November 13, 2018 / 9:28 AM / a month ago

Breakingviews - EU tech’s unholy alliance takes shape in Lisbon

LONDON (Reuters Breakingviews) - Holding one of the world’s largest web conferences in Lisbon highlights an uncomfortable truth: Europe has produced vanishingly few large internet companies. Top billing at last week’s Web Summit in the Portuguese capital therefore went to American giants. Executives from Apple, Slack, Pinterest, Microsoft and Google (twice) all took to the main stage in the city’s cavernous Altice Arena. The only European businesses with dedicated centre-stage sessions were Royal Dutch Shell, the decidedly old economy energy behemoth, and consultancy Accenture.

General view of the centre stage of Web Summit, Europe's biggest tech conference, in Lisbon, Portugal, November 5, 2018.

European tech entrepreneurs may get a better showing in the future, however. The continent’s startups have struggled in the past with access to finance and talent. Yet venture capital funding in the European Union is at record levels, while entrepreneurs can increasingly tap a growing pool of potential employees. Meanwhile, regulators like EU Competition Commissioner Margrethe Vestager appear eager to help level the playing field with the American giants.

Web Summit’s transatlantic imbalance is hardly the fault of the organisers of the jamboree, which attracted around 70,000 attendees to talks involving 1,200 speakers on 24 stages. Listed web companies based in Europe are collectively worth about $112 billion, using Refinitiv data, or just over a tenth of Amazon. America has produced half the world’s billion-dollar tech companies founded since 2000, according to investment bank GP Bullhound. Asia is responsible for a third, and Europe just 17 percent.

That’s changing, though. Valuations of European $1 billion-plus tech groups are rising faster than U.S. and Asian peers, on GP Bullhound data, while Europe-focused venture capital funds raised $11 billion in the first seven months of 2018 – more than in any full year between 2008 and 2015. One in five newly-minted European MBA graduates go into tech, according to venture firm Atomico. The bloc has twice as many people with PhDs in science, technology, engineering or mathematics as America, and a million more professional software developers.

That potential was evident further down the list of speakers in Lisbon. Take Estonian ride-hailing app Taxify, which has 15 million users worldwide and a $1 billion valuation. Markus Villig, its 24-year-old founder, hopes to take on SoftBank-backed Uber by charging a smaller fee for drivers and cooperating with local regulators. Recruitment app Job Today, meanwhile, has processed over 100 million applications for casual jobs in the hospitality and retail sectors since launching in 2015.

Yet the promising pair exemplify some of European tech’s hurdles. Job Today co-founder Polina Montano says the company’s user numbers more than doubled after Google launched its job-search site in Britain this year. The search giant currently aggregates third-party listings and says it has no plans to charge. But the media industry, among others, knows about the dangers of sharing revenue with Google. And the U.S. giant is not averse to using its muscle. The European Commission has twice fined it billions of dollars in the past two years for favouring its own shopping service, and for using its Android mobile operating system to extend its search engine.

And while Taxify doesn’t compete with Google, Villig reckons its vast hoard of maps data should be in the public domain. Ride-hailing apps could work better with more information on which routes are busiest at which times. Google Maps has by far the largest source of such data, but the search giant understandably keeps it secret.

Policymakers agree. Vestager railed against Google in a packed centre-stage address, saying “we cannot look away when it threatens to shut down competition”.  She hinted at potential rules that would force tech giants to open up their data to rivals: “When just a few companies control lots of data, that can make it hard for anyone else to compete”.

Such an intervention would be radical. But there’s an appetite across the bloc for big thinking on tech regulation. An EU government official told Breakingviews that one idea is to make companies’ transport data public. The commission, meanwhile, has proposed rules that would force “transparency and redress obligations” on online intermediaries. That would effectively force Google, Amazon, Apple and others to be open about how they rank third parties in searches on app stores, e-commerce sites and social media platforms. Job Today and other third parties could launch appeals if they felt their listings were being unfairly squeezed out.

Some want regulators to go further. Swedish music-streaming group Spotify recently signed a letter urging the commission to crack down on tech giants who favour their own services and charge high fees. Meanwhile Jon von Tetzchner, whose Vivaldi web browser competes with Google’s Chrome, thinks using data to sell ads targeted at individuals should be banned. “It’s this business model that is at the heart of so many things we see wrong with the web”, he told Breakingviews.

That’s unlikely. Still, European startups and regulators at least seem to be singing from the same hymn sheet. That gives some of Europe’s budding tech entrepreneurs a better chance of one day bagging the centre stage spot in Lisbon.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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