I was presenting a keynote called “Digital Is Over” last week in France. The key discussion was that France (let’s say Europe at this point) had largely missed the digital revolution, but that this is not the end of the world. With just a big “IF”. It’s not the end of the world, if Europe faces the reality of digital markets dominated by US companies, if Europe stops pretending to have the most and the best startups on the planet, and a few other things…
Let’s go back to all of this and explore the options Europe still has.
To start where we need to start, it’s always key to remember that we talk a lot about digital but digital doesn’t matter so much really. The term digital comes from the latin digitus and means that can be counted from 0 to 9 (digits). By extension binary 0/1 code is digital. But code is as much digital as the telegraph was in the late 1800s, allowing West coast to communicate with the East coast in morse. It might be a shock for most politicians in Europe to face that Gutenberg’s printed books using movable types in 1439 were as much digital as a Kindle nowadays.
But even if we don’t go down the history rabbit hole with semantics, let’s consider code. Remember “Software is Eating the World“? So if we shift our discussion to code as the essence of digital we also end up in a bizarre discussion:
A modern car has more lines of codes than Facebook’s back-end. Plain and simple. And we’re not talking Teslas or self-driving Waymo / Uber projects. Just a “car”. Does it make such a car more digital than Facebook then? Yes. Is this what we are talking about when we say ‘digital’? No.
Digital ends up being a very poor term that we use without thinking and misleads us in thinking that code is key. It’s not so much. The key is what code and digitalization have brought much more recently: dematerialization of businesses.
The revolution, actively started twenty years, didn’t come directly from software, but from the explosive capabilities at being online as a business. Not just on the web, but at dematerializing whole business models. Working with intangible assets (data), delivering intangible products (ads, information, social connection, apps, games, music), through intangible and always on distribution channels changed everything.
Throughout the centuries the deepest moats you could build where about economy of scale. Build things or move them around at enough scale and competitors couldn’t beat you on the price anymore:
The real paradigm shift for businesses at the end of the XXth century was not only dematerialization (which only brought per se new forms of economy of scale) but network effects:
Network effects have the unique capacity to bring exponential value when the business operates as a network and that the network starts to be big enough. Said differently: build a business that reach a critical mass as a network and you build one of the deepest moats that can be around such business.
Now that we are back on track and understand where we are with the digital revolution, there are both good and bad news for Europe: to reach critical mass in network effects and dominate the new market landscape, size matters. A lot.
The bad news is that the US as an integrated market of +450 million habitants beats the crap out of any single European country without breaking a sweat. The VERY bad news is that China has started to roll over us very steadily without really thinking about it either.
If market caps of the largest newborn companies are not the best indicators of this reality, I don’t know what is:
Europe has been dwarfed in this new economy.
Not because European businesses are not digital enough, but because they just can’t scale network effects as fast as the US or now China.
So when we are saying ‘digital is over’ it’s just because it pretty much is the end of the party. So-called digital businesses are now ubiquitous and a large part of the economy worldwide. Facebook, Amazon, Baidu or Tencent are not really startups anymore.
This is a wake-up call for most politicians in charge of innovation policies in Europe who seem to believe that we’re going to win this economic war a startup week-end at a time, or with digital clusters from another era.
Digital has penetrated France and Europe through and through already. There is no time for early market strategies at this point:
And I deeply believe that we are trolled by the US in a very smart way.
See, we love technologies. Europe is all about universities, research and engineering. We are smart, educated people who culturally trust intelligence and science over everything else. We still live the dream of the Renaissance and the Age of Enlightenment.
Americans are pragmatists, not idealists. Believing that BEZOS, ZUCKERBERG or COOK are here to build a better world is a scam. They aggressively pursue scale. And the smart trolling that I’m referring to, is that they push us to think to the NEXT revolution. Not the one they already won.
Self-driving cars or AI changing the way mobility and supply chain works… These are the smart next thing where we need to focus and produce research, tech, patents!
Please don’t mind that the US are still aggressively ramping up the real digital business NOW and that you don’t invest time and money fighting the current fight. Move along… Nothing to see…
How culturally blind can we afford to be? Because yes, all these battles are not going to be waged in 2030, they have been played and they are pretty much over.
That was for the bad news and they are really, really bad.
So what about the good news?
They aren’t any really. Not yet. But when you’re facing such odds, it’s sometimes smart not to try to outplay winning competitors at their own game. It’s better to switch to a strategy where there will be at a disadvantage.
