Europe sees the light

The take-away

  • US companies have hurt the continent’s potential by buying promising European start-ups.
  • Europe will have to react quickly if it wants to remain competitive in the new digital world.

Not long ago, Silicon Valley’s acquisition of a European start-up made the Old Continent proud: it underscored the quality of the educational system, the talent of the entrepreneurs and the relevance of the research. It was a sort of coronation, proof that Europe could still innovate.

Over the past five years, more than 50 European start-ups have been swallowed by Google, Apple, Facebook, Amazon and Microsoft. Their creators were generously rewarded in these deals, and as a bonus they enjoyed the prestige of having been identified as winners. These successes encouraged others to get into the game. The virtuous circle of innovation was going full throttle, and hardly anyone thought to complain.

The pattern is continuing. It still has the same positive impact on innovation on a global scale, but today it inspires more concern than pride. Increasingly, citizens realize that with each sale Europe loses a bit of its competitiveness. The newly created jobs vanish, as does the intellectual property financed by taxpayers. With each blow, it is the United States that reinforces its already massive dominance of digital markets.

What changed? Why, having been accepted as relatively positive developments, are these acquisitions now feared? The reason is of course Donald Trump, who has called into question the pillars of the trans-Atlantic relationship. The new president has seemed eager to shake off the chummy understanding that has reigned between Europe and the US for 70 years, notably when it comes to research. His commercial aggressiveness and his “America First” slogan have created a nervous mood, including within military alliances.

Faced with such behaviour, Europe could be tempted to take measures to protect its innovations and prevent its start-ups from being gobbled up by giants in California. It could, for example, make financial support conditional on a promise to remain in Europe for the long term. That would be a big mistake: entrepreneurs need accelerators, not brakes.

European innovators must already leap over a staggering number of hurdles before they can export on their own continent. To grow their market, they must often adapt to the legislation, regulations and taxation of more than two dozen countries – not to mention dealing with the European Union’s 24 official languages (including Maltese).

It is not by adding new constraints that Europe will encourage the emergence of global winners on its soil. Quite the contrary, it will do so by reducing administrative barriers, connecting ecosystems conducive to innovation and stimulating investment through tax incentives.

Europe’s telecom and electronics giants also have to step up. Where were they as their American competitors bought up local start-ups? Why did they not spot the opportunities first? So busy lecturing on the benefits of disruption and the fourth industrial revolution, they missed more than 50 opportunities since 2011 to acquire intellectual capital or a revolutionary business model that was born right under their noses. Each time, they just let the giants from across the Atlantic walk away with the prize.

This situation, fortunately, is changing. Europe understands that it has to react quickly if it wants to maintain its place in the new digital world. The good news is that Europe lacks not for innovators, just for accelerators of innovation. And this is much easier to deal with.