Aaron Swartz

@sriharikapu

Has Europe lost its tech giants?

Tech from European companies, There were phones from Finnish Nokia, from German Siemens, from French Alcatel, from Swedish Ericsson, There were TVs from Dutch Philips and just much much more. But now in 2019 most of that seems to be gone so where did all the European tech companies go. Let’s find out.

“My first question was whether there really is a tech deficit in Europe?”

or if it’s just my brain making it up. So, I started searching and I limited my search for the sake of brevity the only consumer-facing technologies so smartphones and all search engines, Yes! Industrial automation and accounting software, No! Here’s what I found, consumer electronics hardware companies are basically non-existent in Europe there are zero major European companies making pcs or gaming consoles and things aren’t much better for smartphones either there is HMD making Nokia phones. Again and a few niche brands exist as well. But all those combined don’t sell as many phones as a b-grade Chinese phone brand alone. Since Philips sold off its TV business Europe also has no mainstream TV or monitor brands left either. Audio Hardware seems to be doing a little better with a few major brands like German Sennheiser still left. But here two European brands are vastly outnumbered and many like Austrian AKG are being sold off to outside competitors. The camera market remains dominated by Japanese and American companies and Europe is barely even in the race with new hardware categories like smartwatches VR and AR hardware or consumer drones and even on the component level. There are close to no European companies at all. So, while there are a few European success stories. I think it is safe to say that in all the major categories European consumer electronics hardware companies are far far far and their competitors from the US or Asia. On the other side, the situation is somewhat better with software and online services. though there’s a big problem here as well. I think it helps to break this category down into three layers

  • Infrastructure layer.
  • platforms layer.
  • end consumer applications layer.

Infrastructure is the backbone of the internet and it includes everything from cloud computing to content distribution networks and even domain name services and there are no European companies here that reach a global scale. obviously, geographical distances mean that I don’t know local hosting companies exist everywhere but American companies dominate on the global level with potential competitors only really emerging from China not from Europe and that’s mostly because of China is basically an impenetrable bubble. A bubble that you can watch right here.

The platform layer consists of software that enables other software and services to run and all include things like operating systems web browsers app stores search engines and even social media networks. Here if you want to build an app you have to deliver them through these platforms and once again US companies dominate the industry in this space. There is not a single major European platform in any of these categories and the only potential challenges.

In the end-user application layer, you know the stuff that runs on top of these other two layers. European companies have actually managed to build quite a few successful products here. European success stories come from companies that develop either a single product or very few of them.

Meanwhile in the US and China on top of these specialists, there are also five plus three companies, that I’ll just call general purpose tech giants companies to just do thousands of things at once. They can buy up hundreds of startups a year. Europe has zero companies like that.

Europe has a lot of little fish but — no big fish. In summary, Europe is barely involved with the infrastructure or the platform’s layer of software and services and while it does have some success stories with end-user stuff.

It lacks the old tech giant’s. So, the tech deficit is real. But why don’t you people just build more successful tech companies? I think this breakdown actually explains a lot this layer the consumer-facing layer is the only one at which Europe seems to be well at least moderately successful. What’s different about it compared to the others is that quite frankly this room for thousands if not tens of thousands of companies here. The more apps and games the merrier anyone with a good idea and a few smart people can sort of create a cool app from their dorm room, regardless of whether these developers come from Europe or the US or India or wherever. With platforms and infrastructure through there’s just much less room and with it less diversity, the world will really only adopt a few operating systems of a few search engines a few global cloud computing platforms and so on everything happens at a much much larger scale with tens of thousands of employees per platform. Suddenly having a good idea and a bunch of smart people don’t get companies anywhere they also need to the right macroeconomic environment lots of investors who are willing to give them money relaxed taxation and privacy laws and endless pool of highly educated people that they can hire and fire as efficiently as possible and so on. This is the key problem, I think Europe is falling behind. With a few of these, There are educated and entrepreneurial people with great ideas who can build great things and various surveys prove that. But this just isn’t enough to reach the heights of Google and other companies. So, I think there are five main reasons for this

