Q&A: Is 2018 set to be the year of deregulated regulation?

Rowland Manthorpe, associate editor, Wired UK According to the classic theory of disruptive technology, codified by Harvard Business School professor Clayton Christensen in his 1997 book The Innovator’s Dilemma, change comes from below. A start-up launches a low-end product that’s useful and convenient enough to attract customers, then improves it bit by bit until it takes over the market. The process can be recognised, but never resisted. Even if big incumbents see what’s happening, their scale and high standards render them powerless to respond. For most of the internet era, Christensen’s theory acted with all the force and inevitability of natural law. Industry after industry succumbed to disruption, each time following the familiar pattern. Digital cameras replaced their film equivalents, before being displaced in turn by camera phones; filesharing killed CDs, then found itself vanquished by streaming. Then, some time around 2010, just as Facebook, Amazon, Google and Apple took control of the digital economy, the process ground to a halt. Structural factors, such as the winner-take-most dynamic common to digital markets, conspired to aid the four firms. But these were augmented by one huge strategic advantage: their founders had read the disruptor’s playbook. Christensen advised incumbents to create start-up-like units away from the inertia-ridden centre – so the leaders of the Big Four did just that. After Facebook acquired WhatsApp and Instagram, Mark Zuckerberg let them continue as separate units inside the mothership. Jeff Bezos built Amazon out of decentralised, self-sufficient, “two-pizza” teams. These men knew how to counteract the vulnerability of their strengths. Once an infallible manual, Christenson’s theory increasingly resembled a history. One day some technology will disrupt this oligopoly – but as machine learning, the most important current area of innovation, rewards big data and deep pockets, that moment may be some way off. Instead, disruption is coming from a different source altogether. As two sweeping pieces of 2018 legislation show, new markets are being created by government. First: the Second Payment Services Directive, which forces banks to open up their data to third parties in the form of easily-accessible APIs. In the UK, this ruling, which came into force on 13 January, is being implemented in radical form, under the name Open Banking. If it succeeds, it will encourage new competitors, who can either slice away existing components of banking, or start to provide services the banks can’t or won’t. Second, 25 May sees the launch of the European General Data Protection Regulation, mirrored by a near-identical bill in the UK. The legislation expands the scope of data protection rules significantly – and this, understandably, has been the focus. But it also gives new scope for data portability: in other words, the ability to move personal data from one provider to another. This could erase one barrier to competition by making it easier to switch services; more likely it will encourage personal analytics: services that scoop up your data to sell it back to you as insights. Will GDPR foster the next generation of fitness-trackers (or, more sinisterly, health- and location-trackers)? Will PSD2 enable banks to do your tax return or auto-suggest cheaper insurance or electricity? As always with innovation, it’s impossible to say. But, thanks to these new rules, whatever products do appear will be cheaper to make and easier to find. Regulators have been reading the disruptor’s playbook too. Yet even if they spread disruption, there’s one thing these rulings won’t do: challenge the dominance of tech’s Big Four. GDPR’s onerous requirements play to their technical and legal strengths; PSD2 opens up another field for them to expand into (“the bank of Amazon” just became a possibility). For pushback, we’ll have to wait for the third source of regulated disruption: antitrust – in particular the European Competition Commission’s ongoing case against Google, now in the stage of remedies. If these take hold, maybe change from below will stand a chance.