As Congress turns up the heat on Big Tech with next week’s hearing featuring leading industry CEOs, it’s crucial that lawmakers consider the realities and perspectives of U.S. startups if they actually want to promote competition.
As we’ve seen in recent history, policymakers irked by the business practices of large internet platforms often end up creating new regulatory and legal burdens that only the biggest companies can afford to live with, cementing the biggest players’ market power and making it harder for anyone to compete with them.
If Congress really wants to promote competition across the tech industry, lawmakers need to pay closer attention to the impact their actions will have on the thousands of new and small companies across the country that make up the U.S. startup ecosystem.
While policymakers are raising understandable questions about large companies, the policies that regulators put in place to address these concerns have historically backfired.
As the “techlash” reaches new heights with every misstep from large platforms, it is even more critical for policymakers to learn from these past mistakes and hear directly from startups about how best to foster competition before implementing new rules that could further cement the power of big companies.
Without needed input from the startup community, Congress is likely to push for policies that will only increase the power and dominance of Big Tech.
Time and time again, policymakers across the globe have fallen into the trap of regulating Big Tech in the name of fostering startup competition — usually with counterproductive results.
Take, for instance, the European Union’s sweeping data privacy rules, known as the General Data Protection Regulation (GDPR), which went into effect in 2018 with the goal of regulating how companies collect, use, store and share European users’ data.
While the rules were principally designed to target the data practices of the largest companies, GDRP’s burdens —and hefty penalties for failure to comply — meant that only businesses with the resources needed to be GDPR compliant were able to safely operate across the bloc.
Rather than complying with the often onerous rules, startups, small businesses and even media outlets pulled their services from across Europe — leaving the large firms with even less competition in the region. Not surprisingly, GDPR drove small ad companies out of Europe and increased the market share of the largest ad businesses.
Instead of learning from this mistake, the EU has pushed for other aggressive — and counterintuitive — measures to crack down on Big Tech.
Last year, the European Union adopted a sweeping overhaul of copyright rules that included a provision — known as Article 17 — that requires online platforms to use expensive and imperfect copyright filtering tools to police user-generated content.
The measure was created in response to complaints from the content industry that several large platforms were taking an outsized share of profits from the distribution of online content.
But mandating the use of expensive filtering technology and forcing companies to seek licenses from rightsholders will likely not affect large online platforms because most big companies already fulfill these requirements. YouTube already spent $100 million developing a content filtering system.
Instead of creating new rules that would prompt large platforms to rethink their licensing practices, Article 17 simply forces smaller competitors to incur new and potentially untenable costs to operate in Europe.
Another common line of attack is that large tech companies’ acquisitions harm competition.
While it might seem intuitive at first glance that such acquisitions are anticompetitive — insofar as they allow more successful companies to use their financial advantage to crush smaller companies before they can become true competitors — there’s no clear evidence that this happens all that often.
Rather, acquisitions usually involve a well-funded company buying the assets of a failing startup that would otherwise go out of business — a fact pattern even more common during an economic downturn. And, since acquisitions represent a predictable exit opportunity for investors, blocking these types of deals makes funding startups riskier and less attractive for investors, which in turn drives capital out of the market.
These seemingly counterintuitive outcomes are precisely the sorts of mistakes that policymakers can avoid if they actually listen to the startup community before creating rules that they arbitrarily assume will help.
Policymakers need to rely on dependable data that clearly demonstrates whether and how Big Tech is impacting the startup ecosystem. Unfortunately, there is insufficient data at this time to help guide broad legislative proposals, and policymakers should make gathering that data and including the startup perspective a top priority.
If policymakers truly care about the business practices of large tech firms, then Congress should move to address those concerns through clear, thoughtful legislation that considers the impact that legislative changes will have on the broader technology industry, not just the four or five companies that get the most headlines.
Policymakers can already pursue a number of legislative solutions—such as moving forward with a national data privacy framework—that would address harmful practices while still supporting startup growth. And Congress should heed Europe’s mistakes with the GDPR and Article 17 when looking to address perceived anti-competitive practices of the largest tech firms.
Instead of proposing broad and unfocused policies that harm nascent startups, policymakers must carefully approach Big Tech regulation in close cooperation with the entrepreneurs, startups, and investors that are uniquely positioned to understand how certain regulations and policies will actually impact competition.
