Wide-ranging public policy debates with the potential to massively impact tech companies made 2023 a critical year for industry research to analyze these policies and highlight the impacts they could have on not only the technology industry, but the overall economy. With more bills expected to be introduced at the federal and state level in the next year that would impact competition and innovation within the technology industry and beyond, this post highlights research that debunked myths reverberating throughout Congress and the media. CCIA’s Research Center finds that the retail industry is thriving; that introduced internet regulations and “must-carry” policies hurt innovation, startups, the tech industry, and the overall economy; and that there is interesting research on the horizon about how the internet is transforming creative industries.
Retail is Thriving
Multiple studies by the CCIA Research Center found that businesses are thriving in the retail industry, especially small and medium-sized retailers. One study confirmed that in the 2010s, small and medium-sized businesses (SMBs) saw more growth, more job creation, more productivity, and more sales both in-store and online, all associated with the adoption of digital and e-commerce tools. This is surprising because according to the public’s perception, the number of small businesses declined over decades on main streets following the emergence of Big Box stores. However, Census data showed that after 2010, smaller brick-and-mortar retailers reversed the decline and are creating more jobs than they have since the 1980s by using omnichannel and e-commerce technologies.
Building on this research, an additional study outlined the types of challenges that SMBs face when beginning or expanding operations and provided case studies showing the way that third-party facilitators like Shopify and Paypal help businesses overcome those challenges to compete with incumbents. For example, it noted that apparel retailer Bombas used Shopify’s e-commerce-enabling website tools to scale quickly in response to strong consumer demand, allowing the budding retailer to compete strongly with large and entrenched companies. The findings showed that small retailers’ use of digital services benefit consumers directly through lower prices and higher variety, and indirectly through enhanced innovation through competition.
Another major topic in retail this year was bundling. Another report looked into consumer attitudes toward bundled retail memberships from big box stores like Costco, Sam’s Club, BJs, and Walmart+ and found that customers are extremely satisfied with memberships, which save consumers $1.6 billion annually. In 2023, bundled memberships in retail and beyond were under government scrutiny for alleged consumer harm. However, we found that consumers are extremely satisfied with retail membership bundles, including Amazon Prime, with 62% of respondents reporting Amazon Prime memberships. Of the Amazon Prime memberships in the survey, 95% had at least one other membership among all brands considered, and 84% had memberships with at least one of the four big box stores. Multihoming is a consumer norm, as 81% of all respondents had at least two paid retail subscriptions; similarly, 54% of members of any big box store had a membership at one or more other big box stores.
When policymakers look to regulate large internet retailers and the e-commerce companies that facilitate their businesses, they should consider the massive effects that would be felt throughout the economy. Ultimately, small- and medium-sized businesses and consumers would be hurt the most.
Costly Internet Regulation
An additional topic of focus were the costly consequences of misguided internet regulation. Further research examined the impacts of a variety of app and website liability policies in China, Germany, the U.S., Australia, Pakistan, India, and Indonesia in recent years and evaluated outcomes based on stated goals, impact to internet innovation, and effects on competition and investment in digital markets. The report found that not only did the evaluated policies fail to achieve desired outcomes, but they had unintended consequences, including decreasing investment in covered startups by between 15.2% and 73.4% in the jurisdictions examined. The policies also imposed significant, disproportionate compliance burdens on small and startup services, discouraging investment and innovation.
Further research included an analysis of Germany’s NetzDG policy to determine the cost of government mandates requiring social media sites to remove user-generated content. It found that in 2022, NetzDG resulted in just 5,138 incremental content takedowns at YouTube, Facebook, Instagram, and X (formerly Twitter) sites with trillions of instances of user-generated content annually. The sites required 441 staffers for NetzDG compliance, resulting in fewer than one incremental content takedowns per month per staffer. The compliance regime cost the four sites between $1,741 and $5,116 per incremental takedown, with a broader cost to the German economy of $22.25 million per year, about $4,336 per incremental takedown. These high costs discourage competition in social media by impacting smaller social media sites more than larger sites, and as startups have fewer resources to spend on compliance – and because there are economies of scale in compliance with NetzDG-like policies – barriers to entry result.
Two independently-administered survey experiments additionally examined the impact of “must-carry” policies proposed in Florida and Texas that would require websites and apps to host all legal user-generated content to avoid perceived “censorship.” Analysis found that hate speech on social media is associated with a decline in consumer sentiment toward the service. Specifically, 40% of respondents liked the social media service less after viewing simulated hate speech content. Hate speech may also have negative implications for brands that advertise online – 20% of respondents reported they liked an advertiser less after viewing their advertisement adjacent to simulated negative content such as hate speech. More directly, 35% fewer respondents indicated intent to click on an advertisement placed adjacent to hate speech, which would harm both advertisers and the social media services. If these “must-carry” policies were implemented and replicated, the real world impacts likely would be much larger in magnitude than experiments estimate, as the experiments used relatively mild examples of simulated hate speech.
The costs of ill-considered internet regulation are extremely high. Policymakers should carefully consider possible peripheral effects of tech-targeted regulation in order to advance innovation and avoid social, political, and economic harms. Ultimately, these regulations will hurt startups, businesses, and the entire digital economy.
Startups & the Symbiosis of the Tech Ecosystem
Research looked at the technology services and tools that startups leverage for success. The report found that services and tools like AWS, GitHub, Google Suite, Zoom, and Slack are used by startups to build and run their companies for free or little cost. Specifically, these free tools brought the cost of starting a company to below $5,000 down from $5 million in 2000. Proposed legislation would increase the costs for these large tech companies, which could limit their ability to offer free and low-cost services to startups. Resulting costs to startups could amount to $3,000 per employee per year. These findings suggested that aggressive cost-inducing regulations on the firms that provide these essential services could separate startups from the tools they need to compete.
Network Usage Fees are Unnecessary in South Korea
A recent study analyzed claims by internet service providers (ISPs) that additional internet service fees are needed to address purported cost increases due to increased traffic from video content. However, a report examining network traffic costs in Korea found that Korean ISPs operating costs have been flat for years, and the traffic is growing linearly and predictably. In fact, there is no plausible way to ascribe increased capital expenditures to streaming content providers. If the Korean National Assembly accepts the proposed legislation that requires content providers and digital platforms to pay networks fee, it would be detrimental to Korea’s economy, its consumers, and its national security.
Looking forward to 2024
CCIA, in partnership with The Copia Institute, is publishing an updated Sky is Rising report. The report updates data on the creative content and entertainment industries, and finds that “the sky is rising” almost entirely because of the internet. The analysis found that the internet is enabling more people to create, share, distribute, consume, and monetize creative works than ever before. In fact, many parts of the creative industries that were struggling a decade ago are now thriving. Read more about how the “sky is rising” later in 2024.
Lastly, a forthcoming study will examine the impact of the digital economy in the UK. The report found that the digital economy and online e-commerce supports £227 billion in economic activity and over 2.6 million jobs in the UK, which is equivalent to 11% of GVA or about 1 in 13 jobs. Also, average pay in the digital economy is 37% more than the average pay in the UK. The digital economy supports an indirect supply chain of other businesses that support it, creating an additional £113 billion in GVA and supporting another 1.6 million in jobs.