The Big Story: Age verification requirements undermine startup competitiveness
As policymakers at the state and federal levels put forward proposals that require Internet services to determine the age of their users, Engine released a report this week exploring the impact of these age verification requirements upon startups. Policymakers’ varying goals of protecting young users from things like harmful content, privacy invasions, and addictive technologies are all laudable, but these proposals often carry significant tradeoffs, including on privacy, security, and expression, as well as creating costs and compliance burdens that fall disproportionately on startups. For startups, these burdens can eat away at limited budgets, increase cybersecurity risks, diminish user experience, and ultimately undermine their competitiveness.
Policymakers are considering a wide spectrum of policy proposals, ranging from extending existing privacy protections to more Internet companies and users (like the Children and Teens’ Online Privacy Protection Act, which got updated last week), to requiring platforms to block young users from seeing “harmful content” (like the Kids Online Safety Act, which got updated last week), to banning young users from parts of the Internet altogether (like a Florida law that passed the state legislature Thursday). Underpinning each of these proposals are requirements—in law or in effect—for companies to proactively identify, estimate, or verify the age of their users, which will dramatically change the ways startups interact with their users. For most startups, figuring out the age of their users will be new and require them to acquire and integrate third-party software—taking several weeks and costing thousands to tens of thousands of dollars. Asking for a user’s ID as part of that verification will be new too—something that will turn away those not eager to hand over information to a service they aren’t familiar with. And once a startup determines someone is under a certain age, some proposals trigger significant new monitoring and moderation requirements for those users.
All of these direct and indirect costs will make it harder for startups to compete. While so much of the policy conversations about kids’ safety happening at every level of government are driven by concerns about large companies, policymakers need to remember that the rules they write will impact the entire Internet ecosystem, including the startups that want to be good stewards of their users’ data and already have to be responsive to their users’ needs and concerns.
Policy Roundup:
Government funding deadlines approach as critical tax bill stalls. As policymakers face multiple government funding deadlines in early March, Internal Revenue Service Commissioner Daniel Werfel testified to the House Committee on Ways and Means last week that his agency is ready to implement the Tax Relief for American Families and Workers Act once Congress moves on the bill. The House passed the crucial $78 billion tax package earlier this month, which would revert to immediate expensing for domestic R&D and temporarily expand the Child Tax Credit, which could provide much needed support to founders, especially women. Policymakers should consider all avenues, including attaching the tax bill to legislation to fund the government, to ensure that startups have more support to innovate.
Study shows EU data protection law increases costs for startups. A new working paper out this week examining the impact of Europe’s data privacy law, the General Data Protection Regulation (GDPR), shows it increased data costs for firms. The paper shows data storage reduced by over a quarter and computation decreased by 15 percent. These figures, which privacy advocates may argue show the law is working, instead serve to spotlight the tradeoffs of strict data regulation, especially as the paper highlights a 20 percent increase in costs, which the authors note are particularly acute among software companies and startups.
Biden administration cancels over $1 billion in student debt. The Biden administration this week announced $1.2 billion in student loan forgiveness for Saving on a Valuable Education (SAVE) Plan borrowers. The SAVE Plan was created as part of efforts to ease the student debt crisis after the administration’s broader forgiveness plan was struck down at the Supreme Court. Student debt can foreclose entrepreneurship as a career path preventing many would-be founders from entering the innovation ecosystem. Policymakers should take steps to ease the student debt crisis so that Americans from all backgrounds have equitable access to entrepreneurship as a career pathway.
Lawmakers express concerns over new rule putting startup talent access at risk. Last week, members of a House subcommittee expressed concerns to the Department of Labor (DOL) about a final rule restricting the ability to classify a worker as an independent contractor. The rule, which goes into effect on March 11, stands to significantly impact access to flexible talent for startups as they struggle to determine worker classification. In earlier comments to the DOL, Engine and 28 members of the startup ecosystem highlighted the significant role independent contractors play in the startup ecosystem and the likely negative impact on innovation if startups’ ability to hire contract labor is prohibited. Studies have shown that other efforts to restrict the hiring of independent contractors in California ultimately resulted in a decrease in self-employment and overall employment. Policymakers should work to ensure that startups have the continued ability to hire the flexible talent they need to grow their ventures.
Startup Roundup:
#StartupsEverywhere: Boston, Massachusetts. Bellybaloo is a new way for expecting families to safely access their ultrasound images electronically and share those precious moments with those who matter most. We talked to Founder and CEO Ellen Murphy about the challenges faced by women founders, maternal health, and data privacy when it comes to sensitive health data.
