Why the Next Nvidia or Netflix Won’t Be a European Company

Europe was the first major region to progress to a modern economy. The commercialization of agriculture and continuous cropping in the 17th century fueled the Industrial Revolution in the 18th century. Its history of innovation supported factory production and specialized services. Europe was racing ahead but was halted in its tracks by a slew of government regulations. Governments had the notion that they needed to wield their power on corporates on the pretext of “protecting” customers by taking away the greatest power an individual has… the power to choose.

Kill Them Before They Grow

Over the past few years, the EU authorities have come down heavily on tech companies. The aim is to prevent monopolistic practices, tax evasion, invasion of user privacy, and a host of other transgressions. Even if one argues that the objectives are noble, the biggest flaw is that regulations are imposed even before any signs of misdemeanour. Their idea is for regulations to be highly proactive – to think of all possible situations and curb them. Such an environment squashes the next innovation even before it has taken any shape.

Ahead in Over Regulating

Take for instance the GDPR (General Data Protection Regulation). This was introduced by the EU to protect the data of residents of the region. In effect, it prevents companies from offering personalized services. You can say goodbye to marketing messages that are more relevant to you and customer support that is customized for your needs. For instance, Meta Platforms (Facebook) has been arm twisted into providing “less personalized ads” in the EU.

GDPR has done more than to ruin customer experience for billions of people. You also end up paying more for these non-personalized offerings. Why? Because it costs companies much more to adhere to GDPR. The total cost of GDPR compliance can range between $20,500 to $102,500 depending on the company’s size and complexity of operations.

If companies try to pass on these costs to customers, their pricing become less competitive than their counterparts from other parts of the globe. With the European economies struggling, many companies are unable to pass on the costs. A report shows that GDPR has resulted in a 2% decline in sales and an 8% decline in profits for companies. How can companies invest in innovation and R&D when their bottom-line has been squeezed? In fact, another report says that the negative impact of GDPR on small tech companies is almost double that of the tech giants. So, GDPR has killed the possibility of an EU company ever competing with Amazon.

GDPR alone could have staved off innovation. Sadly, it comes along with the Digital Services Act, Digital Markets Act, Data Governance Act, and the Data Act. Each of these have their own compliance costs to burden companies with.

Stunting Growth of the New Kid on the Block

In the latest attempt to curb innovation, the EU’s Artificial Intelligence (AI) Act came into effect in August 2024. This Act promises to add enough speed bumps in AI, the latest technology that most big companies are investing in.

Apple has refrained from launching its latest Apple Intelligence and SharePlay screen sharing in EU due to the region’s stringent regulatory requirements. This means Apple would rather give up that market for its latest features than invest in compliance. If a cash rich company like Apple doesn’t find it worthwhile to spend on compliance, will any startup be able to innovate and attract seed funds here?

With the EU continuing to tighten the regulatory noose, it runs the risk of thwarting the next Nvidia, Apple, Meta, or Netflix out of existence.