Why Is The Hotel Industry More Focused On Harming Airbnb Than Improving Their Own Product?

from the innovate-and-compete,-guys dept

It's no secret that the hotel industry hates competition from Airbnb. Hell, politicians have even admitted to crafting anti-Airbnb policies to keep hotels from being disrupted. But, now, the NY Times has got its hands on a specific plan from the hotel industry to basically hamper Airbnb and burden it with legal and policy challenges (I should note, by way of some sort of disclosure, that I'm typing this while sitting at a desk at an Airbnb apartment in Washington DC -- and, similarly, that it's much nicer and significantly cheaper than comparable hotels, but I digress...).

Last year, Airbnb underwent a rough regulatory patch.

The short-term rental company became a Federal Trade Commission target last summer after three senators asked for an investigation into how companies like Airbnb affect soaring housing costs. In October, Gov. Andrew M. Cuomo of New York signed a bill imposing steep fines on Airbnb hosts who break local housing rules.

The two actions appeared unrelated. But one group quietly took credit for both: the hotel industry.

Years back, we wrote about writer Andy Kessler's concept of political entrepreneurs v. market entrepreneurs, which (loosely defined) were those who basically used policy making to lock up markets for themselves and restrict competitors as opposed to entrepreneurs who innovated and created more value in the market by serving customers. In more traditional economics, it's rent seeking v. market innovation and growth. Most people recognize how rent seeking is bad: it's using the levers of regulations and politics to limit competition and innovation, in order to extract a greater share of the revenue/profits (since there's less competition, if any) while similarly limiting innovation and economic growth that improve people's lives.

And the hotel industry seems like a prime example of this right now.

Both were partly the result of a previously unreported plan that the hotel association started in early 2016 to thwart Airbnb. The plan was laid out in two separate documents that the organization presented to its board in November and January. In the documents, which The New York Times obtained, the group sketched out the progress it had already made against Airbnb, and described how it planned to rein in the start-up in the future.

The plan was a “multipronged, national campaign approach at the local, state and federal level,” according to the minutes of the association’s November board meeting.

The NY Times report has many more details, but all of it is basically summed up as "annoy Airbnb and limit their ability to grow as much as possible." There doesn't appear to be anything in there about "providing a better experience to our customers so they might prefer us to Airbnb." There doesn't seem to be anything in there about "better competing with Airbnb." Nope, it's entirely about trying to undermine Airbnb. I've noted in the past (and in this post!) that I've used Airbnb a bunch, and have found it almost universally better than hotels. The experience is more unique, but also just... better overall. And I've spoken with many Airbnb hosts. It's true that some are running "businesses" renting out multiple units on Airbnb, but isn't opening up more people for running successful small businesses a good thing?

And, yes, I know lots of people like to claim that Airbnb is driving up rent -- even if the data doesn't currently support that claim. But even if true (and, again, it's the hotel lobby that has mostly been pushing this narrative, though plenty of well meaning folks have picked up on it), that's an issue to deal with in other ways (such as increasing housing stock, rather than limiting it with other regulations) rather than shutting down a useful business that opens up new opportunities, and can also increase tourism and local business.

Again, it's perhaps no surprise that the hotel industry has been fighting Airbnb, but with the NYTimes getting its hands on the actual strategy documents from the hotel industry, that industry has made it clear that it's seeking to shut down and limit competition, rather than innovate themselves.

Filed Under: competition, hotels, innovation, political entrepreneurs, rent seeking, startups
Companies: airbnb

Congrats, FBI, You've Now Convinced Silicon Valley To Encrypt And Dump Log Files

from the a-victory-for-privacy dept

Soon after the original Snowden revelations, I went around talking to a bunch of startups and startup organizers, discussing whether they'd be more willing to speak out and complain about excessive government surveillance. Some certainly did, but many were cautious. A key thing that I heard over and over again was "well, our own data privacy protections... aren't that great, and we'd hate to call attention to that." Every single time I'd hear that I'd point out that this should now be their first priority: clean up your own act, now and fix your own handling of people's data, because it's an issue that's going to become increasingly important, and you're being foolish and shortsighted to ignore it.

