Europe shows the way in online privacy

After passively watching for many years as tech giants developed dominant market positions that threaten consumer privacy and stifle competition, American antitrust regulators seem to have finally grasped what’s happening and decided to take action. 

This increasing scrutiny, which tacitly acknowledges that Europe’s more proactive regulators were perhaps right all along, is helping unleash a wave of tech startups at the expense of big tech. By holding industry titans accountable over the privacy and use of our data, regulators are encouraging long overdue disruption of everything from back-end infrastructure to consumer services.

Over the past decade, Facebook, Google, Amazon and others have tightened their grip on their respective domains by buying up hundreds of smaller rivals, with little U.S. government opposition. But as their dominance has grown, and as egregious privacy violations and mishaps proliferate, regulators can no longer look the other way.

In recent months, American regulators have announced a flurry of new antitrust investigations into big technology companies. The Federal Trade Commission has voted to fine Facebook $5 billion for misusing consumer data, the U.S. House Judiciary Committee is probing the tech industry for antitrust violations and 50 attorneys general announced an antitrust probe into Google. U.S. officials are even considering establishing a digital watchdog agency.

It’s hard to understand why it took so long, though perhaps U.S. officials were loath to target domestic companies that were driving huge economic growth and creating millions of new jobs. In contrast, their counterparts across the pond have been on an antitrust tear under the watch of European Union antitrust commissioner (and now also EVP of digital affairs) Margrethe Vestager.

Now that regulators from both Europe and the United States are pursuing antitrust probes, they have exposed areas where startups can innovate. 

Startups take on big tech

The prospect of a more level playing field is opening the door for startups and nimble competitors to elbow their way into markets long seen as unassailable. Smaller companies that prioritize privacy or expand consumer choice stand to benefit the most.

For example, Apple faces antitrust complaints over its App Store in Europe and the United States. Eliminating the “Apple Tax” could help app developers gain revenues and customers. And Spotify, in a complaint filed with the European Commission, claims it has to charge customers 30 percent more for its premium music plan for subscribers who sign up through Apple.

Could startups and app developers shake off the App Store shackles? Could a new recommendation engine like Canopy replace search from Google (I’m looking for the one that will!) — using data on our phones to deliver amazing recommendations for everything (like Spotify does for music) but with a “privacy-first” approach that does not store or own any data about us on their servers (like Permutive*)? Could a fledgling social network challenge Facebook by promising better respect for privacy? All of those once unthinkable scenarios now seem viable. 

Data on “the edge”

As it turns out, we don’t actually need to collect and store mountains of personal data to run powerful online services. Permutive*, for example, delivers custom content to mobile phone users without knowing anything about them. Instead of using cookies or connecting to the cloud, it uses data on the phone itself (a form of “edge computing”) to work out how to personalize content displayed to a user — without having to take anything personal about you off the phone. Any company that uses Permutive is by default GDPR-compliant. This is literally a multi-trillion dollar emerging opportunity across advertising, publishing, media, apps and IoT. 

Edge computing is an example of the sweet spot between public and private data models, where great service is possible without intrusiveness. This could be the future of social networking, tilting the balance more toward customer value and away from corporate control. 

Another startup riding this wave is Handshake*, a free online career services center for students. It has built a network of more than 800 university partners and 400,000 employers with a privacy-first culture that protects sensitive student information.

There’s even a $100 million fund, Grant for the Web, built to help startups pursue business models that don’t rely on private data. The blockchain company Coil, along with the nonprofits Mozilla and Creative Commons, seek to break the web’s reliance on ad revenue, while expanding access and user control.

Europe is now

Europe’s startup scene is smaller than that of the United States. But Europe’s head start on privacy issues and its focus on building sustainable businesses suggest that it is already a tech powerhouse. This includes not just great new companies but also established companies that are poised for big growth.

Earlier this year, the investment firm GP Bullhound predicted Europe will see two companies grow past $50 billion valuations by 2021, doubling its current total. That includes Spotify (currently worth $22 billion) and Amsterdam-based payments processor Adyen (currently worth $20 billion). They would join enterprise software giant SAP and semiconductor equipment maker ASML in the $50 billion club. 

Meanwhile, the number of European “unicorns” – companies with valuations above $1 billion – has nearly tripled over the last five years to 84. That includes 21 European companies that reached that status in just the last year, according to the same GP Bullhound study, and puts Europe on a faster pace than the U.S.

Breaking up is hard to do

Forced breakups are relatively rare, historically. The last one, AT&T, came nearly four decades ago. More recently, Microsoft withstood intense antitrust pressure to survive intact. It gradually yielded its monopoly control anyway, as startups (and a revived Apple) arose to create entire new industries that chipped away at its dominance.

But whether regulators actually deconstruct today’s monopolies is less important than the heightened scrutiny now facing big tech. Negative sentiment toward tech powerhouses is changing the status quo and enabling companies to dream of possibilities that seemed out of reach just a few years back. 

One major difference today is the speed at which new companies can grow and achieve dominant scale in just a matter of years. Uber’s rapid rise is a good example. Today’s big tech companies can’t assume they’ll maintain their dominance indefinitely, now that the playing field is being leveled or even tilted against them.

Having spent years weaving privacy protections into their business models, European companies are well-positioned to thrive as respect for individual privacy grows worldwide, and as the downside of tech oligopoly becomes more apparent. With U.S. regulators finally following Europe’s lead, opportunities will open up for a wave of new innovators to create entire industries built on respecting individual privacy – instead of exploiting it. 

*EQT Ventures is an investor in Permutive and Handshake.