While policy makers and government show big interest and claim noble intentions – there is still a big gap between ambition and reality.
Many alarm bells are ringing across Europe for tech startups. From Berlin to Paris, and from Warsaw to Milan, thousands of innovative and ambitious startups are hustling every day. But are regulatory risks and threats overtaking their strength to grow? While policy makers and government show big interest and claim noble intentions – there is still a big gap between ambition and reality.
While our founders should be nurtured as the winning ingredient of Europe’s economy – startups create jobs three times faster than the rest of the economy – the reality of day to day life is that Europe’s innovators risk regulatory overkill. There is an unfortunate pattern in which the voice of Europe’s startup community is taken on board for more soft PR and window-dressing than allowed to the policy table at full extend. By nature, governments have a hard time understanding and catering for, companies of tomorrow.
Unfortunately too often, the Commission and Parliament are taking a destructive interest in tech rather than promoting the kind of companies they’d like to see. May this be privacy, data or competition related cases – the European Union policy makers should hold themselves to the same standards of positive and constructive rule making rather than playing the heavy handed enforcer. This is not a one off.
Aspects of the General Data Protection Regulation were the latest example of regulation which was conceived and designed with a prohibitive degree of complexity as well as a fair share of ignorance for technology. Examples like these with the hungry cry for more European unicorns don’t go well together. Digital Copyright is another chapter, where startups are caught up in the schizophrenia of policy makers. Sometimes they’re all about ‘stealing content and have to pay’ or they are ‘not concerned at all’. Across the board they are hoped to develop the artificial intelligence and machine learning Europe needs to compete with the US and China. Whether they can raise the funds or access the data they need is less of the EU’s concern.
The positive contribution of Europe’s tech startups needs to be far better understood and their perspective and insights listened to in a meaningful way by policy makers in Europe.
Europe’s mobile economy has been thriving and with it, Europe’s startup community. For instance, there has been a rapid growth of apps over the last decade, from less than 5,000 to over 2 million today. Compared to the US, Europe actually hosts more app developers. How does that sound?
Thousands of startups and businesses across Europe nurture their geniosity with the open source and architecture of the digital applications. Innovation is not limited to the software applications, new hardware manufacturers in Europe, like BQ, which has over 1000 employees near Madrid, or Fairphone, building a fully sustainable smartphone in the Netherlands, both using Android’s open source operating system. Open platforms, like Android but also Tizen, LineageOS or PostmarketOS enable new jobs and opportunities for developers in Europe too — in fact, there are estimates of roughly 2 million jobs created in Europe, with another 2 million-and-some closely associated to mobile development.
The mobile economy has not only fostered innovation, it has ensured strong competition amongst apps and app-stores. This isn’t just something that benefits companies and businesses. It ultimately enables consumers choose between a myriad of freely available solutions. Judging, reviewing and endorsing the best has given the consumer more power and voice than ever before.
Preserving an open mobile ecosystem to the benefit of consumers
After GDPR and copyright, this topic concerns the European Commission’s decision on the Android operating system which will, in one way or the other, impact the ability of startups and developers to thrive. Unfortunately so far, any government intervention has brought more complexity, legal or administrational effort, and ultimately trouble for tech communities. This makes it hard to see good things in the Commission’s actions.
Taking often far-reaching decisions about where such ecosystems for startups and developers are bound to go, policy makers need to be sure to have the full picture. Are actions about to be taken having a net positive or a net negative effect on the ability of our entrepreneurs to succeed? What are the right instruments to tackle occurring issues? Europe’s app economy has generated 2.05 million jobs, as of April 2018, at an annual growth rate of approximately 6.6% (link). We shouldn’t such developments for granted and should focus on strengthening those who build our future.
It’s hard to underestimate the ability of European entrepreneurs to innovate and to disrupt for a better future. But at the same time we cannot blame them for taking the best way towards success. Their role is to innovate while the role of public policy is to provide the best conditions to do so. Ultimately, if not founders themselves, its investors who will apply a strict due diligence.
Despite the arguments put forward by European policy-makers, short-sighted regulatory interventions interfering in the digital economy risk unbalancing ecosystems which depends upon an open and flexible approach to ensure continued innovation. The oxygen needed for startups has and always will be open access, allowing them to be part of a global community able to compete and build our future.
In the same way that users enjoy the benefits of innovation, regulatory constraints will also have a knock on effect on consumers. Take the European Commission’s proposal on the platform to business relationships or any of their competition work. Often decisions are motivated from a particular set of interest or constituency, and is not always fully weighted against all interest and benefits such as for consumers.
