Digital Myth: Europe Has Failed to Create Successful Digital Companies

Digital Myths: #10 – What if the next Silicon Valley is not in California?

Europe has failed to produce any competitive internet companies. If pressed, we could mention Skype or Spotify, but nothing on the scale of Google or Amazon. This is an identity crisis for a continent that sees itself as open-minded and creative. And it is true that if the model for a successful internet company is the kind of monolith that Silicon Valley has produced – fuelled by venture capital and ad sales, hungry for growth and more users, absorbing start-ups and competitors left, right and centre – then Europe has little to offer. But what if this is just one form of success? On closer inspection, the picture is different. Look at digital games: King, whose hit Candy Crush Saga peaked at more than half a billion players; the Angry Birds of Rovio is one of the biggest, most popular games of all time and one of the fastest growing brands in entertainment; France’s Ubisoft is a top global developer and publisher of games with multi-million selling titles like Prince of Persia and Assassin’s Creed; another French company, Vivendi, is a giant in media and entertainment (including games) worth over €25 billion on the Paris stock exchange.

So while it is true that there are fewer ‘unicorns’ in Europe, it’s not for the reasons that those who say so want you to believe.

The list goes on: the UK is Europe’s main exporter of games, and Germany has some of the most successful social media game companies in the world (Wooga and Big Point). Even Belarus has a global hit with, now headquartered in Nicosia, Cyprus. The Asian games industries of Japan, China and South Korea have made big investment bets on European games companies, as has the American. The point is that there are many successful companies, not just one or two, which is different from the situation in the Bay Area. Also, games make money from their players, rather than selling on user data to third parties. If a game is free, there is a micro-payment system in-game, rather than a data-mining ad economy. And if you don’t agree that games companies are internet companies, at least they are born digital. So there it is, a home-grown digital success story with growth, jobs and foreign investment. And that’s just games – add fashion, literature, music, television, film, design, advertising, architecture and that message about how Europe is behind in digital is blurred by a much bigger message: Europe’s digital opportunity is in the creative economy, not in copying the surveillance economy of the top 10 internet companies. Why Europe is not in the top 10 is the wrong question. The right question is: how do we take full advantage of the promise of the creative economy? To answer that, think next about what policies will support that. The next ‘Silicon Valley’ will not be in Silicon Valley, that is for sure. If we play our cards right, it may very well be in Europe.

How come, then, a handful of Californian companies have come to rule the digital world? The answer may be in government investment. The history of the Internet starts with military investment and California was the centre of defence research in the mid-1900s, financed by American taxpayers. In the 1970s the academic institutions took the baton, with Northern California’s Stanford University as the star. Stanford is technically privately funded but obviously not a commercial business. But California was not only a hub of the defence industry and academia, it was also the birthplace of modern venture capital. Introduction of the Small Business Investment Act of 1958 gave private investors access to public loan securities that would provide up to four public for every private dollar invested. Even the famous Silicon Valley venture capitalists built their fortunes with tax dollars! Some of those co-investment programmes were discontinued in recent years but some remain to this day. Add to this ample access to private investment capital from pension funds, savings, banks and wealthy individuals (high-net-worth individuals) and the access to money makes all the difference for start-up entrepreneurs. The pattern is similar in places with successful tech industries, like Israel and Singapore – easy access to investment. If Europe wants to compete in the digital race, it should think more about investment and less about innovation. Innovation may be less about engineering genius and more of a numbers game. With more capital, more entrepreneurs can bring more products and services to the market which increases the number of hits, starting a benign spiral that attracts more income, more talent and more investors. Europe’s challenge is not about lack of talent or appetite for risk or overly complicated rules (to which anyone who has tried to tackle the American corporate bureaucracy can testify). It’s much simpler than that. It’s about the money.

So while it is true that there are fewer ‘unicorns’ in Europe, it’s not for the reasons that those who say so want you to believe. Not a myth, but the wrong answer to the right question.

Digital Myths is a series of posts published from the book 21 Digital Myths, Reality Distortion Antidote where Netopia editor Per Strömbäck takes a closer look at some of the concepts that have shaped the way we think, talk and make decisions about digital technology and the internet.