What the e-G8 Could Mean for Internet Development

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Includes: AAPL, BIDU, GOOG
by: SoundView Technology Group

It’s hard to fathom what the two-day e-G8 meeting in Paris, which starts tomorrow, will offer us. It’s received only minimal coverage, despite the fact that the attendees include such high-profile people as Jeff Bezos, Eric Schmidt and Jimmy Wales, along with scores of other technology company managers, entrepreneurs, political leaders and journalists.

The quasi-governmental sponsorship of Nicolas Sarkozy may explain part of the reason why the event hasn’t received many headlines. He asked Maurice Levy of Publicis to host the event, which is entitled “The Internet: Accelerating Growth.” The aim is to bring technologists and policy-makers together, “to discuss the challenges and opportunities, which they believe relevant to the future of the Internet, offering their opinions on a wide range of issues, including for example human rights, intellectual property and technological investment.”

However, we all know that the Internet actually accelerates creative destruction: something France and other countries in Europe are less keen on. That has many wondering whether the real policy objectives of the e-G8 have more to do with additional regulation and control, rather than more freedom, innovation and economic incentives.

The French have an uneasy relationship with the Internet on both an economic and a personal level. Economically, the ability for companies, particularly Google (NASDAQ:GOOG), to be able to extract large economic value out of the French economy is troubling in a model in which the government provides large subsidies (billions of euros) for foundation technologies like broadband. People in France are just a little less comfortable with the online model, and Internet business, than some other cultures in the developed world. For example, PriceMinister, a French web commerce company, was acquired by a Japanese firm. According to an insider at the French company, “there are no natural French buyers for Internet companies because they don’t really believe in it. They pretend to care about the Internet, and spend some money on it, but they are not serious at all.” [Quote from LeWeb, December 2010.]

There’s a robust band of successful entrepreneurs and business owners on the Internet in France, but big companies see it more as a risk than an opportunity. No wonder they are losing out to more aggressive international competitors. [This is going to get even worse with the dramatic rise of the mobile Internet, but that deserves treatment as a separate and full post.] For most successful French technologists, their path has involved a move or partner outside of France.

There is an agenda, but it’s fairly high level. Other than the welcome by Levy, and the opening speech by Sarkozy, no sessions have speakers listed. We’ve been able to piece together some sessions by matching up Twitter streams with the agenda, but it’s a far cry from a complete, detailed, official agenda. The last time Sarkozy appeared at a technology event, it was LeWeb 2008, which was a disaster. He lectured an unwilling English-speaking audience at length – in French – about the need for interactivity, and then proceeded to end his speech and abruptly leave stage left. The crowd was livid.

But the French are technology friendly and, since then, other French ministers like Christine Lagarde have made a far better impression by appearing at technology events and speaking intelligently and frankly in English to attentive and appreciative audiences. I’ve also met with French officials who oversaw the conversion of many government offices to modern technology using open source software. So all the ingredients are here, but somehow the recipes and presentation are not quite right. This event may be an attempt to improve things, but two days isn’t much time.

Are there Investment Implications?

Probably not the type that will impact 2011 stock performance. But in the longer term, whether we like it or not, business on the Internet is going to be impacted by politics, legal differences, societal needs and human factors. Because the Internet involves personal data, privacy, security and interaction, it’s different from moving a product or a piece of content into a foreign market.

The implications cut in two directions. If countries like France act to protect their near-term interests, it can limit the opportunities for global firms like Google, Apple (NASDAQ:AAPL) and Facebook in the local market. We’re all familiar with this from examining the development of business and the Internet in China, where Baidu (NASDAQ:BIDU) continues to lead the market. As for Russia, it appears that Yandex will be the Internet search leader there.

Strong domestic companies are important and welcome, but the question is: what cost do consumers and taxpayers have to pay for them? And this isn’t just in terms of money, but also with respect to choice of content, freedom of expression, efficiency and ultimately even the quality of life. Limiting or restricting consumers to narrow and inferior content and tools, merely to preserve local interests, won’t work in the long term.

In conclusion, the objective of the organizers is to have some specific recommendations that can be made to the leaders at the G8 meeting immediately following the event. What kind of things are even possible? Most technologists would say, “spend money on building the roads and ramps (broadband), then get out of the way.” One senses that the leaders of the free world want to put their fingers on the path of progress to influence how it all turns out.

Politics is unlikely ever to welcome the term “creative destruction” into its lexicon, because the destruction part is too lethal for poll ratings. But why not use government power and wealth to incentivize and assist those people who are dislocated by the process? Most developed countries, including the US, still seem to have a problem creating the jobs that many of us have enjoyed in the past. Healthcare costs are a big reason in the US; slow growth, regulatory burdens and high costs are reasons in France. (Research 2.0 looked into hiring some people in France about five years ago and concluded that it would basically break our admittedly “lightweight” business model.)

With iPad in hand, I’ll don my top hat and tails to stroll under the luxury tents assembled in the gardens of the Tuileries. Few places could host a more sumptuous gathering spot for a discussion of the Internet and policy. At the same time, thousands of students will be shifting gears to spend the summer developing software and Internet sites that may become the next Google, Facebook, Match.com or GroupOn, instead of whining to their parents how they can’t get an interview for that $100K entry-level job at Goldman Sachs (NYSE:GS) that they were planning on. “Dad, maybe if you could get me into that e-G8 thing where I can network…”