Digital Agenda for Europe
A Europe 2020 Initiative

Innovation and entrepreneurship online are today's main drivers of growth

Article

 --- Posted by Sacha Wunsch-Vincent, World Intellectual Property Organization, Senior Economist (in personal capacity)

In the current environment, the search for new sprouts of growth preoccupies many of us. With the focus on austerity measures, the Euro and capital shortages, we have our heads in the macro-economy cloud; with some danger of getting lost in it…

At this juncture it is critical to remember what the important sources of growth really are. I mean innovation and entrepreneurship of course, in particular as they relate to new technologies and new jobs. I mean business and policy practices which avert the real risks to innovation-based growth in Europe. They matter. Let’s not treat them as residuals to (surely equally important and connected) macro-economy matters.

With this in mind, I am thrilled to see that the Danish EU Presidency and the European Commission have decided that “Future growth is digital” and that something needs to be done about creating a Digital Single Market [Have you ever tried to shop online across borders in Europe? Worse, sell products or services online…? Not something for the mild-hearted]. In fact, a whole High Level Conference on 27-28 February 2012 will be devoted to this topic and I have gladly accepted to chair a session on Promoting e-business innovation: New business models in a knowledge-based economy.

 With a few excellent panelists: Eric Hazan (McKinsey), Alain Heureux (IAB Europe),

Erika Mann (Facebook), Graham Vickery (Independent Consultant) and Rolf Nordqvist (Bisnode AB), we will look at many issues which occupied me my previous function at OECD: the growth of digital content products and services, the rise of social networks, new business models related to big/open data,….All this with two questions on our mind:

1 -     Can Europe live up in the area of digital innovation and produce “global players on this front? [Think online search, online video, social networks and the like]

2 -    How can a common digital European market help?

Keep posted as I announce some of the details of the session.

And if you are an avid Internet innovator: Let me know the 2-3 most important roadblocks you see for e-business innovation in Europe!

You can either comment under this blog post or  follow the discussions on twitter at #dsm12.