While the Snowden revelations certainly did get some companies to improve their own practices, it looks like the FBI's decision to go after Apple over encryption, has really galvanized many in Silicon Valley to take action to truly protect their users from snooping government officials -- meaning making use of real (not backdoored) encryption and also diong other things like dumping log files more frequently.

“We have to keep as little [information] as possible so that even if the government or some other entity wanted access to it, we’d be able to say that we don’t have it,” said Gadea, founder and chief executive of Envoy. The 30-person company enables businesses to register visitors using iPads instead of handwritten visitor logs. The technology tracks who works at a firm, who visits the firm, and their contact information.

The article is full of such stories -- including one of a company called Stealth Worker that is basically helping lots of startups build in better security from the start:

Stealth Worker — a start-up funded six months ago by the prominent incubator Y-Combinator — provides contract cybersecurity experts to early-stage start-ups, which often operate on a shoestring budget. Stealth Worker chief executive Ken Baylor said that in the past month he had been approached by a half-dozen companies looking for ways to build tougher encryption and other secure technical architectures.

Because it's the Washington Post, and they feel the need to be "balanced" the article does include the one ridiculous contrarian quote from our old friend, former NSA General Counsel Stewart Baker, who basically dismisses reality as a myth in the heads of some engineers:

“This is a Silicon Valley delusion that the government wants to outlaw encryption,” Stewart A. Baker, a former National Security Agency general counsel, said in an interview. “I grant that there is a radicalized subculture of engineers that is very prone to that delusion, but it is a delusion.”

This is classic Baker: saying something that avoids the actual truth by saying something that's nominally true, but not what people are actually discussing. The claim of "outlawing encryption" is really shorthand for "outlawing effective encryption that is less vulnerable to attack." And that's absolutely what many in the government are trying to do. I mean, there's no delusion necessary when you can just read the bill put forth by Senators Dianne Feinstein and Richard Burr, that absolutely would make real encryption illegal. Sure, it says you can keep encryption, but only if it includes a way for 3rd parties to decrypt it. And the only way that's possible is to introduce serious vulnerabilities into the encryption.

The thing that Baker and many others truly don't get about Silicon Valley is that when you give techies a challenge that involves making "the best" of something, they like solving the challenge. The suggestions to backdoor encryption undermine that philosophy. They're saying that techies would need to deliberately cripple their own solutions. And the more that the FBI and clueless Senators push for such a solution, the stronger Silicon Valley will dig in and keep building better overall solutions that are less prone to government snooping.

Maybe, just maybe, if the likes of the NSA and FBI hadn't regularly abused their snooping powers, folks would be more willing to give them the benefit of the doubt. But it's a bit late for that at this point.

Filed Under: doj, encryption, fbi, silicon valley, startups, surveillance

Join Internet Startups In Telling The EU Not To Mess Up The Internet

from the do-it-now dept

Join us in telling EU regulators not to wreck the net.
Read & sign our open letter »

We mentioned this a few weeks ago, but wanted to remind folks to help us tell the EU not to wreck the internet with a series of bad regulations. There you can see the letter that we put together, which has already been signed by a wide variety of internet companies, including Reddit, DuckDuckGo, Medium, Automattic, Patreon, Shapeways and more. The issue is a big deal right now. European bureaucrats (who couldn't even program a web survey to operate properly) are in the midst of putting together plans to regulate internet companies. This is under the umbrella of what they're referring to as the "Digital Single Market," but which some Commissioners are using as part of a plan to saddle the internet with a variety of new regulations, which have the potential to wipe out important safe harbors that made the internet what it is today.

Just a few months ago, a top EU Commissioner flat out said that the EU should heavily regulate the top internet companies, mainly because they're based in the US. What they don't seem to understand is that the companies they're targeting -- mainly Google and Facebook -- are big enough to deal with almost any of the regulations that come up. They have teams of people who can figure out how to manage them, even if they may grumble about it all. But the companies who cannot deal with such regulations will be basically everyone else. All of the smaller companies and new startups.

