European Union

Study: Europe's Aggressive Privacy Regulations Are Killing App Innovation

Consumers lose out when compliance costs prevent services from ever entering the market.

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A newly released working paper purports to show that extensive tech privacy laws implemented by the European Union in 2018 have significantly stifled app innovation and potentially deprived consumers of useful products.

The report was released by the National Bureau of Economic Research, and it attempts to calculate the consumer effects of the General Data Protection Regulation (GDPR), a far-reaching European Union privacy law that forces online sites, platforms, and phone apps to more carefully get user buy-in for collecting and sharing their data. The regulations have caused massive headaches for media outlets, online providers, app manufacturers, and really anybody attempting to provide any sort of online consumer service.

Compliance costs are high and fines for failing to do so are significant—as of April 2022, E.U. regulators have levied more than 1.6 billion euros in fines (about $1.7 billion) to rule-breakers.

Critics of the passage of the GDPR warned that the regulations would stifle innovation and entrench the dominance of the tech industry's biggest companies, who could afford the compliance costs and would therefore essentially be less threatened by potential upstarts coming for their customers.

This new paper attempts to analyze the consumer impact on the app market for an estimated 4.1 million apps in the Google Play Store. The paper's title, "GDPR and the Lost Generation of Innovative Apps," makes its conclusion clear. The working paper's four writers drilled down into the data and determined that GDPR helped push the exit of a third of available apps and  also suppressed the introduction of new apps into the market. New app introductions in the quarters following the launch of GDPR enforcement dropped by half.

"Whatever the privacy benefits of GDPR, they come at substantial costs in foregone innovation," the authors note.

The 49-page working paper has to contend with quite a few unknowns, and it's honest about them. Can we be sure that the apps that were never introduced to the market but for GDPR would have been any good or served consumer needs? Can we be sure GDPR is responsible, given that Google and Apple themselves have introduced their own privacy rules independently from GDPR that also affect who is allowed in their marketplace?

The authors do their best to nail down as much evidence as possible that GDPR is hampering innovation, but they do acknowledge some challenges. One big problem is the lack of a control group. Because of the international nature of these tech products and that the GDPR's regulations affect companies that aren't even based in the European Union, the paper's writers were not actually able to geographically separate where GDPR influenced the app market. When GDPR was first implemented, people in America got spammed with privacy notifications from websites and apps as a result of the regulations. We're all living under the impacts of GDPR no matter where we are.

But what the authors were able to calculate was that both highly successful and less successful apps saw declines following the implementation and enforcement of GDPR. Because compliance with GDPR increased costs to produce and introduce apps, developers needed to increase the number of users in order to break even. This contributed to fewer apps ever getting to the market.

Would those apps have mattered? Were consumers actually deprived of a valuable product? How does one calculate the value of what isn't created? So what the authors did was take note of the decline in the number of apps that saw a lot of downloads and compare it to the decline in the number of apps that saw few downloads. What they saw was a sharp decline in both successful and unsuccessful apps entering the market. It wasn't just bad or predatory apps being affected by GDPR.

As such, the writers logically conclude that apps that would probably have seen some sort of success and would have met some sort of consumer need never entered the marketplace because of GDPR. What these apps might have done we can't possibly know, but the data shows "GDPR's halving of entry prevents the births of as many would-be successful as would-be unsuccessful apps."

There is a cost to us users here in the form of a reduction in the consumer surplus, the excess benefit consumers get from getting more from a product than we have to pay. The report's authors calculate that the consumer surplus per quarter dropped from $45 billion to $30 billion per quarter due in the app marketplace to the impact of GDPR—about 32 percent. They also calculate that GDPR raises costs to produce apps by more than 30 percent. In all, this is just another way of saying that consumers have fewer choices due to the lack of innovation and therefore less market power.

The report's authors conclude that when the quality of a product is unpredictable (like an unknown or not-yet-existent app), the ease of entry into a marketplace is important to help determine its value to consumers. When regulatory barriers like GDPR drive up entry costs, then there can be "substantial [consumer] welfare losses" in the form of stillborn products and services we might want or need but never see.

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  1. We might be deprived of the newest fart app. Oh noes. Privacy is a right. Tell the tech oligarchs that you whore yourself out to to go fuck themselves.

    1. It's cute that you think privacy rights have anything to do with the GDPR.

    2. Hey, some actual reason on this site.

      1. Over-regulation of APPS, ya say!?!?!?

        Speaking of men and women being located at totally logically incompatible frequencies of non-communication… As a pubic favor of incomprehensibly mega-magnitudinous magnanimousity, I recently figured out that I could provide a technological solution to the ages-old stand-off, when your significant other faces you down with “Does this dress make me look fat”?...

