From Berlin to Madrid, from London to Paris, U.S. technology
companies are in a pitched battle with Europe’s sovereign states. It is a clash
that pits governments against the new tech titans, established industries
against upstart challengers, and freewheeling American business culture against
a more regulated European framework. And it poses one of the greatest threats
to U.S. technology giants since their emergence from garages and college
campuses over the past four decades.
First and foremost, the battle is about economics. Europe’s
policymakers, accustomed to controlling key sectors of their economies, are struggling
to get a handle on the fast-moving newcomers from across the ocean. Growth is
weak and government revenues soft, and they see profits that once accrued to
European industries from retail to media to taxicabs, being diverted—often
lightly taxed—to Silicon Valley. They worry that critical industries such as
autos may fall next.
The U.S. firms loom large. The market valuation of five U.S.
tech firms— Apple Inc., Amazon.com Inc., Facebook Inc., Google Inc.
and Microsoft Corp. —is $1.8 trillion. That compares to $1.3 trillion
for all 30 blue-chip companies in the DAX index in Germany, Europe’s largest
economy.
It is also a clash about values: Silicon Valley’s default
setting of light regulation is colliding with the greater European emphasis on
preserving individual privacy. And perhaps most fundamentally, it is about
control of the Internet, the world’s common connection and crucial economic
engine that is viewed as being under the sway of the U.S. This exploded
following the revelations by Edward Snowden of widespread U.S. government
surveillance of Americans and Europeans—sometimes via U.S. company data and
telecommunications networks.
The headwinds have become a big risk for U.S. tech companies
as they look outside their home country to maintain rapid growth. On Wall
Street, analysts increasingly talk of regulation as one of the few existential
threats to Internet leaders, such as Google, which have been riding a powerful
wave of rising Web use.
The Web sector has faced problems in other regions before,
notably China, which blocks many Google and Facebook services and makes it
difficult for other U.S. tech firms to compete with local rivals. But Europe’s
complaints focus on issues and processes that form an important part of the
foundations upon which these companies are built.
Beyond search, Europe’s focus on data privacy and its
reaction to Mr. Snowden’s revelations could limit how much information U.S.
tech companies can collect about consumers in the region and how they use it. This
data is the fuel that drives the online advertising and commerce machines that
Google, Facebook and Amazon have spent years honing and monetizing. Rising
calls for these companies to house such information in local data centers in
Europe could make these machines more expensive to run.
The battle raises important questions over whether the
Internet will fragment as governments seek to keep data out of Washington’s
hands. Unless U.S. snooping is reined in, “the movement towards a truncated
Internet will be difficult to stop,” according to a report published Monday by
the Council of Europe.
U.S. companies recognize this as a threat. Earlier this
year, Facebook chief executive Mark Zuckerberg said in a Facebook post
that he had called President Barack Obama to express his “frustration”
over the “repeated reports of the behavior of the U.S. government,” which
undermine trust in U.S. businesses abroad. The National Security Agency said a
recent report on the agency’s alleged use of false Facebook servers was
inaccurate.
The stakes are huge: Half of all productivity growth in
Europe comes from investment in information and communication technology,
according to a report published in March by the European Commission, the EU’s
executive arm. The fears often have crystallized around Google, which has been
embroiled in a series of dust-ups in France, Germany and Spain over its tax,
privacy and copyright policies, as well as a long-running European antitrust
probe.
But U.S. tech firms have also been hit. Big American
companies are depicted as suffocating local competition while pursuing
aggressive tax-avoidance strategies. Amazon and Apple are embroiled in EU
investigations over their tax affairs. Uber has fought multiple efforts to shut
it down amid accusations it flouts the law in France and other countries by
using drivers without professional licenses.
To be sure, battles between established industries and
disruptive upstarts have also been playing out in the U.S., where Uber and
home-rental service Airbnb Inc. have clashed with regulators over their
business models. And some U.S. firms themselves are exploiting the European
tensions to attack rivals. Microsoft has been a driving force behind the
antitrust campaign against Google in Brussels, while Oracle Corp. is another
member of the Fairsearch alliance that has actively agitated against Google.
Yet, many problems facing European start-ups are homegrown.
Taxes and employment rules are often onerous and the continent suffers a
shortage of risk capital in a financial system heavily geared toward bank
lending. For big European companies with
clout in Europe’s corridors of power, their traditional business-expansion
model is threatened.
Some policymakers worry that the same could happen to key
industries such as automobile manufacturing. Under the European model, a car
maker like BMW would build out in-house digital networks to run its smart cars.
But auto makers worry they may be outplayed if Google develops a better network
to run the cars.
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