In effect, by "regulating" the big internet companies in an attempt to punish them, the EU Commission might actually be entrenching them as the dominant players in the market: the exact opposite of what they think they're doing. Similarly, some of the discussed regulations would again seem to contradict the stated or implicit intentions of those politicians. For example, many in the EU complain about the "privacy" implications of large internet platforms that are monitoring what their users are doing. Yet, a key regulatory proposal being discussed is adding a "duty of care" to internet companies, that will require them to more actively monitor what their users are doing, to make sure that they're not doing anything "bad" that needs to be stopped/taken down/reported on.

Given our concerns that this process appears dangerously misguided, we crafted a letter to send to the EU Commission that is reviewing this issue, and have now opened it up so that you (and/or your companies) can sign it too. Please take a look and consider signing on, and telling the EU not to wreck the internet, in a short-sighted focus on trying to hinder big internet players.

Join us in telling EU regulators not to wreck the net.
Read & sign our open letter »

Filed Under: digital single market, don't wreck the net, eu, eu commission, internet regulations, startups

NY Supreme Court Not Impressed By Guy's Argument That Pinterest 'Stole' His Idea

from the not-how-it-works dept

Back in 2013, we wrote about yet another case of a failed entrepreneur overvaluing his own "idea" and thinking that a much more successful company "stole" that idea. In this case, the successful company was Pinterest and the guy, Theodore Schroeder, insisted that Pinterest ripped off key elements from his sites that you never heard of: RendezVoo and Skoopwire. Both of those sites were actually nothing like Pinterest, but did have a few similar elements, such as infinite scrolling (which a few other sites had before RendezVoo) and the concept of "boards." The key to Schroeder's claim was a guy named Ben Cohen, an angel investor in NY. He had become a partner with Schroeder in RendezVoo and Skoopwire (and may have provided the spark for Skoopwire) and was listed as the Chairman of each. Well after Skoopwire/RendezVoo fizzled out due to a near total lack of interest (and some internal disputes between Cohen and Schroeder), Cohen became the first investor in Pinterest. Schroeder then insisted that Cohen took all of Schroeder's good ideas from his two services, and gave them to Pinterest. Back in 2013, we expected the case to be tossed out of court pretty quickly, as it was hard to see how any of the "copied" concepts were even remotely protectable.

Last year, a NY court dismissed all the claims against Pinterest, and nearly all of the claims against Cohen, leaving only the possibility of "misappropriation of skills and expenditure" and "promissory estoppel" (because of an angry email Cohen had sent to Schroeder saying that he had no desire to profit from Schroeder's work -- which Schroeder claims equaled a legal promise not to pursue any such idea). The ruling was appealed, and last week, NY's Supreme Court reiterated that the charges against Pinterest are a joke and have been dismissed. However, somewhat surprisingly, it reverses some of the dismissed charges against Cohen, arguing that he may have breached his fiduciary duties to RendezVoo/Skoopwire -- but almost all of that is due to some fairly sloppy decision making, in that after those operations fizzled out, they never officially agreed to shut them down or for Cohen to "resign." Thus, he may have still had a fiduciary responsibility to those companies, though it's unclear if he really violated them. That part comes down more to a sort of contract issue and the fact that Cohen and Schroeder both appeared to be a bit cavalier when it came to the paperwork for working together (which, frankly, is not that unusual in the early days of startups).

But, the court notes that any attempt to extend the potential problems between Schroeder and Cohen to Pinterest fail, because it all assumes some level of knowledge by Pinterest that there is no evidence to support.

Plaintiffs failed to assert with the requisite particularity facts alleging that Pinterest had actual knowledge of Cohen’s alleged breach and knowingly participated in it. The complaint contains no specific allegation that Pinterest was actually aware of Cohen’s involvement with Rendezvoo and Skoop Media, let alone that he was a fiduciary of the companies. That omission is fatal to this cause of action....

