As lawmakers and regulators in the U.S. consider policy born of their Big Tech concerns such as data privacy and artificial intelligence, they should consider how such changes could end up trampling small and midsize businesses that drive innovation and competition.
While policymakers may have Google and Facebook in mind, the actual policies could unintentionally create new regulatory burdens that could deter investment in smaller businesses and prevent new companies from emerging. Calls to end Section 230–part of a 1996 law that protects Internet companies from some lawsuits–portray it as a handout to Big Tech, when in practice it would mean new social media companies would face liability early on, making it more difficult to compete and discouraging them from carrying user-generated content that provides new opportunities or ways of connecting.
Today’s leading companies were once small startups, and regulators’ light touch allowed them to flourish, creating benefits for consumers that could not have been predicted. The economy and consumers need this approach to continue so today’s startups have a chance as well.
Beyond issues that have compliance costs such as data privacy and AI, some critics of Big Tech have called for antitrust enforcement to protect small businesses from the “kill zone”–the window of time in which a growing startup is bought by a big company before it can become a rival to that company. These critics also call for changes that would potentially limit mergers or acquisitions.
But this approach creates a false dichotomy between “big” and “small” business that misunderstands the way the startup ecosystem works. This strategy could hurt small businesses. Some may want to grow into challengers, but others were created with the hope of being sold; investors in startups are often looking for the right moment for the company to be acquired so they can recoup their money. This cycle leads to more investment and more innovation.
Blocking mergers and acquisitions could force small businesses to stay small, or push them out of business. Antitrust rules that are preoccupied with curbing Big Tech would end up hurting the industry, the economy and consumers.
We saw this play out when regulators blocked Amazon’s acquisition of IRobot. The result is most likely not renewed competition but that consumers will have fewer options as IRobot faces a dire financial situation and lays off workers. If burdens to mergers and acquisitions and a shift away from the focus on consumers continue, this could become a more frequent phenomenon.
