• Digital Single Market

    Regulating Platforms, again?!

    Rather than following its commitment to embracing non-legislative but self regulatory solutions, the Commission is about to undertake a second attempt in clamping down on platforms. Platforms are recognised for a while now as the prevailing model for th [read more]
    byLenard Koschwitz | 11/Dec/20175 min read
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    Rather than following its commitment to embracing non-legislative but self regulatory solutions, the Commission is about to undertake a second attempt in clamping down on platforms.

    Platforms are recognised for a while now as the prevailing model for the digital economy. Finally entrepreneurs can spend time doing what they do best without having to be part-accountants, salesmen, IT-experts, web-developers or part-whatever. Building a business pre-platform was like digging out your house from snow before you actually could go in. Every day.

    Platforms triggered an explosion of new startups who benefit from lower entry barriers and fractional costs when launching a business. We see new platforms emerging and even platform to platform (P2P) solutions.

    Not only entrepreneurs but also users are becoming very aware of what they are good at and start to focus, in a nonchalant way, on what they do best and chose the most convenient way to buy a ticket or save their documents. As individuals we are becoming more aware of our strengths and skills. This seems like a very logical continuation of the separation of labour. Not everyone has to do everything.

    While startups and entrepreneurs across the planet are still in the buzz of grasping the opportunities they now have to change the world, the conversation policy makers have is taking a different turn.

    ‘Fairness in Platform-to-business relations’ reads the European Commission’s work programme for 2018. Search results reveal that P2B is a term solely used in the political Europe and its notion is imminent, impending and even threatening if we attend to some of the stories around. The motivation seems less like a solid legal concept but more like a feeling; a feeling that something must be wrong. If we do something about fairness we presume that the current situation is unfair.

    The motivation of the proposal limps for several reasons. First of all it highlights how the European Commission has pivoted and adapted their story over the years, changing its position more than once. A wide-ranging consultation in 2015 and 2016 resulted in no justification for sweeping legislation on platforms.

    Part of the reason at the time was that the lawmakers did not manage to define what they were talking about. Considering platforms as matchmakers in multi sided markets, the Commission was not able to find evidence that there are structural problems. On the contrary, benefits of platforms overweight and the Commission committed to embracing non-legislative but self regulatory solutions .[1]

    Rather than following this commitment the Commission undertook a second attempt in clamping down on platforms. This time it follows a “problem based approach”.

    Licenses and copyright protected content would not be sufficiently protected on online platforms, so the lawmakers say. The draft legislation[2] that followed goes by far beyond its declared scope, obliging crowdfunding platforms, blogs, online shops or developer platforms to restrict parts of their content and conclude licenses similar to those of Spotify or Youtube for the rest of it.

    This is by far the only area where “government comes after platforms”. Policy makers are quick in pushing responsibility on platforms about all kinds of controversial content or use or make often unrealistic demands[3].

    All in all, the discussion often seems polarised and naive. It is true that technology can achieve more than eyes and hands, but this mustn’t mean that long established and enshrined principles of power and responsibility have to be shifted to technology. Many of the policy advances seem half-assesses and are sending mixed messages.

    Coming back to platforms. We should ask ourselves if we really want to adopt regulation clamping down on e-commerce like asos, Zalando, HelloFresh, Lieferando, Deliveroo, payment platforms like Adyen, Klarna, Stripe or Transferwise? Platforms as business model brings producers, consumers, partners and owners together in ways that go far beyond what some of our political elites feel uncomfortable with Amazon, Google, Booking, ebay or Apple?

    Is it all new? Part of the accusation is that a handful of platforms, which happen not to be founded or headquartered in Europe, abuse their position, do not provide enough transparency, push unfair contractual arrangements and keep valuable insights from data to themselves.

