Three Things That Transformed The Face Of EU Tech In The Past Decade

It’s not that nothing existed, but a successful tech company that happened to be European seemed to be an exception rather than the norm.

Sure, every large European city had its local startup community trying hard to emulate Silicon Valley (mostly in vain), but those local communities were all ignoring each other. There were a few European tech companies succeeding at a large scale, such as France’s Ingenico or Italy’s Olivetti, but they never really passed the baton.

That’s either because they ceased operating altogether or because their success had become linked to a corporate world that was far removed from local startup communities. Imagine if every tech company in Silicon Valley had to relocate to New York or Boston after completing its Series B! In the Bay Area there would be no startup ecosystem to speak of.

An ecosystem that works is about passing the baton to the next generation. The lack of precedents explains why European tech entrepreneurs had such a hard time succeeding 10 years ago.

But the 2010s brought about change. Three trends contributed to eventually getting European tech out of gridlock.

First there was crisis

The first factor was the financial crisis. At the macroeconomic level it triggered a vigorous response by central banks that then translated into a massive influx of capital into the economy.

A significant part of the additional capital was allocated to fuelling a bullish stock market, financing government spending and sending real estate prices through the roof. But a slice of it also contributed to growing venture capital as an asset class.

Most of that went to the most dynamic ecosystems such as Silicon Valley, Israel and China, with Europe lacking the previous entrepreneurial successes that attract investors. But European tech entrepreneurs still managed to catch up and make the most of this global savings glut.

The crisis also transformed entrepreneurship as a status. Before, founding a startup was a calling for misfits at the fringe. After the crisis it became a relatively attractive option for any ambitious person.

The traditional corporate world was so busy cutting costs and tightening the bolts that the quality of the jobs it offered was going down. And with the fiscal austerity imposed in the aftermath of the crisis, European welfare states appeared to be on the road to bankruptcy.

That labor market thus radically changed the decision-making framework for young high-skilled workers.

Many young graduates were bored by the prospect of taking a steady job in the exhausted corporate world. And what happens when hungry, ambitious entrepreneurs meet an excess of capital? They can afford to be “relentlessly resourceful”, as Paul Graham once wrote, and some of them eventually succeed.

Then there was China tech

The second contribution to the growth of European tech has been the rise of China as a tech powerhouse.

At the beginning of the decade only a handful of people knew that interesting things were happening in places such as Shenzhen, Shanghai and Hangzhou. It was only with Alibaba’s initial public offering in 2014 that the power of Chinese tech giants appeared for the whole world to see.

Viewed from Europe, it changed the perspective. China’s catching up revealed that there was more than one playbook for growing successful tech companies at a continental scale.

Silicon Valley’s playbook had delivered so much that everyone in Europe was trying to emulate it. But the surge of Alibaba, Tencent and Huawei proved that another playbook could deliver similar outcomes in the very different context of China — with a different society, a government prone to intervening much more in the economy, and its positioning as a developing nation trying to reach the frontier.

For European tech that’s an optimistic message: You can catch up on the US provided you discover your own playbook, rather than merely imitating that of Silicon Valley!

What’s more, US giants had finally found their match and thus no longer appeared invincible. For European entrepreneurs that’s kind of liberating. It proves that you can grab shares from US tech companies by way of differentiation, rather than imitation. And because it forces US companies to compete against their formidable Chinese rivals, it also creates an opening for new European players to join the race — first at home and then elsewhere.

Finally came the “techlash”

The third factor is the so-called “techlash”. This one may not seem obvious, as it gives ammunition to all those — in government, the corporate world, academia — who would prefer that European tech companies fail.

But just like the rise of China, the techlash has also created a context in which European entrepreneurs can reposition so as to maximise their chances of success. The techlash forces tech companies to finally deal with local specificities, which provides an advantage to Europe players used to manoeuvring in a fragmented market.

It brings government to the dance and creates the opportunity to explore new approaches to regulating industries eaten by software and new industries such as govtech. It also makes people realise that technology unleashes a formidable power — hence the backlash.

But with it also comes the idea that maybe the same technology can be used in the pursuit of different outcomes, such as solving what economist Mariana Mazzucato calls “wicked problems”. And again it weakens established US tech companies, forcing them to retreat and make room for European competitors.

New decade optimism

These three trends combined — the crisis, China and the techlash — have created an opportunity for Europe to seize if it wants to become a tech powerhouse too. Of course, opportunity is no guarantee of success: you still need a strategy to make the most of such a favourable context.

But it should make us optimistic.

The pan-European tech ecosystem enters the 2020s in a much better shape than at the dawn of the last decade.

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