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The Rise and Fall of Europe’s Tech Titans: What Went Wrong?

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In the 2000s, Europe’s tech industry reigns supreme, propelled by giants like Nokia, Siemens and Ericsson. But then something changed.

Europe lost its dominant position on the world stage. Today, it seems everything we use is made in China and runs on American software.

EU vs U.S tech company market cap

The market cap of the ten largest tech companies in the US is 15 times greater than the market cap of the 10 largest tech companies in Europe.

How did Europe fall so far behind? Because Europe makes it difficult for people to start and do business.

Irish brothers start Stripe in America

When two Irish brothers, Patrick and John Collison, decided to set up an online payment company after dropping out of MIT and Harvard, they launched Stripe in San Francisco with initial financial support from the startup accelerator Y combinator.

Accelerators are prolific in Silicon Valley, providing the crucial early support that John and Patrick needed. Later, when the brothers approached Peter Thiel, the former CEO of PayPal, Thiel led a $2 million funding round that included investments from Sequoia Capital.

While European startups do receive substantial support, equity investment provided in the US is far greater. In 2023, around 4700 european startups received venture capital backing of €13 billion, or around 14 billion, while us startups attracted 171 billion in venture capital across nearly 16,000 companies. VC’s in Europe are known to be conservative, preferring to focus on revenue and short term returns rather than long term growth.

Could Stripe have been started in Ireland? No, and that’s not my personal opinion. That’s coming from the mouth of Stripes founder. In a 2012 blog post, Patrick Collison explained that when he and his brother approached irish banks to discuss partnering and integrating stripes online payment system, the banks were not very receptive.

They were cautious about adopting new technology that had yet to be proven reliable or profitable. By contrast, the US, particularly Silicon Valley, has a history of financial institutions collaborating with startups, making it easier for stripe to establish partnerships and advance their platform.

Spotify enters the U.S market

Similarly, Spotify was founded in Stockholm, Sweden.

However, to scale effectively, Spotify expanded its operations to the US in 2011, gaining millions of new users and attracting a $100 million funding round led by Goldman Sachs. Entering the US market allowed Spotify to go public, increasing its visibility, credibility and driving its growth. Patrick also highlighted another crucial challenge faced by startups in much of Europe, the smaller talent pool compared to the US, one of America’s defining strengths is its ability to attract a diverse and highly skilled workforce from all over the world.

Europe’s troublesome regulations

Even if European startups do manage to attract top talent, they face another significant hurdle, a highly restrictive regulatory environment. Labor laws in France, for example, are famously protective of employees. They allow a maximum 35 hours workweek and at least five weeks of vacation a year.

From my own experience living and working in France, it wasn’t uncommon for my friends to get eight to nine weeks of vacation a year. While these labor laws provide excellent employee protection, they can also make it difficult for startups, which often operate with an all hands on deck mentality. Without this hard push, it’s more difficult to compete on a global scale.

Elon Musk’s work ethic

This need for intense effort is epitomized by Elon Musk, who once said, work like hell. I mean, you just have to put in, you know, 80 to 100 hours weeks every week. I mean, if other people are putting in 40 hours work weeks and you’re putting in 100 hours work weeks, then even if you’re doing the same thing, you know that you will achieve in four months what it takes them a year to achieve.

As the CEO of Tesla, Elon is no stranger to the challenges posed by heavy regulations, particularly in the EV industry.

EU’s new battery law

Starting in February 2025, European manufacturers must declare the carbon footprint of every EV battery produced at every manufacturing plant. Companies grossing over €40 million will be periodically audited to ensure they identify their raw materials suppliers, specify their location, and detail the transactions involved.

By 2027, all EV’s sold in the EU must include a battery passport that provides information about the battery’s carbon footprint, supply chain, durability, resource efficiency, and materials used. And this will all be accessible to customers through a QR code. While these requirements are aimed at sustainability, they can slow EV growth by adding costly and complex administrative burdens.

As the head of the European Automobile Manufacturers association said, too often the EU puts the regulatory cart before the horse, imposing heavy compliance burdens before Europe has a fully developed EV industry in place, European car companies are already struggling to keep up with China’s dominance in the EV market, which benefits from significant government subsidies. Anybody want to jump on the back? Meanwhile, American incentives to go green through tax credits, grants, funding, and consumer discounts also increase competition. Europe is also regulating its way to last place, as a Wall Street Journal article put it, in the domain of artificial intelligence.

EU’s new AI Act

In March 2024, Europe passed the EU AI act, the first law of its kind that will shape how companies are allowed to use artificial intelligence. Some systems are banned, such as those involved in social scoring or biometric identification. To guess someone’s race, political affiliation, or sexual orientation.

Profiling that can determine someone’s likelihood of committing future crimes is also banned. Think minority report, goodbye. Deepfakes will have to be clearly labeled as such.

ChatGPT must become more transparent by disclosing the datasets used to train their AI systems. While the intention is to keep people safe, the act could also stifle progress in a rapidly evolving industry that could surpass the significance of the industrial revolution. Before the AI act passed, executives from top European companies wrote an open letter to EU lawmakers warning that a stringent AI law could lead to highly innovative companies moving their activities abroad.

The result would be a critical productivity gap between the two sides of the Atlantic. In Europe, venture capital deals related to AI have lagged far behind the US for years. We’ve already seen how heavy regulation can hurt an industry. The European space industry has struggled to innovate quickly and efficiently.

Europe’s lagging space industry

Europe no longer has an independent way to reach space after losing access to Russias Soyuz rocket following the invasion of Ukraine. Meanwhile, Europes flagship rocket, the Ariane 6, faces significant delays.

This non reusable rocket, manufactured by the french aerospace company Ariane Group, is expected to fly this summer, four years behind schedule. A decade ago, an executive from its sister company scoffed at Elon Musk for attempting to build reusable rockets. SpaceX primarily seems to be selling a dream, which is good.

We should all dream. I mean, I think the $5 million launch or $15 million is a bit of the dream. Personally, I think reusability is a dream.

How am I going to respond to a dream?

And my answer to respond to a dream is, first of all, you don’t wake people up. They have to wake up on their own. You know, they’re not supermen.

So whatever they can do, we can do this. Skepticism reflects a cautious European mentality that favors incremental progress in proven methods over the American attitude of risk taking, taking, and setting ambitious goals. So it seems the American mantra, dream big, work hard, and cut the red tape is a lesson that European governments might need to embrace if they want to be part of the future.

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