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.

Huawei R&D faces export ban in Silicon Valley

The US Commerce Department has refused to renew an export licence at a Huawei subsidy in Silicon Valley, meaning China cannot access new developments at the site.

According to the Wall Street Journal, Huawei R&D outfit Futurewei was informed over the summer that the US Department of Commerce would not be renewing the license meaning some of the technologies developed at the site, but not all, could not be exported back to China. It’s a new strategy in the conflict between the US and China, but it could prove to be an effective one.

Silicon Valley is not the hotspot of the technology world because of the favourable climate or the presence of helpful regulations, it has one of the most talented workforces around the world. There are of course challengers to this claim emerging, India or Eastern European for example, but companies flock to Silicon Valley to open up R&D offices to tap into this resource. Such a ban from the US Commerce Department means Huawei is going to miss out on some of these smarts.

The block will prove problematic to overcome as there does not appear to be any logical way to combat the move. The rationale behind the blockage is quite simple; national security. Seeing as Huawei is currently being trialled and punished without the burden of evidence, there seems to be little the vendor can do to combat such passive aggressive moves by the US.

This is of course just another stage is the incrementally escalating conflict between the US and China. The tension between the pair does seem to have escalated over the last few days following a minor hiatus at Christmas. Rumours are circling the Oval Office concerning an all-out ban on Huawei and ZTE technology in the US, while suspicions will only increase following the arrest of a Huawei employee in Poland on the grounds of espionage.

With all the drama before Christmas and the hullaballoo kicking off again now, perhaps we should expect some sort of retaliation from Beijing. The Chinese governments has not been anywhere near as confrontation as the US, though there might be a breaking point somewhere in the future.

France goes solo in quest to hold Silicon Valley accountable

With some European nations unable to summon up the courage to tackle the infamous creative tax strategies of the internet giants, France has decided to write its own rules.

The topic of a digital tax which would span the length and breadth of the European continent was initially a popular one. Perhaps it was the camaraderie which swept the states into the tides of change, or maybe there as a brief window to score political PR points, though the momentum has not carried through. Initial plans were abandoned, water-down ones vetoed by self-interested nations, and France has had enough.

Announced on French national television, Economy and Finance Minister Bruno Le Maire laid out the new tax plans which will come into play on January 1. Over the course of the next twelve months, Le Maire believes the new structure will generate €500 million for the state.

“The digital giants are the ones who have the money,” said Le Maire. “[the internet players] make considerable profits thanks to French consumers, thanks to the French market, and they pay 14 percentage points of tax less than other businesses.”

It might not be the collective-push back against Silicon Valley which was initially proposed, but it is progress. Waiting for all 28 (soon to be 27) states to agree on a co-ordinated approach would have taken years, such is the bureaucratic struggle and the lobby power of the internet players, so it is quite refreshing for the French to say enough is enough and take a prominent stance against those who have been obviously and unashamedly abusing tax loopholes.

While many would point to the beauty of the European Union, offering scale to negotiate more effective trade deals, the beast has emerged from the shadows in this saga. For any meaningful changes to be implemented, all states would have to agree. This was always going to be a stumbling block. Sweden voiced concerns, unsurprising as Spotify was one of those firms in the crosshair, while Ireland vetoed on the grounds it would potentially damage trade relationships with the US.

Thankfully the French are not scared of said repercussions. Or perhaps we should be more accurate. There might be fear, but that does not mean the French are going to allow the internet players to run wild. The White House might suggest this is a tax aimed at the US economy, but that is irrelevant as far as we are concerned. This is a tax reform which is overdue.

Whether this inspires the other nations to move in the right direction remains to be seen, though the UK might not wait around either. Chancellor of the Exchequer Phillip Hammond has previously stated he, or the UK government, would not wait for the rest of Europe to hold Silicon Valley accountable.

Unfortunately, the most likely outcome is a fractured tax landscape, with some pushing forward more stringent rules and others getting bullied by the expensive lobbyists. This of course undermines the concept of the European Union, but also opens the door a crack for abuse.

