Is Tech Company Compliance Hurting Small Firms More Than Large Firms?

A certain company you’ve probably heard of called Facebook was fined $5 billion recently and it’s understandably causing a great amount of chatter across the country. Is the hammer going to drop on big companies in the tech space now that it came down on Facebook?

The answer may surprise you.

I actually see the massive fine to Facebook as a very positive development for very large companies and a very negative development for smaller companies. The ruling basically implies that if you do something that somebody else could find wrong, the hammer’s going to come on you.

Now, the real question is: Who could withstand the hammer? You know the answer to that one. The Googles. The Facebooks. The Amazons. The Microsofts. The IBMs. All gigantic corporations who can take a $5 billion hit without it causing the end of the company.

However, if you’re running a much smaller firm (like so many of us), you can’t afford to build a gigantic system in the name of preserving compliance, privacy, etc. that will keep track of everything consistently and just right. While there is a perception that somehow extreme regulation is going to primarily hurt the large Internet companies, a recent study of the impact of the European privacy regulation reveals that the regulation may be hurting smaller companies even more.

Here’s a good example of what I’m talking about. Yes, companies big and small have to comply with regulations. But let’s look at the difference. When you visit a website of a small company for the first time, you may likely see a message that reads, “I understand this website puts cookies into my computer.” If you’re not sure what the website is and you use it very seldomly, you may be prone to say “no.”

However, if you’re using Google, do you even think about the implications of using it? Of course not. It’s an automatic “yes” to everything Google gives you, unless you take the time to adjust your settings.

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In addition, there are a lot of machine learning systems that need to keep track of privacy and more due to regulations. But what if your computing department is a part-timer who is getting their Associate’s degree in Economics? Uh oh. It’s going to be hard to meet the compliance standard because the standard is really set up for companies of a grand scale such as Google, Facebook and Microsoft. These large companies can afford to spend billions of dollars in terms of technology and extra people to watch what’s going on from a compliance perspective. Therefore, the more regulations you have, the more you will block smaller companies from ever competing or challenging the large ones. That’s not necessarily what people have in mind when they ask for regulation, but that’s essentially what they’ll wind up getting.

In fact, just as the $5 billion fine for Facebook was announced, their stock went up. Its stock is close to an all-time high. You’d have thought the opposite, right? Well, consider what we’re talking about. It’s $5 billion in fines for a company worth close to $500 billion. Facebook just announced that they had revenue of approximately $20 billion last quarter. The fine, while certainly hefty, is not going to hurt Facebook any more than a $300 million athlete being fined $20,000. The fine is large but consider how much more they have in the way of company finances to absorb that blow without even flinching.

In the meantime, this climate of compliance most likely guarantees that there will be higher and higher barriers to entry for new companies. The EU had the best of intentions in fighting the behavior of the world’s largest companies by introducing regulation, the reality is that their moves on the compliance front dramatically assisted those large companies by blocking many small  companies from entry to the market or enjoying sustainable growth while effectively killing off quite a few of them.

In our current day and age, compliance in the name of privacy protection, sharing data and the like is understandable. Companies like Facebook should be held to high ethical standards. But when you ask small companies to have the manpower and systems to comply with resources that favor larger companies, you’re potentially altering the competitive playing field in a dramatic way. 

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