AI: EU leans back on US AI/Tech. RTZ #422

...contrast with US & China leaning in on AI Tech Wave

The EU seems to be basking in the sun vis a vis this AI Tech Wave as driven by US big tech in particular. Almost leaning back while the world leans in.

Yesterday, I discussed in detail how China is leaning into AI and Tech heavily, despite being increasingly caught between ‘a rock and a hard place’: rising US/China tech trading curbs driven by Geopolitics, and increasing friction on rolling out AI products/services within China due to data censorship priorities.

But as I concluded at the end, China remains determined to ‘Find a Way’ to AI primacy. And the US and China, despite their growing geopolitical differences, are still ‘Threading the Needle’ as best as possible. Both have their good and bad days.

But Europe and the EU, seem different on this front. As I’ve noted before, there are developments that are increasingly in marked contrast with the US and China on AI and technology. It’s consequential given that the EU, with its 27 countries (not quite a country), is the world’s 2nd largest economic trading bloc. As calculated of course by combined GDP ($20+ billion vs $27+ billion for US and $18+ billion for China in 2024). All of this is notable of course relative to where the big tech blocs are vs the big economic trading blocs.

With the EU’s ongoing focus on regulating technologies, especially from the US big tech companies, “Europe has created a lot of rules for the digital world”, as Wired aptly puts it.

The EU seems to be thus ‘leaning back’ on US big tech in particular. There’s increasingly a trend coming together that is worth talking about: US technology companies are taking a cue from the EU, and also leaning back on introducing their latest tech wares, especially AI innovations, into the EU.

This development is well summarized by Axios’s “Tech giants up ante by withholding products from EU”:

“Aiming to fight what they see as vague and overly burdensome regulation by the European Union, U.S. tech giants are playing one of the strongest cards they have: withholding their products.”

“Why it matters: Until now, the U.S. tech giants have dominated the global digital economy by serving (almost) everyone, accepting divergent regional laws as the cost of doing business.”

“Driving the news: As Axios scooped on Wednesday, Meta has decided not to release a new multimodal AI model and related products in the EU.”

• “The move follows a similar decision last month by Apple to withhold its new Apple Intelligence features from Europe.”

• “Separately, Meta also announced yesterday it would take a similar approach in Brazil, suspending the availability of its generative AI tools there after a privacy dispute with regulators.”

“Between the lines: While both companies are objecting to the vagueness and opacity of European law, Meta and Apple are taking issue with two different laws.”

“Apple's objection is to the Digital Markets Act, relatively new legislation that aims to increase competition and keep large companies from favoring their own products.”

• “The DMA requires companies make their products easily interoperable with competitors' offerings, and Apple says that will put its users' privacy and data at risk.”

“Meta's problem is with Europe's older privacy law, the GDPR.”

• “Meta says the EU has not provided clarity over what the GDPR requires for it to make use of customer data to train its AI models.”

• “These concerns come even before the provisions of another major piece of legislation, the EU's first-of-its-kind AI Act, kick in.”

“Yes, but: While Apple and Meta are signaling their unhappiness with the current state of European regulation, it's doubtful they would give up entirely on such a large market as tech enters a new era of computing with the advent of generative AI.”

As I noted this past Saturday, it’s also notable is that the EU’s penalties for potential violations are grossly disproportionate to these tech companies’ businesses in Europe vs the World:

“EU authorities ultimately ask for penalties from 6-10%+ of GLOBAL revenues in these cases. Observers point out that in the case of Meta, Apple and others, EU revenues are typically less than 10% of their global revenues”.

The broader context is that it’s not just Meta and Apple as I also noted this weekend:

“EU extends regulatory focus to X/Twitter, beyond Apple, Nvidia, Meta et al:

“The EU continues its laser focus on US Big Tech companies, with its latest focus on x/Twitter, adding to its regulatory tussles with Meta, Google, Apple and others. Stratechery has a useful piece doing a deep dive, providing broader historical context.”

“This trend continues to be a unique headwind for US big tech deploying next generation AI products and services in Europe. And an additional burden for smaller startups, or ‘Little Tech Agenda’ as articulated by VC a16z. “

So the distinct differences in posture this AI Tech Wave, leaning back for the EU and leaning in for the US and China, is a notable distinction vs prior big tech waves. It’s still early days for AI innovation as I’ve long maintained, so there’s time for postures to adjust and shift. Bask less as it were. Stay tuned.

(NOTE: The discussions here are for information purposes only, and not meant as investment advice at any time. Thanks for joining us here)