Why Europe Will Never Build Its Own Digital Giants

from the getting-it-all-wrong dept

A few years back, I was asked to create a presentation for a few visiting European executives, to explain “what makes Silicon Valley, Silicon Valley.” It was a fun presentation, and one of the people who saw it later had me give it to an ever rotating crew of visiting European execs and policymakers (I even got to give the talk once over in the UK). I believe I did the presentation half a dozen times or so. The person who set up most of those talks later moved on to another job and it’s been years since I last gave the presentation. It always led to an interesting discussion, though, because so much of what I talked about seemed to go against their core instincts about innovation (the presentation also debunks some of the common myths about the success of Silicon Valley). Maybe, one day, I’ll get to give the talk again.

However, what fascinated me most was the general resistance to understanding the fundamentals of both innovation and the internet. But in the past few years, it’s become increasingly clear that the EU’s concept of the internet is almost entirely out of sync with how digital innovation works, especially with the ways in which the EU has gone about regulating the internet — from the GDPR to the Copyright Directive, to the antitrust efforts, to the Terrorism regulation.

The Economist recently explored this issue, suggesting that Europe will never produce its own Google. While there are a few European tech success firms, they’re still greatly limited and there are a lot fewer of them than elsewhere:

London, a global tech hub, is home to DeepMind, a leading artificial intelligence (AI) outfit; Stockholm is home to Spotify, a dominant music-sharing service; Cambridge-based Arm makes processor chips for almost all the world?s smartphones.

Yet still Europe lacks large firms in areas like social media, e-commerce and cloud computing comparable in scale to America?s Google and Microsoft, or China?s Alibaba and Baidu. Of the world?s 15 largest digital firms, all are American or Chinese. Of the top 200, eight are European. Such firms matter. They operate dominant online platforms and are writing the rules of the new economy in the way Cockerill?s innovations did in his day.

Unfortunately, rather than focusing on the constant regulatory attacks by EU policymakers on the key elements of innovation in the digital age, the Economist article falls back on the same old excuse we’ve heard from Europeans for years and years: the country has too many different languages and a complex set of different laws in each country:

Today, however, Europe?s patchwork is a disadvantage. New technologies require vast lakes of data, skilled labour and capital. Despite the EU?s single market, in Europe these often remain in national ponds. Language divides get in the way. Vast, speculative long-term capital investments that make firms like Uber possible are too rarely available on European national markets. True, there is progress. European universities are working more closely together, and in 2015 the EU adopted a new digital strategy that has simplified tax rules, ended roaming charges and removed barriers to cross-border online content sales. But about half of its measures?like smoother flows of data?remain mere proposals.

And while I’m sure there’s some truth to that stifling some aspect of European success, it doesn’t stand up to much scrutiny. After all, most of the giant American internet firms have figured out how to work in those vastly different European markets, despite not even being headquartered there. So clearly it can be done.

The larger problem, it seems has much more to do with the general distrust for disruptive innovations. The European approach, consistently, appears to favor slowing (or stopping) innovation unless all possible “harms” are minimized, even if this comes at the expense of the benefits. There are arguments to be made for this approach — preventing harm is a laudable goal. But it leaves out the other side of the equation: it kills off massive amounts of benefits. This is not to say that the general approach should be a free for all, or that potential harms should be ignored. Nor is it to say that we should be purely utilitarian and weigh the two sides. But, an innovative approach that enables experimentation and learning, and a focus on providing much more benefits for the public seems to be much more effective at creating incredibly valuable services.

There is, of course, much more involved in building out a successful innovation ecosystem that builds hugely powerful services, but the EU seems to have little to no interest in actually figuring out how it can work.

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Comments on “Why Europe Will Never Build Its Own Digital Giants”

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40 Comments
Anonymous Coward says:

Re: Such a bad thing?

The problem isn’t the size it is the inability to get stuff done and grow. All of those started far smaller. I would rather have moving fast and breaking things than stagnation. We don’t have the luxury of centuries to spend with only trivial advances for stability that will be broken by the next idiot heir or rivals who don’t decide to slack off where going Admiral Perry and opening markets with gunboats was them being /nice/.

stderric (profile) says:

Re: Such a bad thing?

tech giants … have been causing real problems with the move fast and break things attitude.

I’d agree that smaller and better (to me, meaning less exploitably rather than massively) regulated companies would probably be best for the world in the long run. But it isn’t just the MFBT American tech giants that cause problems, it’s also the Move Slow and Control Knowledge publishing giants like Axel Springer and Elsevier… and they aren’t American.

Scary Devil Monastery (profile) says:

Re: Such a bad thing?