Comments

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Interesting article. My response would be to think about the changing paradigms in the knowledge-based economy.  We should move from industrial thinking to post-industrial 21th century thinking. Let us rethink centralized, top down, regulated European distribution mechanisms and traditional economical roles such as consumer, producer, distributor. Consumers are co-designers, the balance between professionals and amateurs shifted and new economical paradigms have come to practice whereas effective and big economical upscale is realized in networked distributed low scale production (from local to global). We should think more distributed and this has a beautiful analogy with the networked, federated European model. If a single European market is interpreted as a networked, distributed European market then it is fit to produce global players to it's front.
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I think that fostering digital innovation is a matter of culture. How could Europe replicate the Silicon Valley model where most of the global leaders have emerged from? Obviously it cannot, and this would not be the point. But there are lessons to be learned: - Close interaction between universities and businesses - Funding, either through big VCs, angel investors, state funds. - Entrepreneurial culture and tolerance of failure. This could be cultivated through school education, recognition & rewarding mechanisms etc. - Regulatory framework: This mostly applies to cross-border e-commerce, actions can be taken on the part of the EC to facilitate the digital single market in terms of laws & taxation, international payments, consumer rights, trust & security, logistics.
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Among other things, we should change the way innovation funding is designed. Horizons 2020 needs to intorduce new measures, different from traditonal FP projects. We need small, agile, open funding. For instance, inducement prizes should be used. The US and UK are creating centre of excellence on this; see also recent article of NYT http://opinionator.blogs.nytimes.com/2012/02/22/from-the-white-house-inc...
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Interesting issues. Having lived in Silicon Valley and back to Europe, my take is that Europe has the knowledge to be at the forefront of entrepreneurship in the digital world (we have good engineers and good ideas). Yet, there are many roadblocks. 1. Too few engineers consider entrepreneurship (or are too naive in considering it) because they have not been exposed to the business challenges of starting and growing a company. There needs to be more integration across disciplines (engineering, business, design, etc.); efforts to create points of contract and exchange of views. 2. Growing a business beyond a few dozens of employees requires either be endowed with very unique talent for management or experience. Managers with experience in large companies have little incentives to move to startups and run the risk of growing them (or failing) 3. Entrepreneurs, investors, and other stakeholders need to establish global networks into the US, Asia. Entrepreneurs who want to create big companies creating jobs need to think global and be global. 4. Highlight European startups that have grown and have been successful. Influence society to see these entrepreneurs as role models. 5. Other issues such as different legal systems, access to funding, incentives for risk taking (taxes), global standards, etc. is pretty clear what needs to be done--homogenize as much as possible to make one market. Funding is an issue but there is lots of capital available and US venture capitalists are coming to Europe (as well as Asia) looking for opportunities. The money is there, Europe needs to provide the startups and the market for them to grow. European VCs are much like US VCs or even Asian VCs, the large ones are now global players.  
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As far as the funding is concerned, EU should have a real industrial policy at all levels. One example coming from the US is the semiconductor district in Albany and East-Fishkill, where the State of New York induced the location of a network of firms including IBM by mixing subsidies to firms and neighbour University labs with fiscal advantages. EU should do the same by creating the conditions for ICT districts to emerge. On the other hand regarding the presence of a Common Digital market, it could ensure the firms to enjoy returns to scale as the market would not be limited to a single country. Morevoer it would be easier to set up a firm in an another EU country
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Only 9% of online trade in Europe is cross-border between European countries. Payment processing is a barrier. In the UK we habitually use credit cards and so UK online shops have Visa/Mastercard payment screens, occasionally topped up with PayPal. But most Germans don't own a credit card (though I admit pre-pay cards seem to be a growing trend). Germans like to use bank transfer methods such as ELV, Giropay, or Sofortueberweisung, but these are national payment frameworks. The Netherlands has a similar national system, iDeal. Poland has P4, and so on. These do not interoperate. So a German wanting to pay using ELV on UK based website will be unable to transact. Online stores have to set up different payment service provider relationships for each country in Europe - it is simply too complicated. Or is it? I have been working with entrepreneurs for the last six months and none of them realise there are one-stop-shops for setting up payment methods that cover all of Europe. Wirecard is a Munich based payment processing company that can not only offer all the fragmented payment options you might need to cover all European countries, they can also act as the merchant's bank. Skrill is a London based company that started out as an e-wallet business that realised it needed links to all the European payment methods in order for its customers to charge their e-wallets. But for some time it has offered a simple payment screen for small e-tailers and is expanding into full payment service provision, again offering all payment methods you might require, in a one-stop shop. eBay, which owns PayPal, still uses Skrill to get to European customers because PayPal doesn't yet offer all the niche payment methods required for Europe. While worrying about how to create a Pan European payments framework, perhaps we should also be highlighting that solutions do exist now, provided by European technology providers.
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As a professional advisor having no knowledge of, nor much interest in the workings of what I would describe as the high tech world, my plea to  all those involved in developing markets using the digital world is to remember that they are just tools. Commerce works by bringing people together. Web sites are just techy Brochures. Automated phone systems are just a frustration. Use your internet world to increase the ease with which real live human beings can interact in a real and meaningful way and your business will succeed.
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Some of the existing European projects are actually trying to shape mechanisms to introduce tools for innovation and online entrepreneurship such as the FI-WARE project (www.fi-ware.eu) cornerstone of the Future Internet PPP (www.fi-ppp.eu). As part of its exploitation the project has defined the "Open Innovation Lab" defining it as " a space where future innovations on top of the generic enablers provided by FI-WARE can be nurtured" realizing that a technical tested " does not guarantee innovation as such, therefore this Open Innovation Lab will comprise all what is needed to stimulate awareness among target application providers and users so that they feel attracted to participate and build a community". I think it is worth it to make an extra effort to promote and test entrepreneurship in these new European platforms that are being built. From the Living Lab community we are working very close to this project to set up Open Innovation Labs (mainly linked to Smart Cities). Many interesting ideas about making the most of the infrastructure we are investing in, promoting individual SMEs and developers, and experimenting new ways to get real businesses out of it. However when you look at the current instruments that support this experimentation we find a lot of limitations (even within this specific programme). Europe needs to make an effort in defining instruments to experiment with the promotion of entrepreneurship, making that happen in real-life scenarios and from a cross-cutting domain perspective.
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Web innovation is also extremely present in Europe, not only in the SIlicon Valley! Check out the Hub initiatives http://the-hub.net/index.html There are plenty of web entrepreneurs out there!
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The vision for E-Commerce has always been one to break down barriers and in the extreme example, enable a farmer in Timbuktu sell to someone in Toronto.  Let's consider this example and apply it to Europe.  Can we today, make this happen for that farmer?  No, because as many of you highlighted some of the pragmatic challenges: 1. Payments Processing (Andrew Griffin) 2. Logistics:  We can not break down barriers, until we cross down this psychological barrier (treated as a penalty for buying online) 3. Customs & Taxation:  This is what I refer to as the "surprise penalty" for buying online. The problems above apply to the Farmer, as much as they do to the person trying to sell within Europe. Equally, we can help the farmer grow genetically modified crops - but we can't help him sell them across borders easily in this day in age.  E-Paradox?
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Main roadblock , from the actual Spanish economy, is financing . But not only for the entrepeneurs and innovators BUT for the CITIZENS PURCHASING POWER. Every IDEA needs financing media at every project phase, from concepts to development and market introduction, but the real fact that will make this IDEA to become a SUSTAINABLE INNOVATION is the MARKET SUCCESS, that is reflected from the CITIZENS acceptance and buying the solution.
Second roadblock R&D and education budgets reductions. R&D budget reduction at Spain and the actual young unemployment percentage - around 50% - are promoting the migration of the best, some of them significant to the EEUU participating in the most innovative research on biology and aerospace.
We do need solutions to promote the EU entrepreneurs to remain, proving our society with their very best IDEAS.

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