The Case Set Forth
It was Saturday night, November 9, 2019 – less than two weeks ago – and I was thinking about how so much of history has been driven by the forces of revolution, from past to present, for better or worse. The setting was the bar at Berlin's Hotel Adlon on the 30th anniversary of the fall of the Berlin Wall.
Gazing at my glass of 2008 Vieux Château Certan, Grand Vin Pomerol, I knew that the plateau of land on which the wine’s vineyards had long ago taken root had been divided-up in the wake of the French Revolution of 1789. During my college years some 200 years later, rather than cause division, another revolution would reunify Germany when the Wall came down.
My second glass of the elegant Pomerol was opening up nicely – pure silk and velvet (the complex Cabernet Franc vintage having its say!) and my mind whirled ahead to contemporary Europe, a place searching for answers amid our current “Fourth Industrial Revolution,” the forces of exponential technological change bearing down on the continent in real-time like a freight train.
I took another sip. And then things became surreal.
Enter Detective Poirot
This was one excellent bottle of French wine, because a scene of high, sophisticated drama streamed through my imagination. Agatha Christie’s fictional Belgian Detective Hercule Poirot (see: Murder on the Orient Express) was being ushered into the office of Ursula von der Leyen, the new German head of the European Commission, in order to discuss the pressing case of this, our Fourth Industrial Revolution.
The scene unfolded as vividly as something on Netflix... or Amazon Prime… or Apple TV Plus… or Disney Plus… or NBC Peacock… or Warner Media… or Quibi:
Ms. Von der Leyen, set to take office December 1st of this year, stood to greet her guest with a vigorous handshake.
Poirot turned to Ms. Vestager with a slight bow.
The three quickly took their seats. Von der Leyen raised her chin and bore in on Poirot with a hard stare.
“As you know, detective, a great mystery is afoot. The lack of homegrown tech giants on this continent is causing us no shortage of what you Belgians might call exaspération. There is nothing here to compare to Facebook, Apple, Microsoft, Amazon… or the likes of Alibaba and Tencent. We want YOU to discover the cause.”
Ms. Vestager leaned forward to weigh-in.
“Many are arguing that we Europeans must achieve technological sovereignty, sir. We’re being squeezed between the Americans and the Chinese. You might say that… time is running out.”
Poirot glanced down at the pocket watch he’d drawn from his vest, stroked his moustache, then raised an eyebrow.
“Indeed, Madame. TikTok, TikTok….”
As a July, 2018, piece in Quartz considering Europe’s dilemma vis-à-vis Big Tech notes:
“While the region is giving rise to more of the world’s most promising technology companies, the giants of the industry mostly come from the US and China. For now, there’s no fast-growing equivalent of Ant Financial or Uber in Europe. Two of the most promising tech firms—Sweden’s Spotify and Germany’s Zalando—have a combined market value of around $42 billion, according to data from GP Bullhound. Alibaba is worth approximately $480 billion, and Facebook’s market cap is $550 billion.”
Although the number of tech “unicorns” in Europe is growing (over twice as many as in 2014), there is still a long way to go. It seems no European companies achieve global scale when it comes to infrastructure such as cloud computing or content distribution networks, the backbone of the internet. And the United States also dominates the platform layer of social media networks and search engines, web browsers, operating systems, and app stores (software enabling other software and services). The situation seems somewhat odd considering that Europe’s economy is just about as large as that of the United States and has no shortage of well-educated talent.
Alas, European companies have managed to build successful products. Fortunately, the consumer-facing, end-user application layer offers opportunities for the realization of a host of ideas. Successful apps and games are being created by developers all across the continent.
But no true tech giant straddles the European landscape.
I was probably sipping my third and final glass of Vieux Château Certan by the time Poirot returned to Von der Leyen and Vestager with his findings. Poirot looked around the room and commenced to unravel the mystery of Europe’s Big Tech stagnation with six key points:
1. Regulation. Generally speaking, European countries feature high taxes, strict labor laws, and legislative support for privacy and other consumer protections. Technology is a rapidly changing space, and the inability to hire and fire quickly is a drawback in light of the fast-moving nature of technology companies. It seems too many of Europe's companies tend to focus on compliance rather than competitiveness.
2. Structural Realities. Perhaps launching global services makes more sense in large homogeneous markets like the US or China, where an application can reach scale quickly. Doing so in Europe would require adapting a product to some 30 languages and a host of legal systems and cultures. Moreover, lingering trade barriers between European countries remain a drag. Building scale quickly is relatively difficult in such an environment.
3. Smaller Funding Rounds. It’s more challenging for startups to raise money in Europe, and the funding rounds are not as large. Although things are looking up, there is a real need for more “mega rounds” of financing.
4. Lack of Startup Hubs. As early as the 1950s, the American government started funding Silicon Valley through military spending, eventually birthing a tech industry that continues to feed off a military industrial complex of massive size. Although a number of European cities such as Berlin are building impressive startup hubs, there is no Silicon Valley or Shenzhen in Europe. Too often, those entrepreneurs who do start promising tech firms often sell them to tech giants from other parts of the world.
5. Stock Option Grants. Another factor worth considering is that Europe lacks the stock option grant paradigm that attracts so much talent to U.S. tech start-ups. And there are vast differences and nuances across the dozens of countries on the continent when it comes to employee ownership and stock option regimes.
6. Cultural Attitudes. The intense environment of entrepreneurship and mentorship and support that holds sway in Silicon Valley doesn’t seem to exist in Europe. It will take time to change this and build stronger European communities of entrepreneurs and risk takers.
What Now, Europe?
My mind raced. Hercule Poirot still seemed optimistic. He spoke hopefully, pointing out that the population of Europe is greater than that of the U.S., featuring cities with modern transit systems and so many impressive universities.
But Ms. Vestager turned to the detective, nonplussed.
“Unlike the Americans or Asians,” she said, “We Europeans do not seem as inclined to believe that Big Tech can solve all our problems, sir. While technological sovereignty remains a goal, we are not so much what you might call techno-optimists, as we are hardened realists. Increased regulation of Big Tech must have its day.”
Poirot grew quiet. I finished my last glass of wine. The room buzzed around me. Well-heeled locals seem pleased the Wall was long gone. Hotel staffers zig-zagged from bar to tables and back again. The Hotel Adlon could’ve been straight out of a Thomas Mann novel, and I wondered if there might be a Felix Krull among us.
Then Poirot intruded back into my thoughts, clearly irked to be momentarily superseded by one such as Krull! Rising from his chair, Poirot stood to his feet in his patent leather shoes while removing his pince-nez reading glasses, offering a final bow to Von der Leyen and Vestager before departing.
“I suppose we shall all stay tuned, ladies. Adieu.”