The bureaucrats might attempt to colour in all grey areas, but very expensive lawyers in California will be pouring over any new rules attempting to find the weak spot. And in a fractured tax landscape, there is bound to be a few if you look hard enough.

Democrats eye up Bill of Rights for the Internet

With Silicon Valley seemingly not doing enough to empower the consumer in the digital era, Congressman Ro Khanna is working on new proposals to more tightly regulate the technology industry.

Congressman Khanna, the Democratic representative of California is suggest a new Bill of Rights for the Internet, which would provide more rights for the consumer in controlling how personal information is collected, transferred and utilised. The aim here is simple; pull the balance of power over to the side of the consumer.

While this does sound like a logical idea, the technology industry has largely slipped through the legislative grey areas for years, before such proposals could even be considered the Democrats would have to win the November mid-term elections.

The idea for the Bill would focus on the following principles. Individuals should have the right:

  1. To have access to and knowledge of all collection and uses of personal data by companies;
  2. To opt-in consent to the collection of personal data by any party and to the sharing of personal data with a third party;
  3. Where context appropriate and with a fair process, to obtain, correct or delete personal data controlled by any company and to have those requests honoured by third parties;
  4. To have personal data secured and to be notified in a timely manner when a security breach or unauthorized access of personal data is discovered;
  5. To move all personal data from one network to the next;
  6. To access and use the internet without internet service providers blocking, throttling, engaging in paid prioritization or otherwise unfairly favouring content, applications, services or devices;
  7. To internet service without the collection of data that is unnecessary for providing the requested service absent opt-in consent;
  8. To have access to multiple viable, affordable internet platforms, services and providers with clear and transparent pricing;
  9. Not to be unfairly discriminated against or exploited based on your personal data; and
  10. To have an entity that collects your personal data have reasonable business practices and accountability to protect your privacy.

Of course, many of these principles are ideas which should have been implemented before the internet ball got rolling. Now it is travelling at such a speed it might be difficult. Another factor to consider is the power of the internet giants. These are massive organizations, with heavy-hitting financial punches and an influential lobby. They won’t like the idea of such principles being written into law, so expect some notable resistance.

But first, to even consider such proposals, the Democrats would have to win the mid-term elections. All 435 seats in the House of Representatives are up for election, though 147 and 182 seats are considered safe for the Republicans and Democrats respectively. A further 51 will probably be won by the Republicans and 10 by the Democrats. The interesting battles are the ones which could go either way; 42 of these are currently held by the Republicans and 3 by the Democrats. A majority here has been set as a target, though to pass any new legislation, the Democrats would also have to win the Senate over.

In the Senate, 35 out of the 100 seats are being contested. Three of the contested seats are considered safe for the Republicans and 14 for the Democrats. 2 will probably be held by the Republicans and 8 probably held by the Democrats. 8 seats, four of which are held by either party, could go either way. Here it still looks like the Republicans will maintain control, dampening the potential for any new technology regulations.

The internet giants should have more regulations dictating the field of play, though with the current political landscape it does look like that will be difficult. Even if the Democrats win in the House, a scenario which some believe to be realistic, a Republican Senate will mean gridlock for future legislation.

Silicon Valley was founded with family, this generation is killing the idea

With some of the tech industry’s biggest names acting incredibly irresponsibly, the friendly and welcoming reputation of Silicon Valley is fast becoming a thing of the past.

With each passing week, there seems to be a new scandal emerging from the dark corners of Silicon Valley. This week’s installment sees Google getting sued for trampling all over user privacy rights, as well as potentially misleading millions through underhanded practises and overly-complicated terms of use. Unfortunately, the Googlers are not alone in their mission to abuse the heritage of Silicon Valley.