"Not sure that lacking tech giants in Europe is a problem. Facebook, Google, Uber, Twitter Amazon etc have been causing real problems with the move fast and break things attitude. I think the world would be far better off with smaller and better regulated tech companies."

The benefits of all of these so massively outweigh the drawbacks that it’s like wondering whether we should really allow water since it is dangerous if inhaled.

Of course, other incumbent giants, usually in the media business, in hazard of dying in the wake of the progress caused by Google and Amazon…now THEY certainly believe it’d be better to be rid of the competition.

What you are actually saying is that the world should never have had a functional search engine for the internet, nor international online retail, nor public streaming platforms…more or less every part which separates the current online environment from the internet as it was in the 1980’s when the only people enjoying unlimited communications were the nerds.

Your argument is as amazingly conservative as that of an 18th century fossil grumbling about the undesirability of mass transit and train lines.

Cerberus (profile) says:

Re: Re: It's simpel.

Hyves wasn’t geographically restricted. I believe it was even fairly large in a few other countries before Facebook.

The problem with these kinds of sites is that everyone wants to be on the site that has the biggest number of potentially interesting people or other entities (products, places, apps, etc.). Everyone eventually gravitates towards the biggest ecosystem, and that was not Hyves. Because Facebook began in America, the biggest single market, it could easily grow to be the biggest by far, then gulp up or drive out competition elsewhere.

Only where there are social/cultural barriers preventing people from switching have other networks survived, such as Vkontakte in Russia. China is a protectionist and censoring country, which has blocked foreign networks most of the time.

Anonymous Coward says:

Establishment vs Innovators

“Why Europe Will Never Build Its Own Digital Giants” (?) :

– “However, what fascinated me most was the general resistance to understanding …. innovation and the internet.

– “The larger problem, it seems has much more to do with the general distrust for disruptive innovations. The European approach, consistently, appears to favor slowing (or stopping) innovation unless all possible “harms” are minimized, even if this comes at the expense of the benefits.”

___________

Hmmm, so established European tech executives and the EU governing agencies don’t understand/trust/like significant technical change/innovation — they like the comfy status quo and actively resist useful innovation.

Sounds like the classic “Establishment versus the New Guys”.

Silicon Valley prospered dramatically because the American BigBusiness/Government Establishment (corporatism) did not perceive SV startups as a competitive threat to their dominant economic status quo. But the EU Establishment now well understands how their comfy status quo can be disrupted by innovation and smart competition — and are actively fighting it with EU government mechanisms.

Imagine the struggle by SV innovators if IBM leadership had correctly perceived the IT/Computer market & tech innovation potential 40 or 50 years ago.

Scary Devil Monastery (profile) says:

Re: Establishment vs Innovators

"Silicon Valley prospered dramatically because the American BigBusiness/Government Establishment (corporatism) did not perceive SV startups as a competitive threat to their dominant economic status quo. But the EU Establishment now well understands how their comfy status quo can be disrupted by innovation and smart competition — and are actively fighting it with EU government mechanisms. "

^This right here.

The EU more or less consists of ultraconservatives seriously loath to allow "disruptive" technology even, or perhaps especially if it threatens to empower consumers and citizens. To boot, european politicians still largely look at the internet as some weird trend used by young neckbeards living in basements or dangerous hippies peddling drugs.

"Imagine the struggle by SV innovators if IBM leadership had correctly perceived the IT/Computer market & tech innovation potential 40 or 50 years ago."

No need to imagine. AT&T/Bell Telephone showed exactly how the incumbents react to perceived threats to their market monopoly. IBM would have crushed every startup in silicon valley and salted the earth if they had even an inkling that IT could become something they didn’t just have to offer to large companies in need of something to count hole cards with.

Thad (profile) says:

Re: Skype?

It’s not really accurate to say that Linux was “acquired by a US company”. It’s funded by the Linux Foundation, which is an American organization whose membership includes American, Chinese, Japanese, and Korean companies (not an exhaustive list).

Copyright on the Linux kernel itself is shared among all its contributors, which include individuals and companies all over the world.

Lawrence D’Oliveiro says:

Or Maybe The Future Doesn’t Belong To Giants

Open Source is very much an international endeavour — Linus Torvalds is from Finland, Blender development is based in the Netherlands, Python was created by a Dutchman, and so on and so on.

The US perspective tends to be distorted by the fact that much of its economy revolves around Fortune 500 companies. This isn’t true in the rest of the world — most of the GDP in other countries comes from small businesses, not large ones.

