Posts from law

With the news that two-thirds of Americans favor breaking up big tech combined with the news that Liz Warren (the biggest advocate of the idea) has broken out of the pack in Iowa, I thought I would return to this topic.

I wrote about this back when Liz first put the idea forward.

I am in favor of reigning in the monopoly/duopoly/oligopoly power of the large American tech companies. I am also in favor of reigning in the power of large tech companies that are not resident in the US.

Doing one without the other is bad policy and could give large tech companies outside of the US (particularly in Asia) a competitve advantage.

A better approach, as I advocated for in my earlier post on this topic, are policies, like the European’s GDPR, that would impact all companies doing business in the US equally.

I do not love GDPR. It is overly bureaucratic and for the most part has resulted in all of us robotically opting into being cookied everywhere.

But users do have a right to online privacy. We also have a right to self sovereign identity and ownership of our data.

Apple is offering Sign In With Apple in iOS13 to help us reduce our reliance on signing in with Facebook and Google. That’s great but it just replaces one boogyman with another.

What we need is an open sign-in protocol in which users control their sign-in keys and also all of the data we create and have created over the years once we are signed in.

Government can force industry into a regime like that with regulations that dictate that tech companies of all sizes adopt such approaches.

That is what we should be doing to reduce the market power of big tech instead of breaking them up. That is because their market power comes from this single sign-on oligopoly and the data that comes with it.

Government should not dictate the design of such a protocol or any of the technology that is required to produce such a regime. The market can and will do that once the requirements are put in place. We have much of what we need already in the form of cryptography and user centric wallet infrastructure.

We just need a forcing function to get big tech to adopt these technologies, which they won’t do on their own because they will reduce their market powers. Which is exactly why we need to do this.

We have been spending a lot of time in Board meetings lately talking about GDPR.

GDPR stands for General Data Protection Regulation and is an EU regulation that, as written, will impact most Internet companies regardless of where they are located.

If you have not heard of GDPR and are running or working for an Internet company, you should wrap your head around it asap.

This Wikipedia entry does a pretty decent job explaining GDPR at a high level.

I heard someone explain GDPR as the “privacy equivalent of SOX.” I think that is a decent way to think about it.

This is serious regulation and complying is going to be hard and a lot of extra work. It will also impact product development and add overhead to that. The penalties for non compliance are massive and you cannot simply ignore this.

All that said, we did this to ourselves. The tech/Internet industry has run roughshod over user privacy for almost two decades now and we created the conditions for this regulation to pass.

The privacy equivalent of SOX.

So wrap your head around GDPR and prepare your company to comply. There is no other option.

We are living in a time of great experiments. They are not happening in the lab. They are happening in the real world. And they are being financed by real people. We are witnessing the de-institutionalization of experimentation. We are returning to a time when anyone can be an inventor and innovator. Some of this has happened because of the explosion of venture capital, both in the US and also around the world. Some of this has happened because entertainment and culture has embraced the world of experimentation and innovation (Shark Tank, Silicon Valley). Some of this has happened because the tools for innovation and experimentation have become mainstream and anyone can use them.

I am not thinking of one thing. I am thinking of many things. I am thinking of The DAO. I am thinking of Bitcoin and Ethereum. I am thinking of Oculus getting financed on Kickstarter. I am thinking of the launch of equity crowdfunding for everyone in the US last week. I am even thinking of things like Theranos.

All of these things are great experiments that will produce great benefit to society if they succeed. But by their nature experiments often fail. They need to fail. Or they would not be experiments.

And one of the challenges with the de-institutionalization of experimentation is that some of these failures will be spectacular. Combine that with the idea that these experiments are being funded by real people and the idea that the world of media/entertainment/culture has injected itself right in the middle of this brave new world and you have the recipe for scandal. And scandal will naturally result in efforts to put the genie back in the bottle (Sarbanes Oxley, Dodd Frank). And these regulatory efforts will naturally attempt to re-institutionalize experimentation.

I find myself wishing we could keep the dollars invested and hype down when we do these massively public experiments. But the dollar/hype cycle is a natural part of being human. Some dollars are invested. We get excited about this investment. We talk it up. More people find out about it and more dollars are invested. More of us get excited about this investment and we talk it up more. Rinse, repeat, rinse, repeat and you get unicorns and distributed autonomous funding mechanisms entrusted with hundreds of millions before anything has even been funded. Eventually some of that gets unwound and the tape is full of red.

Don’t get me wrong. I am all for distributed autonomous organizations and the innovation behind them and in front of them. There isn’t much out there that I am more excited about. But I am also very fearful that this could end badly. And even more fearful of what may be foisted on us by well meaning regulators when that happens.

So let’s celebrate this incredible phase of permissionless innovation we are in. And let’s all understand that we will have many failures. Some of them spectacular. Money will be lost. Possibly hundreds of millions or billions. Let’s expect that. Let’s build that into our mental models. So when that happens, we can suck it up, deal with it, and keep moving forward. Because an open permissionless world of innovation that everyone can participate in is utopia in so many ways. The good that will come of it will massively outweigh any bad. But bad there will be. I can assure you of that.

Our portfolio company LaRuche is leading an effort in France to allow platforms to share the equity in their businesses to the broader network of participants on their platform. As more and more businesses leverage the power of networks to create economic value, there is a question of whether the network participants should share in the value they help create.

Reddit has expressed a desire to share equity in Reddit with its community and went as far to announce that intention when it raised capital in the fall of 2014. The last I heard, Reddit had put those plans on hold in anticipation of more regulatory clarity around this issue.

