Big Tech over-regulation will hinder startups

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EU and UK competition regulators have been hard on Big Tech in recent months. Although the watchdogs intend to protect startups – I can’t help but think they’re at risk of stifling the opportunities that Big Tech brings to smaller players.

If the likes of Google and Microsoft choose to leave London, then there will be fewer exit routes for founders, less investment in the fintech ecosystem, and a severe shortage of highly qualified talent.

In April, the Competition and Markets Authority (CMA), the body responsible for regulating competition in the UK, stopped Microsoft from acquiring interactive entertainment company Activision Blizzard.

The regulator claimed that Microsoft could use Activision Blizzard to boost its cloud gaming presence, and in turn, damage competition in the market.

Judged on its own merit, the deal highlights the vital role that UK regulators can play in protecting startups.

But it’s not the first time that the watchdog has taken a swipe at Big Tech in recent months. In August, it ordered Facebook owner Meta to sell the GIF service Giphy, arguing that the merger had reduced competition in the social media sector.

The CMA is at serious risk of discouraging Big Tech from doing business in London – and it will soon wish it hadn’t been so heavy-handed.

I say this now because the Microsoft and Activision crackdown follows fast on the heels of new regulations launched by the EU to control how Big Tech allows smaller companies to use their platforms. And there’s mounting pressure for the UK to follow suit and become a tougher regulator of big tech businesses.

The Digital Services Act imposes new responsibilities on tech giants, particularly how they share data, link to competitors, and make their services accessible to smaller players.

I think it is essential that Big Tech deals should be monitored to ensure they don’t create powerful monopolies over markets – but there have been several interventions from regulatory bodies over the last 12 months, and we’re at risk of pushing tech too far.

I’m not saying we should stop regulating Google, Meta, and Microsoft – I’m saying that we need to be more judicious with how we handle Big Tech.

The arguments against Big Tech are usually framed in terms of helping startups – but over-regulating will actually hinder them. Amazon and Google have the scale and capital to make changes that are simply not possible at a startup level.

We need to stop looking at Big Tech in the context of their ability to dominate and control a market and instead look at the opportunities that they bring to the UK’s tech ecosystem.

For better or for worse, we left the EU. We are no longer obliged to follow its tech laws, which is why she should be introducing legislation that doesn’t hinder Big Tech – but instead encourages it to work hand-in-hand with startups.

London is the best place for these synergies to happen – Google, LinkedIn, and Microsoft all have offices here, and all the while, the city is home to more tech unicorns than anywhere else in Europe. This is proof that Big Tech and startups can not only co-exist in London but thrive in the same financial ecosystem.

How can they work together?

I think M&A deals between large tech firms and startups present a massive opportunity to create economies of scale – not least in talent. London attracts some of the world’s best businesspeople and entrepreneurs, and their big ideas and growth strategies go both ways when a successful merger takes place.

A 2022 McKinsey study revealed that 72% of acquirers in tech M&A deals avoided the typical first-year revenue dip by ensuring that startup founders leaders retain full decision-making authority; especially in in recruiting and product development.

We need to stop seeing Big Tech as the enemy and embrace the capital, resources and experience they bring to the UK’s most promising startups.

The technology sector is still in the midst of a VC funding slump. Pair that crisis with a slowdown in the UK economy, and the outlook for the nation’s startup ecosystem looks pretty bleak.

Tech giants can scale startups through M&A, and propel them to the next stage of growth. I think we’ll see a tidal wave of startups going bust if they aren’t acquired by a big player.

Big Tech is already wary about being referred to the CMA. If this crackdown continues, we’re going to see Big Tech retreat from the market. If acquiring a startup leads to prolonged negotiations with the CMA, then big tech will just move to other countries and territories to set up shop.

Over-regulation of Big Tech alone won’t create a level playing field in tech. It instead needs to foster a business environment that allows greater collaboration, deals, and sharing of ideas between Big Tech and startups. It’s the only way the UK can remain the biggest technology centre in Europe.

Rafal Andzejevski is the founder and CEO of London-based financial services company PayAlly.