Re:booting the European software industry
The European software industry may have lacked behind the US for the last decades but a favorable environment is arising which offers an opportunity for European entrepreneurs to take back its innovative positioning in the software industry.
Software is as American as the Big Mac
We all know that software market is huge… really HUGE and pervasive across sectors. Let’s have a look at the numbers, a $333bn market in 2016 growing at +7% p.a.[1]. Out of which… the US still represent nearly half of the global market.
If we do look at trends, Europe represented 26% of the global market in 2013. Future does not seem bright per se… Europe expected growth until 2020 is below the one generated from the US which is growing at the same pace as the entire market.
No harm to say that the US definitely drive the whole software market.
Historical perspective
Let’s take a step back… The first historical pieces describing the concept of software (i.e. programmed instructions and algorithms computed by a processor) led us back to the 19th / beginning of 20th with Ada Lovace and Alan Turing.
2 Britons, the first known for being the writer of the “Lady Ada” algorithm and the latter known for being the creator of the famous Turing machine and having broken the code of Enigma. At that time, Europeans, Britons, French or Italians were creating the foundation of the modern coding. All in English however…
Our overseas’ colleagues developed the Mark I in 1944 (i.e. 1st IBM super computer) giving one of the first impulsions regarding the computing shift of the US economy. Investments during the WWII have founded the US software industry.
30 years later, some guys with long hair developed and believed in the 1st language for personal computers… Microsoft was born. We all know the story and the incredible developments engaged by Microsoft and Apple modernising the software industry.
Creativity and willingness to create a better world has terminated the European dominance in this industry. The US have successfully modernised and industrialised software. So they did with burgers…
Let it be… But there will be an answer
And it continues… Benefiting from the exceptional aura from guys such as Gates, Jobs, Ellison, Thiel, Musk… US is continuously attracting talents. The brain drain is indisputable.
Consumers all around the world are reassured by the US stamp regarding software… Like we trust in the German car manufacturer (or trusted!) or the French wine & gastronomy. US corporates as well as individuals, have been educated early enough understanding that a performing software can be a key differentiator to be more competitive. It is the perfect environment to grow and reach a critical size for entrepreneurs in this industry. Given the importance of the US market size, American Software providers are de facto rapidly highlighted; can quickly grow and reach a critical size.
… Of course bigger the better. No kidding, size is important. CTOs or CIOs of large corporations are usually backing their buying decisions by engaging with other large corporates to reduce any kind of risks, sometimes without taking into consideration the added value of getting innovative products.
Hence, is Europe able to rebalance the forces with the US? I deeply think that time has come for Europe to take back its innovative positioning. Our European AND French software providers are forced, for their own good, to focus on the development of their Technology. Pioneering and being disruptive has never been important enough for the development of the EU economy.
Winter is coming: a new Tech culture arising
Silicon Valley is the Tech Capital, the King’s Landing for Tech entrepreneurs; but beware Winter is Coming from the good old-fashioned Europe. The latter have worked hard these past years to fill the gap with the US benefiting from (i) the development of new cutting-edge technologies i.e. Cloud, AdTech, Big Data / Artificial Intelligence… (ii) an incredible ecosystem i.e. schools, governmental assistance; and (iii) strategic decisions engaged by entrepreneurs to address the international market.
Business as a Service on the frontline to shake the US industry
Modern Tech big hits are historically from the US; but disruptive ideas and technologies are gaining solid track record in Europe. Analyses estimate that the number of European SaaS companies created has grown 4x between 2007–09 and 2013–15 according to Accel Partner Philippe Botteri.
The amount raised by European SaaS companies has more than doubled in the same period.
While European funding ecosystem still lacks behind the US in terms of size, Businesses as a Service is a great opportunity for European entrepreneurs to develop cutting-edge technologies without spending millions in CapEx. These developments attract the savviest Tech investors… increasingly from the US.