    If we look back in time or into other sectors like retail supermarkets, we find that such practises are neither new nor necessarily abusive. The question arises: Why does the European Commission now want to intervene and not before. Or did we ever speak about where a “fair” position for products in a supermarket is or if it’s “fair” if Delhaize launches own brands on those products that sell well?

    What’s the logic? It might seem easy and opportunistic to give in to the immediate picture of “big platform abuses power vs small business,” but such behaviour would not make sense in reality. As a platform you don’t only care about but you rely on business users. If there is no trust and users are unhappy with the product they will leave, regardless how big a platform is.

    But let’s be clear, apart from some individual stories the image of platforms as malicious black boxes has never been supported by evidence.

    Missing the point? So why is it that startups launch much faster today than before? Why do we experience a democratisation of entrepreneurship and a “wave of European innovative startups,” as President Juncker put it? For one part it is because we have the technology at our fingertips, i.e. startups as well as their users can easily afford the devices they need to interact on a marketplace.

    Secondly it is because technology allows us to offer products of scale. Once a startup develops a software product or service, the majority of the sales, marketing and subscription service can be automated. So if we give in to one of the assumptions of the European Commission, that business clients cannot negotiate fair contracts with platforms – that actually is for a good reason because obliging them to put a lawyer behind every contract would do nothing less than rendering the entire advantage of technology useless.

    Is it all about B2P? It seems evident that the Commission wants to stick up for businesses that have experienced issues with platforms. If such issues exist and deserve attention, first and foremost by the platform itself. Digital savvy consumers, startup entrepreneurs and pretty much anyone reacts to bad customer service and redress.

    And if choice is limited that this might actually be a case for competition authorities rather than for legislators. The legislator rightfully envisaged this as one of the policy options which seems the most adequate and least invasive for startups in Europe and across the world as they offer the most efficient and speedy solution to problems when they arise. Startups don’t want to wait month or years for regulation and its enforcement to see it unfit for current realities and technologies.

    Picture credits: Shelley Ginger




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  • Startup Economy

    Filtering Obligations: Don’t torpedo startups in Europe

    How a law to reign in large platforms will end up costing large platforms least of all. Policy making is, by nature, one step behind technology because it tends to focus on (and is lobbied by) today’s companies. When lawmakers, however, by virtue of un [read more]
    byLenard Koschwitz | 21/Nov/20177 min read
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    How a law to reign in large platforms will end up costing large platforms least of all.

    Policy making is, by nature, one step behind technology because it tends to focus on (and is lobbied by) today’s companies. When lawmakers, however, by virtue of universally applicable and EU-wide laws, try to come after a hand full of big players, society and smaller startups suffer. With the Copyright Directive, the EU risks shooting itself in the foot. Worse even, it is launching a torpedo at its own vision of becoming a startup continent. Here is the gist of it:

    The proposal to filter online content fundamentally misses its aim. By targeting a few big video platforms, it will ultimately uplift and fence their market share. The scope of the proposal is flawed. While intending to govern only licensed content, it targets all types of content and all platforms regardless of licenses or copyright.

    Filtering itself is technically ineffective and will cause more damage than good on the internet. Seemingly easy on text through hashing but disproportionately expensive for anything more complex or even impossible. The suggested filtering technology will raise the cost of launching a startup in Europe and drive talent away.

    First-buried-then-leaked evidence suggest it will not solve the problem anyway. For all of us it will result in lower quality, less variety and content online, as the law favours those who delete content.

    Let’s take this in turns. To start, the proposal aims to address a grievance by rightsholders, namely the fact that certain large platforms don’t pay as much as the content industry is wishing for. While it’s one thing whether we want laws in favour of individual industries, this proposal will actually not do anything to abate this discord.

    Ironically, this proposal makes it even more likely that small platforms and innovative startups pick up the tab, as they don’t have the market power and legal teams to go through thousands of licensing agreements. To be clear: Startup founders fully respect creation and its remuneration. But this law is drafted in entire disregard of Europe’s startups and its citizens’ fundamental rights.

