Europe’s love/hate relationship with Silicon Valley — and what that means for U.S. tech firms

From left, Martin Schulz, president of the European Parliament; Facebook founder Mark Zuckerberg; Axel Springer CEO Mathias Doepfner; and publisher Friede Springer try Gear VR headsets in Berlin in February. (Kay Nietfeld/Reuters)

The last time Mark Zuckerberg visited Berlin, he appeared to be having a really good time. The Facebook founder received a prize for entrepreneurship, was seen jogging through the city and generally smiled a lot.

At a “town hall meeting” organized by Facebook during the trip last February, Zuckerberg took questions from local students and Facebook users. One asked: “How is Facebook going to change the world for the better?” It was a topic that Zuckerberg, who last month announced a $3 billion effort toward the goal of curing all disease, was more than happy to talk about.

It was a perfect PR show, but it left some spectators annoyed by what they felt was an insensitivity displayed by Facebook and its founder. The social network has a tense relationship with the German government and media because of its reluctance to respond to criticism of its practices. To critics, it seems as if Facebook executives expect only praise and admiration and are offended when faced with a more skeptical response to their proposals.

Yet the reaction has been decidedly different within some of Germany’s corporate circles. Mathias Döpfner, chief executive of German media giant Axel-Springer, could not have appeared more proud and excited while presenting the first Axel-Springer Award for outstanding entrepreneurial personalities to Zuckerberg the evening before the town hall. Some guests left Springer’s event with the impression that the hastily created award was mostly Döpfner’s way of showing off his Silicon Valley friend, especially after Döpfner mentioned that he had attended Zuckerberg’s karaoke parties in the mountains of Idaho.

That contradiction is emblematic of Europe’s love-hate relationship with U.S. tech companies. While European business leaders envy the American tech industry’s success and innovation and consumers are eager to try the latest gadget or service, European authorities are chafing at the tech firms’ perceived indifference to their countries’ laws and culture.

German CEOs have even taken to adopting some of the more famous habits of so-called digital disrupters. When Daimler’s Dieter Zetsche discussed the future with Uber CEO Travis Kalanick at a tech event in Berlin this spring, he wore blue jeans and sneakers. Axel-Springer’s Döpfner sent three of his top executives to live together in a house in the tech mecca of Palo Alto, Calif., for a year. In a corporate video about this experiment, Döpfner is seen wearing a hoodie. The Palo Alto house became a key part of Axel-Springer’s pitch to investors as a digital leader.

Old-school European corporations are willing to pay top dollar to hire tech people with Silicon Valley experience. Last November, for example, Volkswagen hired Johann Jungwirth, who had worked for Apple in Cupertino, Calif., to “reinforce” digitalization. For Volkswagen, Jungwirth is the perfect poster boy for tech disruption expertise. He introduces himself as “JJ,” praises the merits of his Tesla (which he has since traded in for a VW E-Golf) and cites Steve Jobs.

Meanwhile, European regulators don’t seem as convinced that Facebook and other U.S. tech companies are worth emulating.

When Zuckerberg was in Berlin, Peter Altmaier, German Chancellor Angela Merkel’s chief of staff, also had the chance to meet with the tech CEO. During the private discussion, Altmaier criticized Facebook’s insufficient mechanisms for eliminating hate speech on its platform. The problem has become more urgent for Germany since the European refugee crisis, with right-wing activists bombarding social media with racist posts. Zuckerberg promised that Facebook would work harder to resolve the problem. “My impression is that Mr. Zuckerberg understood the importance of this issue,” Altmaier later told reporters.

But four months later the German government again had to urge the company to tackle the hate speech issue. Within the Ministry of Justice it was considered a success when Facebook finally agreed to base its assessment of German Facebook postings on German, rather than U.S., law.

Hate speech is just one of many problems that have caused conflict for the company overseas. Late last month, a German data-protection authority ordered Facebook to stop exchanging user data, such as phone numbers, with its subsidiary Whatsapp. Facebook, which said it would appeal the order, had promised not to use this data when it bought Whatsapp two years ago — one of the requirements antitrust authorities had demanded before allowing the deal.

The way Facebook is behaving in Germany and other European countries is not exceptional among American tech companies. Their challenges to regulatory mandates and tax rules have been frustrating to European authorities, who are now cracking down. E.U. commissioner Margrethe Vestager has filed three antitrust charges against Google. Apple’s battle with the European Commission, which ordered Ireland to collect billions of euros in unpaid taxes from the tech giant, is another recent case.

Companies in Silicon Valley are very successful at inventing products that people love and that can turn markets upside-down. Yet while a corporate culture of “ask forgiveness, not permission” or “moving fast and breaking things” might be useful for employee motivation, outside of the tech community that approach is causing conflict and anger.

This is especially true in a country like Germany, whose culture is more cautious to adopt new technologies. Truly smart entrepreneurs would take such differences into account.

Uber, for example, was quite aggressive in its push to expand into Europe, earning a reputation as a bully. In Germany, courts declared UberPop illegal after the company repeatedly flouted the law by employing drivers without compulsory taxi licenses. In France, a criminal court fined Uber 800,000 euros for running an illegal transport service.

With a more respectful approach, Uber would likely have been more successful. There are countless dissatisfied French and German taxi customers who would be open to an alternative.

Silicon Valley CEOs and European wannabe disrupters can also appear dismissive of the fact that a significant portion of their financial success is connected to questionable business practices. That includes exploiting cheap labor abroad (Apple), capitalizing on independent contractors (Uber) or trying to evade tax laws (Amazon, Apple and others).

If you are a German ordering from Amazon Germany, for instance, a strange name will appear on your invoice: Amazon EU S.a.r.L. That is Amazon’s Luxembourg operation, which made a tax deal with the local government so that the company paid only 4 percent to 6 percent in taxes on its operating expenses.

There are other companies with similar deals, but Amazon’s incited special outrage. The company has benefited from public subsidies in the past, which were funded by local taxpayers. In Germany alone Amazon is said to have received up to 14 million euros in government subsidies.

It seems that American tech companies are having a hard time recognizing a simple truth: If you want to succeed in the long run, you have to understand your audience. Especially if you’re trying to sell yourself as savior of the world.

Last month, German Minister of Justice Heiko Maas urged Facebook again to finally deal with its hate speech problem. Facebook’s response so far hasn’t been sufficient, according to a study Maas presented. He said: “We have to keep the pressure up.”

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