It's been a fascinating week to watch the war between Uber and the De Blasio administration play out. Not surprisingly, Uber ended up carrying the day using a combination of its dedicated user base and its sophisticated political machine. This is yet another very early round in what will be a long and hard war -- not just between Uber and NYC, or Uber and other cities, but between every high-growth startup innovating in a regulated sector and every regulator and lawmaker overseeing those sectors. Watching the big battles that have played out so far -- in particular around Uber and Airbnb -- we've seen the same pattern several times over: new startup delivers a creative and delightful new service which breaks the old rules, ignoring those rules until they have critical mass of happy customers; regulators and incumbents respond by trying to shut down the new innovation; startups and their happy users rain hellfire on the regulators; questions arise about the actual impact of the new innovation; a tiny amount of data is shared to settle the dispute. Rinse and repeat, over and over. I am not sure there's a near term alternative to this process -- new ways of doing things will never see the light of day if step 1 is always "ask permission". The answer will nearly always be no, and new ideas won't have a chance to prove themselves. Luckily, though, we have somewhat of a model to follow for a better future. It's the way that these new platforms are regulating themselves. My colleague Brad has long said that web platforms are like governments, and that's becoming clearer by the day (just look at Reddit for the latest chapter). The primary innovation that modern web platforms have created is, essentially, how to regulate, adaptively, at scale. Using tons and tons of real-time data as their primary tool, they've inverted the regulatory model. Rather than seek onerous up-front permission to onboard, users onboard easily, but are then held to strict accountability through the data about their actions:
Contrast this with the traditional regulatory model -- the one government uses to regulate the private sector, and it's the opposite -- regulations focus on up-front permission as the primary tool:
The reason for this makes lots of sense: when today's regulations were designed (largely at the beginning of the progressive era in the early 20th century), we didn't have access to real-time data. So the only feasible approach was to build high barriers to entry. Today, things are different. We have data, lots of it. In the case of the relationship between web platforms (companies) and their users, we are leveraging that data to introduce a regulatory regime of data-driven accountability. Just ask any Uber driver what their chief complaint is, and you'll likely hear that they can get booted off the platform for poor performance, very quickly. Now, the question is: how can we transform our public regulations to adopt this kind of model? Here's the part that no one will like: 1) Regulators need to accept a new model where they focus less on making it hard for people to get started. That means things relaxing licensing requirements (for example, all the states working on Bitcoin licensing right now) and increase the freedom to operate. This is critical for experimentation and innovation. 2) In exchange for that freedom to operate, companies will need to share data with regulators -- un-massaged, and in real time, just like their users do with them. AND, will need to accept that that data may result in forms of accountability. For example, we should give ourselves the opportunity to enjoy the obvious benefits of the Ubers and Airbnbs of the world, but also recognize that Uber could be making NYC traffic worse, and Airbnb could be making SF housing affordability worse. In other words, grant companies the freedoms they grant their users, but also bring the same data-driven accountability:
That is going to be a tough pill to swallow, on both sides, so I'm not sure how we get there. But I believe that if we're honest with ourselves, we will recognize that the approach to regulation that web platforms have brought to their users is an innovation in its own right, and is one that we should aim to apply to the public layer. Over at TechCrunch, Kim-Mai Cutler has been exploring this idea in depth. In her article today, she rightly points out that "Those decisions are tough if no one trusts each other" -- platforms (rightly) don't trust regulators not to instinctively clamp down on new innovations, and regulators don't trust platforms to EITHER play by the existing rules OR provide in-depth data for the sake of accountability. In the meantime, we'll get to observe more battles as the war wages on.
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