• Startup Economy

    EUROPE’S TECH STARTUPS: Death by regulatory overkill?

    While policy makers and government show big interest and claim noble intentions - there is still a big gap between ambition and reality. Many alarm bells are ringing across Europe for tech startups. From Berlin to Paris, and from Warsaw to Milan, thousa [read more]
    byLenard Koschwitz | 06/Jul/20185 min read
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    While policy makers and government show big interest and claim noble intentions – there is still a big gap between ambition and reality.

    Many alarm bells are ringing across Europe for tech startups. From Berlin to Paris, and from Warsaw to Milan, thousands of innovative and ambitious startups are hustling every day. But are regulatory risks and threats overtaking their strength to grow? While policy makers and government show big interest and claim noble intentions – there is still a big gap between ambition and reality.

    While our founders should be nurtured as the winning ingredient of Europe’s economy – startups create jobs three times faster than the rest of the economy – the reality of day to day life is that Europe’s innovators risk regulatory overkill. There is an unfortunate pattern in which the voice of Europe’s startup community is taken on board for more soft PR and window-dressing than allowed to the policy table at full extend. By nature, governments have a hard time understanding and catering for, companies of tomorrow.

    Unfortunately too often, the Commission and Parliament are taking a destructive interest in tech rather than promoting the kind of companies they’d like to see. May this be privacy, data or competition related cases – the European Union policy makers should hold themselves to the same standards of positive and constructive rule making rather than playing the heavy handed enforcer. This is not a one off.

    Aspects of the General Data Protection Regulation were the latest example of regulation which was conceived and designed with a prohibitive degree of complexity as well as a fair share of ignorance for technology. Examples like these with the hungry cry for more European unicorns don’t go well together. Digital Copyright is another chapter, where startups are caught up in the schizophrenia of policy makers. Sometimes they’re all about ‘stealing content and have to pay’ or they are ‘not concerned at all’. Across the board they are hoped to develop the artificial intelligence and machine learning Europe needs to compete with the US and China. Whether they can raise the funds or access the data they need is less of the EU’s concern.

    The positive contribution of Europe’s tech startups needs to be far better understood and their perspective and insights listened to in a meaningful way by policy makers in Europe.

    Europe’s mobile economy has been thriving and with it, Europe’s startup community. For instance, there has been a rapid growth of apps over the last decade, from less than 5,000 to over 2 million today. Compared to the US, Europe actually hosts more app developers. How does that sound?

    Thousands of startups and businesses across Europe nurture their geniosity  with the open source and architecture  of the digital applications. Innovation is not limited to the software applications, new hardware manufacturers in Europe, like BQ, which has over 1000 employees near Madrid, or Fairphone, building a fully sustainable smartphone in the Netherlands, both using Android’s open source operating system. Open platforms, like Android but also Tizen, LineageOS or PostmarketOS enable new jobs and opportunities for developers in Europe too — in fact, there are estimates of roughly 2 million jobs created in Europe, with another 2 million-and-some closely associated to mobile development.

    The mobile economy has not only fostered innovation, it has ensured strong competition amongst apps and app-stores. This isn’t just something that benefits companies and businesses. It ultimately enables consumers choose between a myriad of freely available solutions. Judging, reviewing and endorsing the best has given the consumer more power and voice than ever before.

    Preserving an open mobile ecosystem to the benefit of consumers

    After GDPR and copyright, this topic concerns the European Commission’s decision on the Android operating system which will, in one way or the other, impact the ability of startups and developers to thrive. Unfortunately so far, any government intervention has brought more complexity, legal or administrational effort, and ultimately trouble for tech communities. This makes it hard to see good things in the Commission’s actions.

    Taking often far-reaching decisions about where such ecosystems for startups and developers are bound to go, policy makers need to be sure to have the full picture. Are actions about to be taken having a net positive or a net negative effect on the ability of our entrepreneurs to succeed? What are the right instruments to tackle occurring issues? Europe’s app economy has generated 2.05 million jobs, as of April 2018, at an annual growth rate of approximately 6.6% (link). We shouldn’t such developments for granted and should focus on strengthening those who build our future.

    It’s hard to underestimate the ability of European entrepreneurs to innovate and to disrupt for a better future. But at the same time we cannot blame them for taking the best way towards success. Their role is to innovate while the role of public policy is to provide the best conditions to do so. Ultimately, if not founders themselves, its investors who will apply a strict due diligence.

    Despite the arguments put forward by European policy-makers, short-sighted regulatory interventions interfering in the digital economy risk unbalancing ecosystems which depends upon an open and flexible approach to ensure continued innovation. The oxygen needed for startups has and always will be open access, allowing them to be part of a global community able to compete and build our future.

    In the same way that users enjoy the benefits of innovation, regulatory constraints will also have a knock on effect on consumers. Take the European Commission’s proposal on the platform to business relationships or any of their competition work. Often decisions are motivated from a particular set of interest or constituency, and is not always fully weighted against all interest and benefits such as for consumers.

    Take Be My Eyes, an app developed in Denmark that connects blind people with volunteer helpers from around the world via live video chat with 100,000+ downloads on smartphones. In the field of fitness and wellness, from sleep pattern optimization in Sweden to healthy home cooking in Germany, European apps improve the way people around the world approach their well being. Such stories are nearly endless and show a 21st century face of our diversity. These apps could emerge thanks to platforms like Google Play and Apple’s app store, which allow startups to scale quickly and reach billions of users over night.

    Startups in Europe have to run the extra mile

    We fear that regulatory interventions which fail to take full account of startup communities could lead to increased product prices, less choice and entry barriers for startups. Just think of the apps we use to help us improve our travel experiences. Most of Europeans download more than two new apps a month and spend hours playing games, shopping or doing our finances.

    Startups are at the heart of innovation in our economy. Most new applications see the light of day in startups and startups aren’t shy challenging the status quo. We have to learn to get comfortable with disruptive innovation as long as the product benefit aims at the user.  We need policy makers to understand how the startups of today will be shaping the economy of tomorrow. To capture incredible success stories like those of our mobile economy and other verticals like deep tech and manufacturing. Doubling down on regulation and enforcement will cause the contrary of the success stories we want to see so many more of.

     

    Picture credits: Steve Halama

     

     

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  • 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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