Plaintiffs rely on a number of statements in the complaint to support their argument that Pinterest had knowledge of Cohen’s breach. For example, the complaint states that Pinterest’s founders did not come up with the idea behind the Pinterest website themselves, but received it from Cohen, knowing that the idea was not Cohen’s own. The complaint further states that Cohen and Pinterest’s founders agreed that Cohen would share the idea with them and provide capital. Neither of these allegations, however, fairly suggests that Pinterest’s founders actually knew that Cohen was a fiduciary or that his passing along the idea breached a fiduciary obligation. In sum, the complaint’s conclusory allegations are insufficient to sustain the aiding and abetting cause of action...

Similarly, the claims of "unjust enrichment" are tossed out as well for similar reasons:

Here, the complaint contains no facts showing that plaintiffs had any relationship or connection to Pinterest, let alone the “sufficiently close relationship” necessary to sustain this claim.... Plaintiffs do not allege that Schroeder, or either of the corporate plaintiffs, had any contact with Pinterest or its founders.... The complaint alleges only a relationship between plaintiffs and Cohen, and a separate relationship between Cohen and Pinterest, which is “too attenuated” ..., and insufficient to “have caused reliance or inducement”

Things do get a little interesting when it comes to "trade secrets" (a very problematic area of law that is set to expand...). Pinterest is let off the hook, but Cohen is not.

These allegations are sufficient, for pleading purposes, to satisfy the first element of a misappropriation of trade secrets claim, namely, that plaintiffs possessed a trade secret.... Plaintiffs have also pleaded facts supporting the second element — that Cohen used the trade secrets in breach of an agreement, confidential relationship or duty, or as a result of discovery by improper means.... As noted earlier, plaintiffs allege that Cohen acquired the confidential information while he was a fiduciary of Rendezvoo and Skoop Media, and that he purposely caused the project to deadlock so that he could steal that information.

Plaintiffs, however, cannot prevail on their trade secret claim against Pinterest. The complaint does not allege that plaintiffs entered into any agreement with Pinterest or had any confidential relationship with the company or its founders. Indeed, as noted earlier, there is no allegation that Schroeder, or either of the corporate plaintiffs, had any contact whatsoever with Pinterest. Nor do plaintiffs allege that Pinterest obtained the trade secrets by improper means. In fact, the complaint states that Cohen voluntarily gave Pinterest the alleged trade secrets, not that Pinterest employed any improper means to acquire them. Plaintiffs point only to the allegation that Pinterest’s founders knew that the idea given to them by Cohen was not Cohen’s own. This allegation, however, does not give rise to an inference that Pinterest used improper means to obtain the information.

The court, thankfully, goes on to note that while Cohen may be on the hook for the trade secret issue, it should be limited narrowly to "confidential information" and not silly things like "infinite scroll." The ruling notes that the look and feel issues raised in the initial complaint about similarities between Schroeder's sites and Pinterest are not trade secrets because they were in the public domain.

Here, the complaint identifies a number of similar features in both Pinterest.com and the second version of Rendezvoo.com. As noted earlier, this version of the Rendezvoo website was introduced in August 2006, and had over 5,000 users by January 2007. The alleged misappropriation of trade secrets took place in 2009, several years after the Rendezvoo website entered the public domain. Thus, to the extent the features identified by plaintiffs were readily ascertainable from the publicly-available Rendezvoo website, they are not protectable trade secrets

In the end, Pinterest is spared, but Cohen may still be in court for a while over this -- which is mostly stupid. The whole thing does seem pretty silly all around though. As we've said over and over again, the "idea" for a startup is rarely the important part. It's very much about the execution. Getting jealous because someone executed better than you on a similar idea (and here it's barely similar) is just silly.

