- CEOs of European technology companies told CNBC at the Web Summit technology conference this week that the continent should adopt a “Europe-first” approach to tech, after U.S. President-elect Donald Trump’s election victory.
- Andy Yen, CEO of VPN maker Proton, said Europe should “step up” and “be aggressive” to counter U.S. Big Tech firms’ tight grip on many important technologies, such as web browsing, cloud computing, smartphones — and now artificial intelligence.
- Thomas Plantenga, CEO of Lithuania-based used clothing app Vinted, urged Europe to take the “right choices” to ensure it doesn’t get “left behind.”
Exactly illustrates where Europe’s tech sector is at. It only has a few tech companies, that were founded in the post dotcom bubble era, that people outside Europe would know. If you’d ask an average American to name a European tech company they probably will name an old German company like Mercedes or if they follow financial news ASML or Nokia or something but nothing that has been founded in the last 20 years. They probably don’t even know that Spotify is from Europe. Europe failed to build titans of industry of the 21st century.
You’re probably right for the typical American, but I could do Skype (Estonia), Spotify (Sweden), and SAP (Germany).
Many business-to-consumer tech companies – like, online services and such – have relatively high fixed costs and low variable costs. That is, you pay about the same to develop software whether you have one customer or a billion customers, and the cost of adding servers to add capacity for more customers isn’t all that high.
But your revenue grows linearly with the number of customers that you have.
As a result, it is really, really bad to be small if you are in that category. So it is very important to scale up quickly, so that you get as far away from that “one customer” area as quickly as possible. Lose money while you’re small, okay, but become large as soon as possible.
It’s easier to scale if there are few barriers to expansion.
My bet is that the major issue here is that compared to the US internal market, the EU’s internal market is relatively-fragmented. There are different languages – yeah, there are some interchange languages, but not everyone can speak them and certainly not everyone prefers them. There are greater legal differences among member states. I would give good odds that there are larger cultural preference differences, which will affect things like branding. So for a B2C company trying to rapidly expand from Finland to Germany and Greece and Ireland and Spain, you’ve got a lot of hurdles that a similar company trying to expand from California to Texas and New York and Virginia and Florida don’t face. And that tends to keep them small longer, which is really bad for companies with that high-fixed-cost, low-variable-cost structure. If you’re an investor, safer to invest in a US company that will probably grow and get big easily. Of course, you could start an Estonian company and then grow in something like the US market…but then you have to deal with the complexities of spanning markets from the get-go. I’d expect that the barriers there are substantial, or you’d expect to see things like companies starting up in, say, Uruguay and then growing in the US domestic market, and we don’t see that.
There are tech companies that originated in the EU. But it’s rare for them to be the big business-to-consumer sort. So I don’t think the issue is – for example – excessive regulation or some other things I’ve seen blamed (I mean, it might not help, but I don’t think that that’s the dominant factor). That should affect all tech companies, not just the big business-to-consumer variety. I think that market fragmentation is the big factor here.
Brussels is working on some of that, like legal differences across member states. Some will just naturally tend to smooth out. But some are just not going to go away in the near future; French consumers are probably going to want stuff in French, for example, and Italians in Italian.
There was some recent report I remember seeing from Mario Draghi floating around on either here or [email protected] that spent some time talking about market fragmentation as an issue for competitiveness.
EDIT: Oh, and OnlyFans (UK).