Europe strikes back at Silicon Valley

A wave of protectionism in Europe is making life hard for U.S. tech giants. Here's why it won’t get any better

Globe over Europe
Mark Doliner (Creative Commons BY or BY-SA)

I don't want to use the hackneyed “perfect storm” metaphor, but several very worrisome trends are coming together in Europe that threaten to make life difficult for U.S. tech companies.

Those trends are a wave of economic protectionism in the guise of antitrust fears, the rise of a strong dollar, and a visceral reaction against privacy-invading practices epitomized by U.S. tech companies.

Europe seeks to regulate U.S. tech companies to protect its own

One is a move toward protectionism. The European Unon has launched multiple antitrust investigations of Google for its search and mobile business and, less famously, Apple for its music streaming services.

It's not impossible to believe Google has abused its near-monopoly power in search, but it's also becoming clear that Europe -- which can't get its own Internet industry off the ground -- is going to use regulatory authority to give domestic companies an edge they can't gain in the marketplace.

Yesterday, the European Commission (the E.U.'s executive arm) unveiled its Digital Single Market Strategy that includes possible new regulation for Web platforms like Google and Facebook, as well as proposals to knock down internal barriers to e-commerce.

Last week, the Wall Street Journal reported that the E.U. may create a new regulatory agency solely to police U.S. Internet companies. Tellingly, the document says these companies are putting "the whole European economy at risk."

The list of major U.S. companies under the European Commission's microscope keeps growing. Google is being pursued for engaging in anticompetitive behavior, Facebook for violating users' privacy, and Apple for allegedly dodging taxes, and Uber for, well, being Uber.

The most serious of these is the five-year investigation into Google that finally resulted in a formal complaint last month. The European Commission accuses Google, which has a 90 percent share of the European search market, of unfairly prioritizing Google Shopping search results over those of the local competition. It could face a fine of more than $6 billion.

The commission has also launched an investigation into Google's Android platform, in an attempt to determine whether the search giant is using its position to discourage the inclusion of rival applications on Android-based smartphones.

And in a telling but toothless gesture, the European Parliament late last year passed a resolution recommending that Google's search engine be "unbundled" from the rest of its business. The parliament has no authority to make Google take any such action, but the resolution is a clear indicator of the political hostility toward Google and other U.S. Internet companies. Google denies the antitrust allegations.

Margrethe Vestager, the E.U.'s top antitrust cop, denies that she's doing anything but protecting "consumer choice and innovation" on the Internet. "We are not here to take the side of rivals -- we are here to take the side of competition," she said at the time.

I'd be more likely to believe her if the E.U. wasn't considering ways to make it easier for telecom companies to merge -- hardly a consumer-friendly policy. I'd also be more likely to believe her if the E.U. wasn't looking at rules that would penalize WhatsApp, Facebook Messenger, and Skype -- services that are siphoning off huge chunks of messaging business from the likes of Germany's Deutsche Telekom.

A strong dollar hurts U.S. tech exports

Meanwhile, the strong dollar is a huge problem for U.S. companies. This affects anyone selling products or services on the far side of the Atlantic, but it's a particular issue for PC companies, which are already struggling.

Gartner reports that the brawny dollar is pushing up PC prices in Europe. Thus, European enterprises will likely cut purchases by 20 percent this year, and smaller businesses “will behave like value-driven consumers and look to purchase consumer PCs instead."

Europe fears Silicon Valley's antiprivacy culture

There's another thread to this story: Europeans, particularly the Germans, oppressed by two totalitarian regimes in the 20th century, are extremely sensitive to government surveillance and the building of huge data stores -- private or government -- containing information on citizens.

With that background in mind, it's not hard to understand the anger caused by the Edward Snowden revelations, or why the "right to be forgotten" has gained steam at Google's expense.

I think the “right to be forgotten” is a huge mistake, an Orwellian program that allows history to be altered by people who want to cover up their past.

But I also understand that Germans who lived under the unrelenting surveillance of the Stasi, East Germany's domestic spying agency, hate the idea of anyone collecting and storing data about them. Or why the French government today doesn't collect data on citizens' race or religion, remembering how the Nazis used such official records in World War II to target who was sent to concentration camps or killed outright -- a government version of "never again."

Other Europeans who suffered under fascism or Soviet domination also have visceral reactions to government spying and to companies like Facebook that collect immense amounts of personal data.

In part, that explains the very strong reaction of Europeans to the Snowden revelations. Fears of backdoors and other security holes have scared corporate buyers away from U.S. products and fed latent anti-Americanism. The undeniable fact that major U.S. tech and telecom providers were willing accomplices to that spying -- they didn't protest until Snowden blew the whistle -- makes it harder to feel sympathy for companies that are losing business.

On the other hand, the lower house of the French Parliament on Tuesday overwhelmingly approved a bill that could give authorities "their most intrusive domestic spying abilities ever, with almost no judicial oversight," the New York Times reported. The draconian measure passed with little debate and barely made the front pages on French newspapers -- so much for Gallic moral superiority and fear of records abuse.

There are no good guys or bad guys here

The Europeans are doing what they think they think they need to do to help their economies recover from a recession that was much worse than ours and to protect themselves against the very real threat of terrorism. Their murderous past provides both momentum and cover for these actions.

Like it or not, doing business in Europe is going to be a lot tougher in the next few years. American tech companies will simply have to adapt.

Copyright © 2015 IDG Communications, Inc.

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