Filed Under: ben cohen, ideas, infinite scroll, startups, theodore schroeder
Companies: pinterest, rendezvoo, skoopwire

Google Giving Away Some Of Its Patents To Startups To Help Protect Startups From Trolls

from the good-move dept

A year ago, we wrote about the launch of a new program from a bunch of bigger tech companies who were sick of patent trolls: the "License On Transfer" network (LOT). The program, set up by Google, NewEgg, Dropbox, SAP, Asana and Canon was pretty simple in concept. It's a royalty-free patent cross-licensing program. If any patent held by a member of LOT is transferred to another company, a license is automatically granted to every member of LOT. This serves to avoid patents eventually falling into the hands of trolls and being used against members. A bunch of other companies have joined since it launched, including Redhat, GitHub, Ford, JPMorganChase, Mazda, Khan Academy, Pandora and more. It certainly doesn't solve all the patent trolling problems, but it is a nice way to make sure that patents from these organizations are less likely to be used for trolling and has a really nice incentive structure in that to protect yourself from patent trolling you basically have to make sure your patents are less likely to be used by trolls as well.

LOT is still trying to expand, and it appears that Google is taking a step to make it even more attractive, especially for startups: the company is going to start giving away some of its patents to startups, for free, if they meet a few conditions -- including joining LOT (though the membership fees for the first two years will be waived). The program is only available to the first 50 eligible participants who sign up -- and to be eligible, you need to have 2014 revenue between $500k and $20 million. Then Google will offer specific "patent families" from which the startups can choose to take. These patents will not be ones developed by Google itself, but rather ones that it has bought from others. And, of course, the startups agree to issue a license back to Google. And, most importantly, they must agree to only use the patents defensively. If used offensively, the patents go back to Google.

In other words, it's another win-win setup. Startups can get some decent patents for free that they can use for defensive purposes, and LOT gets more members from the startup community. The only ones who "lose" are the trolls and their lawyers, but I can't fathom any reason to be upset about that.

Of course, if we just fixed the damn patent system so that low quality patents and patent trolling were stopped, none of this would be needed. So, in some sense, it's a bit depressing that all of this is really an economic dead weight loss on society created by a broken patent system. But, at the very least, it's nice to see companies proactively looking for non-regulatory/non-legislative ways to minimize the damage created by a broken system.

Filed Under: license on transfer, patent trolls, patents, startups
Companies: google, lot network

Venture Capital Trade Association Hires Patent Troll Lawyers, Fights Against Patent Reform... Even As Most VCs Want Patent Reform

from the this-is-just-strange dept

The venture capitalists who are members of the National Venture Capital Association (NVCA) may want to reconsider why they support an organization that is actively working against the interests of venture capitalists and innovation. It has long been known that most venture investors in the tech world know damn well that patents get in the way of innovation, rather than help it. For years, we've written about some of the most high-profile venture capitalists -- the ones that entrepreneurs would die to have invest in them -- arguing about the need for patent reform and how patents often act as a tax on innovation, rather than an incentive for innovation.

So... it seemed really, really odd earlier this year, when a guy hired by the NVCA to appear at a Congressional hearing on patent reform argued against patent reform and suggested, if anything, that patent protections needed to be ratcheted up. The guy in question, Robert Taylor, seemed like an odd choice. He was not a venture capitalist, but rather a consultant who focused on patent strategies for startups -- in other words, someone who would directly profit from a bigger patent mess.

But, his view is clearly not in the mainstream among venture capitalists. This can be evidenced from a few different places. First, a little over a year ago, a study was conducted by Robin Feldman on venture capitalist views towards patents, and it put to rest the myth that VCs love patents. That study was actually conducted in coordination with the NVCA. The survey was distributed by the NVCA to its members. And those members did not like patents or what they did to innovation. Some quotes from the results:

When asked whether they see patent assertion as positive for startups and the startup community, 72% of venture capitalists disagree....

74% of the venture capitalists reported that patent demands had either a highly significant or a moderately significant impact on companies that received them, including distracting management, expending resources, or altering business plans....

When companies spend money trying to protect their intellectual property position, they are not expanding; and when companies spend time thinking about patent demands, they are not inventing....

... the venture capitalists were in general agreement that patent demands are increasing against venture-backed companies. 79% responded that the number of patent demands have increased over the last five years for their portfolio companies overall....

For 59% of the venture capitalists, the patent demands came either all or mostly from those whose core activity is licensing or litigating patents....

