Dear Brussels: Sloppy Policy is Bad Policy. You Can Do Better.

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Once again I find myself siding with Big Tech, this time on Platform Regulation. I feel so dirty.

I’ve written before about policy makers and their growing obsession with reigning in the big tech companies. I understand where this impulse comes from. The tech sector is too important to ignore, but it is also too valuable to break. And so I find myself wading in on yet another aberration brought on by regulator’s zeal to wage war on the wicked, no matter who gets caught in the crossfire.

The challenge this time is how to ensure that online marketplaces (think “Amazon”) treat their business customers (think “the Acme Digital Apple Peeler”) fairly in rankings and such. The goal is a level playing field for all (nevermind how you go about measuring that). Seems reasonable enough.

I’ll start with a simple observation that seems strangely out of place, but is actually being debated at this point: operating systems are not market places. These are two different things. This seems obvious.

For some reason, someone is trying to scoop operating systems into a law designed for digital marketplaces. This leads to another point: sloppy regulation is bad regulation. The best laws are precise, targeted, and limited in their scope. Franken-law tends to spawn unwelcome and damaging second and third order effects. Too often it’s the little guys that suffer.

The digital economy is deeply enmeshed in almost everything we do. Developers and startups in particular are reliant on a vibrant internet ecosystem to collaborate, create, and launch new products. Measured regulation that gently steers things in the right direction is welcome, and in many areas probably overdue. Today’s debates on data protection versus data freedom are a great example of conversations that have been put off for too long.

The EU is coming to the end of a long conversation about the rules under which online platforms should operate. The goal was to prevent bias in the rankings and results, and to ensure transparency so that even-handedness could be confirmed. The targets were a handful of app stores, search engines, and online shopping malls that hold special status in this space - intermediaries that help organize commercial exchanges between their millions of participants.

Unfortunately, the scope of these rules has grown to encompass all platforms where buyers and sellers meet, both big and small, and regardless of whether the market power rests with the platform or the businesses that use them. We’ll ignore for the moment the burdens the law will place on small players, and how this will likely entrench the largest platforms to the detriment of startups and innovators.

What we’ll focus on is the creep in scope that now equates “operating systems” with “online shopping services”.

I understand that there are folks out there that feel their business prospects would improve if everyone else in the digital ecosystem gets labeled as an unfair obstruction. Lobbying, after all, is just another way of capturing marketshare. But using rules designed for one thing to regulate another thing inevitably leads to bizarre and damaging outcomes. Operating systems do not rank, or filter, or manage, commercial markets. App stores are the venue for that, and of course they’re in-scope for this law.

Operating systems and APIs are the technical interface that enables the app economy to thrive. For most developers, they are a critical layer supporting interoperability by divorcing the hardware from the code that developers produce. While ensuring fairness in the various app store markets is a reasonable goal that the stores themselves try hard to achieve, misapplying platform rules to operating systems risks damaging the open source movement and the democratization of the digital economy.

Here is my ask to regulators: don’t staple together mismatched markets and call them the same. They’re not, and you’re making a mess of things.

And to those pushing for the change in scope: if your complaints are legitimate, they’ll stand on their own. Don’t hide them inside something unrelated.

<climbs down off his soapbox>

And now I need to go wash my hands and get back to fighting for the little guys that are collateral damage in all of this.


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Bruce Gustafson
President & CEO

The Digital Rust Belt

The Digital Economy creates jobs, wealth, and drives innovation. Powerful, well-intentioned outsiders are fighting to control its future. Their ignorance of how it works could doom its promise.

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As I write this, the news of Amazon’s HQ2(s) announcement is still reverberating in the news and on the street. Tens of thousands of high-paying tech jobs in NYC and DC are the center of gravity for every story, with tax revenue, construction jobs, and infrastructure spend locked in sympathetic orbits. From the outside, it seems that the prospects for tech workers have never been better.

In reality there are deep fault lines spreading in the global digital ecosystem. Careers in software and technology, like the blue collar careers that elevated millions in previous decades, are under threat from forces outside their control. In fact, just like the previous wave of job loss, the threat is largely invisible to those most likely to suffer. The threats come from the outside, both in the United States and in Europe; from bureaucrats, lawyers, policy-makers and well-meaning social activists intent on fixing an ecosystem without considering those that inhabit it. The reality is that internet corporations, entrepreneurs, technologists and developers are interdependent. A threat to one risks cascading crises that could cripple the whole. Today’s innovation requires collaboration, and a healthy market for shared ideas, and effort from many different players.