Take Be My Eyes, an app developed in Denmark that connects blind people with volunteer helpers from around the world via live video chat with 100,000+ downloads on smartphones. In the field of fitness and wellness, from sleep pattern optimization in Sweden to healthy home cooking in Germany, European apps improve the way people around the world approach their well being. Such stories are nearly endless and show a 21st century face of our diversity. These apps could emerge thanks to platforms like Google Play and Apple’s app store, which allow startups to scale quickly and reach billions of users over night.
Startups in Europe have to run the extra mile
We fear that regulatory interventions which fail to take full account of startup communities could lead to increased product prices, less choice and entry barriers for startups. Just think of the apps we use to help us improve our travel experiences. Most of Europeans download more than two new apps a month and spend hours playing games, shopping or doing our finances.
Startups are at the heart of innovation in our economy. Most new applications see the light of day in startups and startups aren’t shy challenging the status quo. We have to learn to get comfortable with disruptive innovation as long as the product benefit aims at the user. We need policy makers to understand how the startups of today will be shaping the economy of tomorrow. To capture incredible success stories like those of our mobile economy and other verticals like deep tech and manufacturing. Doubling down on regulation and enforcement will cause the contrary of the success stories we want to see so many more of.
Picture credits: Steve Halama
Free of the shackles of EU law when Brexit becomes a reality then the UK can offer businesses the flexibility that is needed in a modern world. But we need to ensure that key personnel have the ability to travel to and from the UK with as little hindrance as possible, says conservative MP Andrew Bingham.
The Digital Post: What Brexit means for the UK digital economy? A danger? An opportunity?
Andrew Bingham: Brexit presents huge opportunities for the UK in all areas of the economy and the digital economy is no different. Free of the shackles of EU law when Brexit becomes a reality then the UK can offer the flexibility that is needed in a modern world. The digital economy by its very nature is changing rapidly as new technologies emerge, grow and become commonplace. Countries wishing to benefit from these innovations need to be responsive and agile. The UK out of the EU can and, in my opinion, will be both these things.
TDP: Do you think there is a real risk of digital companies relocating outside the UK? How do you plan to counter this?
Andrew Bingham: No I don’t feel that digital companies will look to move out of the UK. The country has a proud record of being at the forefront of technology and innovation and this will continue. The UK is and will remain a good place to do business.
TDP: Broadly speaking, what policies are needed to ensure that UK digital economy will keep thriving outside the EU?
Andrew Bingham: The freedom of movement is a very hot political topic but whilst retaining the ability of the UK to control its own borders, we need to ensure that key personnel have the ability to travel to and from the UK with as little hindrance as possible. During a recent visit to Barcelona looking at the impact of Brexit on the creative sector this was a message that came across. Companies who operate in the EU and the UK have personnel shuttling between their two offices and thereby the two countries regularly. They need to be able to continue to do so.
TDP: The UK startup ecosystem seems very concerned about possible restrictions to freedom of movement for workers resulting from Brexit. That will stop them from recruiting high qualified staff from other countries. What is your opinion?
Andrew Bingham: In line with the previous answer, however I believe that this can easily be addressed. Things operated efficiently before freedom of movement came into being and I believe a return to a similar arrangement is perfectly feasible. With regard to recruiting from other countries, I feel that the UK will remain a centre for digital technologies where the brightest and the best will wish to come and work. The Governments stated aim to create a business friendly environment through a variety of taxation policies and finance initiatives will provide great incentives to start up businesses and encourage existing companies to retain a UK presence.
Picture credit: Kalle Paulsson
Fintech startups and traditional banks are increasingly realizing that they need to collaborate to capture new opportunities, argues Mariano Belinky, Managing Partner at Santander InnoVentures. Traditional banks can learn from startups new ways of serving costumers while startups can leverage banks’ consumers to bring them their products.
The Digital Post: How InnoVentures is supporting the growing wave of fintech firms? What are the main aims of the fund?
TDP: Can fintech startups be an opportunity, instead of a threat, for traditional bannks?
TDP: How the rise of fintech firms are affecting and can reshape the financial sector, and in particular the baking industry?
TDP: Santander is among the banks investigating into the technology underpinning bitcoin. What is the potential for the traditional banking sector?
TDP: Is funding still a major barrier for the European startup ecosystem?
Mariano Belinky: Since December 2014 he manages Santander InnoVentures, Santander Group's global venture capital fund, focused in early stage Financial Technology investments. He joined Santander InnoVentures from McKinsey & Co., where he was an Associate Principal in the Corporate and Investment Banking and Global Risk Management practices, based in New York. Here, he spent six years advising global banks, asset managers and private equity firms acrossNorth America, Europe and Latin America on multiple strategic topics.
photo credit: Chewy734
Licensed drivers don’t have any disadvantages that couldn’t be fixed with the right motivation, says Markus Villig, founder and Ceo of Taxify, the “anti-Uber” application aiming to help traditional taxi firms and drivers respond to Uber and its likes.