Facebook’s Cambridge Analytica scandal was shocking enough to lure slumbering politicians away from a free lunch and start a #DeleteFacebook campaign on Twitter. Twitter somehow managed to find validity in the offensive and ridiculous ramblings of the lunatic who runs the Infowars website. And aside from violating privacy rights, Google has tried to apply its artificial intelligence smarts to bombs and also bowed to China’s censorship demands. LinkedIn sacrificed its principles of free-speech to penetrate the Great Firewall of China years ago. Tesla founder Elon Musk recently called a man instrumental in saying the lives of Thai children stuck in a flooding cave a paedophile because he didn’t like one of his designs. Qualcomm is constantly being investigated and sued for market abuses. And Apple seems to think loyalty translates to making its customers as poor as absolutely possible.

When you actually ignore the play-style offices, the expensive advertising campaigns and the gestures of goodwill, the activities of these businesses are occasionally far from desirable.

The idea of Silicon Valley is a simple one, and it attracts the interests of millions. Warm climates, sunny skies, liberal attitudes, friendly people and companies where the purpose is to serve the greater good. Ask someone who has never been to California what they imagine Silicon Valley is like. They will probably describe something similar to a university campus on a warm, spring day, with some people causally tapping away on laptops, drinking iced coffee, while a game of hacky-sack takes place in the background. This is an image which has been incredibly well crafted.

Even when you look at the companies themselves, the perception is reinforced. Google branding looks approachable, and the ‘Do No Evil’ mantra still floats around despite it being dropped years ago. The Apple logo, with a bite taken out, is cheeky, as are the adverts. The Facebook and Twitter stories are all about giving normal people a voice which everyone can hear. Tesla is all about being environmentally friendly and fulfilling childhood ambitions of being spacemen.

There are of course reasons for creating and maintaining this image. Products are much easier to sell to the mass market when there is a friendly vibe attached. The data sharing economy, with information as a currency, arguably wouldn’t exist without it. And recruiting exciting, young talent is made much easier when it looks like the companies are socially-conscious.

When a bright engineer leaves MIT or Stanford University, about to embark on a career, there are a huge amount of choices. Those who have advanced degrees in software engineering or data sciences are scarce commodities, and often command significant pay packets. But these graduates are often idealists. They have no idea of the working world and want to work for exhilarating organizations. There are plenty of exciting companies out there, but few offer the perks, casual work lifestyle and feel-good factor of some of the internet giants. This image of Silicon Valley helps attract the best and brightest, a critical component for future success.

But what should be worth noting is the image of Silicon Valley is not just an artificial one.

The technology heritage of Silicon Valley can be traced back to San Diego in the 1890s. As a major harbour, San Diego also became a hub for the early telegraph and radio industries. Charles Herrold began using the radio to broadcast a regular program to listeners in San Jose as early as 1909, arguably becoming the first radio station. Some might suggest this is one of the first steps towards democratising free speech for the masses.

From humble beginnings in radio, the Valley moved towards what we would call technology today. In 1956, Shockley Semiconductor Labs was founded in Mountain View, an unusual location but chosen so its founder, William Shockley, could live closer to his sick mother. Admittedly, there was a lot more to happen in the middle, but Shockley was the first to propose using silicon not geranium in processors, a massive step forward.

Elsewhere, professors and students in Stanford University were tinkering around with some new technologies. The government funded programme eventually led to the creation of ARPANET, the forefather of what we would call the internet today. These examples are excellent foundations for Silicon Valley to build the friendly and liberal image of the region today.

The perception of Silicon Valley is a carefully curated one, and employees do seem to believe it, at least in the first instance before that youthful vigour is eroded after years sitting at a desk. Google employees revolting over the decision to work with the Defense Department on its missile guidance system, or the creation of a censorship-friendly version of its news app are two example of employees still believing in the ‘Do No Evil’ mantra.

Unfortunately, as the scandals listed at the top of this article indicate, the core principles of the business do not match those of the employees or the prescribed perception of Silicon Valley. This is not to say scandals are a new thing to the Valley, but the frequency has sky-rocketed recently. Perhaps the management teams of these firms are simply artificially creating this image and the values died years ago, before money-hungry kids, with no concept of tradition and only ambition for disruption, started dominating the board rooms.