Software and technology do not spring whole from the minds of each new creator. Today’s innovations are built on top of the work of others. The software development community in particular uses a hugely collaborative and incremental system. Software from millions of creative minds is reworked, recombined, reimagined and then shared inside a global network for others to build on. This “open source” community is the driving force of innovation, and is responsible for the vast array of services and applications you use on your computer, your phone, and all your smart devices.

Open source, and the community behind it, is the foundation for modern software development.

Shared software is not without its challenges or its detractors, however. Innovation requires a delicate balancing of rewards and protections to encourage inventors without empowering thieves. The millions of developers inside the open source community have been rigorous in how they collaborate, collectively balancing the system so that the smallest player can compete against the largest. It’s a highly dynamic and informal society with rules and norms tested over time. Open source development is how millions of small developers are changing the world, creating jobs, and driving positive societal change. Around the world, some of today’s most successful companies have their roots in this collaborative and open environment.

All of which stands balanced like a house of cards in a rising wind.

In the rush to vilify and tame the giants of the digital economy, forces outside the system are searching for ways to reset the balance. Instead of delicate changes, the focus has been to find areas of maximum leverage to minimize the effort of driving big change. This is the lazy man’s approach, and it is being applied with little finesse and too much urgency. It risks the creation of a digital rustbelt and the loss of the engine that powers today’s innovation economy.

Software developers around the world are under threat because the ecosystem they rely on is under threat. But what is critically important is that it is not the nature of the threats that developers fear, but the ham-handed attempts at addressing them by well-meaning intervenors. The digital ecosystem must evolve with the times, but throwing a wrench into its delicate works is not the way to do it. The physician’s counsel - first, do no harm - would not be out of place in guiding the hands of regulators and jurists. Developers are potential collateral damage in a clash of titans.

Technology workers are not organized, they have no union, they have no super-PAC, and yet they are the most critical component in the digital economy. In a news cycle where we celebrate and debate the jobs that the digital economy is planting on the east coast, we’d do well to think far less about the one company, or five, whose name is on the buildings, and far more about the 50,000 soon-to-be-employed whose names really matter. If the politicians and power players around us would make that one simple shift, a million tech workers in the U.S. and in Europe would gladly agree their prospects are looking up.


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Bruce Gustafson
President & CEO

The Real World takes on the Digital World

For the longest time, digital citizens have escaped the two great real-world certainties: death and taxes. Digital life is eternal as long as the power flows and the backup tapes are safe. Taxes follow the flow of money; where there's no money, there’s nothing for the taxman to grasp.

You know where this is going, don’t you.

It’s no accident that the current crop of leading digital companies call the United States home. Whether it’s due to culture, politics, regulations, economics, or that-old-entrepreneurial-spirit, America has seen more than its share of digital success stories. A large measure of that success is due to a system that is generally favorable to business, investment, and risk taking. In America, you reap the rewards of hard work, a bright idea, and a little luck. But what happens if that digital business you’ve built begins to "export" to the rest of the world?

The international trade system relies on the flow of goods & services, measured in money, to fund things through taxes. It used to be that only goods were taxed, but as services became a larger part of the global system, politicians inevitably saw an opportunity to grow their own business by entering a new market.

Taxes inevitably come from only one place: the people.

So, what is being contemplated? The United Kingdom is looking at non-monetary digital services such as search, social networks, etc., and targeting the tangential real-money transactions between the digital property owners and third parties. For example, a tax proportional to platform advertising revenue, payable to the country where the eyeballs are at any given moment. Or a tax per email, perhaps based on where recipients sit, what their profiles are worth, and who uses ad blockers versus who doesn’t.

There are two fundamental problems with taxing digital services: First, the digital world is incredibly complex and does not map neatly onto the physical one; people move about, change devices, connect and reconnect, have multiple personae, and interact in thousands of different ways across multitudes of apps. Some of the interactions are purposeful, some are accidental, some are simply the result of how systems manage traffic and route messages. Figuring out the who, what, where and why of a digital interaction is amazingly complex. Perhaps too complex (and costly) to measure.

Second, the value of any single interaction is a complex equation based on timing, mood, attention, context, content, and a myriad of other factors which today no one even tries to unravel. While in the non-digital real world we force every transaction into a common measure - money - in the digital world there is no such baseline to work with. Worse still, the data that users share is infinitely replicable and reusable. This means the worth of the data itself has an array of values amongst an array of data-driven entities. Picking a single one, like advertising revenue, as a proxy would be a completely arbitrary decision. This reveals this plan for what it really is: nothing more than a quick cash grab.

