The Real SOPA Battle: Innovators vs. Goliath | James Allworth and Maxwell Wessel
Looking around the web today, you're going to see a few things that are a bit different. Wikipedia is going dark. WordPress is too. Google has its logo blocked out. Twitter is absolutely abuzz. It all relates to legislation known as SOPA in front of the US House of Representatives, and PIPA in front of the US Senate. If you'd like to understand what the legislation would actually mean for the Internet, you can see HBR's earlier coverage about the bill from before it was renamed. But the purpose of this article isn't to explain what SOPA and PIPA will do. Instead, it's about explaining what's brought them about: SOPA and PIPA are prime examples of big companies trying to do everything they can to stop new competitors from innovating. They're also examples of how lobbying in the United States has become one of the most effective ways of limiting this sort of competition.
The argument over this legislation has essentially been characterized in the press as having two sides. The first side, which is generally represented by big content, is that piracy (and any new technology that facilitates it) is an existential threat to any business based on intellectual property. That's actually a line that has been used a few times before — most famously by Jack Valenti, head of the MPAA, when he testified in front of congress that the VCR was to the movie industry what the Boston Strangler was to women.
And on the other side of the argument? Well, they have been mostly characterized as the technology industries. They've been making the case that SOPA and PIPA will chill innovation and threaten free speech.
But content vs technology doesn't do justice to describing the two sides. Tim O'Reilly, the CEO of O'Reilly Media — a very well-known publishing and media company that derives a large portion of its revenue from the sale of books — has been one of the most ardent critics of SOPA and PIPA. On the other hand, GoDaddy.com, the largest of the web's domain name registrars, was very much in favor of SOPA — at least until a boycott caused them to back down. Similarly, there are plenty of other technology firms that have supported SOPA.
So if content vs technology doesn't capture what's going on in this fight, what does? Well, SOPA makes much more sense if you look at the debate as big companies unwilling to accept change versus the innovative companies and startups that embrace change. And if we accept that startups are created to find new ways to create value for consumers, the debate is actually between the financial interests of big content shareholders versus consumer interests at large.
If you take a look at many of the largest backers of SOPA or PIPA — the Business of Software Alliance, Comcast, Electronic Arts, Ford, L'Oreal, Scholastic, Sony, Disney —you'll see that they represent a wide range of businesses. Some are technology companies, some are content companies, some are historic innovators, and some are not. But one characteristic is the same across all of SOPA's supporters — they all have an interest in preserving the status quo. If there is meaningful innovation by startups in content creation and delivery, the supporters of SOPA and PIPA are poised to lose.
Even for those SOPA supporters that are historic innovators, their organizations focus on improving products in the pursuit of profit. They innovate to increase prices and limit production cost. Even when new models and technologies give rise to huge businesses, these incumbent firms reject meaningful innovation.
On the other side of the debate, you'll see a few the most successful companies in recent history. Wikipedia. Google. Twitter. Zynga. What these firms have in common is they have upended entire industries — and many are still in the process of doing so. Each of these businesses has roots in embracing new technologies and building models to deliver value to customers at the lowest cost. They're fighting this legislation because they're aware it will tip the finely tuned balance of creative destruction against startups and very much in favor of companies unwilling to embrace change. For example, Viacom has been locked in a legal fight with YouTube — so far, unsuccessfully. If SOPA were to become law, however, Viacom would be able to entirely shut down YouTube's revenue stream while the case was in court. Balance tipped.
To be fair to the big companies supporting SOPA and PIPA, they're acting rationally. From their perspective, investing in lobbying instead of business model innovation is a sensible investment. Jack Abramoff has recently detailed how a 22,000% ROI isn't unusual for firms hiring lobbyists.
But even if it makes sense for these companies to support SOPA and PIPA, do we want to censor the Internet and limit innovation? Should our legislative process be used to protect the business interests of firms unwilling to embrace change? A recent exchange on Twitter between Jack Dorsey, co-Founder of Twitter, and Steve Case, the Co-Founder of AOL, summed it up nicely:
Jack: Startups collaborate & redefine. As companies and organizations grow, they naturally tend to defend & react, both internally and externally. Steve: Agree! Think of it as attackers vs defenders. Entrepreneurs attack/disrupt to maximize upside. Corp execs defend to protect downside.
SOPA is a legislative attempt by big companies with vested interests to protect their downside. And unfortunately, these companies have conscripted Congress to help them. What's worse is that even though limiting start-up innovation might help big content in the short run, it's not going to do them in favors in the long run. Nor is going to do America any favors. In the midst of one of the worst recessions in living memory, passage of legislation like this is just going to result in innovators moving to geographies where the regulatory environment is more favorable. Start-ups will be less competitive in the United States and we'll have effectively disabled one of the few remaining growth engines of the economy