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How Europe Is Finally Taking On Silicon Valley

Regulators in the European Union hope to spur local innovation while pushing back against Google, Facebook, and Amazon.

How Europe Is Finally Taking On Silicon Valley
[Illustration: MUTI]

The European Commission—the executive body of the E.U.—wants to supercharge its sluggish startup scene and cultivate a generation of Skypes that don’t emigrate to America.

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But that also means wresting control of the European tech market back from Silicon Valley’s biggest power players, which have dominated the region for decades with little local competition. Google, for example, controls nearly 93% of all online searches in Europe. Compare that to the U.S., where Google faces some competition from Yahoo and Bing and accounts for 80% of searches.

So far, the European Commission’s most aggressive moves are mostly stuck in regulatory limbo and ongoing investigations, but some U.S. tech giants, including Google, Facebook, and Amazon, have already begun to make changes in reaction to the new landscape.

The Battlegrounds

E-commerce

Amazon sells more than twice as much in Europe than the region’s second largest online retailer, Otto. So when the European Commission launched an antitrust investigation into the e-commerce sector in May, Amazon was a clear target. Investigators are now probing its e-books business for anticompetitive dealings. Google is also facing formal charges that it unfairly displayed its own Google Shopping results over those from local businesses.

President Obama, in a February interview with Re/code, called these legal battles “more commercially driven than anything else,” adding, “We have owned the Internet. Our companies have created it, expanded it, perfected it in ways that they can’t compete. And oftentimes what is portrayed as high-minded positions on issues sometimes is just designed to carve out some of their commercial interests.”

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To give European e-commerce startups a boost, the European Commission has proposed a plan to update and unify commercial regulations across the E.U., so that a startup in one of its member nations can more easily operate in all of Europe. The plan also seeks to reduce cross-border shipping costs, which are so exorbitant—$46 to send an item less than 20 miles from Sweden to Denmark—that only titans like Amazon can operate Europe-wide.

If approved, the overhaul would “liberate the European digital economy,” E.U. ambassador to the U.S. David O’Sullivan told Fast Company, “and would greatly benefit small- and medium-size companies trying to set up online businesses.”

Privacy

“The next big thing might never see the light of day,” wrote Richard Allen, Facebook’s head of public policy in Europe, in an April op-ed for the Financial Times. It was a plea to regulators who are investigating Facebook’s ad business for potential privacy breaches, including using cookies to track users around the web. Months later, the E.U. proposed even stricter rules that, among other changes, would require companies to delete users’ data upon request. (European startups would be exempt from many of these laws.)

Silicon Valley is now proceeding more carefully. Facebook and Google recently released photo apps that use facial recognition; however, Facebook isn’t launching its app, called Moments, in Europe, and the international version of Google Photos is scrubbed of the tech.

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Taxes

E.U. regulators are probing the tax arrangements of Starbucks, Apple, and Amazon to determine whether the companies’ low-tax deals in some E.U. nations are legal.

In May, after pressure from the British and German governments, Amazon agreed to start paying more taxes in some of the European countries where it operates, rather than continue to channel its revenue through a holding company in the tax haven of Luxembourg.

Starbucks and Apple are accused of setting up unfair low-tax deals in the Netherlands and Ireland, respectively.

Decisions in these investigations are likely to come later this year, and could result in significantly higher tax bills for U.S. companies that operate in Europe.

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Key Moves

The E.U. is taking legal and regulatory action that would boost local upstarts and rein in U.S. tech giants. It wants to unify copyright laws across its 28 member nations to spur more digital content businesses (currently only powerhouses like Netflix can afford separate rights in every territory) and simplify rules for cross-border shipping and consumer protection to promote e-commerce.

Silicon Valley is maneuvering the E.U.’s antitrust lawsuits and regulatory hurdles by lobbying for rules that benefit it. Facebook, which the E.U. is investigating for privacy violations, backed the commission’s simpler, single standard for online privacy, for example.

Advantage

Silicon Valley, because new E.U.-wide standards would help it overcome the other legal challenges to its businesses. But U.S. companies may need to tread more lightly in Europe than they have in the past, as Margrethe Vestager, Europe’s new antitrust chief who initiated formal investigations into Google and Amazon, has shown that she will not hesitate to bring charges against any U.S. firm that gets too powerful.

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