Austria and Australia join the march against Silicon Valley

The days of the wild-west internet seem to be coming to a close with Austria and Australia becoming the latest nations to update the rules governing the business activities of the internet giants.

At the foot of the Alps, the Austrians are proposing a new 5% sales tax on digital revenues which are realised in the country, another European state to tackle the ‘creative’ accounting practices of Silicon Valley. Down under, the Australian Government plans on introducing tougher rules which will place greater accountability on social media platforms for extreme and offensive content.

For years the world watched in amazement as the likes of Google, Facebook and Amazon climbed higher up the ladder of influence. We gazed in wonderment as Silicon Valley seemed to pluck profits out of thin-air and their CEOs hit celebrity status. But then the scandals started to roll-in and we all realised these companies had abused the privilege of self-regulation.

The Cambridge Analytica scandal was the watershed moment, a saga which dominated headlines around the world for months and hauled politicians away from free lunches and back into the debating chambers. All of a sudden everyone realised the likes of Zuckerberg, Bezos and Page were not our friends, but incredibly intelligent businessmen who were exploiting the grey areas sitting idly between the mass of criss-crossing red-tape.

What followed this scandal was a more forensic look at the business models of the internet giants. Those looking close enough found trickily worded terms and conditions, confusing processes, ransom opt-ins and abused freedoms. Users were being tracked without their knowledge, personal information was being traded as a commodity and tax havens were being exploited. Opinion on Silicon Valley turned sour.

On the other side of the coin, it wasn’t just the craft and cunning of Silicon Valley lawyers to blame, but inadequate rules for today’s digital era. Politicians and regulators woke up to the fact rules and legislation needed to be updated to create a fair and reasonable policy landscape to hold the internet giants accountable. Experts were brought in to account for the vast gulf in competence and the march towards Silicon Valley began.

A perfect storm has been brewing around the internet giants and as the weeks pass more countries are taking a more stringent approach to the business of the internet. Australia has been trundling along with incremental progress, and now Austria has entered the fray.

“Through the digital tax package, we are closing tax loopholes and thereby ensuring that large digital corporations, agency platforms and retail platforms are called to account,” said Austrian Finance Minister Hartwig Löger. “Through fair taxation of the digital economy, we are establishing equity in taxation.”

Moving forward, a digital tax of 5% will be introduced for large digital corporations, those with global sales of € 750 million, of which €25 million originates in Austria. The new rules will also take away VAT exemptions for deliveries from foreign countries. Previously, orders valued below €22 were exempt from the tax.

“Through this measure, we are taking digital agency platforms to task,” said State Secretary of Finance Hubert Fuchs. “No one is entitled to evade the obligation to pay tax.”

Austria is of course not alone in this tax assault. As the member states of the European Union cannot agree on a bloc-wide tax mechanism, plans were blocked by nations who benefit from the status quo such as Ireland, individual states have gone on alone. France and the UK have already set plans in motion, but we expect such proposals to start snowballing before too long.

Australia is targeting a different area of contention however. Following events in Christchurch, New Zealand, and the simultaneous live-streaming of the incident, the Australian Government has introduced new rules which will hold social media and other social media platforms accountable for the dissemination of offensive material.

The Sharing of Abhorrent Violent Material bill creates new offences for content service providers and hosting services who fail to act expeditiously to remove videos containing “abhorrent violent conduct”. Such conduct is defined as terrorist acts, murders, attempted murders, torture, rape or kidnap.

The technology community and legal experts have slammed the new rules, and while there are some valid points, the social media and hosting platforms might have to be forced forward. It is an incredibly difficult task to identify these videos, such is the complexity of identification in such as vast swarm of uploaded content nowadays, but without the threat of penalty there is a risk progress will not move at a desired pace.

Following the incident, Facebook pointed out that it did take down the video quickly, though it was not able to use AI to identify the content. This is where it becomes incredibly difficult for the technology industry; these applications need abhorrent content to be trained to identify abhorrent content. It’s a bit of a catch-22 situation, but harsh penalties for non-compliance will force the industry to find a solution.

“We have heard feedback that we must do more – and we agree,” said Facebook COO Sheryl Sandberg in a letter to the New Zealand Herald. “In the wake of the terror attack, we are taking three steps: strengthening the rules for using Facebook Live, taking further steps to address hate on our platforms, and supporting the New Zealand community.”

