having spent a great deal of my early career in the political arena, I can tell you that well-intentioned and well-informed politicians are far and few between (and rarely are they both), which is why I’m skeptical of any government driven effort.

Remember Senator Orrin Hatch asking Zuckerburg how FB made money?

Given the complexity of these companies and the technologically advanced products they offer, regulatory reform cannot be rammed through—it must be done gradually and deliberately, taking special consideration to the fact that these companies still have investors to worry about.

Having worked firsthand for half a year at Twitter dealing with these issues, I can tell you that it is no easy task (although I can vouch that the great people at Twitter are working their asses off) to re-align the priorities and responsibilities of thousands of employees to reform the product. There is a reason big companies tend to be reactionary, and not experimental.

My desk on my first day of work in the D.C. office last summer. I got a front row seat to all the action on the Hill.

The fact remains—the regulators smell blood in the water, and they’ll continue circling and taking bites for the foreseeable future—until the industry dramatically reforms itself, or bites back.

I forsee innovation triumphing, and a crop of new startups dominating due to their agility and closeness with the customer. I also forsee the same sort of outcry over the new crop of issues that will inevitably arise—thus continuing the treadmill of fighting between business and government.

The grace period for tech is gone, and the builders of the future must contend with this fact.

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