  • lack of competitiveness regulation
  • investment climate geography and
  • demographics the attitudes of common
  • European citizens towards technology and
  • the lack of strong startup ecosystems

and of course, I’ll have to generalize a lot because of course, these metrics vary quite a bit across Europe. Still starting with the first one, It is fairly safe to say that European legislation especially when compared to that of the US or say China isn’t ideal for tech companies taxes are high which is a straight competitive disadvantage, labour laws are probably strict in the world. Making it hard for companies to fire and fire people which is especially difficult for tech companies where fluctuations are huge and companies would have to hire and fire all the time to adapt to the rapidly changing environments. Privacy laws are some of the strictest in the world to companies like Google or Facebook whose core businesses together every click and every scroll of their users are constantly fighting European legislators even now and having a European company do this on the same scale would be difficult, to say the least. And lastly, there’s also a lot of consumers protection regulation and red tape. So, companies spend a ton of resources on compliance instead of spending it on beating competitors. The Investor climate in Europe is also behind that of the US and China which is especially important for startups. It’s harder for European startups to raise money especially once they grow a little larger as an example,

Fortune found that in 2015 European tech startups were funded at the lower revenue multiple of 2.6 versus 3.9 on the US side. So, In general, money is tighter and then, There’s simple geography launching global services just makes more sense in large homogenous markets like the US or China first where an application can reach scale very quickly. Doing so in Europe would require adapting the product to 30 languages legal systems and cultures, Right away just imagine. If a voice assistant like Alexa launched in Europe first that just wouldn’t make any sense, and then there’s also something much more subtle. I can’t really quantify this but Europeans in general just tend to be really pessimistic about both technology and business. That’s why brand privacy laws are so strict. When I had lived and worked in Southeast Asia. I was constantly surprised by how most people, I met there were genuinely excited that new tech companies would solve their problems. Because in Europe most people, I know think of tech companies as the cause for most of our problems not the solution to them. This attitude makes the adoption of new technologies, way slower here than in much of the rest of the world. Now my last reason would be the lack of strong existing startup it turns out that exposing people to existing and thriving ecosystems like Silicon Valley and Shenzhen, Bangalore. Just organically gets them to build new startups and as Europe was a little slower at the dumping of tech trends. And as it is very decentralized there, just aren’t any Silicon Valley or Shenzhen, Bangalore size startup hubs anywhere in Europe yet. It’s a chicken and an egg problem the more tech just creates more tech and less tech creates less tech anyway. I think those five seasons combined to explain why there are no global tech giants here in Europe. It’s just harder to finance, harder to hire and fire people and harder to reach people and scale here in Europe which means that we can build specialists but not all round tech giants yet. And the lack of homegrown Giants also has a pretty major side effect. New technologies that are pioneered by specialists often end up being acquired by the Giants. In start-up terms, this is called an exit and most founders and investors love exits because it means that they can finally cash in on their investments problem. Europe doesn’t have any Giants so most founders and investors are going to non-European Giants exits. In Europe, there is a constant brain drain and that’s kind of my conclusion. I think tech is often struggling to grow really big in Europe and when it does, It often gets acquired by foreign giants. Now I know I have so far sound that’s pretty gloomy but there’s another way to look at this whole situation. As well a lot of what’s bad for companies can be good for people. I mean there are tons of benefits to being a European citizen again this is a generalization but Europeans tend to have longer holidays my friends have 27 days here in Berlin for example. I only had 18 when I worked in Malaysia. There is a huge Income inequality according to Wikipedia and yes I am quoting them deal with it. Europe is about as equalitarian as it gets better unemployment benefits. If it ever comes to that relatively cheap universal health care high-quality education that is free or at least much cheaper than whatever is available in States.

Especially great and usually cheap public transportation, better privacy, stronger consumer protections, a protected environment and so on. So, whether you think these things are ultimately worth not having an ultra-competitive tech environment for will ultimately depend on your priorities. In either case, I think it’s important to know what the trade-offs are that we are making anyway.

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