Massive Tech Braces for a Wave of Regulation

Big tech companies face the biggest expansion in potential tech regulation in a generation. And while the jury is out on whether all that noise and fury will mean anything, there are, for the first time, signs that the big-tech backlash could be having a significant impact.

New legislation being considered in Europe, Asia and the US could severely limit how big tech companies deal with smaller competitors and limit their use of artificial intelligence like facial recognition. Some proposals could ban common practices such as B. Companies improving their own products in their own rankings, which could impact operations, executives and analysts say.

At the same time, regulators around the world are pursuing dozens of investigations related to competition and privacy that could result in more than just fines for tech giants. According to regulators and executives, orders or settlements are being considered that could disrupt the transatlantic flow of data, bring some forms of digital advertising to its knees, delay major product changes, or force ongoing monitoring of activities.

Meta Platforms’ Facebook said in November that it was shutting down its facial recognition system in part because of potential regulations.


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Constanza Hevia H. for The Wall Street Journal

Harder to redeem

To be sure, regulation has had little impact on Silicon Valley’s bottom line or valuations so far. The market value of five of the world’s largest tech companies is $9.31 trillion, nearly four times what it was five years ago, nearly double the growth of the S&P 500 index over that time.

But that could change. The new wave of scrutiny has already made it harder for companies to cash in on potential growth from acquisitions, said Mark Mahaney, director of internet research at Evercore inc

research arm. In November, the UK’s competition and markets regulator, Facebook, ordered Meta Platforms Inc. to sell its animated images company Giphy, saying the acquisition would reduce competition between platforms and UK advertisers. Facebook says the deal will benefit consumers and has appealed.

Tech companies are also making other changes. Facebook announced in November that it would shut down its facial recognition system in part because of potential regulations.

“There’s definitely a sense that there’s a new impetus for regulation,” says Sinead McSweeney, Twitter inc

Global Vice President for Public Policy and pointed out that the company had to implement new legal requirements in at least six countries in the last few weeks. “It’s on a whole new level.”

alphabet inc

Google, for example, has agreed to work closely with the Competition and Markets Authority on its plan to remove cookies that track online activity from its Chrome browser. Now Google executives are exploring how to build new appeals procedures for removing content from the YouTube video service and revamping how it handles user and partner information internally, said Kent Walker, senior vice president of global affairs.

“There’s a lot on the table right now,” says Mr. Walker. “It’s a challenging exercise as compliance times are short in many cases and we need to start preparing for the regulations now before the ink dries.”

While tech companies agree that their industry needs new regulation, they resist some specific proposals — in part because of the potential impact. Some tech executives, like Twitter’s Ms. McSweeney, say they fear requirements in proposed rules for online content could encourage companies to remove content they merely disagree with, undermining freedom of expression.

Google’s Mr Walker says he’s concerned that defining an online marketplace in a bill could force the company to notify websites every time their search engine ranking changes, a virtually impossible task.

Google offices in New York. The company is revamping how it handles user and partner information internally, an executive says.


Photo:

Desiree Rios for the Wall Street Journal

what is the effect

For their part, advocates of more regulation fear that the big tech companies could survive the latest wave of regulation unscathed. Gabriel Weinberg, founder and CEO of DuckDuckGo, maker of a privacy-centric search engine, says three EU antitrust decisions against Google and more than $9 billion in fines have done little to hurt the search leader’s market position. (Google says compliance with EU decisions has led to significant changes in its operations that have helped competitors.)

Now, Mr. Weinberg is concerned that policymakers place more emphasis on passing legislation than on ensuring regulators have the know-how and tools to properly implement new requirements, for example to treat competitors fairly.

“I think something will happen. I’m pretty confident that’s going to be the case,” says Mr. Weinberg. “But it looks like the devil is in the details to actually move the market.”

Frances Haugen, Facebook whistleblower, at a House hearing in Washington in December.


Photo:

Al Drago/Bloomberg News

Policymakers are confident they can do it. Cédric O, junior minister for digital affairs in France, which will chair the Council of EU member states for the first half of this year, says he is confident the EU can pass effective legislation and needs to seize the momentum. He also says he will go to the US to lobby for transatlantic rules to protect children using social media after publishing articles in the Wall Street Journal’s Facebook Files series noting that Instagram made some teenage girls feel worse.

“I think there is a European and probably international consensus that big tech has economic and democratic implications and should be regulated,” says Mr. O. “There is a desire to act that is shared everywhere.”

Mr. Schechner is a reporter for the Wall Street Journal in Paris. He can be reached at sam.schechner@wsj.com.

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