You seem to think large companies are good. But see how they act: when they are smaller and hungrier, they are all in favour of innovation and competition — for example, Bill Gates’ well-known comments in the 1990s about the evils of software patents. But once they become big and powerful and able to lobby for regulation in their favour, their attitude changes, and they become just as keen to keep out the next lot of new competitors as the previous incumbents that they have made obsolete.

Ninja (profile) says:

Re: Or Maybe The Future Doesn’t Belong To Giants

Imagine if anybody and Netflix could license any content in equal footing (ie: same pricing) and your only worry when signing up a streaming service was actually how good of a service it offered? I’d say social stuff and other services would greatly benefit of interoperability. Take the alternative of locking people in, make it easy to move around with their stuff then you’ll see the world you envision.

Jeroen Hellingman (profile) says:

We need your presentation at the EP.

We currently see a widely carried aversion against the internet giants, and the result is that we see significant support for extremely stupid laws justified by the “need” to limit those giants, but in fact harmful for all innovation. It is as if people and law-makers think: does it harm Google or Facebook, then it is okay, damn it the consequences.

Another factor is the idiotic idea that “more IP” = “more innovation,” whereas in practice, there is an optimal level of protection against freeloaders, and any more protection will actually go against innovation, and we are way beyond that level. The rediculous scope of IP laws in Europa, and the horrible national patchwork make it hard to grow. Once you’re big enough to pay for a couple of 100 employees to deal with it, you can manage.

I would love it if you could give that presentation to a group of current MEP’s. Should I raise the idea with some Dutch MEP’s?

No matter how stupid the trends are, I think the emergence of those internet molochs is a disturbing trend; they become single points of failure in the internet, and allow the concentration of far too much power in a few hands. However, the way to deal with these is via antitrust law, and by redesigning international tax treaties, such that income generated in one jurisdiction can be taxed in that jurisdiction, irrespective of the locations of head-offices, etc. I love to point at this little article by Steven Pemberton, already 10 years old, but still very relevant: https://homepages.cwi.nl/~steven/vandf/2008.03-website.html

In some respect, the disaster-in-making called the new EU copyright directive might promote this, as it will open up a market for NAS-like devices that can provide many of the services Facebook and Youtube currently provide, but in a far more decentralised way. They can interconnect with friends and family using strong encryption, and even use micro SD cards to exchange data (128GB can an awful lot of holiday snaps). The problem is, they are harder to run, and require an up-front investment.

Anonymous Coward says:

European companies have produced many innovative products, but the successful ones all seem to get bought up and absorbed into the giant American tech companies. Skype would be one such example. Many other innovative products and services lack the marketing muscle to achieve worldwide dominance.

It’s unclear if Mike Masnick considers Israel to fall within the European category, at least nominally, considering that the country has a close relationship with the EU, and is (somewhat controversially) routinely included in European sports and Eurovision and various other associations. But since this tiny tech giant does not quite fit the narrative, we can probably assume that the answer is “No.”

Anonymous Coward says:

Nokia was just bought for its ip and patents ,
it failed to make modern smartphones ,
like palm it was too slow to adopt android as an os or to make a phone that could compete with the iphone.
Its not a good example of a sucessful eu company.
The next facebook or youtube will not come from europe,
as the eu is more interested in bringing in
more regulation to protect newspaper companys .
I,D Prefer the attitude of america ,
let competition thrive,
let companys compete ,
As with phones the users and the public will choose
what apps to use and websites to visit.
Overegulation like section 13 will stamp on free
speech and overblock user content .
1000,S of singers ,podcasters , can use youtube
as a platform to reach anyone as it is protected
by regulations ,
Youtube has been able to deal with record companys
and film companys by setting up the content id feature .
I,m presuming eu users will still be able to acess
websites in the us which will not be covered
by section 13 ,
so they can still watch most of the videos, that they watch right now.
theres already a culture in cuba where all the
latest video,s ,movies are exchanged on usb drives ,
As fast broadband is simply not avaidable to most of the cuban population and its very expensive to use
the web on mobile phones in cuba .

Darkness Of Course (profile) says:

One small picky point

Cambridge-based Arm makes processor chips for almost all the world’s smartphones.

No, they don’t. They design the core architecture, then “license” their designs. Indeed, apple doesn’t actually use “the” ARM design. Their architectural license allows them to innovate (there’s that damn word again!). No additional royalties required, although the typical ARM royalty is in the pennies per processor range. About a dime from what I recall.

Don’t get all down on apple and others about their use of ARM licenses. Without ARM’s designs many small systems would never have existed. They efficient designs were often the only way a reasonable (balanced watt/cost/performance) could be built. We are were we are in the smartphone ecosystem because of low power, effective ARM design expertise.

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