In other words, the vast majority of NVCA VCs recognize that patent trolling is a massive problem. And, yes, the majority of the problem comes from the trolls: The report includes a ton of heart-wrenching anecdotal stories about startups that were basically destroyed by patent trolls -- which were mostly relayed by these VCs.

And, if you needed any more evidence that venture capitalists realize the patent system today is broken and reform is needed, you can just look at this letter a ton of venture capitalists sent to Congress earlier this year, demanding reform, and highlighting how patent trolls are a massive tax on innovation. The signatories to the letter (and there are a lot of them) basically represent a who's who of venture capitalists that any Silicon Valley startup would love to have invest in them -- including Andreessen Horowitz, Union Square Ventures, YCombinator, Greylock, Benchmark, Kleiner Perkins, Foundation Capital, Softech VC, SV Angels, Canaan Partners, First Round Capital, Lowercase Capital, Spark Capital and many more. It's hard to think of a top VC firm that isn't listed.

These are the companies and individuals who funded nearly all of the top internet companies today: Google, Twitter, Tumblr, Facebook, Amazon, eBay, Airbnb, Github, Pinterest, Slack, StackExchange, Kickstarter, Etsy, Cloudflare, Lending Club and many, many more.

Given all of this, many people were left scratching their heads and wondering why the NVCA was coming out against the rather clear wishes of its own members, and the rather detailed literature and studies highlighting how problematic today's patent system is for innovation and startups. Even some of the Congressional Reps at that hearing wondered about it, leading NVCA to issue a rather bizarre clarification that Taylor's testimony was not on behalf of NVCA members, but some amorphous "broader industry."

To be clear, Mr. Taylor was present at the hearing to testify as NVCA's outside counsel on behalf of the broader industry, not as a representative of individual NVCA member firms.

Huh? What "broader industry"? And if he wasn't representing the interests of the NVCA's members, why was he there as the NVCA's representative at the hearing?

The same clarification also sought to totally reinterpret the Feldman study (which, again, had been done in cooperation with the NVCA), arguing that even though the vast, vast majority of NVCA members had real problems with patent trolls and saw them as damaging, the fact that a few did not, somehow made it okay for the NVCA to side with the few and to argue for stronger patents, even though the VCs and startups in the survey clearly indicated that such a solution would be a problem.

... the survey findings do not indicate a difference of opinion between NVCA's position on patent litigation reform and the issue of patent assertions....

Hell yes it does.

From there, the NVCA blatantly lies and says that it actually supports reforms that deal with "abuses with patent assertions"... but immediately caveats that by claiming "we also believe that any attempt to reform the system must maintain strong patent enforcement mechanisms..."

This whole story got stranger still last month, when it was revealed that the NVCA hired lawyers closely connected to some big patent trolls to pressure Congress into weakening or killing patent reform.

A review of the leaked document also reveals another surprise: the names of the lawyers that the trade group has assigned to examine the law. One of them is Michael Spillner, who is general counsel for Tessera, which has been widely described as a patent troll. Another is William Nelson, a partner at the law firm Tensegrity, which was founded in 2012 by several elite lawyers seeking to cash in on the popularity of patent trolling.

All of this should raise serious concerns among actual venture capitalists about just what their trade organization is doing in their name. It appears to have handed the keys to those in bed with the patent trolls, and against the interests of its actual members and the most well-known, successful and sought-after venture capitalists in the world.

Filed Under: innovation, investment, patent reform, patent trolls, patents, startups, venture capital
Companies: nvca

Why Industry Vets Should Play Nice With Startups

from the rather-than-regulating-them-out-of-existence dept

What's the secret behind the most successful tech startups? No, it's not having founders with perfect SAT scores or sealing a dozen coders in a room with cases of Red Bull. The answer often has more to do with refining and capitalizing on an established idea, than with conjuring up something new out of thin air. Or, as Isaac Newton quipped in 1676, "Success is standing on the shoulders of giants."

