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The End of “Too Big to Regulate”

Facebook and other tech giants convinced politicians that oversight stifled innovation. That's all starting to change.


Speaking to a group of entrepreneurs in Kenya in 2015, Airbnb CEO Brian Chesky had a telling bit of advice. If you want to avoid regulation, “the first thing you need to do is grow really, really fast,” Chesky said. “You either want to be below the radar or big enough that you are an institution. The worst is being somewhere in between.” Former Uber CEO Travis Kalanick had similar advice, adopting what journalist Brad Stone refers to as “Travis’s Law” to guide his company through its regulatory battles: “It went something like this,” Stone writes in The Upstarts. “‘Our product is so superior to the status quo that if we give people the opportunity to see it or try it, in any place in the world where government has to be at least somewhat responsive to the people, they will demand it and defend its right to exist.’”

It’s possible that Chesky and Kalanick arrived at this truth independently. But Travis’s Law has been guiding tech companies for more than two decades, from Amazon’s years-long refusal to collect state sales tax to Google’s persistent privacy violations. Tech companies figured out that the best way to grow really, really fast is to ignore the rules. If your product is popular enough, government officials, wary of taking on beloved services, will wilt. The best way to get ahead is to become too big to regulate as quickly as possible.

But in the aftermath of the Cambridge Analytica scandal, with regulators finally circling around Facebook—and Uber, Airbnb, and a host of other large companies—the days of “too big to regulate” may finally be coming to an end.

Facebook, Google, Amazon, and Apple have all operated on the “too big to regulate” principle. They built popular products, scaled up quickly, then dared governments to do something about their blatant violations of numerous laws or their opportunistic use of outdated regulations. Uber, for instance, has exploited loopholes in laws written long before the digital era to ruthlessly expand both its ride-sharing and taxi services and its autonomous driving program. It has defended itself by arguing that the laws it’s breaking and regulations it’s subverting are antiquated. (Uber, in fact, went as far as to build a program to deny service to government employees and law enforcement officials it suspected were trying to clamp down on its operations.) But while Uber is an egregious example, this model has become the norm in Silicon Valley—tax, privacy, and labor laws are for suckers, not for the new technological elite.

By being fast and innovative these companies were for the most part able to outpace state and federal regulators. When they finally attracted the attention of both they were so huge and so integrated into the fabric of American life that officials—and especially politicians—had little appetite to take them on. Those who did, like New York City Mayor Bill de Blasio in his brief tangle with Uber, got burned. Indeed, the very flouting of regulations contributed to Silicon Valley’s popularity.

When these companies did take a more lawful tack, it was usually by choice and on their own terms. Amazon and Airbnb made well-publicized efforts to start collecting taxes. Airbnb, in particular, has stressed its collection of hotel taxes in cities as proof of its generosity and civic engagement, even though it’s simply doing something that regular bed and breakfasts—to say nothing of hotel chains—have done for decades. The ploy is this: When you have to play by the rules, do the bare minimum and make a big deal about it. Most cities and states have accepted that getting these giant corporations to (mostly) play by the rules is enough.

All the while, these companies have made an overarching argument that they should not have to follow the kinds of laws that every other industry in the country—very much including the ones that they are disrupting—follow. They say that regulation stifles innovation. These companies, this argument goes, could never have fundamentally transformed everyday life for the better if they had followed the rules. By repeating this like a mantra, tech companies have been able to amass hundreds of billions of dollars, as they pick and choose which laws they follow. For a start-up, this argument has some merit. But that’s not how it’s being wielded in Silicon Valley—instead, massive companies are arguing that they should still largely be free of oversight, even as they’ve become some the most powerful corporations in the world.

Much was made when Mark Zuckerberg expressed an apparent openness to regulation last week. Asked by CNN’s Laurie Seagal if he was concerned that regulation was imminent, Zuckerberg responded, “I actually am not sure we shouldn’t be regulated. I think in general technology is an increasingly important trend in the world. I think the question is more what is the right regulation rather than ‘yes or no should we be regulated?’” He continued:

There is transparency regulation that I would love to see. If you look at how much regulation there is around advertising on TV and print it’s just not clear why there should be less on the internet. You should have the same level of transparency required. I don’t know if the bill is going to pass, I know a couple of senators are working really hard on this. But we’re committed and we’ve actually already started rolling out ad transparency tools that accomplish most of the things that are in the bills people are talking about today. This is an important thing. People should know who is buying the ads they see on Facebook, and you should go to any page and see all the ads that people are running to different audiences.

This is a clever response, and it garnered headlines claiming that Zuckerberg would welcome more regulation. But what Zuckerberg really said is that Facebook is self-regulating ahead of the congressional curve. Furthermore, what he agreed to is a bare minimum that other media companies meet. The bill in question, the Honest Ads Act, is a long overdue correction, and not something that would fundamentally alter the way that Facebook does business—a fact that hadn’t previously stopped Facebook from using its lobbying might to try to kill the bill earlier this year. Zuckerberg is playing a new version of an old game, giving away something inconsequential and making a big deal of it.

But that game is getting old. Following the Cambridge Analytica scandal, Facebook’s users—not to mention politicians and regulators—are increasingly concerned about big tech’s privacy abuses. While past concessions in tech have come from a place of strength, Zuckerberg’s half-hearted endorsement of regulation is coming from a place of weakness.

More importantly, there’s a growing unease with the size and power of these companies—the very thing that tech luminaries once believed would make them immune to regulation. Even if no major action comes from Congress or the Federal Trade Commission any time soon, tech companies are entering into a new legal and regulatory climate.