The Internet of ka-chings

Phil Wainewright Profile picture for user pwainewright January 2, 2014
We often forget how the spread of e-commerce and cloud innovation is held back by the drag of local laws and behaviors

@fotolia cash Robert Hoetnnik
When we think of the cloud, we automatically think of a limitless virtual universe that transcends physical barriers of place and time. The Internet is held up as an irresistible force of globalization, with no limits to the global reach of cloud giants such as Google, Facebook and Amazon.

But for all its ethereality, the cloud is still firmly rooted in the physical world. Its servers run in datacenters with real-world locations. Its users are subject to laws of the geographies and jurisdictions they roam through. E-commerce delivers goods and services to live customers in exchange for money or assets that have concrete value.

It's at those points where the cloud physically comes in contact with the ground that the real world intrudes on the imagined freedoms of cyberspace.

In 2013, the spotlight was on data privacy, with moves in Europe to update its data protection laws against a background of fury against revelations of Internet and mobile spying by the NSA and other security agencies.

But it is in e-commerce where the constraints of local laws have the greatest impact on the cloud, especially when it comes to business (for of course commerce is the essential lifeblood of business).

I had not realized quite how rife protectionism is in the world of online e-commerce until last October, when I was invited to speak at an EMEA customer meeting of leading digital commerce provider Digital River (disclosure: this was a paid speaking engagement). There I heard SVP and general manager Mike Hechler outline some of the astonishing constraints on global e-commerce that exist around the world, especially in the fast-growing BRIC economies.

  • In Brazil, supplier invoices are required to show the supplier's cost price of acquiring the goods. The intention is to protect consumers against price gouging but it's often a complex calculation in a digital supply chain that may comprise several different sources and currencies.
  • In Russia, the majority of online sales are paid cash on delivery. This of course is a cultural constraint rather than a legal requirement — in part due to buyers' distrust of whether a paid-for consigment will actually arrive, although also a reflection of the low numbers of credit card holders in the country.
  • India does not allow any business to have online sales that exceed its offline sales. This is an effective measure to ensure that online sellers have a solid presence in the local market, but it also makes it tough for India to develop the kind of Internet start-ups that have thrived elsewhere.
  • China has a number of restrictions on foreign companies operating outside of very specific free trade areas. These include having to pay sales tax when goods are imported rather than at the time of sale, and not being able to take out more money than you brought into the country.

It's not just in emerging economies that we see regulations intended to favor local businesses. Just before Christmas, Italy's parliament passed what was widely described as a 'Google tax' law, requiring businesses in the country to purchase online advertising from Italian companies. The law is a response to tax avoidance strategies espoused by Google and others, who base their European subsidiaries in low-tax countries such as Ireland and Luxembourg, thus reducing their overall tax bill.

The Italian law is widely seen as illegal under European Union law, and therefore the Italian prime minister has delayed its introduction until July while discussions continue with EU authorities and other European governments. This may of course lead to similar laws being introduced elsewhere in Europe.

While one has some sympathy with governments wanting to maximize tax revenues in the face of often aggressive avoidance strategies, there is often an adverse impact on entrepreneurship of these restrictions. If I were an Italian cloud start-up, I'd be none too happy about not being allowed to advertise on Google.

Similarly if I wanted to create a robotics or 3D printing business in India or China, I would find my choices restricted to local suppliers who may not have the latest technologies available at a competitive or viable price. Governments must be cautious that, in trying to levy a fair tax rate on the Internet of ka-chings, they don't chase it away to other territories.

Disclosure: The author was a paid speaker at a Digital River event .

Image credit: © Robert Hoetink -

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