Regulatory clarity is what is lacking, both in the US and in other countries, and France is no exception. Marc-David Choukroun, co-founder and CEO of LaRuche, wrote a tribune in Les Echos, the leading financial newspaper in France, explaining his views on the issue. I’ve pasted a translation of it here:

Long seen as the future, the sharing economy is now accused of being responsible for all society’s ills. In response, some experts on the new economy have suggested that platforms should be transformed into cooperatives. But is that really such a good idea?

By Marc-David Choukroun, CEO of The Food Assembly (La Ruche qui dit Oui !).

Not so long ago, the sharing economy was seen pretty much universally as a sort of magic bullet for the social and environmental crises of our times. Then, all of a sudden, the tone changed. The new economy was blamed for a whole swathe of ills, including widespread job insecurity, excessive commercialisation, and generalized fraud. The spectre of “Uberisation” is hanging over the world. The problem is that, while attempting to apply this concept to just about anything, we foolishly let the debate become polarised between the partisans of California-style capitalism and the white knights of the common good.

In the midst of this great wave of criticism, which has often been justified but sometimes excessive, the following idea is increasingly being put forward: that online platforms should be transformed into cooperatives. Give or take a few details, is the sharing economy not a form of unconscious mutualism? Indeed, leading specialists in the new economy met recently at a conference entitled “Platform Cooperativism” in New York to debate this question.

There are upsides to the idea: after all, the concern of fair sharing of value between users, freelancers and platforms themselves is a fully legitimate one. But I am rather afraid that this idea may be a bit more difficult to put in place than it seems. As things stand, the structure of a cooperative involves a lot of complications that make it ill-adapted to digital companies.

In 2011, I co-founded a collaborative platform called “La Ruche qui dit Oui !” (“The Food Assembly” in English). At the time, the concept of the “sharing economy” hadn’t yet emerged. And to be quite honest, we didn’t care much about labels. We knew that if we were to have any chance of taking the slightest bit of ground from the giants of food distribution, we could not afford to remain just one more “local food” initiative. And if, as we say in start-up jargon, we were to “scale up”, then the form of a commercial enterprise was a must.

Is there a legal structure that is perfectly suited to this sort of hybrid entity, somewhere in between a conventional business and a network? We very seriously considered the cooperative option a year ago. The conclusion was clear: as things stand, the idea doesn’t really stand up. The form of a cooperative involves a certain number of requirements that are complicated, and above all incompatible with managing an innovative start-up. Firstly, their governance is arduous and complex, while agility is needed. And secondly, the diversity of statuses and motivations in our network – some are guided by a spirit of activism, while others are simply seeking some extra income – is one of the strengths of our model. Another major difficulty is that the shares in cooperatives are fixed at their nominal value of issue, which is just inconceivable for a growing start-up(*).  

It is also difficult for cooperatives to raise funds, as the complexity of their structure tends to deter investors, yet the costs of developing and maintaining a platform are far from negligible: the largest collaborative platforms employ hundreds of developers. It is therefore best to avoid economic purism and one-size-fits-all solutions.

That does not mean that the issue of sharing value fairly should not be raised – far from it. It is evident that the success of a collaborative model relies largely on the commitment of the members of its community of contributors. It would be fair to be able to involve this new type of entrepreneurs in the company’s capital. In an economy that involves more and more freelancers, this is even a key issue.

Yet instruments to reward them already exist and simply need to be adapted, such as stock warrants for business creators (bons de souscription de parts de créateur d’entreprise, BSPCE) in France. These are stock options that can be awarded free of charge to the employees of a company. To strengthen our ties with the freelancers in our network, this instrument could simply be expanded beyond employees alone – for a new sharing of risk, a new sharing of value is needed. A cooperative system compatible with the digital economy still needs to be built, so let us start by laying the first foundations.

Marc-David Choukroun is a co-founder and the CEO of The Food Assembly (La Ruche qui dit Oui !).

(*) On this specific point, it is important to note that a number of exceptions are possible, complicating matters further still.

Like many political debates, there are many views on this issue. The purists would like to see cooperativism strengthened and applied to these platforms. Others want to regulate these platforms to protect the workers/freelancers in a union style model. But the middle ground, which seems more sensible to me, is to allow platforms an easy and elegant way to share their equity with network participants so that the broader ecosystem can share in the value these platforms are creating.

I hope the French government sees the wisdom of this approach. It would be great if governments around the world, including, of course, the US government, would evolve the legal and taxation frameworks around the sharing of equity so that network platforms can choose to share the value creation with their broader ecosystem.

We’ve talked a lot here at AVC about Net Neutrality. I hate that term because it’s got so much baggage now that it is essentially meaningless to me. What I want to see is a framework that everyone agrees to (application developers, bandwidth providers, last mile access providers, and the regulators) that says you can’t prioritize one bit over another in the last mile access network and you can’t charge application developers to deliver their bits to the end user.

This issue is coming to a head at the FCC as the comment period is ending and some sort of decision will be made this fall. So next Wednesday, September 10th, is the Internet’s opportunity to stand up and be heard.

If you are with me on this issue, please consider joining the Internet Slowdown campaign next Wednesday. There are all sorts of ways you can do this. You can change your avatars on your social media profiles, you can send push notifications if you operate a mobile app, you can put a slow loading graphic on your blog or website (there are WordPress widgets if you are on WordPress like I am).

And if you still aren’t convinced, please read Chad Dickerson’s piece in Wired this week on why this issue is important to businesses and everyone who uses the Internet to reach their customers and/or audience.