Why Germany fears US digital disruptors

P { margin-bottom: 0.08in; }

Business headlines in recent weeks have been full of San Francisco-based chauffeuring service Uber's court battle with traditional taxi competitors that temporarily saw it banned nationwide.

And last week Justice Minister Heiko Maas suggested that Google should be forced to reveal the page ranking algorithm which the US search giant says is its most valuable trade secret.

Germany has also had run-ins with Air BnB and Google Streetview.

Just what is it about Germany that makes it so resistant to the “disruptive” companies coming from the US to revolutionize its markets?

Professor Klemens Skibicki from Cologne Business School and a member of the Economy Ministry's 'Young Digital Economy' advisory board told The Local there is a combination of German characteristics which have made for the American companies' rocky reception.

Most visible in the Uber case has been unionisation. Strong unions – in this case in the taxi industry – have made for high-profile demonstrations and concerted action against the perceived interlopers, such as in June.

“In Germany there are stronger unions than in the US, clearly,” says Professor Skibicki. “They have a much higher level of organization.”

Regulation, regulation, regulation

However, the tools the unions use to defend their industries come from a regulatory armoury. Like many of its European neighbours, Germany is a heavily-regulated country – and Germans are famously strict about following rules.

The country fell one place below the US in the latest competitiveness rankings from the World Economic Forum.

“We have much heavier-handed regulations [than the US] and a stronger belief in the ability of the state to regulate things... when somebody comes here and ignores laws then it's very badly seen by the public,” Skibicki says.

Uber the top?

Justice Minister Maas was counting on the German belief in the state as a power for good in his comments to the Financial Times last week.

“Legal standards are in place... to keep our roads safe,” he told the business newspaper, referring to Uber.

“We will most certainly not change these laws, and if Uber does not fully comply then they will have to take a look at their business model.”

This German habit of sticking to regulations has also hit another US digital success story in Germany - vacation rental website AirBnB.

The site allows people to rent out rooms or whole apartments to tourists.

But the Berlin senate found this year that people should not be allowed to make money from their homes like this, as they were not respecting rules about land use.

People hoping to use AirBnB would have to ask permission from their landlord and the local authority, the senate said.

These US businesses have come to dominate the online marketplace because of these differences in thought process, Skibicki argues.

German engineers might be very innovative when it comes to coming up with high-performing new products, but companies have trouble adapting to the new network economy.

“Innovation means breaking with what already exists. The Americans think, 'let's try it and then see what went wrong',” he says. “The Germans think, 'let's think about all the things that could go wrong'.”

This attachment to established ways of doing things is particularly visible in the German media landscape.

Although 84 percent of Germans are online and it is tenth in the world for broadband internet access, according to a UN report, Germany has one of the lowest proportions of young 'digital natives' in the western world, largely thanks to its aging population, Skibicki points out.

Old media companies with their millions of elderly and middle-aged viewers, readers and listeners retain a disproportionate influence over the political process.

“Public opinion is formed, more strongly than in other countries, by classical media - print, television, radio,” says Skibicki.

“If [politicians] were to put digital media first, they would get a lot less support from the traditional media.”

Politicians have to keep on the good side of big German media groups like Axel Springer. They and other publishers and news media have contributed to much of the Google “hysteria” in Germany in recent years.

They fear that Google's 95 percent share of the country's internet search market will give the Californians the power to control their access to consumers

.

German concerns have driven actions against Google at the European level, such as an ongoing antitrust investigation.

But before we condemn Germany for backwardness and refusal to change, it's important to remember that there are yet further factors which shape the country's attitudes to digital businesses.

Privacy first

“German history, from the Gestapo to the Stasi, has created a unique German phenomenon, that we are hysterical in matters of data privacy,” Skibicki says, recalling the experiences of the Nazi and Communist secret police.

Facebook has been a particular bugbear for German privacy advocates, who have raised the alarm at its progressive introduction of new features such as facial recognition in users' photos.

German politicians have long been at the forefront of European resistance to such moves.

Similarly, Google's Streetview service encountered demands from thousands of Germans for their properties and homes to be removed when it was first introduced. Many buildings and some whole streets in Germany remain blurred from view.

And Germans' massive preference for cash over credit cards was linked to their desire for privacy in a study by the US Federal Reserve.

However, Skibicki believes that there are important differences between the challenges faced by German citizens now and those faced in the past.

“The data protection concepts that we have, they originated in a time when we wanted to protect people from the state or a business knowing too much about them” he says.

“We never imagined that people would voluntarily give information about themselves, as happens on social networks, and would say, hey, the more you know about me, the better service you can provide.”

“In the German way of thinking that's never existed before, and it's hard for us.”

The revelation that social networking data was being accessed by the American NSA has dragged the debate back towards one of the overweening state.

But for Skibicki, all such questions are a frustrating delay to the important business of getting German firms up to speed with the new way of doing things.

“We've been sleeping through this for many years,” he laments. “Now we have to learn to swim in this ocean of a digital world that's dominated by American businesses.”

“I hope we can do it quickly.”

SEE ALSO: Germany becomes less competitive than USA

P { margin-bottom: 0.08in; }