Sandberg has promised new restrictions on how live videos can be uploaded and streamed to the platform, though details were incredibly thin. Facebook will not want to introduce too many restrictions, making the process too convoluted and tiresome will impact user experience, though it clearly has to do something. The opportunity to broadcast horrific acts has become too accessible.

This is the problem which Facebook and everyone else in the digital economy is facing. The promise is to open up the gates and allow people to express themselves, but unfortunately there are people who will take advantage of this situation. It is an incredibly difficult equation to balance.

Technology will eventually help the internet companies get to a suitable position, with the potential of AI grafting through the millions of uploads, however the training period is going to be a difficult process. The risk of going too sensitive is restricting free speech, though with content uploaded from shows such as Game of Thrones, there is plenty of room for error.

The internet giants will want to resist change, despite giving the impression of encouraging more regulation and government intervention, but it won’t be able to hold back the tides forever. With privacy concerns, fake news, tax evasion, political influence, anti-trust accusations and the unknown power of data analytics, the internet giants are simply fighting on too many fronts.

These are companies who have incredible financial power and immense armies of lobbyists, but Silicon Valley is the bad guy right now. Politicians have spotted an opportunity to make PR points by unloading on the punching bag, and you can guarantee there will be many lining up to take a swing.

Australia poised to significantly increase regulation of OTTs

Australia is the latest country to cast an eye towards Silicon Valley, revamping rules to create a regulatory framework with greater oversight and authority over the booming digital ecosystem.

While the digital economy has operated in a relatively tether-free fashion to date, various scandals throughout the last 18 months have shown these companies are not mature or honest enough to manage themselves. Facebook has drawn the lion’s share of the headlines, but the social media giant is not alone in abusing the system; this is a pandemic with Silicon Valley as ground zero.

“While online services like Facebook, Apple, Amazon, Netflix and Google bring undeniable social and economic benefits to Australians, they have now become global giants with significant market power in Australia,” said Nerida O’Loughlin, Chair of the Australian Communications and Media Authority (ACMA).

“As aggregators, curators and distributors of content – in particular news and journalistic content—digital platforms have significant influence. But they are not fully considered within current media and communications regulation.”

The ACMA statement follows the Digital Platforms Inquiry Preliminary Report from the Australian Competition and Consumer Commission (ACCC) which calls for regulatory reform to tackle newly emerging segments of the digital economy, as well as greater powers to gain insight into how businesses such as Google and Facebook actually work.

This has been the great conundrum of the last few years; these companies have incredible power and influence over society and business, though due to opaque transparency reports and sheer complexity, few understand the cogs of the digital machine. This is not a healthy position; these companies should not be allowed to operate in a cloud of confusion, such is the power they wield. It would be irresponsible of any government to allow such a dangerous status quo to continue.

What this report suggests is the creation of a new set of rules, which would govern the digital economy as what it is. These companies are no-longer simply platforms, and they are not digital publishers. For years, regulators have tried to squeeze them into existing regulatory frameworks and it has not worked. The creation of new rules, fit for purpose to tackle the digital economy and specific to the companies which dominate it, are critical.

As you can probably imagine, the internet giants are not particularly happy with this assault on their freedoms. Facebook has accused the ACCC of protecting traditional media titles at the expense of digital and the consumer, while Google has suggested the ACCC is ill-informed when it comes to basic understanding of the current state-of-affairs.

The aggressive and patronising objections to the ACCC and ACMA should come as little surprise as the internet giants face greater controls on their businesses throughout the world. Australia and Europe seem to be the tip of the spear, but others will soon follow suit once they see how regulations can be effectively reformed. Unfortunately for the internet giants, there is not a single focal point.

In Europe, certain states are putting stricter rules in place for the removal of offensive materials, Germany is leading the charge here. GDPR is a European-wide response to privacy concerns. The tax-avoidance schemes are being tackled by France and the UK. The Netherlands is tabling new rules which would made foreign acquisitions more difficult. The digital business model is being assaulted from numerous angles, and quite rightly so.

