Can the new breed of super-apps survive global attempts at regulating internet monopolies?

By Xische Editorial, March 21, 2019
This article is part two in a two part series on the rise of the super-application. Read part one to understand the forces that set this global trend in motion.

Is the internet headed towards a siloed future of super applications bidding to maximize users’ time and attention on single, all-purpose platforms? In the first part of this series, we examined how Facebook’s recent business pivot collapsing its three main products – Facebook, WhatsApp, and Instagram – into one platform confirms that the internet is moving closer to the age of the super application. This model has already found success in China, where applications such as WeChat have colonized large swaths of the internet and siloed users on isolated platforms.

Platform providers argue that the consolidation of services makes life easier for users, but the move runs counter to a century of antitrust tradition in Western markets. While the trend towards consolidation is likely inevitable, there are several unresolved questions. Chief among them is how regulators will approach super applications and if new laws could put a dampener on this technological shift.

There are three prominent models of regulation currently in the works: the Western model (that can be further divided between the American and European approaches), the Chinese model, and the small-state model. We will cover them in detail to reveal how the small-state model might just be the best for those investors and observers looking for markets that balance innovation with smart regulation. First up, the Western model.

Among the many issues already being debated ahead of the 2020 US presidential election, technology regulation is perhaps the most interesting. In 2018, US lawmakers got serious about the role of technology in society partly due to revelations about election manipulation on social media platforms in the 2016 presidential election. Congress called up the leaders of major Silicon Valley companies in an attempt to understand what these companies were up to. The results revealed a deep misunderstanding about the nature of modern tech companies by the majority of American law makers. But there are a few that fully understand the need for regulation and how to go about implementing new laws.

US senator Elizabeth Warren, who is running for the Democratic Party nomination, has been the most vociferous in calling for major tech companies to be broken up. Under her plan, Facebook would have to break up Instagram and WhatsApp into separate companies. Even Apple would be under threat of a forced break up. While these ideas have been correctly characterized as extreme, they reveal some key thinking. Technology companies are too big in the eyes of some lawmakers and they need to be split apart to ensure adequate levels of competition in the marketplace.

Would super applications survive this style of regulation? They wouldn’t. Facebook’s plans to merge its core business offerings into a super application similar to WeChat wouldn’t be able to get off the ground if Warren’s ideas are made into law. And as Xische outlined in the past, Europe is moving forward with data protection laws that could also impact super applications.

The European Union’s General Data Protection Regulation (GDPR), which was passed in 2016 but came into effect in 2018, is the most far-reaching set of rules for how technology companies can collect and share personal user data. The new rules are still being defined in practice, but what is clear is that companies collecting data on European users are required to have explicit consent. Additionally, users are empowered to request the information that companies have collected on them. The recent approval in EU parliament of the Copyright Directive to restrict how platforms distribute content on the internet will have a further dampening effect. Taken together, GDPR and the Copyright Directive (which still faces an uphill battle towards full implementation) would force a fundamental reorganization of how the internet operates, and the effects are already being felt beyond EU borders.

China’s approach to data protection and the consolidation of platforms is fundamentally different from Europe and the United States, despite sharing similar characteristics. In Europe, lawmakers use the power of government to safeguard data protections. The economic calculations for technology companies are, at best, a secondary concern. In the United States, on the other hand, lawmakers are looking to strike a balance between the needs of users and the requirements of the market. Current rhetoric is also focused on the monopoly characteristic of large tech companies.

China borrows from both approaches. The state’s primary concern is control over all platforms and information. User privacy is a non-issue, as the government will block any platform that doesn’t grant it unfettered access to user information. While such measures might sound draconian to Western ears, China is actually in the process of adopting GDPR-style laws to protect user data. As long as the state maintains control, users should have strict data protection. Consolidation of market share from applications like WeChat is also not an issue for authorities because they maintain control.

The middle ground between these approaches is taking place in smaller markets and countries. These markets, which include countries like the UAE, Singapore, and Rwanda, don’t have the burden of establishing industry standard regulation. Given the fact that the world's leading tech companies are based in the US or China, lawmakers in those countries essentially make laws for the entire world. After all, major technology companies look for user growth across borders and individuals are accustomed to accessing applications and websites regardless of where they are in the world. Free from that responsibility, small states can embrace whatever aspect of regulation they see fit for their market while ensuring their technology ecosystem is appealing to major companies. With small populations, they can normally create nimble legislation that understands the needs of their people. Thus, they are able to strike a balance between innovation and regulation in a far easier manner than larger countries.

Watching small states is therefore a strong bet for investors and those eager to see how the regulation wave will affect the new age of super applications. It is far easier to see what is working and what is not in a place like Singapore than the United States in this sense. We are living during a tricky time for technology. Innovative companies will soon have to adapt their business models thanks to fresh regulations. Lawmakers in major countries have been slow to understand the nature of the industry they are supposed to be regulating. So as the big guys wrestle over new laws, it is a good idea to watch the smaller markets to see how the industry is really shaping up.