        Just the other day, I tried to market, for FREE, a new “app” I wrote… Just snap a picture on your I-Phone and have the app analyze the picture you just took… And it SOLVES that age-old “bane” of husbands and boyfriends everywhere! “Does this dress make me look fat”? … “Well honey, I dunno, let’s see what my I-phone and the ‘Does this dress make me look fat’ app has to say” SNAP and go!!!… Your opinion is taken OUT, you are OFF of the hot seat!
        As publisher of this “app”, I was charged with “diagnosing obesity, a medical condition, w/o a Doctor’s License”. I am writing this post to you, Beloved Reasonoids, from jail… I apologize for my crimes…

  2. And all is as Google wanted it

  3. App innovation is only the latest. How many EU internet companies are there with any kind of reach? How many new tech companies of any sort are in the EU?

    Socialism can only ever work where society is static, where everything can be planned based on the last year, decade, and century of experience. True socialism requires static weather, planned deaths and births, no illnesses, and especially no innovation of any kind. They are trying hard, but it's an impossible task, which suits the burrocrata jess fine, thank you.

    1. Socialism also really likes the ability to collect massive quantities of data on its people.

      1. So do all businesses, all people. What is your point? What is your end goal? Don't just bleat "Stop collecting my data!" -- what is your *end* goal, what aspect of life are you trying to improve?

        1. The only way to live without sharing any personal data is to live as a hermit, make everything yourself, have no contact with either people or businesses.

          I'd really like to know how you think any kind of society, capitalist, communist, or feudal, can exist without people learning all sorts of intimate details about each other. It would be really really interesting. But you can't do it, because it is impossible.

        2. They collect data even on people not using their apps. The companies trade and sell the information, form ghost profiles, etc.

    2. The statement socialism can only work in a static society was disproven in human action. Mises does a great job of steal manning socialism and the going into how it still breaks down

  4. Contract Law 101: Both parties know what they are giving-up.

    If a condition of using appXXX is that they gather information about me, I have every right to know about it, and be able to make my decision to purchase appXXX, accordingly.

    Should this article have been labeled, "sponsored content?" It sure looks like the sort of thing a big data company would sponsor, and it's really difficult to see how a libertarian leaning news organization could seriously argue against full disclosure in contracting.

    1. That's all nice in theory, but ridiculous in practice. Everyone you meet remembers something about you. Buy a sofa for cash, a good peddler walking the floor will still remember you next year in order to sell you something more expensive. Tip a busker regularly or well, and he will remember what you like.

      Live in a small town: everyone knows more about you than the biggest corporation.

      Life goes on. Picking on big businesses just for being big is stupid, reduces efficiency and wealth, and increased burrocracy, for no gain whatsoever.

    2. So when google scans your friends or parents email asking you if you got medicine x and forms a ghost profile on you, you've agreed to a contract letting them know which medicines you take? Even if you don't use Google products? Because they do that.

  5. It should come as no surprise that the EU law does absolutely nothing for privacy rights. Google wrote the law to keep out competition. Sure they have to pay a nominal "fine" every couple of years, but who cares when your the only online advertiser

  6. You know I'm sure our laws designed to ensure clean water and clean air and other stuff also "stifle innovation" and curtail some economic activity but I'm pretty sure that's a tradeoff we're willing to make.

    How a "libertarian" rag argues against greater liberty for the individual all to benefit some companies....

    Oh that's right- the dick sucking machine that is Reason, all ready to serve the Kochs and other billionaire assholes like them.

  7. Yes, and laws against murder are hurting innovation in chain saws.

    1. You know the story of the Aggie that kept returning his new chain saw, right?

  8. The code required to enable users to limit tracking and reuse of data is widely available and relatively straightforward, save for the exclusion of "partners," that currently requires users to delete hundreds of entries one-by-one, in general. It's a fallacy that including this code is an undue burden on app developers.

  9. Study: Europe's Aggressive Privacy Regulations Are Killing App Innovation

    That doesn't even make the top 100 list of major problems regulations are causing in Europe.

  10. Pretty sure the real culprits are pita. If you were really looking for the rest of the weather underground, its called peta now.

    Not sure if it's a biological weapon or some fully fked preservative that's contaminating californian milk but it's something. And besides trying to pin it on the fda you should also consider the first infantry division who is saddled with food product testing.

    Dont believe me? Buy a can of sweetened condensed milk. If you can drink the whole can in a month with your morning coffee without developing hemroids the size of golf balls, im a liar.

    The milk right now will fking kill you.

  11. Yet another stupidass article by the corporate bootlickers at Reason dot com

  12. I think that the problem is not only in the policy of the European Union, but also in the monopoly on applications in general. It sounds silly at first glance, but one has only to think about how many well-known sales apps there are... How everything will fall into place. I advise you to conduct your business honestly using all the possibilities. With the help of Pandadoc, you can get a lot of useful solutions.

  13. In general, the development of mobile apps is a very complex process in my opinion. Moreover, I've always been interested in how developers determine the cost of their work. I read about time and material vs fixed price and it seems to me that there should always be a combination of these options. For example, you can set a minimum price, below which you cannot go down, but if the project is complex and time consuming, then the price increases depending on the time spent.

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