Technology’s Relationship with Government is Complicated

on April 21, 2016
Reading Time: 4 minutes

This week, the European Commission finally issued its preliminary findings in its investigation of Google’s Android operating system. Also this week, Apple’s general counsel Bruce Sewell testified in front of a United States congressional committee looking into issues around encryption and security. And last week, Microsoft filed a lawsuit against the US Department of Justice concerning warrants for email data. These three news events are part of what’s sure to be a growing wave of interactions between major technology companies and governments around the world and a relationship between tech companies, governments, and regulators that’s going to get a lot more complicated in the years to come.

Encryption and Security the Tip of the Iceberg

The current battles between Apple and the FBI and Microsoft and the DoJ are just the tip of the iceberg here, but they are reflective of the ways in which technology has become not just part of our lives but central to them. Our most personal communications are now digital and are stored and pass through our personal and business devices and leave digital traces to an extent unprecedented in history. Warrants, which in the past would have been issued to individual or corporate suspects for reams of paper, are now issued to big tech companies for digital records. Because of the nature of digital record keeping, these tech companies are now involved in these legal proceedings in a way that’s fundamentally new and requires new ways of working together with law enforcement. Requests by law enforcement are going to become more and more invasive (and potentially secretive, since obtaining a digital record doesn’t deprive the owner of their copy and can therefore be done without their knowledge) and, at some point, society needs to establish new rules for these searches.

Expansion of the Role of Technology Will Broaden Brushes with Government

However, as technology companies seek to broaden the scope of their products and services into new areas, many of the new activities they’ll engage in will bring them into more frequent contact with governments and regulators around the world, in ways that have nothing to do with law enforcement. Consider two members of the vanguard of “sharing economy” companies – Uber and Airbnb. Both have had frequent brushes with regulators, sometimes being prevented from operating entirely in new markets, sometimes being forced to make concessions or charge additional fees to their customers in order to continue operating. Both companies have also often taken an “easier to ask forgiveness than permission” approach to launching in new markets, relying on pressure from avid customers to push through permission to operate over the objections of powerful lobbies and regulators.

That approach may work for some companies in some industries, but it’s unlikely to be the model to follow in many other markets tech companies want to expand in to. For example, pushing into financial markets like payments and banking in the same way would certainly not work – those markets are highly regulated and the punishments for flouting regulations can be severe. Further, it’s one thing for a startup with no reputation to lose to engage in this cavalier behavior, but quite another for an established company with a brand to maintain to do the same.

Significant Changes are Coming to Product Development

As technology companies move deeper into healthcare, education, payments, and other areas, they will find themselves increasingly having to get permission from the relevant government agencies and regulators in many countries around the world before they can begin operating. This will have several significant impacts on the way these companies normally like to do business:

  • It will lengthen the time to market for new products and services because regulatory approval may well have to be obtained first
  • It will make it harder to maintain secrecy for new products and services when many bodies around the world have to be consulted before launch
  • It will make it harder to launch new products and services (or upgrades to existing ones) at specific predictable times, because regulatory approvals are unpredictable
  • It will make it harder to do big-bang global launches for new products and services because of all the regulatory bodies involved

That’s a shame, because these are some of the areas where technology has the greatest potential to do good in the world and make real life-changing progress. That’s not to say it can’t still be done, but it will require substantial change in the way these companies do business.

Partnering May be the Best Approach

One possible approach is for tech companies to remain focused purely on the technological side of these innovations and allow others with specializations and experience in the respective industries they wish to enter take on the regulatory hazards. Apple CEO Tim Cook’s approach to this problem was articulated in an interview with the UK’s Telegraph newspaper last year:

“We don’t want to put the watch through the Food and Drug Administration (FDA) process. I wouldn’t mind putting something adjacent to the watch through it, but not the watch, because it would hold us back from innovating too much, the cycles are too long. But you can begin to envision other things that might be adjacent to it — maybe an app, maybe something else.”

I see one possible outcome of the approach articulated here as a partnership approach under which Apple would create hooks in hardware and software for third party devices to interact with the Watch and provide additional functionality subject to regulation. That wouldn’t hold Apple back from innovating on a predictable and rapid schedule, but would open the door to others more comfortable with the slow-moving regulatory approval process. It’s easy to imagine such an approach being used in a variety of other markets too, with appropriate partners chosen for specific projects or opportunities. Whether this approach or another is taken, however, it’s clear the future is going to be very different from the past. Big tech companies are going to have to get comfortable spending a lot more time engaging with governments in one way or another.