But does it matter if Silicon Valley companies are no better than the bankers who caused the financial crash of 2008?

From a recruitment perspective it will become more difficult to attract the best talent. With the edge gone, the hippy persona, other companies will be on a level playing field. To get talent to relocate, the battle will be with paycheques. In terms of getting cash from the consumer, they’ll become far less frivolous when the sunny perception of these companies is made gloomier.

The US is the dominant force in the technology world because of Silicon Valley, and Silicon Valley is in its current position partly because of its heritage, plus its ability to attract the best talent. With the teenagers flailing around the streets (Facebook is 14 years old after all) violating consumers trust, over commercialising platforms, not sorting out the fake news problem and facilitating hate speech, Silicon Valley’s influence on the world will only decline as people look elsewhere.

Is Silicon Valley’s culture of creativity slowly dying?

Silicon Valley is currently known as the centre of the world for innovation, but perhaps the philosophy of acquisition is starting to kill off the creative ambitions of this generation’s dreamers.

This idea is based on the endless quest of the technology industry’s giants to find for the next big thing. Companies like Google, Amazon, IBM or Intel, are constantly on the search to purchase new businesses, people and IP to fuel growth and capture new revenues, but is this acquisition trail limiting the big ideas of the blue-sky thinkers?

It should be important to note that there is no practical way to prove this theory, but it might prove to be an interesting talking point. The basic premise of this idea dates back to 1971 when AT&T was considering the purchase of  ARPANet, the predecessor to the internet. What seems incredible to believe now is that AT&T turned down the opportunity to buy ARPANet off the US Government and essentially develop a monopoly on the internet.

Who knows what would have happened if AT&T had completed the transaction, but it would be fair to assume the internet would not have grown into the open ecosystem it is today. There wouldn’t have been an open revolution which drove the likes of Amazon, Netflix or Google to be masters of the world, as acquired technologies are usually put to task serving the corporate need of the parent company.

The beauty of the internet is that there are no walls and no limitations, but if its development had been controlled by a private organization, with two eyes on profitability, would the internet have developed into the beast it is today? Impossible to answer this question, but we don’t think so.

Perhaps this quirky little story can be likened to some of the situations which we are seeing today. Let’s start with Google and its acquisition of Deepmind.

Deepmind has been and, for some, continues to be the centre of excellence for artificial intelligence. There have been significant breakthroughs since Google acquired Deepmind, winning a game of Go which requires intuition is a one, but how much could be achieved without the greater corporate ambition as an objective? Google is after all a corporate machine, everything it does is geared towards making money.

There is now a purpose to what Deepmind is doing. The breakthroughs, which are of course very impressive, feed into other Google products. Google made a bet on AI and it is paying off by making its products more relevant, sophisticated and intelligent. Deepmind is feeding into the Google machine.

But, if these incredibly intelligent innovators did not have a corporate goal, what would they do? Maybe their financial ambitions would take them down the same route or maybe the academic curiosity would take over and they would start playing around with new ideas that have no immediate financial gain or corporate objective. Perhaps they would investigate an idea just because they want to and it could lead to the greatest breakthrough of this generation.

Corporate aims laser focus the attention of brilliant people, who can get distracted easily, to speed up progress. Sometimes this focus is needed but sometimes these distractions are. That’s the perfect thing about the unknown, you don’t know what’s out there and it could be exactly what the world needs.

Another interesting example to think about is Netflix. This is a company which has faced numerous acquisition rumours and stayed the steady course of independence. Blockbuster started the rumour trail, Verizon walked it for a while, Disney is a long time traveller and Apple is a newcomer. If the organization had been acquired at some point, would it have found itself in the same position as it is today?

We are not financial experts at Telecoms.com and would have no idea how much debt Netflix is harbouring, but it is certainly not shy about spending on content in pursuit of creating arguably the world’s finest entertainment platform. Should the company have been purchased, would executives have been given the freedom to signs checks in the way which they have done and continue to do? We very much doubt it.

