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Can Europe still compete in technology?

In years past, European technologists gave the world penicillin, radar, the compact disk, and the World Wide Web — but many observers now feel the region’s innovative spirit is flagging.
Innovation does still come from Europe. This is a prototype of the Readius, from Dutch start-up Polymer Vision. The ultra-thin 5-inch screen rolls up to the size of an old-fashioned pager.
Innovation does still come from Europe. This is a prototype of the Readius, from Dutch start-up Polymer Vision. The ultra-thin 5-inch screen rolls up to the size of an old-fashioned pager.Polymer Vision

The future of Europe is often forgotten amidst the American focus on competing with China (see “Can China build its own Silicon Valley?”). But European competitiveness in global technology was a main focus at last month’s sixteenth annual European Technology Roundtable (ETRE), in Athens, Greece — and the messages of the three-day CEO gathering were decidedly mixed.

Meeting not far from the ruins of the Acropolis was a sharp reminder how the intellectual and commercial fortunes of nations can rise and fall. In years past, European technologists gave the world penicillin, radar, the compact disk, and the World Wide Web — but many observers now feel the region’s innovative spirit is flagging. Alex Vieux, the driving force behind ETRE (and now also publisher of the revived Red Herring magazine), says since his conference first met in 1990, “Europe has lost ground in terms of both production and patents. The role of Europe in invention is becoming secondary, whereas fifteen years ago it was at least on par with the U.S.”

And some believe it could get worse: at ETRE, a year earlier, a multinational entrepreneur suggested darkly to me that “in twenty years, China and India will be the back offices and factories of the world, the United States will be the innovator, and Europe will be the Third World.”

Yet prominent on stage the first day of this year’s ETRE was Niklas Zennstrom, the 39-year-old Swedish entrepreneur who first gave the world the file-sharing network Kazaa and more recently the Internet telephony sensation Skype. Only a month earlier, eBay had purchased Skype for $2.6 billion—a singular triumph for a two-year-old European start-up. (Ironically, due to lingering music-industry lawsuits over Kazaa, Zennstrom still avoids actually setting foot in the US.)

“Skype,” says Tim Draper, a Silicon Valley venture capitalist, “was a bellwether for a lot of European entrepreneurs; they suddenly had the sense, I’m European and I can do this!  They were celebrating in the streets in Estonia.”

But Zennstrom actually wasn’t that encouraging. Most of his time on stage was spent berating the European venture capital community for their reluctance to back Skype in the first place. It was an American firm that provided the initial funding for the Swede’s audacious VOIP effort. The Europeans hesitated to invest in something as radical as Zennstrom’s vision that “in a few years, people will think that paying for a telephone call is a very strange idea.”

“Europe in general has a more risk-averse culture,” says Paul Deninger, chairman of the U.S. investment bancking firm Jeffries Broadview.  “It’s not as bad as Japan, but in Europe failure is not celebrated — it’s barely tolerated.” (By contrast, there are Silicon Valley venture capitalists who actually prefer entrepreneurs with prior failure as a learning experience.)  “In the U.S. people want their kids to grow up to be Bill Gates.  In France, they want them to be Minister of Finance — and they train them that way.”

And that social attitude influences the way start-up technology businesses are treated.

“You have countries that view innovation as a key part of their fabric,” says Vieux.  “Europe views tradition and lifestyle as their fabric.  In a Hollywood movie, you might have someone going on a computer, searching the Internet for clues.  In a European movie, you will always have a great food scene.”  Deninger adds: “In the highly entrepreneurial cultures, like Korea, China or Israel, the countries make it a matter of policy.  And now you’re seeing Chinese and Indians, educated in the United States, going back to their home countries because there’s so much opportunity. You don’t hear anyone say I’m going back to Luxembourg for the opportunities.”

Yet Deninger says that he detects only minimal concern among Europeans about their status.  “The U.S. has so many advantages—the number one capital market, the number one university system, an open entrepreneurial culture—yet we’re all scared about China and India.  Europe ought to be petrified, and the fact that they’re not is interesting.”

Europe — especially “old” Europe — still has the fundamental tension between its genteel approach to labor laws, with short work weeks and extensive protection for workers, and the reality of competing with more market-based (or, some would say, more ruthless) economies.

Another ETRE attendee, Rudy Burger, has been CEO of companies in both Europe and the U.S., now helps European firms establish beachheads in the U.S. market. “Europeans,” he says, “need to reconsider their six weeks of vacation. Unless they feel they are far more intelligent than the rest of the world, they need to race at the same speed.”

Another issue that faces Europe is that, regardless of a unified currency and open borders, it is still a collection of disparate countries, rather than a single large market for technology. (For now, the U.S. is the world’s largest market for technology products, although China will someday usurp that role.)

“You can grow a big company in United States,” says Burger, “before you try to take it overseas. But the European market is fragmented. Take Ireland: there are a lot of very bright, highly-motivated entrepreneurs, yet the total population is 3.5 million. If you start a company there you have to think about going global from day one, and that adds enormous challenges.”

A number of ETRE attendees said the real entrepreneurial opportunities may lie in “new” Europe. “The Eastern European countries,” says Roel Pieper, chairman of Favonius Ventures, a European venture capital firm, “are Europe’s biggest chance. These are countries that want to change, and it’s not clear that the rest of Europe feels the same way.” These countries currently lack a well-organized financial infrastructure and clear operating rules, but, says Pieper, “you tell me what the operating rules are in China,” where firms are rushing to invest.

The Eastern European countries also have excellent math and engineering curricula — indeed, in the early 1990s, many of the most insidious computer viruses came from the former Soviet Bloc, where kids had plenty of grudges and lots of experience writing very efficient software for their outmoded computers. “So many kids in Eastern Europe are growing up hungry, in career terms, compared to U.S. kids,” says Burger. “Poland, for example, is very promising. While it’s seen now by Western Europe as a manufacturing threat, it’s largely discounted as a source of innovation.  But the next Google could come from there.”

Innovation does still come from Europe. At ETRE I heard about a remarkable new kind of reading device, with a rollable screen. It wasn’t until I was back in New York that I had a chance to meet with Karl McGoldrick, CEO of the Dutch start-up Polymer Vision. McGoldrick was carrying the first prototype of the Readius, a sleek device not much larger than an old-fashioned pager, which fit comfortably in his shirt pocket. The trick: you can pull on both sides of the little box and it unrolls to reveal an ultra-thin five inch display screen for text and images. The prototype version lets you click around between book texts and news from the Web. “It is the answer,” says McGoldrick, “to how we can give pocket-sized mobile devices large screens.” 

It’s an impressive device. And Polymer Vision, a spin-out from Philips, already has larger — but still fully rollable — screens in the lab, and they are working on color versions for 2007.  What’s worth noting is that I saw it not in Europe, but in the United States, where McGoldrick had come to find support for the next phase of Readius. Europe, in short, may still be able to compete, but in the new game of global innovation it will also need to choose its partners well.