• 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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  • A conversation with

    Kaja Kallas: How the emerging app economy can make Europe stronger

     If we want the European digital sector to thrive we should focus more on promoting a cultural change than on regulatory intervention, argues MEP Kaja Kallas.   What should be the right regulatory conditions to help the European digital comp [read more]
    byThe Digital Post | 02/Apr/20157 min read
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     If we want the European digital sector to thrive we should focus more on promoting a cultural change than on regulatory intervention, argues MEP Kaja Kallas.

     

    Kallas

    What should be the right regulatory conditions to help the European digital companies emerge and become global leaders?

    I feel that very often less is more. If we think about all the possibilities we have today and all the new business models that have emerged, then we should keep in mind that these have been created in a rather innovation-friendly regulatory framework   in that field.  We should therefore be very careful before introducing new regulations.

    What we should however promoting is a change in the way we treat failure in Europe – not through regulation but through   cultural change- failure is not a bad thing, it shows that at least you tried. If more people are not afraid to fail, then more people will be encouraged to start something new.

    The growth of the app economy is certainly creating jobs. However, in the eyes of its critics it may, by disrupting traditional business models, be also destroying jobs. How would you respond to these concerns?

    Daron Acemoglu and James Robinson have written a very good book called “Why nations fail?” In that book they show through different historical examples   how people have always tried to protect the traditional sectors whereas in order to be successful you should embrace creative destruction.

    It means that yes, old jobs will disappear, but new jobs will emerge. You can fight against the knitting machine but if it has already been invented, it will come sooner or later and the craftsmen will have to find new jobs.

     

    How the European Union should address the “threats” the app economy poses on trust and security?

    Trust and security are important pillars of the internet economy; service providers have understood this as trust is at the heart of their business model which means that the market already regulates this to some extent. However, from the policy makers side we have to ensure that the right framework is in place for people to trust service providers with their data.

    This means that it must be clear that the person is owner of his or her own data and he/ she can decide who can access and use this data.

    In November you voiced skepticism about the European Parliament’s resolution requiring the unbundling of search engines. Why going down this way is a bad idea?

    I think the debate was on wrong grounds – it was about one company in particular. My statement was that it is wrong for the parliament to start intervening in the investigation procedures that the Commission is already conducting.

    The Commission has the right to demand unbundling if it finds that the search engine is an essential facility and abuses its dominant position.

    The Commission has the tools to deal with this and the Parliament should not make it political.

     

    How do you see the debate about the so-called principle of “platform neutrality”?

    It is a very wide question. In general it seems to me that there is a push from some stakeholders to shift the discussion from net neutrality to platform neutrality that would only be applicable to one US Company. I do not think this is right as we might end up harming our European companies even more.

    There are many layers to this discussion. First, the use of one platform does not necessarily preclude the use of another similar platform. If one is more user-friendly than the other one, people will change from one to another, as the switching costs are often quite low.

    In addition, due to low barriers to entry and the limited cost of creating internet platforms, new ones can emerge   quickly.

    On the other hand, some platforms might have network effects that can make market entry more difficult for the newcomers.

    Thirdly, many of the business models of internet platforms are built on unneutrality.

     

     photo credits: Johan Larsson
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