While Germany remains a big user of the Internet, which contributes significantly to its economy, the country has struggled to create a dotcom industry of scale to cash in on soaring global demand for Web services.
Germans are big users of Internet services and goods
The Internet is a great lubricant for Germany's economy, spurring consumption and improving operational efficiency. Yet the country has produced few home-grown suppliers of Internet products and services able to compete on global markets.
Those are among the key findings of a market research study that US consultancy group McKinsey presented to participants of the recent G8 summit in France.
McKinsey examined the Internet economies of the G8 nations (Canada, France, Germany, Italy, Japan, Russia, the United Kingdom and the United States) as well as Brazil, China, India, South Korea and Sweden. Market researchers found that the Internet has a sweeping impact on economic growth, jobs and prosperity.
Billions of Internet connections
More than 2 billion people are now connected to the Internet worldwide, generating almost $8 trillion in e-commerce transactions, according to McKinsey.
SoundCloud is one of many Internet ventures operating from Berlin
In the 13 countries the company studied, the Net now accounts for 3.4 percent of global economic output. More than half of that economic impact, it calculated, is linked to private consumption, primarily online purchases and advertising. Almost a third is generated by private-sector investments in hardware, software and communications equipment.
If Internet consumption and expenditure were an industrial sector, it would be bigger in monetary terms than energy or agriculture, McKinsey claims. Its total contribution to global economy is already higher than the gross domestic product (GDP) of Spain or Canada.
Technology-savvy Sweden led the pack in the Internet's contribution to its GDP - at 6.3. percent in 2009. Germany was ranked sixth, at 3.2 percent, after the UK, South Korea, Japan and the US.
But as a supplier of Internet goods and services such as servers and online retail platforms, Germany ranked ninth, far behind the US as the market leader. American companies, like Amazon, Apple, Google and eBay, account for 35 percent of global Internet sales, followed by Japanese firms at 20 percent, according to McKinsey.
Experts list several reasons why German Internet companies are far fewer and far less popular than those in the US. "The venture capital sector is weak for both the launch and growth phase of start-ups," said Axel Pols, chief economist at German information technology association Bitkom. "Germans also tend to be less willing to take risks."
Worried about failure
There are various reasons for that. Among them: failure. "In the US, if you fail a couple of times, you're still given another chance," Pols told Deutsche Welle. "Here, if you fail once, you're often finished. Failure in the US is considered a natural part of pursuing new innovative ideas."
Berlin is attractive to start-ups because of its affordable housing and office space
Pols also points to the lack of intensive networking that has helped make Silicon Valley the vibrant Internet testing ground it is today.
Michael Rotert, head Germany's Internet industry association Eco, adds strict data protection regulation as another hurdle that Internet companies, hungry for user information, face in Germany.
But despite all its shortcomings, Rotert refuses to write off Germany as a viable launching pad for Internet start-ups. He lists successful online companies, such as shoe and clothing retailer Zalando and coupon website CityDeal, which was founded in late 2009 and was quickly acquired by Chicago-based Groupon.
"The number of companies in our association has grown steadily, despite the Internet bubble and the global financial and economic crisis," he said.
Thriving Internet clusters
Rotert points to Berlin as an emerging Mecca for Internet start-ups thanks largely to its pool of creative, young programmers and affordable housing and office space. But he is quick to add that Cologne, Frankfurt, Hamburg and Munich are also active, evolving into thriving Internet clusters of their own.
Many of start-ups, Rotert notes, are no longer focused on just Germany but are addressing the global market with their new services. Their names include audio sharing platform SoundCloud, e-book hub Readmill and gaming website Wooga.
Rotert sees a future for Internet ventures in Germany, albeit the various hurdles they need to clear in the country. "There are plenty of screws you can still adjust to make things work," he said.
Author: John Blau
Editor: Sam Edmonds