Markus Villig: Taxify helps taxi companies grow their business with great technology they couldn’t afford themselves. In most countries a taxi license costs just 300€, so taxis don’t have a big fundamental disadvantage to ridesharing apps with unlicensed drivers.
With the help of convenient booking applications & improved service standards, taxi companies can successfully adapt and grow their market share.
Most people actually prefer licensed drivers who can use fast-lanes, if their service, quality and price are on the same level as private drivers.
The Digital Post: Is the idea behind Taxify concretely working? What is the response of taxi firms and that of the consumers?
Markus Villig: Taxify has thousands of drivers and hundreds of thousands of customers using the platform every month. This shows that people have nothing against taxis, but they have a problem with the bad quality and high prices taxis historically have had. Taxify solves that, by making licensed drivers actually attractive.
The Digital Post: How does your start-up operate nowadays? What are the plans for the future?
Markus Villig: We are growing fast and opening new cities every month. We already are the market leader in Eastern-Europe and our first goal is to become the largest taxi app in all of Europe by number of bookings in 2016.
Our goal is to provide people with the most convenient and affordable transport we can, so taxis are not a niche service, but a mainstream alternative to public transport.
The Digital Post: Your experience shows that the so-called “uberification” of the economy can be turned in favour of the very traditional business models it is said to threaten. What do you think?
Markus Villig: Licensed drivers don’t have any disadvantages that couldn’t be fixed with the right motivation. Historically taxis have had the freedom to overcharge and offer low quality services.
With the launch of new unregulated ridesharing apps, the licensed providers are feeling enough pressure to change their offering. Taxify is there to accelerate this process and provide the tools needed to survive.
Markus Villig is the founder and CEO of Taxify, the largest taxi booking app in Eastern Europe.
photo credit: Gisela Giardino
Despite what many people may think, there is no real lack in capital supply for Europeans interested in launching their own start-ups in the digital domain.
The rise of (digital) technology start-ups is a global phenomenon, with extensive start-up ecosystems – such as the one in Silicon Valley – being replicated all over the world. Like any other region, Europe is highly interested in reaping the economic and societal benefits of a flourishing start-up economy.
In a recent speech, Neelie Kroes (the former Commissioner for Europe’s Digital Agenda) stated for instance that two out of three (!) new jobs in Ireland are created by start-ups in the first five years of existence.
Not all is rosy, though. Critics often say that it remains hard for European start-ups to get access to the proper financial means to kickstart their businesses.
But is that really the case?
It’s definitely not their biggest problem. Despite what many people may think, there is no real lack in capital supply for Europeans interested in launching their own start-ups in the digital domain.
Virtually each region has done a good job in developing the appropriate funding mechanisms to support start-ups’ launch activities. In other words: it’s not (all) about the money. As a matter of fact, three bigger threats to European start-ups’ longer-term growth can be discerned – culture, regulation and mindset.
A first issue is Europe’s fragmented market – not so much from a geographical perspective, but rather from a cultural one. Indeed, in spite of all good intentions, it remains difficult for European start-ups to sell their products across ‘cultural’ borders. The use of different languages is one obstacle, of course, but divergent social aspirations and cultural values are equally important barriers.
For example, selling a solution for personalized online advertising might be perfectly acceptable in one region because of the advantages it brings (instead of being spammed, one only gets to see those ads that are in line with his/her interests), but it may fail completely in cultures where this is perceived as a direct assault on people’s privacy.
Intra-European legal and regulatory barriers present additional obstacles. A concrete example is the burden that accompanies the launch of pan-European digital health solutions, with each European country having issued its own regulations related to the development, sale, usage and reimbursement of products and services in the digital health realm.
And finally, there’s mindset. Contrary to the US, where everything is big and aimed towards rapid international expansion, European start-ups typically have a more ‘provincial’ mindset. In today’s global, digital economy, though, that’s a major shortcoming. In order to really succeed, start-ups should have international ambitions right from the start.
As we observed already, none of those barriers exist in the US – making this geographical and cultural region a single, big ‘unified’ market with more than 320 million consumers.
Both its scale and transparency make it an easier target to introduce products and grow. A bit ironically perhaps, even conquering the rest of the European market is typically easier if done from the US…
So, how can we address those challenges? I see three important lines of action, in which European policy makers have a major role to play:
– From a regulatory perspective, measures should be taken to further unify the European market – so that its full potential of more than 500 million consumers and potential investors can be tapped.