    Besides fundamentally missing the target, the proposal is carpet bombing the entire digital world. Regardless of whether one uses licensed content or not, everyone will now have to enact a costly regulatory prescription. Content can range from images over text, audio visual content, objects to code.

    While policy makers probably would have liked the idea of squeezing one online video platform into the business model of another, their proposal made startup founders across Europe worry about their future. Github, for example, is an open source code-sharing platform that helps developers to stay on top of trends.

    It too, would be within the scope of this law. Another example are crowdfunding platforms that, by design, host content uploaded by users. Is this where copyright infringement happens? Again, the scope of this law overreaches its aim and creates more problem than solutions.

    Content industries may be yelling about a problem but it is lawmakers’ duty to find a proportionate solution for everyone in our society. In this case, technology can’t offer what politics wants. Several examples underline this: Shapeways, a 3D printing marketplace, hosts more than 300,000 pieces of copyrightable content per month but processed fewer than 1,000 copyright notices in 2016. Which were based on the description, not products themselves and in most cases unsubstantiated.

    Earlier examples of crowdfunding platforms, code-sharing platforms or e-commerce are no different. Because content recognition does not yet exist in an affordable and efficient way these startups can either break the law or break ties with Europe and move where common sense governs. Anyways, they are stuck between a rock and a hard place.

    With audio files, a comparatively easily recognisable content, state of the art fingerprinting techniques resulted in error rates of 1-2%. Sounds acceptable? In comparison, spam filters for emails get dismissed as unsuitable with error rates of 0.1%. These cases illustrate: Filtering is ineffective with some types of content, and non-existent for others.

    Even if filtering were to work properly across all formats, it would price many innovative ideas out of the European market. Studies have underlined this. Unlike an assessment by the European Commission suggested, filtering does not cost 900 Euro per month, but easily between 10.000 and 50.000. If the average initial funding of a startup was 150k, you can ask yourself whether you want to launch that company or just run your idea through a bad filter for three month.

    Kickstarter, a crowdfunding platform, hosted 366.622 projects since its inception. In 2015 it received copyright infringement notices targeting a mere 215 projects, only one third of which were valid complaints.

    If article 13 of the proposed copyright directive became reality, the removal of 100 out of over 366.622 projects would easily cost 500.000€ annually. Why? Because some policy makers think a straightforward notice-and-takedown procedure is not enough. What was it again about proportionality in law?

    When filtering is prescribed with complex and expensive rules, companies will be inclined to remove content rather than run the risk of getting sued. And who are platforms do decide if that video or drawing is a copyright infringement or parody, or maybe an entirely new work?

    While so far a well founded notice triggers removal, in future the benefit of the doubt will be with an armada of copyright trolls chasing anyone hosting content. The result will be less variety and content available online. This ranges from creative content of any kind to critical thought Here is a  proposal that will lead to less investment, less startups and less free speech. Right before half of the world’s population will be able to benefit from a free internet, the most developed continent will go partly dark.

    There are a myriad of startups like Kickstarter and Shapeways or Github. And even more young and talented Europeans are planning the next generation of content platforms today.

    The collateral damage of such out-of-touch legislation is not only a shot in the foot of Europe’s ambition to become a startup continent, but also a  contribution to a generation of entrepreneurs seeking success elsewhere. Europe will be stuck with companies that are already big enough to comply or those who never want to be that big.

    Startups are not one single industry but innovate across all sectors. They are the most mobile companies we’ve ever seen and are successful because they approach problems differently. Regulators are still catching up to this reality.

    While there is no simple answer to copyright, building walls will have unintended effects while missing the actual aim. Exempting startups, as suggested before will not crack the nut because startups aren’t SMEs. What then?

    There is a vocal debate ongoing outside mainstream media on twitter, here and here. While the Parliament keeps postponing a decision the time is right to bring these topics further to the top.


    Picture Credits: Frankieleon



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