Fact of the Week: If not for the 2002 EU e-Privacy Directive, Venture Capital Investments into EU-Based Online Services Firms Could Have Been 57 Percent Greater, Cumulatively, by 2013

Overly restrictive data-privacy regulation burdens the digital economy and limits innovation by reducing investment in online services firms such as those dealing in news, advertising, and cloud computing. These firms collect and parse large amounts of data to optimize and improve their products to generate revenue. Making it harder for online services firms to generate revenue naturally deters further investments in them.

A recent report from the Centre for European Policy Studies analyzed how the 2002 EU e-Privacy Directive impacted venture capital investments into online services. This directive enacted restrictive provisions on site traffic data, consumers’ information confidentiality, and use of cookie technology. The report estimates that from 2003 to 2013 venture capital investments in such firms decreased by up to 57 percent compared to the previous baseline trend, or a cumulative $125 million.

With the EU’s new General Data Protection Regulation now coming into effect, EU digital services firms that depend on optimizing user data as their primary means of generating revenue can expect their industries to experience further decreases in investment.