Five steps to take now
Scrutiny of the tech sector continues to intensify. Policymakers are likely to address concerns over antitrust, data usage, consumer privacy and content moderation, among other issues. With their concentration of superior talent, vast troves of data and transformative products, tech companies are well-positioned to propose regulation that advances innovation and growth. To be part of the solution, however, they must proactively collaborate with peers, policymakers, consumers and other stakeholders to ensure participatory regulation that benefits all stakeholders. They must also embed government relations into their overall strategy.
The tech sector has enjoyed explosive growth over the past few decades, thanks in no small part to the ingenuity of new entrants who always seemed to be a beat ahead of regulation. Ride-hailing companies, for instance, tapped geolocation and smartphone technology to fill a consumer need in transportation. They would not be nearly as prolific if they hadn’t anticipated and influenced regulation. Today, the once-scrappy tech sector includes in its ranks companies with the highest market caps. And they’re being scrutinized more closely for a variety of issues, among others: antitrust; privacy; security; consumer data; platform activity; and emerging tech use, particularly AI.
Europe has implemented laws around data protection and privacy. As has California. Meanwhile, policymakers in other states are aiming to follow California’s example. Legislators are also proposing industry standards around the spread of misinformation and the handling of synthetic content such as deep fakes. And there are moves to update the legislation that protects online platforms.
Most new entrants face a binary choice: Get acquired or choked off by more powerful imitators. A majority of state attorneys general have signed on to participate in an antitrust investigation that examines the practices and market power of major players. While fines have become more commonplace, regulation is now seen as inevitable.
Tech companies face a timely opportunity here: to rally their stakeholders—including consumers and government agencies—with a view to creating participatory regulation that benefits all stakeholders. The sector is well-positioned to educate stakeholders by illustrating that:
● Their technologies adhere to appropriate parameters.
● They are implementing guardrails for consumer privacy.
● They can protect users from bad actors.
Oversight doesn’t have to hinder growth. In fact, it can provide guidelines that incubate innovation while yielding creative new business models and consumer benefits. In response to current antitrust challenges, the tech sector has a rich history to draw on. Both Microsoft and IBM overcame similar regulatory hurdles in past decades. And both responded in ways that benefited the industry and consumers, allowing legacy companies to thrive while making room for new players.
The IBM probe, which led to the unbundling of software from hardware, allowed companies like Microsoft to gain steam during the 80s and 90s. In turn, Microsoft, which owned a majority of the operating-system market in the late 90s, cleared a path for competitors such as Mozilla and Google once it opened the doors to other offerings in service of consumer needs and choice. As a result, consumers gained more options for quality internet browsers.
Tech companies are well-positioned to influence the regulatory landscape by educating stakeholders, constituent groups and professional organizations.
As Microsoft focused on its core strengths while also seeking ways to participate in regulatory outcomes, the sector germinated new entrants. Consumer choice flourished. Today, many of those entrants—including Google, Facebook and Uber, among others—have evolved into the current crop of tech leaders. By taking a proactive approach to regulation, starting with educating stakeholders, today’s tech companies can affect positive change.
Conversely, when companies are not proactive about anticipating and planning for participatory regulation, they are unable to get ahead of situations such as the bill in California that requires reclassification of independent contractors. After the fact, some companies are engaged in costly efforts to counter the bill and preserve their business models.
Tech companies are well-positioned to contour the regulatory landscape in which they operate. Here are five guidelines PwC recommends to get started:
As legislators, regulators and other officials write the legal code of compliance, they look to stakeholders for input. We anticipate the day when policymakers and industry leaders “sprint and scrum” together to develop new policies that participants can monitor and enforce.
Getting there may not be as difficult as it seems. Both government and business can benefit by leveraging regulatory frameworks as viable operating systems that foster innovation and competition while promoting the greater good.