Europe’s other problem: where are all the tech startups?

European leaders want you to 'test your own wings,' but there are systemic headwinds getting in the way

Europe, the grand old lady of the civilized world, is starting to look a little tired lately. Its single currency model is under threat, economic growth is but a fond memory, and worse, nobody seems to have any great ideas for reviving the region’s flagging fortunes. In contrast, the world’s technological sector continues to thrive, with web-centric startups going from zero to multimillion-dollar heroes in the space of mere months. An obvious solution to Europe’s present malaise, then, is to encourage more of these startups to take root within its realm and to thereby capture some of the exponential growth that the web is driving. After all, there’s no reason why companies like Airbnb, Netflix, and Instagram should sprout up and succeed in the USA and not in Europe, is there?
Recognizing Europe's failure to properly capitalize on its vast resources — an educated workforce, widespread broadband penetration, and a population that remains well off by global standards — the European Commission recently set up a Leaders Club of influential entrepreneurs and investors. EC Digital Agenda leader Neelie Kroes describes the group as her "crown jewels" and hopes to use their expertise to iron out some of the challenges posed by Europe's multiplicity of cultures, languages, and business regulations. She also wants to promote the Club members as role models for aspiring young entrepreneurs, believing that the key to unlocking Europe's potential lies in fostering a more daring entrepreneurial spirit across the continent.
A leading light on Kroes' all-star advisory board is Niklas Zennström — co-founder of Kazaa and the $8 billion Skype — and his assessment echoes that of the Commissioner. He argues that the web is a global marketplace, so your starting location doesn't matter. You just have to have a compelling product and funding will pretty much find you by itself. But is that really the case — does Europe only need to be shaken out of its risk-averse state in order to properly compete with the startup-sodden USA?
The answer, predictably, is far more complex than that. While it’s true that any web startup’s potential audience is the entire population of the internet, there are obstacles that restrict at least the initial addressable market for EU startups. Consider one of Europe's biggest successes of late, Spotify. Most of that music streaming service’s history has been limited to operating in the Scandinavian nations and the United Kingdom. Constrained by the need to negotiate licensing rights on a per-region and per-country basis, Spotify didn’t enter the crucial US market until long after its inception. More than long enough to sink companies that might not have the same sort of financial backing that it did. Imagine how much more quickly the company could have evolved had there been a uniform music licensing system across the EU.
Europe, the grand old lady of the civilized world, is starting to look a little tired lately. Its single currency model is under threat, economic growth is but a fond memory, and worse, nobody seems to have any great ideas for reviving the region’s flagging fortunes. In contrast, the world’s technological sector continues to thrive, with web-centric startups going from zero to multimillion-dollar heroes in the space of mere months. An obvious solution to Europe’s present malaise, then, is to encourage more of these startups to take root within its realm and to thereby capture some of the exponential growth that the web is driving. After all, there’s no reason why companies like Airbnb, Netflix, and Instagram should sprout up and succeed in the USA and not in Europe, is there?
Recognizing Europe's failure to properly capitalize on its vast resources — an educated workforce, widespread broadband penetration, and a population that remains well off by global standards — the European Commission recently set up a Leaders Club of influential entrepreneurs and investors. EC Digital Agenda leader Neelie Kroes describes the group as her "crown jewels" and hopes to use their expertise to iron out some of the challenges posed by Europe's multiplicity of cultures, languages, and business regulations. She also wants to promote the Club members as role models for aspiring young entrepreneurs, believing that the key to unlocking Europe's potential lies in fostering a more daring entrepreneurial spirit across the continent.
What can Spotify and Angry Birds teach you about doing business on the web?
A leading light on Kroes' all-star advisory board is Niklas Zennström — co-founder of Kazaa and the $8 billion Skype — and his assessment echoes that of the Commissioner. He argues that the web is a global marketplace, so your starting location doesn't matter. You just have to have a compelling product and funding will pretty much find you by itself. But is that really the case — does Europe only need to be shaken out of its risk-averse state in order to properly compete with the startup-sodden USA?
The answer, predictably, is far more complex than that. While it’s true that any web startup’s potential audience is the entire population of the internet, there are obstacles that restrict at least the initial addressable market for EU startups. Consider one of Europe's biggest successes of late, Spotify. Most of that music streaming service’s history has been limited to operating in the Scandinavian nations and the United Kingdom. Constrained by the need to negotiate licensing rights on a per-region and per-country basis, Spotify didn’t enter the crucial US market until long after its inception. More than long enough to sink companies that might not have the same sort of financial backing that it did. Imagine how much more quickly the company could have evolved had there been a uniform music licensing system across the EU.
"A lot of the legislation we have is designed in the old world."
Deepening the problem for any prospective new web startup is the issue of regulatory fragmentation. At that same Leaders Club event, Neelie Kroes smiles wryly when asked about the idea of a harmonized European legal framework — that’s always been the goal, she says, but in reality the continent remains more divided than united. One salient example she provides is of a 14-year-old entrepreneur who found himself having to move from Spain to London because in Spain he still needed his father to sign all contracts for him. While that case is somewhat benign, the worrying thing is that Kroes’ Digital Agenda team lacks the authority to do anything to rectify the issue.
Contract law remains, to a large degree, a matter of national jurisdiction, meaning that if Kroes wants to see substantive changes in it, she’d need to first contact the single market minister Michel Barnier, who in turn would have to lobby local legislators to effect that change. Even then, some alterations to Europe’s regulatory patchwork may be impossible to enforce due to their potential side effects on other industries. As Niklas Zennström admits, "a lot of the legislation we have is designed in the old world. Designed to protect large companies with large staffs." Sat alongside him on the Leaders Club, Boris Veldhuijzen van Zanten of The Next Web expresses agreement, pointing to Europe's greater burden of bureaucracy and asserting that the continent is "not just more risk-averse, there is actually more risk."
 
By Vlad Savov
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