The Potential of European Tech is Physical
It’s time we stop comparing ourselves to Silicon Valley and start offering something different
Adapted from a talk I gave at the Pirate Summit in Cologne earlier this month.
Iam all-American — I have what some people call unrelenting optimism and use phrases like “We’ll cross that bridge when we get to it” and “We can’t let this fall through the cracks.”
So when I tell people that I work for a venture builder in Germany that solves industrial and consumer problems — with a pool of very traditional Germany partners — they ask: “Why Europe? Why Germany? And why Berlin?”
As I see it, Europe missed the boat on early entry into (or having the upper hand in) the digital market. However, Europe has a unique potential that Silicon Valley doesn’t have in light of a growing need worldwide to connect antiquated infrastructures that aren’t disappearing any time soon. There are plenty of physical things to be connected and built — and it is European companies and organizations that have an intimate understanding of these physical things.
German Industry: A View from America
But before getting into that, let me give some context. I moved to Germany about a year and a half ago. I moved after having worked in tech in San Francisco, DC, and New York, and knew I wanted to be part of building a new and different tech ecosystem — one that wasn’t already cemented or already deeply entrenched in the infrastructure of a city. Berlin promised just that.
Still in more nascent stage, Berlin represents a lot of potential. Germany on the whole is famous world-wide for its dedication to quality engineering. Even so, I would say that even though most Americans know Germany is home to BMW or Mercedes, they wouldn’t recognize the colossal manufacturers outside of the automotive industry — like Bosch, Siemens, and Bayer — as being German.
Another example is a little 22 billion euro company called SAP. Founded in 1972, SAP was fundamental to bringing businesses into the age of computers and automated processes. Today, nearly 50 years after its founding, SAP is still the most successful and most valuable tech company in Europe.
America’s Digital Industry Boom
Meanwhile, over the last twenty years and with the birth of the internet economy, the US has seen accelerated growth of new companies, as a result of lowered barriers to entry to and growth within the digital market. And that progress has outpaced the EU. In 2016, Statista measured Europe’s digital market to be 351 billion dollars compared to the US’s 575 billion dollars. It’s also expected that the US will maintain its lead on Europe, with a projected 874 billion compared to the EU’s 549 billion by 2021.
Given this slower entry to the digital market, Europe must expand its focus to maintain its competitiveness. But how and with what?
Europe’s Industrial Economy is Europe’s Advantage
Joachim Kreuzburg, the CEO of the laboratory equipment manufacturer Sartorius, once said:
“We are not digging for gold. We are selling shovels to the gold diggers.”
His economic perspective gets to the heart of a common culture throughout Europe: industry. A culture that appreciates manufacturing physical, tangible products. (Especially here in Germany where the German Mittelstand, the small and medium-sized manufacturing community, is often referred to as Germany’s economic backbone.) A culture that has the endurance it takes to support long development cycles and R&D. Europe has a deep understanding of Industry.
Industry is Europe’s strength and advantage: industry contributes 24% of Europe’s GDP and the industrial economy makes up 80% of Europe’s exports. And 57% of the US’s industrial R&D is actually imported from Europe.
Industrie 4.0 will be a component of the “Age of Automation”, a transition that will require a change in the way traditional industry players currently do business.
The Rise of B2B Opportunity
It’s no wonder that there has been so much talk about “Industrie 4.0” (as it’s called here in Germany). At a very basic level, it’s not just about getting industrial businesses online, but rather the “future of production”: connecting machines with the internet and with each other, incorporating sensors into factories, and collecting data that enables intelligent monitoring and decision-making. Industrie 4.0 will be a component of the “Age of Automation”, a transition that will require a change in the way traditional industry players currently do business, which Bastian Bergmann (CEO of WATTx) fleshes out in a recent blog post. But Industrie 4.0 on its own is expected to be a huge 287 billion euro market by 2020.
There’s another way of looking at Industrie 4.0 as well. It’s about leveraging technologies that have evolved within the digital market, like the core technologies and concepts behind Azure, Viv, Google Docs, and Oculus. These technical developments — in cloud infrastructure, machine learning, instant and collaborative communication, and virtual and augmented reality, respectively — will inform new products and business models that are more resilient, better maintained, and provide better customer experiences.
Made of complex technologies and systems, adapting technologies to these traditional industries will require that creators of new products have a deep understanding of the legacy technical and business systems already in place.
So how come Europe is in a unique position to tackle this Industrie 4.0 market and create the next SAP?
Harnessing this B2B Opportunity: Europe’s Key Stakeholders
There are several key stakeholders that will be crucial to harness this new B2B opportunity that is Industrie 4.0:
- Manufacturers, of which there are over 200,000 in Germany alone, amass about 2 trillion euros in annual turnover. Their deep technical expertise lends themselves to being good advisors for new technological development, manufacturing capabilities, and pilot customers; while their already extensive market penetration makes them good partners for distribution.
- Investors, of course, are crucial to the development of new technologies and the growth of new companies. And their interest in providing support to B2B businesses is clear: 73% of private equity firms say digitization/Industrie 4.0 influence investment rationale, while 57% cite industrial production as a top target sector.
- New Businesses are growing in numbers as European cities see an influx of international and diverse talent. This growth brings better infrastructure and maturity to the tech ecosystem within a city, which in turn provides better support for its entrepreneurs — which is particularly important for B2B business that require close networks to gain customers. As a result, there has been a 20% increase in the number of B2B focused startups between 2015 and 2016 alone.
Creative B2B and Connected Industry, Made in Europe
Equally important is these stakeholders thinking about their role in new ways. Here are a few examples:
- Festo: An industrial valve manufacturer pushing the boundaries of robotic development (see their Bionic Kangaroo) and educating (and re-educating) their workforce to be prepared to use Industrie 4.0 technologies.
- Momenta Partners: Filling a gap in the investment landscape by focusing on early stage connected industry and B2B startups, alongside a staff with deep experience and network in wireless technologies, supply chain management, etc.
- WATTx: We are a deep tech venture builder solving real industrial problems, with a user-centric approach. We are constantly prototyping and validating our solutions with a network of experts and customers from Mittelstand companies.
Europe is in a unique position to be a leader in the Age of Automation.
My point: there is a lot of good stuff happening here in Europe.
We just need to talk about it more. We talk so much about “Silicon Valley”, comparing development of our own technologies to what’s being developed in the Bay Area. But I would argue that Europe is in a unique position to be a leader in the Age of Automation — as long as it recognizes and leverages its strengths.
This means making resources here more accessible by: centralizing and connecting communities of manufacturers who are willing to pilot, manufacture, and buy startup products; incentivizing company investment in higher risk B2B products that require longer ramp-up times; supporting grassroots communities where members can speak from experience, share networks, and “pay it forward” to fellow companies in similar fields (like German Hardware Startups).
So let’s talk more about Europe. And let’s get prepared to lead the new wave of industry. #futureisphysical
Are you based in Europe? Working on a hardware or Industrie 4.0 related project? Building a B2B company? Talk about it on Twitter with #futureisphysical. Or give me a shout at firstname.lastname@example.org.