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May 31, 2016

Tech Startups Wary of Big Data Legal Hassles

George Leopold

At least part of the technological and political blowback from the recent legal battle between the FBI and Apple over government access to encrypted data is a shift among some Silicon Valley startups away from retaining large amounts of customer and other data. The decision reportedly reflects efforts by nimble tech companies to deploy new tools that would place data such as customer information beyond the reach of government searches.

It could also signal the beginning of a transition away from big data as private companies seeking to avoid the legal hassles Apple (NASDAQ: AAPL) encountered, look for ways to avoid government demands for access to encrypted data. That strategy could lead to less rather than more data being retained by technology companies, even if the gambit stifles company growth.

“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,” a tech CEO told the Washington Post.

Larry Gadea, founder of a visitor-registration software startup called Envoy, told the newspaper his company along with others are developing systems to shed customer data rather than stockpiling it. For Gadea’s company and other startups, storing lots of customer data is increasingly seen as a liability rather than an asset, the Post reported.

The government ultimately abandoned its effort to force Apple to unlock the iPhone of one of the gunman in the San Bernardino terror attack last December. The FBI eventually paid professional hackers to crack the phone’s password instead.

Among the tools eyed by developers to corral customer big data is greater use of encryption, a move that some experts told the Post would slow down services. Another consequence of heavy use of data encryption is that it could limit the ability to analyze data such as customer behavior patterns. Encryption also is seen as making it harder for developers to introduce new features for retail and other analytics platforms.

“For a small startup trying to iterate quickly, [encryption] definitely slows things down,” Gadea told the Post. “But in the long run, it’s a competitive advantage and it reduces the risk on our company.”

Still, it remains unclear how long other tech startups looking to capitalize on data analytics can survive if their platforms fail to keep pace with evolving technology.

For mature companies, the tactic may prove more effective. For example, Google (NASDAQ: GOOGL) has launched a chat app that provides users the option for end-to-end encryption. Meanwhile, Post owner and Amazon CEO Jeffrey Bezos is reportedly looking at ways to encrypt data and “throw away the keys” to company-owned (NASDAQ: AMZN) devices, his paper also reported last week.

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