Streamlining regulation in domains such as digital health, for instance, would already open up a wide range of growth opportunities for potentially hundreds of European start-ups.
Obviously, this would not help us overcome the cultural boundaries overnight; but to that end, instruments are already in place, such as the European Network of Living Labs (ENoLL), to help companies investigate how people will respond to new products and features – before the actual market launch.
– To foster the pan-European growth of start-ups and overcome the provincial mindset, a number of good initiatives have already been taken as well.
One concrete example is the creation of EIT Digital, which helps European start-ups accelerate their growth – o.a. by finding European and worldwide customers for their products and solutions, or by helping them raise funds.
– And finally, when it boils down to securing first customers, Europe should investigate the concept of ‘innovative procurement’– a best practice that has already been widely adopted by the UK and US administrations. It requires government bodies and local branches of big multinationals to allocate a certain percentage of their public procurement activities to innovative start-ups.
As such, start-ups can more easily get the necessary credentials and references to continue growing their businesses. According to certain estimates, public procurement is worth €2,000 billion to the EU economy – so dedicating even 1% of that amount to innovative procurement still equals €20 billion per year to support the European start-up ecosystem.
But also for that, a cultural and regulatory shift is required…
photo credit: Shumona Sharna
Which EU countries have been so far successful in exporting digital services and which are not? The result is surprisingly mixed.
Earlier this month the European Commission presented its new strategy of the Single Digital Market. Several of DG Connect’s most important goals are to give everyone a fast connection to an open internet and to support European innovators, entrepreneurship and start-ups.
The creation of a true Single Digital Market should impact the export performance of firms active in the digital economy. This columns ask which countries in Europe have been so far successful in exporting these digital sectors (i.e. services) and which are not. The result is surprisingly mixed.
The figure below shows the relationship between the exports of digital services on the vertical axis and an index measuring the so-called network readiness of countries on the horizontal axis.
This latter index on is taken from the World Economic Forum which measures the extent to which an economy is prepared to apply the benefits of information and communications technologies (ICTs) in order to promote economic growth and well-being.
Included in this measure is whether countries have the latest technologies available, whether firms absorb technology, or whether multinationals bring in new technologies into the domestic economy, etc.
Data-intensive services exports and network readiness index (2012)
On the vertical scale, digital services are defined as the producers and users of data services. The producers of data services are those active in sectors such as data processing services, software publishing services, telecommunications, or internet publishing and broadcasting services.
These are sectors that bring forward data in their production process, which is then used in many other sectors inside the wider (downstream) economy. Using much disaggregated data, it is possible to measure in great detail how much each and every industry uses these data services from data producers.
Unsurprisingly, the biggest users are at the same time the producers. Users of data services are therefore in turn telecoms, software publishers, internet publishers, data processing and hosting services firms, but also sound recording industries and the motion and video industry.
Taken together, these services are data-intensive as they work a lot with data. Using a different data set and connecting data-intensive services with trade, the vertical axis shows how much each country in the world actually exports these data-intensive services as defined above. This export measure is put in logs.
The figure shows that there is a pretty clear relationship between the readiness of a country in terms of ICT networks and the level of exports a country has regarding data-intensive services. In other words, a stronger ICT network in countries is positively associated with exports of services which intensively use data and the ICT network.
Countries with low network readiness show low levels of data-intensive services, but countries with high network readiness exhibit a higher level of services which precisely depend on a strong ICT network in order to transmit data. In the figure above, the European countries are given in blue and are marked with their 3-digit country code. It shows that overall most European countries are doing well.
However, there are countries which are doing better than others, even between countries sharing a similar level of network readiness.
For instance, although some countries such as Italy, Spain, but also Poland and Romania have an average score on ICT networks, they nonetheless are very successful in exporting data-intensive services compared to Lithuania, Estonia and Slovenia which actually share a similar level of ICT network.
Similarly, countries such as Great-Britain, France and Belgium are outperforming Scandinavian countries whilst actually having the same potential to export when looking at their ICT networks.
In fact, surprisingly Finland and Denmark export as much data-intensive services as Romania and Poland despite having a much higher network readiness index.
What can we therefore say about the success of Europe’s new strategy of the Single Digital Market?
Well, in terms of trading it, much scope still exists for the Nordics and the Baltics to improve their performance in exporting in the digital economy of Europe. Perhaps the Commission’s new digital strategy should focus first on these countries and try to figure out why these are the underperformers.
This post was originally published on the ECIPE (European Centre For International Political Economy) webpage.