Over the last decade, the internet giants have become experts at wriggling through the red-tape maze and exposing the regulatory grey areas. This is only possible because rules have not been designed specifically for the internet economy, an anomaly in today’s world. Every other industry has rules which are designed specifically for those circumstances, and the world is starting to wake up to the need for the same here.

Arguments against might take the form of slowing progress, but the internet giants have not shown themselves responsible enough to self-regulate. Cambridge Analytica, overly-complex T&Cs, data breaches, insecure databases, irresponsible data processing and handling activities, hosting of offensive material and unauthorised location tracking scandals are just a few areas which need to be addressed.

Regulators and legislators need to wake up and start governing the digital economy. Thankfully, Australia and Europe are taking the fight to Silicon Valley.

Lobbying on the up as Silicon Valley feels the regulatory squeeze

The internet giants have started filing their lobbying reports with the Center for Responsive Politics with records being shattered all over the place.

Each quarter US companies are legally required to disclose to Congress how much has been spend on political lobbying. Although the figures we are about to discuss are only for the US market, international players will certainly spend substantially more, it gives a good idea of the pressure which the internet players are facing. Governments are attempting to exert more control and Silicon Valley doesn’t like it.

Looking at the filings, having spent $4.9 million in the final three months, Google managed to total $21.2 million across the whole of 2018, a new high for the firm. This compares to $18.3 million spent across 2017.

Facebook is another which saw its lobby bill increase. In its latest filing, Facebook reported just over $3 million for Q4, and totalled almost $13 million across the year. In the Facebook case it should hardly be surprising to see a massive leap considering the scale and the depth of the Cambridge Analytica scandal which it has not been able to shake off.

More filings will be due over the next couple of days, the deadline for the fourth quarter period was January 22, though the database search tool is awful. What is worth noting is this is set to be the biggest year for internet lobby spend, however it is still nothing compared to the vast swathes which are spend elsewhere.

Lobby tableIn total, the internet industry might have spent a whopping $68.7 million on lobbying Washington over 2017 (2018 data is still not complete), but that is nothing compared to more mature industries. The Oil and Gas segment spent $126 million, while Insurance pumped $162 million into the lobbyists pockets, but the winner by a long was the pharmaceutical industry spending an eye-watering $279 million on lobbyists across the year (see image for full list).

As you can see, the ceiling has been set very high for lobbying and it will almost certainly increase over the next couple of years. All around the world governments and regulators are attempting to exert more control over the internet industry, and while the lobbying process isn’t necessarily attempting to block these new rules, the aim will be to get the best deal possible.

In comparison to other industries, the internet specifically and technology on the whole is relatively new. You have to take into account the internet as a mass market tool is only in its teen years and is demonstrating the same rebellious tendencies as young adults do. New ideas are being explored and boundaries are being pushed; with some breakthroughs rules do not exist, while the emergence of new business models means companies fall into the grey areas of regulation. The internet has been operating relatively untethered over the last few years, though this is changing.

2018 was a year where it all started to hit home. Countless data breaches demonstrated the digital world is one where security has not been nailed, while data privacy scandals have shown how dated some regulations are. It doesn’t help that Silicon Valley seems to operate behind a curtain which only the privileged few are allowed to peak behind, but even if this barrier was thrown open, only a small percentage of the world would actually understand what was going on or how to regulate it effectively.

GDPR was a step in the right direction in handing control of personal information back to the user, but this only applies to European citizens. Other countries, such as India, are learning from these regulations with the ambition of creating their own, but it is still very early days. The rules and regulations of the digital economy are being shaped and the internet giants will certainly want to influence proceedings to ensure they can still continue to hoover up profits in the manner which they have become accustomed to.

Looking at where money has been spent, data privacy and security concerns is a common theme with all the internet players who want to protect their standing in the sharing economy, though mobile location privacy issues is another shared concern. With data getting cheaper, more people will be connected all the time, opening the door for more location-based services and data collection. This could be big business for the internet giants, though it has been targeted by privacy advocates looking to curb the influence of Silicon Valley. Other issues have included tax reforms, antitrust and artificial intelligence.

So yes, a remarkable amount of cash is being spent by the likes of Google and Facebook at the moment, but this will only grow in time as regulators and legislators become more familiar with the business of the internet and, more importantly, how to govern it.