So this is the conundrum we are facing today. The giants of the technology world are acquiring companies in their own pursuit of profitability and relevance, but it might just be holding back innovation. Acquisition should, in theory, offer a greater R&D budget for these thinkers to play around with, but this financial contribution comes with caveats and corporate responsibility. They might be able to achieve certain things in a quicker timeframe, but that might come at the expense of new ideas.

This acquisition trail is never going to stop. No-one wants to be remembered as the next John Antioco, the CEO of Blockbuster who passed on the opportunity to buy Netflix. Corporate funding might save some ideas, but is it a good substitute for exploring the unknown at a slower pace and finding the next big thing? We’re not too sure.

It’s an interesting thought to consider, and while it does sound very doom and gloom, there is at least one saving grace. You can’t miss what you’ve never had.

France leads Europe’s tax charge against Silicon Valley

The European Commission is on the verge of kicking off a tax raid on Silicon Valley, unveiling a directive within weeks which would set the tax rate on tech companies between 2% and 6% of revenues.

French Economy Minister Bruno Le Maire told Journal du Dimanche the rumoured tax reforms are just around the corner, with the directive focusing on revenues derived from specific countries as opposed to profits. Taxing the likes of Facebook or Amazon has always been a complicated job but a draft document released a few weeks back looked to set the tone.

“A European directive will be unveiled in the coming weeks,” said Le Maire. “And it will mark a considerable step forward. The range is 2% and 6%, we (France) will be closer to two than six.”

In the initial 12-page draft document (initially uncovered by Politico) the Commission (hereafter known as the Gaggle of Red-tapers) sought to create interim and long-term rules which will stem the flow of money leaving the bloc. Of course this is all about tax and trying to figure out how the technology giants can contribute a bit more to the economies from which they are so handsomely profiting from.

“The starting point is the internationally accepted premise that taxation should take place where value is created,” the document reads. “Currently there is a mismatch between where taxation of the profit takes place and where value is created for certain digital activities.”

In short, the European citizens are providing the value for the internet giant’s spreadsheets, but these companies are taking advantage of tax havens around the world. There is of course nothing illegal about what the technology firms are actually doing, but you have to question whether it is ethically sound to bleed these economies of its cash while contributing very little back to the public service.

With Le Maire’s comments, there is seemingly confidence Europe will be able to reverse the on-going trends and hold the technology firms accountable.

This is of course not the first time the Gaggle has taken aim at Silicon Valley, and it is unlikely to go unnoticed by a political administration which is far more combative in its narrative than many before it. Europe has already punished many of the Silicon favourites with penalties for competition violations, it has waged war with Apple over its tax haven in Ireland and its pro-privacy stance is proving to be a thorn for both the internet giants and US intelligence agencies. Such a move could drive a wedge further between Europe and the US.

This is not a new story, but such a draft document is perhaps the most significant step forward thus far. The attack has a distinctly French-feel to it, and this is not the first time France has led the charge against the Silicon profit trail. French President Emmanuel Macron made strides forward last year, but felt resistance from some countries, Ireland being one of them, who profit considerably from alternative tax rules.

The Irish government might not be rolling in riches, but a favourable corporate tax environment has seemingly done wonders to reinvigorate the tech scene. Apple reportedly employs 5,000 people in the country, Dropbox has its European HQ in Dublin, Intel has a significant presence, Google uses the country to re-route taxes, as did Facebook until recently, while about a quarter of Synopsys’ employees worldwide are employed in Ireland. Why would Ireland want any change in the status quo? It certainly won’t be alone as Luxembourg is another who benefits from an alternative tax set-up, though Le Maire believes resistance is weakening in these countries.

While this has been a long-standing narrative for the Gaggle of Red-tapers this is not going to be an easy change to push through. Changes on this scale would have to voted-in unanimously and you can expect some pretty aggressive lobbying from the technology firms. These are some pretty big companies who have extensive legal teams.