Data dividends: The EU moves to monetise its citizens’ data

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Data dividends: The EU moves to monetise its citizens’ data

Earlier this year the European Commission unveiled a new strategy around the collection and use of its citizens’ data. One that seemed at odds with its recently aggressive approach to data privacy through the introduction of measures like the GDPR. The new strategy outlines a five-year rollout plan for a ‘data trust marketplace’ that will regulate the collection and use of citizen data with the intent to profit from what it calls the “agile data economy”. Having previously implemented regulations that are now the hallmark of a heavy handed approach to data privacy and the prevention of commercial exploitation, this new stance of data sharing as a ‘civic duty’ has far reaching roots in Europe’s recent history – a reaction to a longer standing series of events related not only to data but Europe’s lag with tech innovation as well.

How does it work? 

From the currently released documents, it appears that a €7 million budget will aid in setting up a pan-European bank of personal and non-personal information. This bank will become the primary point of access for businesses as well as governments looking to access information concerning European citizens, by 2022. 

The “trust” aspect of the marketplace is akin to the traditional trust model. The trust will be handled by a steward bound by fiduciary duty toward the data owners; a duty to steward with impartiality, prudence, transparency, and undivided loyalty. However, this appears a murky concept at present with the trust structure, board members and control mechanisms still up for discussion. At these initial stages the compensation for the end-user is unclear, but will take some monetary or non-monetary form of ‘dividends’. 

Perhaps most striking about the European data marketplace is that global technology companies will only be able to access information about European users via the trusts. With the EU’s population of about 500 million, this trust marketplace will become the world’s largest singular data marketplace. Europe’s ability to aggregate data across an entire continent gives it a unique edge in this situation, one that it hopes will make it relevant to international enterprise once more. As The volume of data produced in the world grows from 33 zettabytes in 2018 to a predicted 175 zettabytes in 2025, the EU is hoping to become a world leader in the currency of technology companies; where it hasn’t seen much success over the last decade in producing the enterprises themselves. Defending its data from the monopolies of the US and China gives it a chance to remain somewhat competitive, but not without compromising its previously held views concerning data privacy and citizen protection. 

Europe’s shifting stance on data regulation: an innovation drought

In official media releases, Europe has openly acknowledged that the data marketplace is a move to compete with the US and China which are already “projecting their concepts of data access and use across the globe”. Where in the US the organisation of data is largely governed by the private sector, and in China by government entities and state control of Big Tech companies – the EU hopes to find “the European way”. As the EU moves away from the prevention of commercialising private data toward regulating the same activity under its own supervision, an underlying current of urgency is obvious 

Over the last decade, innovation and enterprise in Europe has come to a screeching halt as it fell behind the US, Japan and recently China as China overtook the EU with an R&D expenditure equivalent to 2.1% of its GDP. While there are pockets of technological innovation and interest in enterprise across Europe, there are more deeply seated issues that explain why none of the top digital firms in the world today originate from the continent. Many companies do not survive beyond the startup stage and those that do are swiftly eaten up by larger, non-European entities. Cases like Skype, Shazam and Minecraft are just a few well-known examples of digital innovations that were poached from Europe’s grasp. The ability for external parties to “poach” is more than likely indicative of some native fault lines, for Europe, these can be broadly categorised as two main factors:

Factor 1: The nature of investment and capital flow 

Factor 2: The fragmentation and disparity within the continent’s enterprise landscape 

While Europe’s strategy focused on becoming a data leader is hoping to mitigate the effects of the last decade, creating a monopoly around an existing data moat is still a defensive strategy. The offensive would be actively solving for factor (1) and (2) – easier said than done when we take a deeper look. 

1. Investment and Capital Flow

a. Lack of early stage investment

Despite a 400% growth in startup investment over the last five years, Europe invested only around €23 billion in venture capital for the year of 2018. In the same year, the US invested $130 billion and China $92 billion. For this reason, many European startups look to US capital for survival. This is not to mention that unicorns in Europe are typically valued at around 18 times their revenue, while in the US unicorns are valued 46 times their revenue.  

b. Lack of growth stage development/investment

In 2015, the US spent 20 times more on later-stage venture capital compared to the EU, the tradition of excellence in academic research isn’t being converted into enterprises that are able to survive startup stages and scale beyond that. 

c. Foreign investment

China has invested over $318 billion in the EU over the last ten years. But following a turning point in 2016 when Chinese FDI into the EU outpaced EU outbound FDI into China, the EU has begun frameworking more conservative regulations around foreign investment. While the regulations are largely non-binding and Chinese investment will continue flowing into Europe (especially given the US-China trade war), Europe will need to mitigate a decline in foreign investment with better incentives for domestic capital to stay within Europe. 

d. Risk averse capital 

In the absence of a robust investment landscape, many European startups turn to bank lending. Given the risk-averse nature of bank lending, it offers little hope in the way for innovative startups with few traditional metrics to show for growth. 

2. Europe’s Enterprise Landscape

If the US and China act as global superpowers, we need to consider the continent of Europe as a whole when thinking of competition between the states. According to Eurostat, European nations like Sweden and Austria spend above 3% of their GDP on R&D (2017), while there were eight countries that reported R&D spending below 1%. Given the divergent national policies and priorities around R&D as well as enterprise funding there is little ability for startups to leverage the size and reach of the European continent or scale their business across the states. When taking on other global superpowers Europe is in dire need of a better incentive infrastructure for both entrepreneurship and investment across the continent. 

Following on the complexities of these issues, not to mention the difficulty of ushering in business regulations across the entire EU it makes more sense as to why the data economy has become a focal point of the continent’s tech future. As concerns arise around balancing privacy and the ability to commercialise the data marketplace, the success of this move will also depend on the ability of the trust structure to instil faith in users while providing incentives for commercial parties. This has been a difficult task for many data trusts around the world, with nations like India coming under increased scrutiny after defining authorities as “information fiduciaries” and thus giving the government unrestricted access to personal information. Just the beginning in an uphill battle to regain global market share in tech, the data marketplace has the potential to redirect the next decade for Europe but remains a defensive strategy. The double “if” situation (IF the data marketplace succeeds and IF the EU is able to springboard off that for broader innovation and investment policies) creates little confidence in this route but if executed would mark the most significant feat for Europe’s tech future in recent years. 

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