Now’s the Time to Stop Worrying About Tech Regulation – Here’s Why

Why Trust Techopedia

Regulation is one of tech’s perennial hot topics. Since the arrival of GDPR in 2016, changes to industry rule books have been a standard feature in the news cycle. They’re on the R&D agenda too, as vendors and consultancies spend a mint promoting regulation-related services.

GDPR put the sector on notice: regulators see how digital transformation is impacting society, and they are ready to take action.

But despite all the rulebook changes that have followed, how many technology professionals really care about, say, the added privacy provisions of the EU’s Digital Markets Act? More to the point — how many actually should care?

With calls for AI regulation getting louder and some saying 2024 will be the year Big Tech is brought to heel, we looked at the issues and asked the experts. Here’s our regulation reality check.

Key Takeaways

  • With the recently enacted Digital Markets Act, the soon-to-land UK Online Safety Act, and EU Digital Services Act, 2024 is looking like a heavy year for technology regulation.
  • But despite the prominence it receives in press coverage, how much does regulation really matter?
  • Big Tech firms are firmly in the compliance crosshairs, but the vast majority of technology companies aren’t in that category.
  • Regulation’s impact on most firms’ day-to-day operations is variable, and company size makes a big difference.

Is It All About Big Tech?

Discussion around tech regulation inevitably focuses on the unchecked power of mega-platforms like Google, Meta Platforms, Amazon, Apple, and, more recently, OpenAI. Yet most tech companies aren’t social networks or GenAI platforms, and most applications aren’t ad-supported.

If a tech firm’s business activities place it largely outside the major areas of policy concern, how much does regulation really matter? Is focusing on it a distraction from more business-critical priorities?

Advertisements

There was a time when entrepreneurial business leaders could be counted on to rail against bureaucracy and red tape. Silicon Valley founders used to be known for their libertarian bent. Now, it’s as if regulation is welcomed, a business enabler that levels playing fields and instills customer confidence — to use the popular euphemisms.

Maybe it’s true. Clear rules compel organizations to tighten up administrative processes, reign in their wilder competitive impulses, and even make operations more efficient. But there’s no denying that regulating Big Tech is also Big Politics, handing lawmakers a high-viz opportunity to do Very Important Things.

Matthew Niblett, Senior Account Manager an Inline Policy, told Techopedia:

“Big tech firms are likely to be in the spotlight in upcoming elections in both the UK and EU, and the Labour Party’s likely victory in the forthcoming UK elections may lead to a more interventionist political climate for technology businesses over the next five years.”

He notes that UK Shadow Technology Secretary Peter Kyle has already promised to introduce binding requirements on AI companies if Labour forms the next government.

Who Benefits?

Politics is one reason regulation keeps pushing its way into tech sector conversations. Profit is another.

Compliance consulting is big business, worth $17.1 billion in 2024 and growing at rates of between 4.8 and 6% every year. It’s dominated by the likes of SAP, IBM, Big 4 consultancies, and powerhouse global law firms like Norton Rose Fulbright.

Regulation even has a large tech category of its own. The RegTech compliance market is expected to account for half of all regulatory compliance spending by 2026, growing to $204 billion from $68 billion in 2022 — 200% growth in four years.

Though pure technology firms are just one target market for these services and solutions, you can see how the cumulative effect of multiple large organizations in highly visible industries all pushing regulatory discussions could drive news coverage or set the agenda at industry gatherings.

That’s not to say their influence is negative or pernicious or their PoVs about the value of compliance aren’t relevant. However, other concerns may be drowned out when so many loud voices are at the table.

A Tax on Innovation

A 2023 study by researchers at MIT’s Sloan School of Management found that regulations put a literal cap on growth. Companies will hesitate to invest in their operations and increase headcount if it means greater regulatory oversight.

In most Western countries, regulatory rules switch on after a firm reaches a certain size. If headcount stays below a given threshold, companies can usually sidestep more painful regulation.

Researchers pointed to the US, where a business is considered an ‘applicable large employer’ once it reaches 50 employees. At that point, it falls under the jurisdiction of US shared responsibility and reporting provisions for employers.

Notably, the study also found that companies innovate progressively less as they approach the 50-employee mark.

“As firms close in on the 50 level, there’s this real slowdown in patent innovation,” said lead researcher John Van Reenen in an interview accompanying the findings.

“It flattens just past 50,” he added. “Firms under 50 employees respond less to promising market opportunities because they know they’ll have to pay an extra cost.”

But large firms feel it too. Incentives to innovate start to wane when companies grow because the profits from new products and services attract additional taxes.

MIT researchers developed a model to connect regulation to taxation and found that regulation imposes a tax of about 2.5% on profits, stifling innovation by about 5.4%.

