European digital start-ups are driving innovation globally and creating new jobs for younger generations. The booming Internet economy may be just what Europe needs to escape its financial woes and move forward.
Whenever Neelie Kroes speaks publicly about digital start-ups and the Internet, she begins to gush like a teenager in love for the first time. The European Commission's vice president speaks excitedly as she outlines the unique opportunities for the future, a sustainable job engine and a young industrial sector - the means to drive the old continent of Europe forward in the face of international competition.
Europeneeds successful business start-ups and global Internet companies "in order to become a center of growth in the world," Kroes told business leaders and politicians at this year's World Economic Forum in Davos.
Grand plans for growth
Given the 71-year-old's position, the European Internet economy is something she should certainly be promoting. The Dutch politician is the European Commissioner for Digital Agenda and is responsible for the promotion, development and dissemination of information and communication technologies.
In recent weeks, new studies using hard data to make a case for the potential of Europe's digital economy have given Kroes' message an extra boost. And, in particular, it was one EU-commissioned report about the app boom that really brightened the mood in Brussels.
The report stated that Europe's app developers - often start-up companies - are in a position to lead the way globally. The study, which was published in mid-February, also revealed that the development of miniature programs for smart phones and tablets is the fastest growing industry in Europe. In less than five years the app sector has grown from practically nothing into a digital superhero. Almost 2 million jobs have been created since 2009. Further, the report predicts the industry will employ almost 5 million people by 2018 and generate 63 billion euro ($87 billion) in revenue.
EU explosion in app development
"This is one area of the digital economy where Europe really leads," Kroes said proudly at the report's launch. "Of the global revenue for consumer apps, EU developers raise 43 percent."
Many young Europeans may be out of a job, but they're not out of ideas. It's especially this younger, Internet-savvy generation, often referred to as Europe's "lost generation," who could benefit from newly created jobs in the digital economy. Some observers see it as one way to recover from the effects of the eurocrisis and start the healing process.
From an EU perspective, the good news has certainly come at the right time - just ahead of the European elections in May. However, the app study also suggests there is still a lot of work to be done before Europe can fulfill its digital dreams. Almost 40 percent of the developers surveyed can barely compete with the salaries offered in the Unites States. Lack of training and business know-how, and the fact that females make up only 9 percent of app industry employees, are further weaknesses.
EU commissioner Kroes admits there's some catching up to do. "The apps may be European, but the big platforms are not," she said. "The giants, so far, are American: Apple, Google, Facebook." In other words, Europe isn't reaching its innovation potential in the web market economy.
"It has been somewhat left behind," said Tobias Kollmann, professor of e-business and e-entrepreneurship at the University of Duisburg-Essen in western Germany. In an interview with DW, he said it's necessary to prepare the groundwork now, "so that in three to five years we'll be in a much better position in the digital competition." The five biggest companies are American, and together they have a larger market capitalization than the 30 German DAX companies. "We'll have to work hard in the coming years if we want to get there, it's not going to happen overnight," said Kollmann.
Working together across Europe
Taking on the seemingly all-powerful superstars of California's Silicon Valley and the emerging nations in Asia would have to involve a cross-border cooperation between European states, argues Kollmann. "To avoid having a start-up idea that's developed three, four or five times in different countries, we should create a network of transparency right from the start, and then perhaps the bigger players can be built up as competition." Bitkom, the German Association for IT, Telecommunications and New Media, has a similar view. And it's also calling for the financing of digital start-ups to be simplified.
"The situation for start-ups in the initial phase has improved markedly in recent years," Niklas Veltkamp from Bitkom told DW. But there are still massive problems with financing growth. "If a start-up wants to expand, it takes between five and 20 million euro," said Veltkamp. "And obtaining such a large sum in Europe is a big challenge." Most European investors are more cautious than their US counterparts when it comes to granting risk capital. One option would be changing the economic environment to make lending more attractive, says Tobias Kollmann. A good example of this is Great Britain, "where you can claim back investments in start-ups on your personal tax returns."
Keeping up in the digital age
EU commissioner Kroes has tried to push almost all of these proposals through. For some time she has been calling for uniform standards for start-up companies, more intensive IT training, easier credit lending and a common marketplace for Internet-related services. She also wants the expansion of a modern broadband network across Europe. But for that to happen all 28 member states would need to get on board.
A great deal of work is still needed to make sure Europe doesn't get left behind in the IT age. Kroes' "Start-up Europe" initiative, as well as a number of other EU funding programs, are designed to help. They aim to bring together experienced entrepreneurs, company founders, representatives from social networks and investors. There are also competitions to reward innovative entrepreneurs and promote the best 12 European start-ups. These initiatives can only serve as further incentives for young start-ups, said Kroes. After all, it's entrepreneurs who create jobs, not politicians, she said, adding "sometimes it's best if politicians simply clear the way."