Digital Backyards Forum Silicon Valley vs. Brussels: European Alternatives to Google and Facebook

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  • Silicon Valley vs. Brussels: European Alternatives to Google and Facebook

    Google and Facebook represent two of the web’s behemoths. They are much-hated American companies poised to take over the world, much like Coca-Cola and McDonald’s before them. To me, they also represent projects started by a handful of nerds under 30 that changed the way we communicate and, in the end, how we live. For all I know, there are no European equivalents.

    Why Europe? Why should we care? After all, we Europeans live relatively well without a Silicon Valley. I see many reasons why we should care. What about pride? Europeans love to dance on the street whenever a football team wins an international championship. Why shouldn’t we be proud of our internet companies? And what about location? Wouldn’t it be nice to have a service we can use that is developed near where we live, by people we can visit and whom we know?

    When debating alternatives to Google and Facebook, many European thinkers emphasize the need to go small, to go decentralized and to go grassroots. This may sound like sound policy for the industry, but it fails to grasp how the internet works. The fact that the internet creates natural monopolies is being overlooked. As soon as marginal costs for a service dive to 0, you’re in a winner-takes-all market. Add network effects to that, i.e. the fact that the service improves as more users join it, as is the case for Facebook, and it becomes clear that the monopolistic situation we have today is only normal. (Google also benefits from network effects as it monitors user behavior to improve results.) Non-American competitors to Google and Facebook do exist. But using Vkontakte as a counter-example would be disingenuous: Digital Sky Technologies is an investor in both Facebook and Vkontakte, explaining why co-existence between the 2 is possible. As for Seznam in Prague, the only credible European competitor to Google, it just lost its top spot as a search engine in its home market.

    The other overlooked economic aspect of the debate is that alternatives to natural monopolies often come in the form of other services being provided. Remember when AOL was the giant ogre? Then came Microsoft, then Google, then Facebook. It’s clearly not over. The pattern shows that today’s giants can be beaten by outsmarting them and creating new services. We need to think of new services to improve people’s lives, not try to corral them away from Facebook.

    If you take both arguments together, you come to the conclusion that what we need is a way to make innovation possible. In Europe, fostering innovation too often translate into a Colbertist approach of giving loads of taxpayers’ cash to the R&D teams of huge corporations. This hasn’t worked and it never will.

    What we need is to change the European mindset where failure is still considered a stain on someone’s career. We need to embrace failure, first of all in schools. Some EU countries, such as Finland, developed radically new curricula for primary schools, and it works. In Denmark, the Kaos Pilotcollege rethought higher education in an experience that prepares students for real life. These experiments need to be scaled up so that every European kid can have the chance to build the next service that will change people’s lives.

    The other issue is financing innovation. To achieve that, we need to unify EU venture capital markets into a single unit, whose strength could help grow global services. The best way to do that would be to have a single tax regulation for start-ups as well as a EU company status.

    If this does not happen, the current situation of having every start-up incorporated in London, where most Berlin start-ups are headquartered, will continue. (The Berlin start-ups that are not in London are mostly Rocket Internet‘s, probably the largest venture fund in Europe, known for its aversion to new services).

    This way of framing the debate certainly doesn’t fit with what I heard at Digital Backyards. Too many Europeans, especially among intellectuals, tend to think that profit-seeking ventures are a problem in themselves. But if you take profit out of the equation, you’ll likely end-up with government-sponsored research (Quaero, anyone?) or grassroots projects with limited reach. Both of which will do nothing for ordinary people, except divert their taxpayer’s money (Quaro, for instance, was awarded 100mE of EU funds).

    The real risk I see is that by focusing on not looking for giants and fostering grassroot movements, the debate leads to thinking too small. When I talk about financing innovation, I’m not talking about VC or IPOs only. I’m talking about raising money in the low 7-figure, because that’s the kind of money you need to build a world-changing product (just to pay for your people for a decent amount of time).

    Look at Hospitality Club (Germany) vs. Couchsurfing (US). Reducing the difference between the two to funding is futile, but Couchsurfing focused much more on scaling and improving the product (and finding the money to do so). It may be bad that they had to transform themselves into a for-profit to attract funding, but, by any metric, they had a much larger impact than the German site. Same thing for SeeClickFix (US) vs. FixMyStreet (UK, made by MySociety). The British product came out first, but, MySociety being mostly an agency, they lacked the means to expand beyond the UK (they only added support for international instances this October). In the meantime, SeeClickFix raised USD 1.5 m from Omidyar and OReilly. Same story with Ushahidi (Kenya), which received a total of USD 5m, mostly from Omidyar.

    In Europe, getting 7-figure funding for something that’s not e-commerce is hard. That’s how ideas that were born in Europe (Hospitality Club, FixMyStreet) are taken global by non-European actors.

    It’s not about VCs, as most of these examples were financed by foundations. It’s about being able to allocate resources to innovative projects, something governments are very bad at (with reason: it’s not wise to invest taxpayers’ money in such risky ventures).

    It’s great to grow grassroots projects, and Europe doesn’t lack that. It’s sad when they are doomed to remain amateur or national-level ventures, just because the markets they were born in are unable to take them to a higher level.

    A German translation of this contribution has been published in the Berliner Gazette under the title Silicon Valley vs. Brussels followed by controversial debate in the comment section.

    Nicolas Kayser-Bril ·
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