App Economy: Crossing the regulatory hurdle

Innovations have always given way to regulations, right from the time electricity was discovered.  Of course, there were no regulations on power in the early days. But with the use of electricity increasing over the years, the US government formed state public utility commissions, which to this day, regulate all utilities. For many years the regulatory regime governing power generation and distribution in the US did not favor the consumers. Rather than making it easy for consumers to benefit from the innovations, the regulations made it more expensive for consumers to enjoy the benefits that innovations powered by electricity brought with them. 

Historically we have seen that regulations, with a few exceptions, have always hindered innovations and have denied their benefits to the consumer. Regulations generally tend to create monopolies and lobbies, which end up resisting change. Over the years, we have seen that innovations have either disrupted existing regulations or have necessitated new ones. In many cases regulatory compliance has had a direct impact over business growth.

As we transition towards an app economy and embrace innovations like autonomous cars and drones, existing regulatory mechanisms will have a lot of catching up to do. The App economy, which, according to some reports, is projected to grow to more than USD 100 billion globally by 2020, will play out across diverse segments including telecommunication, media, transportation, banking and distribution among others. We are already seeing its impact in certain sectors where existing business models are disrupted with government and regulatory bodies trying hard to catch up.

Mobile communication is one instance, where over-the-top (OTT) applications like WhatsApp, Snapchat, Skype and Face Time, have made traditional voice, text and video communication redundant. As these began eating into certain revenue streams of telecom operators, the Telecom Regulatory Authority of India was mulling ways to regulate the OTT players. While regulation in this sector is still at a nascent stage, it is only after it evolves over time, will we know its impact on end users and other stakeholders in this segment. It’s obvious that any attempt to regulate OTT players will not only restrict their business growth, but also adversely impact consumers.

The other instance is that of the cab aggregators. In this case, we saw the transport departments of some states like Karnataka seeking to bring them under some sort of regulation. In Karnataka, it was a clear case of over-regulation, where the government sought to impose a maximum fare, instead of letting the rules of demand and supply govern the fares. This was obviously done to provide a level playing field for other taxi operators. But the regulations are impacting the business of the cab aggregators while taking away some of the benefits their business model brought to commuters.

As the app economy unfolds over the next few years, we will see regulatory mechanisms, both global and country or state-specific, evolve. Much of how the app economy grows will be determined by how restrictive or supportive regulatory frameworks turn out to be. It’s not enough that app economy players usher in innovation in technology or business models alone. Business success will be determined by whether they are able to innovate around various regulatory barriers.