Taking a Balanced View

Asked about the operational impact of regulatory changes in the pipeline this year, Dani Dhiman, Policy Manager for Artificial Intelligence and Digital Regulation at techUK, told Techopedia:

“It will take some time for (new regulatory) frameworks, additional guidance, and standards to be implemented.”

It’s not just a case of falling in line with government diktats, as “there are still open questions around copyright and supply chain liability that are yet to be answered in both jurisdictions.” Businesses will need time to fully understand new compliance requirements.

AI is ascendant and “businesses will definitely be thinking about how they can develop or use AI technologies,” she adds, “but implementing these technologies may be a more gradual shift for most”.

Richard Sargeant, Managing Director and Partner at Boston Consulting Group, told Techopedia that it’s too early to say how sweeping the impact will be on tech company operations, “but the most likely outcome is limited changes for many firms and industries.”

“Expect more scrutiny on those deemed to be more controversial or have the ability to cause harm or distort markets,” he adds, but tech firms should keep their eye on the prize. “It is challenging for businesses right now to get a definitive comfort from their activities. They should be aware of the emerging shape of legislation, and ready to account publicly for their use of AI, but they should not let a fear of compliance paralyze them from a focus on performance.”

Reasons to Relax

Regulatory action against large, consumer-facing technology entities has been part of the political playbook since at least the 1980s.

The monopoly fears that hover around Big Tech and worries about AI generally could arguably trigger action at a similar scale, but for now, there are reasons to think the current wave of regulations will be manageable for most:

1. If You Don’t Work for Big Tech, the Impact Can Be Limited

If you don’t work for Big Tech, the operational impact on your company will depend on the size and the perceived sensitivity of the category or vertical you’re in.

If you do work for Big Tech, there are small armies of lawyers, lobbyists, and consultants on the case in Washington and Brussels.

TechUK’s Dhiman added:

“Those tech firms that have already invested in this space and have large legal and compliance teams may be able to gain a competitive advantage in the market.”

The idea that Meta or Google will somehow be the losers in an epic battle with lawmakers seems fanciful.

2. In Most Tech Categories, Regulation Won’t Upend Your Responsibilities

In most technology categories, regulation probably won’t upend your day-to-day responsibilities. If you work in identity management or you are in the DevOps team at an enterprise SaaS firm, ask yourself how often regulation defines your to-do list.

One exception could be the UK’s Online Safety Act, which Inline’s Niblett says may require tech companies to implement “numerous mitigations” that will likely involve “not just compliance departments but also staff within technical departments.”

3. Data Privacy Provisions Should Have Been Embedded in Tech Company Operations

While adapting to GDPR may have been a painful exercise for many tech firms, provisions to protect data privacy have either been embedded in tech company operations already — or should be.

Lisa Quest, Partner and Co-Head of the Government and Public Institutions Practice Europe at Oliver Wyman, said:

“Regulation is a cost of doing business. When done well and applied in a proportional way based on the end-user risks, it is a key enabler of a competitive and safe environment for consumers.”

The Bottom Line: Final Verdict

Tech critic Susie Alegre, an international human rights lawyer and author of Freedom to Think: The Long Struggle to Liberate Our Minds, wrote in January that 2024 will mark the end of Big Tech’s ‘Lawless, Wild West era.’

New and developing regulations like the EU’s AI Act, she writes, will dovetail with more aggressive use of the legal powers already available to watchdog agencies.

“Human rights and civil liberties law, competition law, consumer rights law, intellectual property, defamation, tort, employment law, and a plethora of other fields will be engaged to tackle the real-life harms already being caused by existing technology, including AI.”

While that may be true in an election year where control of both the White House and the European Parliament is at stake, looking at the longer term, the majority of tech professionals may find there’s little to lose if they decide to tune out.

FAQs

Does regulation hurt innovation?

Why should Big Tech be regulated?

What is the regulatory pacing problem?

Can regulation keep up with technology?

Advertisements

Related Reading

Related Terms

Advertisements
Mark De Wolf
Tech Writer
Mark De Wolf
Tech Writer

Mark is a freelance tech journalist covering software, cybersecurity, and SaaS. His work has appeared in Dow Jones, The Telegraph, SC Magazine, Strategy, InfoWorld, Redshift, and The Startup. He graduated from the Ryerson University School of Journalism with honors where he studied under senior reporters from The New York Times, BBC, and Toronto Star, and paid his way through uni as a jobbing advertising copywriter. In addition, Mark has been an external communications advisor for tech startups and scale-ups, supporting them from launch to successful exit. Success stories include SignRequest (acquired by Box), Zeigo (acquired by Schneider Electric), Prevero (acquired…