More than a dozen search engines were already online by the time Google's Sergey Brin and Larry Page debuted their hypertextual search algorithm, redefining the browser landscape. Netflix reimagined the DVD rental market – and upended an entrenched business with disruptive technology – by cutting out the brick-and-mortar rental barrier. And Pandora found a way to let listeners customize their own radio stations, with or without advertisements, while still paying artists royalties to play their music.

So why, in a culture that praises disruptive technology and innovation, do policymakers keep looking for ways to regulate promising new startups into oblivion?

Over time, incumbent business models build protectionist walls to help stave off competition – walls like regulatory hurdles that new competitive businesses have to clear before they can operate. We see this tension at play today as a number of innovative startups run into protectionist barriers supported by industry giants. Uber, for example, is fighting through one roadblock after another from the taxicab industry as the company struggles to gain market share in new cities. And as Airbnb offers travelers new options when they're on the road, it's in the crosshairs of city regulators and hotel lobbyists across the country.

When the costs of regulatory policies are diffused and the benefits are concentrated, the interests of the incumbents often begin to stray from the interests of consumers. Consider the 1984 Sony Betamax Supreme Court case, which pitted the behemoth movie industry against the emerging video recording device market. In that case, the court ruled that time shifting did not infringe on copyright law, and today the thriving home movie market rivals the box office, ultimately giving us more options for our Saturday night entertainment.

Often, benefactors have strong incentives to support protectionist policies, so they push for both greater regulation and enforcement. They seek to exclude new business approaches even when they provide consumers benefits like lower prices and more options. Just look at how TV broadcasters reacted to streaming-TV service Aereo – entangling the innovative startup in a lengthy legal battle that also made its way to the Supreme Court. Ruling in favor of the broadcasters, the court's decision ultimately hurts consumers, providing them with fewer choices for pay-TV service.

How do industry mainstays fair in highly-regulated economies? You don't need to be an economist to predict what happens next. Research suggests businesses of all sizes operating in strictly-regulated environments are often less productive. A report published this year by the Mercatus Center found over a four year period the most regulated industries experienced 33 percent growth in output per person, and a 20 percent increase in unit labor costs. Does that sounds like good growth to you? Before you answer, consider that over the same period the least regulated industries experienced 63 percent growth in output per person and a four percent decline in unit labor costs – yes, the cost of labor dropped with less regulation – which almost always translates into lower prices for consumers.

Any time new businesses pose even a perceived threat to the current profitability of existing incumbents there is a strong urge to sweep these new businesses into the existing regulatory framework, often at the expense of consumers' best interests. But it's time for legacy businesses to stand up for themselves and look for ways to adapt and innovate, rather than cower behind over-regulation. A closer look at disruptive innovation over the last decade reveals a strong tradition of industries cropping up next to preexisting industries and bolstering the overall market – for industry vets and startups alike.

There are dozens of examples of how industries have figured out how to pivot and adapt in order to compete with emerging technologies. Look at Makerbot's 3D printer, which is disrupting traditional manufacturing while providing innovative solutions for producing items that are otherwise hard to get. In response, traditional manufacturers are finding ways to incorporate 3D printing technology into their own practices for product development and testing. Apple's iPod changed the way we listen to and buy music, breathing new life into an industry plagued by piracy. And Amazon's Kindle has changed the book publishing industry by revolutionizing the way content is brought to consumers.

If the research holds, these markets – when not hindered by large regulatory burdens – should show strong productivity gains and broadly benefit consumers. Technology can be used to make markets more efficient by getting products into the hands of those who will use them the most and gain the most from their use. In other words, it helps balance otherwise lopsided markets, where suppliers and buyers weren't matching for any number of reasons.

The most successful startups haven't stumbled upon an entirely new service offering – they've simply found a better way to do something that's already being done. Rather than fighting a tsunami of change and potentially drowning the disruptors that strive to improve consumer choice, incumbent businesses should find ways co-opt technological solutions and in turn produce change themselves.

Shawn DuBravac is the chief economist of the Consumer Electronics Association (CEA), the U.S. trade association representing more than 2,000 consumer electronics companies. Follow him at @Twoopinions.

Filed Under: competition, innovation, legacy companies, opportunity, startups