Taming Tech's Wild West Imposes a Cost Worth Paying

(Bloomberg Opinion) -- Regulation by its very nature requires a trade-off. A U.K. government proposal published Monday which aims to hold technology companies responsible for users’ online safety is no different – startups are worried it could entrench incumbents and stifle competition. As long as the nature of the punishment is commensurate, that trade-off is worthwhile.

The white paper aims to tackle content from terrorist groups, hostile foreign actors, sex offenders, criminal gangs and others. Last month's mosque shootings in New Zealand, video of which was disseminated rapidly on social media, has made the topic particularly urgent. It advocates an oversight body with the power to issue “substantial fines and to impose liability on individual members of senior management.” Since it’s a white paper, the details will be worked out before a formal bill is written. A consultation period ends July 1.

Facebook Inc. Chief Executive Officer Mark Zuckerberg has already said he would welcome clear guidelines on what sort of content platforms such as his should be able to host. And you can see why he would: as long as he sticks to those rules, he’s outsourcing the responsibility to regulators.

But smaller companies are more concerned. The Coalition for a Digital Economy, a U.K. startup industry group, said the proposals could “restrict the ability of British startups to compete fairly.” This may be true, but unfortunately for those firms, it’s a price they have to stomach.

Yes, it seems unfair. For Facebook, Twitter Inc. and Alphabet Inc.’s YouTube, the internet has for much of their existence been a Wild West where irresponsible behavior was at best unpunished and at worst rewarded. User engagement trumped all other considerations, as Bloomberg News reporter Mark Bergen exhaustively illustrated in an expose of YouTube last week. All of a sudden, start-ups will have to worry about the sort of rules that never held back Silicon Valley. 

Taming Tech's Wild West Imposes a Cost Worth Paying

But that doesn’t excuse regulators giving carte blanche to new social media platforms. It would be a destructive way of leveling the playing field.

The reason these sort of corrective measures are necessary is exactly because the appropriate checks and balances haven’t been in place. It’s therefore absolutely right and proper that new competitors incorporate such processes from day one, rather than have to impose them retroactively.

The European Union’s General Data Protection Regulation has taken a proportionate approach to punishment: its provisions mean a firm can be fined up to 4 percent of global annual revenue. Though the GDPR tackled a different problem – consumers’ data privacy –the U.K. would do well to imitate that strategy. If other nations follow, it would have a meaningful impact on tech earnings.

Even for the Silicon Valley firms, the discrepancies of scale can cause other problems should these kinds of rules be imposed. Analysts expect Facebook and Alphabet to report net profit of $22 billion and $31 billion apiece this year. Twitter will make just $671 million, so it will have a harder time hiring thousands of content moderators without considerably denting profit.

Maybe there are ways to ease the pain for smaller firms. The proceeds of fines might be used to fund the creation of standardized, freely available content moderation tools, for instance.

It’s become clear that the technology industry is unable to regulate itself effectively. New rules might make life harder for startups, but if the reward is a more cohesive social fabric, then they should recognize that it’s a necessary cost of business.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.

©2019 Bloomberg L.P.