The latest trends showing acquisitions in Europe from US players cannot be refuted and demonstrate that European technologies are as efficient as US ones. eNovance acquisition by Red Hat in 2014 is one of the several examples we have seen in the OpenStack ecosystem.
According to Tech.EU, #1 acquirer of European VC-backed companies in 2016 (# of deals) is the US, above Germany, with 74 acquisitions in Europe over 261 acquisitions.
Europe has become a second home for US Tech developments… But not for long
Quality of our Engineers as well as our creativity attracts the most promising US Tech companies to outsource a part of their R&D in Europe. European countries have the right capabilities to compete with the most disruptive and innovative US Tech companies.
AppNexus Co-founder, Michael Rubenstein, has perfectly expressed what is happening in Europe during a BPI event on AdTech.
AppNexus, and other US companies, “develop their Technology (R&D) exclusively in the US AND in France”.
Actually, AppNexus acquired Alenty, a France-based advertising viewability solution provider in 2014. It appeared that R&D teams were so efficient that AppNexus decided to keep a development team in France whereas it was initially planned to move R&D to the US.
If we look at France : The solid education ecosystem demonstrates all the future brain power we are putting in place. Innovative education programs focusing on coding such as Ecole 42 are shaping the future French Tech leaders along with our historical and leading engineering & business schools. Europe is training 2x more engineers, scientists, mathematicians (STEM grads) per year than the US[2].
According to Slush & Atomico research on the State of the European Tech market,
Founders now believe they can build their companies in their home market AND new European entrepreneurs are fortunately born with a native international mindset.
European entrepreneurs have more & more solutions to address the international market
Entrepreneurs have all the keys to succeed in their home market and expand internationally. They now have access to various strategic solutions to develop their international footprint. Among those, we have mentioned some of them below…
Upfluence, a MarTech solution provider operating in a niche sector i.e. developing marketing strategies to address social influencers, has decided to create a US entity since the inception. Founders identified that their home market was limited in terms of potential clients and US market is more mature regarding their sector.
Also, Entrepreneurs can team up with a US investor who has the (i) knowledge of his market; (ii) local network to support the operating expansion and (iii) will offer international visibility. Some of great stories have been built with US investors, such as Criteo with its HQ in France and early backed by local VCs (Idinvest and Elaia) and, most importantly international VCs such as Bessemer Venture Partners. If I strongly think that this trend will accelerate over time, be aware that only few selected start-ups have attracted US investors so far. According to Serena Capital Workshop, 1% of the 3,000 French start-ups have been financed by US investors over 2010–2015.
Entrepreneurs can decide to expand internationally with selected partnerships through selected integrators / distributors. Nonetheless, it requires the opening of a local commercial office to support the expansion by hiring local individuals, having the right entrepreneurial spirit. QuasarDB, a non-relational database, also has commercial offices all around the world. Such examples are demonstrating in which mindset those entrepreneurs are developing their company.
In the end, it remains a human adventure where soft skills are as important as hard ones. Here, we assumed that US market is compatible with the product sold e.g. Blablacar hesitating to invest in the US due to lack of public transport infrastructure. Blablacar users need metro and buses to get to the meeting point. That is why it is crucial to perfectly know and understand its capability, technology and environment.
May the force be with you
All those opportunities should shape the future European champions. Recent history has already proved it. We have seen in the past some successful European stories such as SAP, Dassault Systèmes or Temenos illustrating what this region is capable of; a land for international software leaders.
Keep in mind that Europe is a leading region in automotive or industrial engineering. Hence, it is ideally positioned to develop dedicated software solutions in those areas supporting the development of IoT, connected cars, smart cities, AI...
Here at Apparius, we collaborate every day with Entrepreneurs to identify (i) the suitable financial needs (from fundraising to M&As) as well as (ii) the right strategic orientation to deploy in order to create tomorrow’s leaders. Both activities are crucial to accompany Entrepreneurs in the right direction. Because not all roads lead to Rome, we accompany entrepreneurs to fuel their dreams accordingly with their beliefs and values.
