Startups Need a Global Internet, not Data Borders

Thanks to the Internet, an entrepreneur in one part of the world can take an innovative idea and quickly build a business that reaches users across the globe. The international reach of the Internet is undoubtedly one of the contributing factors to the thriving startup ecosystem in the U.S.

But the global nature of the Internet is facing serious threats in the form of proposed government policies that would build artificial boundaries to dictate where data can flow. Building those boundaries around data will only hurt startups and Internet users at home and abroad.

These so-called “data localization” proposals — laws that require companies to store data about users in a server where those user are located — have been popping up all over the globe in recent years. The most recent example is playing out right now in India. According to reports, an Indian government panel wants companies to store data generated in India on servers located in the country to more easily facilitate government access to data during investigations. With the second largest market of Internet users in the world, a policy like this would be devastating to companies of all kinds — big and small, domestic and foreign — as well as the users that rely on them.

Governments often create data localization policies in the name of protecting residents’ privacy and security. But the real effect these policies have is to shut out foreign competition, especially competition from startups located abroad that don’t have the resources to build facilities in every country where users live.

Imagine a world where a company would need to have data storage in every single country where it also had users. A large company may be able to pick and choose where to build servers depending on the size of a country’s market. But there’s no way a small startup in Kansas could survive, let alone meaningfully compete for business abroad, while bearing those kinds of costs.

Data localization laws are particularly damaging in countries with emerging startup ecosystems — like India — as foreign venture investors will be significantly less likely to operate in countries with such restrictions. Choking the supply of venture capital in a growing startup ecosystem is one of the surest ways to kill innovation.

And even the big companies that can afford to build facilities to store data in India will have to pass those costs onto their users. In the cloud computing context, for instance, that means those costs will be passed onto small businesses in India, including startups, that rely on those services. Data localization policies don’t just shut out foreign competitors; they can also increase costs for domestic companies that rely on those foreign competitors.

As this proposal works its way through the Indian government, we hope policymakers seriously consider the drastic impact this policy will have. There are plenty of reasonable policy solutions for regulators who are worried about residents’ privacy and security. But forcing artificial barriers on an inherently global Internet isn’t one of them.