This goes beyond just grousing about a tax increase, or pointing out the absurdity taxing a few named digital platform an arbitrary amount divided by a random large number which represents the unknowable value of an uncertain number of U.K. citizens. All taxes are paid by consumers. A digital tax is a consumer tax, and it will result in increased prices for things only notionally connected to the digital services that consumers use.

In the best-case scenario, services like advertising, reporting, and compliance costs more, meaning product prices must increase somewhere to compensate. If health datasets cost more, then health services will cost more as well.

In an alternative, but plausible, scenario, free services might simply no longer be free. By placing a reporting and tax burden on free services, the U.K. government is implicitly stating that free is not allowed (at least not for U.K. citizens anyways).

It’s tempting to see this as a simple tax on a few big American companies to easily bring some free money to a foreign shore. The complex reality is that the global group of shareholders, employees, and suppliers being taxed are not going to eagerly absorb the loss; they’re going to push it back to where it came from, one way or another. Just as free services must enable a digital company to generate revenue somewhere, free tax money from overseas must eventually drive cost increases at home, if for no other reason than that once one country does this, everyone will.

Put simply, a digital tax is unworkable, expensive, and inevitably leads to increased consumer costs with no net benefit to anyone but the bureaucracy it pays for. 

 


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Bruce Gustafson
President & CEO

Android Chronicles: From Walled Gardens to Gardens Run Amok

Once again, government breaks everything it touches

You may have seen the announcement from Google on the new Android rules (and our formal press release). With the EU government-driven deadline looming, the plan for the Android ecosystem has been released. It’s less than ideal for developers, but there’s at least some hope.

You’ll remember the situation: complaints came in to sympathetic regulators asking for less restrictive licensing of the Android OS, and for greater freedom on pre-loaded apps. The government agreed and asked for changes. Google is now telling us how it plans to comply.

On Android licensing, the plan is to free device manufacturers to use the OS in its pure Google form or to allow forked variants. The tradeoff is that licenses will no longer be free. On preloaded apps, Google will also eliminate license terms requiring its suite of services to be installed, and shift to a paid license for various combinations with search and browser capabilities being treated uniquely. You can read more about these options on Google’s web page and in the press.

For developers, the obvious impact will be the emergence of Android forks - meaning more product variants and more help desk calls. Over and above this, we can expect handset prices to rise and pressure on app developers to help support the rising cost of deployment. More costs, and a smaller, more complex market. Not good.

On the helpful side, Google is only going to allow the “Android” label on its own version of the OS. This should reduce consumer confusion. However, we all know that people will try and run “Android complaint” apps on non-Android OSs, and that device makers will encourage them with claims that systems they sell are compatible. It’s going to be confusing while things shake out.

For those of you that already have hugely popular titles, expect to get some love from rival device makers looking to bring you into their ecosystem. For those still working on that first big breakthrough, expect things to break frequently as the market fragments.

The next round of this game will take place in court, where Google is still challenging the rules that are forcing the new model. The Developers Alliance is hopeful that the concerns of developers will be aired as the two sides square off.

Rest assured we’ll tell anyone that will listen these two things: that platform fragmentation has costs throughout the ecosystem, and that developers are among those most impacted by this ham-handed regulation.


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Bruce Gustafson
President & CEO

The Specter of Fragmentation is Back

Google’s compliance with the European Commission’s decision on the Android antitrust case risks increasing market fragmentation and costs for developers and consumers

Contact: Michela Palladino - michela@developersalliance.org

 

Brussels – App developers and publishers are an economic engine in Europe and globally. In support of the two million Europeans whose jobs and livelihoods are intertwined with the App Economy, the Developers Alliance is closely following today’s announcement regarding how Google will comply with the European Commission’s Android decision.

The Commission’s decision challenged clauses in Google’s Android licenses. As Bruce Gustafson – President and CEO of the Developers Alliance – explained in July, these clauses have led to an open and accessible platform, which “has strongly benefited developers and consumers over the years.  Thanks to market stability and reduced costs, developers have been able to focus on bringing new and innovative products to consumers.” 

The Alliance understands that Google plans to comply by altering contractual requirements in its partner agreements while seeking to maintain an open and attractive Android ecosystem.  As required by the decision, Google will allow its partner phone makers to develop phones in the EEA based on incompatible versions of Android while also selling similar handsets using compatible versions.  

Google’s compliance with the decision raises anew the specter of fragmentation. There is a risk that diverging versions of Android will lead to devices where apps don’t work for users. Developers may also need to do costly rewrites of apps for multiple incompatible versions. Google’s efforts to limit this sort of fragmentation have led to a better platform for users, developers, and phone makers.

The Developers Alliance hopes that clear labelling will help to reduce the potential for user confusion between compatible and incompatible Android devices.