Trans-Atlantic Differences in Cloud Computing Investment

by Matt Schruers on June 18, 2012

A year and a half ago, I gave a presentation on fair use in Tokyo and was asked to email my slides ahead of time.   To my dismay, the recipients’ email server repeatedly bounced my email.  It took some time to figure out that this was due to the size of the attachment.  I needed to upload my file somewhere that conference organizers and attendees could always download the latest version at the time and place of their choosing: a typical use case for a cloud file storage solution.

I first turned to Rapidshare, only to discover that its antipiracy ‘features’ – installed to placate copyright holders – were not conducive to sharing a file with an indeterminate, anonymous group for an indefinite period of time.  I thus turned to Dropbox, another leading cloud storage service.  With Dropbox, I could upload my slides and any revisions to the Public Folder and anyone, Dropbox user or not, could retrieve them.  Problem solved.  I’ve since become a great fan of Dropbox for sharing photos, and syncing working files across my office, home office, and laptop computers.  In the intervening time, cloud storage has become even more ‘mainstream’ with Amazon and Google introducing their own end-user oriented cloud storage solutions, and Microsoft introducing a desktop-syncing application for its existing storage service.

On Friday, news broke that Dropbox was axing the public folder feature [see 1, 2, and 3] in favor of its public link tool (although apparently grandfathering in old users), even though public folders are a popular feature.  Dropbox has not commented on the motivation for this change, other than to say that it is more ‘scalable.’  One could speculate that as the current direct-download function of the public folder was popular for hotlinking, site hosting, and content delivery, copyright concerns may have played a role in the policy change.  (Dropbox does do DMCA compliance, and so the decision may be a function of other factors; we may never know.)  If copyright issues motivated this decision, it would be another unfortunate example of a helpful product feature being removed due to legal uncertainty.  Between persistent civil copyright litigation and the Department of Justice’s campaign of domain name seizures and zealous prosecution of MegaUpload, the cloud sector is far more uncertain than it was a year ago.

Today, we have further confirmation that uncertainty affects investment in technology innovation.  This morning, CCIA released a study by Harvard Business School Professor Josh Lerner, titled “The Impact of Copyright Policy Changes in France and Germany on Venture Capital Investment in Cloud Computing Companies.”  Like Lerner’s previous study in this area, this analysis reviews the impact of copyright law decisions on venture capital investment.  Whereas the first study found a positive effect on U.S. VC investment after the 2008 Cablevision decision, which increased certainty for cloud services, Lerner’s most recent study finds a negative effect on VC investment in Europe after decisions imposing copyright liability on online services in France and Germany.  Specifically, Lerner finds a $4.6 million dollar decline in venture capitalist investment in France per quarter and a $2.8 million reduction in VC investment in Germany per quarter – declines equivalent to $113-156 million in traditional R&D investment.

We now have fairly compelling evidence that short term legal changes can alter the rate of investment in disruptive innovation: Cablevision improved the U.S. investment landscape, whereas this latest evidence suggests that European decisions have undermined the investment landscape across the Atlantic.  European policymakers need to ask what they are getting in return for this sacrificed investment.

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