Internet Platforms: Vectors For Growth In The EU Digital Single Market

As we entered the new year, the Internet Association filed its first public comment with the EC Commission. The comment responded to the Commission’s consultation on platform regulation, intermediary liability, cloud computing, and the collaborative economy. The public policy issues at stake in the platform consultation included core Internet building blocks, namely innovation without regulation and intermediary liability safe harbors.

The Internet Association supports the EC Commission’s goal of a Digital Single Market (DSM). In fact, Internet Association members already play an important role in integrating EU digital markets, by enabling cross border trade by EU small businesses, empowering EU job seekers to find work, or enabling EU small businesses to market their goods and services in other member states using inexpensive social media tools. Some reforms in the DSM package, such as shipping rate and VAT reform, will further strengthen the internal market for digital goods and services, ensuring that the ever closer digital union contemplated by the Commission inches closer to the finish line.

However, other proposals contemplated in the DSM package appear disconnected from this worthy objective. In particular, the proposals around platform regulation and changes to intermediary liability will only serve to stymie the future of EU Internet platforms and place them at a relative competitive disadvantage on a global level. If the goal of the DSM is to foster innovation and growth of EU startups and unicorns — startups valued over $1 billion — ex-ante regulation and shrinking existing intermediary liability safe harbors will not further this goal.

There is a positive relationship between a willingness to invest in startups and the regulatory environment in which those startups operate. Empirical studies from around the world show that investors shy away from unclear and unbounded intermediary liability regimes. In a flat world, this is not conducive to investment in EU startups. Regulating future growth up front will further complicate an already complex issue.

The good news? Platform regulation is neither needed nor required in dynamic online markets: entry barriers and customer switching costs are low and market power is fleeting in nature. If these observations were untrue, then the merger between AOL and Time Warner would have resulted in an online behemoth and MySpace would be the leading social media platform in the world today. Beyond these market dynamics, the Internet Association explains in its filing that there are existing liability regimes available to the Commission as well as individual member state governments, should any issues arise with digital platforms. These regimes include consumer protection, antitrust, and financial services enforcement tools — all of which have been used by the Commission in recent years to tackle alleged market imperfections.

The Internet Association looks forward to continuing the conversation with the Commission on these important issues and is grateful for the opportunity to speak out in the meantime.