In essence the usual strategies that we have in Europe won’t work:
In France for example, our mindset would be to react as Gustave EIFFEL would have with more engineering, better universities and research. Which won’t work because as explained, the fight about digital is already old, this is not about the future anymore. Or we would act as the mighty General De GAULLE and promote the ‘made in France’, close borders and center all the business energy within our country. Which won’t work either because we won’t build critical mass around new businesses in a 67 million people country that weights less than two Chinese cities. And Lastly, we could give up and decide that in any case tourism will be our economy — this is what I call the TRIGANO plan, which is probably the saddest of all.
If one thing, China in the early 2000s gave us a playbook on how to catch in a digital market that has largely bypassed you. In just a few years China more or less skipped the whole credit card and ATM system to end up with a 77% penetration of mobile payment in large cities. They even have more than 15% of retailers that just don’t accept cash and sometimes not credit cards either.
This is remarkable.
Not because of the technology involved. But because they embraced their lag in payment systems, didn’t try to catch up with the old paradigm, but leapfrogged to the next best thing, being more digital at it then the entire West.
Doing so, China also promoted Baidu, Tencent, Xiaomi, and a few others to worldwide prominent business leadership. As I just said: remarkable.
So what about Europe?
Well, there are quite a few options if we try to leapfrog too. Let’s check three of them which should be rather obvious:
Step 1. Leverage EU size
Leapfrogging Europe to digital leadership will surely mean playing on the size to start with. And we have a fantastic advantage here because on paper we should rank #2 as the biggest global economy on the planet: China is 1,379 million habitants, Europe is 741m — and Shengen space alone is 541m –, while the US comes third with a measly 329m.
When Trump is pro-Brexit I believe there is a reason. The best way to have America First is that Europeans don’t realize the share of the economy they should represent. Because no matter what, China will be first in a very short time.
If we would manage to integrate as a real federation only five European countries (and I’m not counting UK there anymore), it will suffice to outbalance in our favor the digital economy overnight. What is happening with the GDPR is a timid, narrow start in that direction. Let’s accelerate even more!
Step 2. Don’t pursue technology unless…
This is a very big one culturally. As we said, Europeans are very proud of their research and tech skills. Well… This is killing us.
AirBnB is not just beating Accor at being better at digital network effects and building critical mass (they are). They beat Accor because in the end they are better at hospitality! The core business of most incumbents have been forgotten or simply poorly managed, essentially because of complacency.
So before talking digital, we should probably have a hard cold look at what we are doing as banks, insurers, hotels, train companies… and ask, “Are we doing the basic job well?”. Artificial Intelligence or chatbots are not the solution at having trains running on time with adequate service in 2018, 2019 and 2020.
All these self-centered strategies of modernizing the IT infrastructure, jumping to the next wave of technology, or partnering up with startups are easy way to escape the reality: most of our businesses suck at their job. Digital is not killing them. Digital is just making easier for others to do the job.
I’d love to see governments stop pouring money in “innovation” and starting to invest in businesses recalibrating themselves to their own market’s reality.
Step 3. Disrupt Silicon Valley Envy
The last step, which is actually concomitant to the others, is to let go of all this bullshit about replicating the Silicon Valley.
Let us be reminded that we are bigger than California, on average more educated, with better research and science. So you know what? Let’s stop trying to replicate what they’re doing! We can do very well if we risk dealing with innovation in our own way.
Some of the struggles we are facing are actually fantastic grounds to nurture specific forms of innovation. We need more than others to have access to cheap energy for instance. In the 70s and 80s many European countries had to develop as nuclear powers (the US for many reasons struggled and stopped mid-way). But now this is not the answer anymore, shall we be all onboard the green energy train? Again, the US are not leading the way there (to say the least)… but China will be coming in force there. Let’s act now!
We also face aging populations, deficits in our pension and medical systems, and raging unemployment among the young generation. These are amazing challenges to figure out before the rest of the world try to solve them. There is business leadership to build right there! What are we waiting for?
These options (and there are MANY others) are way more important than trying to have our own European search engine or social network. These are options from a past that is not coming back.
Yes, digital is over. There is no time to fight the battles we should have fought ten years ago. Feel free to suspect anyone trying to sell you the “digital revolution” as your next opportunity as being dangerously incompetent or trying to slow you down to favor US businesses.
The question is: if we let go of this mirage and look forward, what do we have right now to leverage as a way to leapfrog the US and maybe China? We’ve seen Microsoft becoming a company from the old economy, failing at mobile, struggling at cloud. We are witnessing in real time Facebook becoming this suspectful legacy business.
What are we waiting for?