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2021 - Annual Report

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1

In a year still dominated by Covid, major antitrust & regulation efforts take shape and ever more businesses and countries explore the potential of digital currencies

1) Source: Press articles, Roland Berger

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Events that shaped the 2021 internet economy

1) Source: Press articles, Roland Berger

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Events that shaped the 2021 internet economy

January 2021

Jan 11

Pakistan’s government announces new instant digital payment system

Jan 21

State aid: Commission approves €325 million public support to provide schools in Italy with very high internet speeds

Jan 25

German antitrust law amendment enters into force: "Digitalization Act" establishes new antitrust rules for the digital economy

Feb 4

China says it now has nearly 1 billion internet users

Feb 11

Amazon prepares to launch a ‘Digital Currency’ project in Mexico

Feb 25

Microsoft announces plan to establish its first datacenter region in Indonesia as part of Berdayakan Ekonomi Digital Indonesia initiative

Mar 9

The EU Commission lays out its digital ambitions for 2030

Mar 26

US trade chief readies tariffs against six countries over digital taxes

Apr 5

Japan’s central bank kicks off experiments on issuing digital currency

Apr 13

Bitcoin reaches record high at a level of USD 63,000

Apr 28

G7 tech leaders agree on bold new proposals to boost online safety worldwide

Apr 29

MEPs adopt the Parliament’s negotiating position on the proposal for a certificate to reaffirm the right to free movement in Europe during the pandemic

May 4

SpaceX announces that it has received over 500,000 orders for Starlink satellite internet service

May 9

Cyber attack cripples major gasoline pipeline in the US

May 20

The Fed announces the publication of a research paper exploring the potential development of its own digital currency

May 27

German competition regulator initiates proceedings against Google

Jun 1

Digital currencies are the future for Russia’s financial system, Russian central bank governor says

Jun 4

European Commission proposes ‘digital identity wallet’

Jun 9

EU Parliament approves digital COVID certificate, member states responsible for implementation

Jun 15

US and EU announce the creation of a joint tech council, the EU-US Trade and Technology Council (TTC), that will craft new rules on trade

Jun 16

Visa brings Tap to Phone, which allows vendors to turn their android phones and tablets into contactless point-of-sale terminals, to the US

Jun 21

Bundesnetzagentur publishes "Principles and scenarios for the provision of the 800 MHz, 1.8 GHz and 2.6 GHz spectrum," focused on the period after 2025

Jun 22

German Federal Cartel Office initiates proceedings against Apple

Jul 13

EU pauses digital tax plan, bows to US pressure in hopes of facilitating a broader global tax deal; Ireland still opposed to 15 percent minimum tax rate

Jul 16

EU Commission welcomes the launch of a digital euro project by the ECB

Aug 9

Demand for digital experts skyrockets in the EU

August 2021

Regulation-related

Business-related

2

The European tech sector outpaces the overall economy …

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  • Between 2009 and 2018, the Europeantech sector's gross value added (GVA) increased by more than 76%
  • In the same period, non-tech sectors grew by only 28% on average
  • This highlights once again tech's importance for the overall economic growth within the EU

1) Current prices, tech-sector comprises NACE codes J62 and J63 / Europe = EU27 and UK, Norway, Switzerland

2) Source: Eurostat, Roland Berger

3

… but still lags behind the US tech industry, which has doubled its gross value added since 2009

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  • Between 2009 and 2018, the US tech sector's GVA more than doubled.
  • During this time, the non-tech sectors in the US grew by only 41%.
  • This shows that the tech sector is the most important driver of economic growth in the US.
  • Compared to Europe, the US tech sector grew at a significantly faster pace over the same period

1) Current prices, tech-sector comprises NAICS codes 518, 519 and 5415, no 2019 data shown for reasons of comparability

2) Source: United States Bureau of Economic Analysis, Roland Berger

4

European tech companies have added a large number of new jobs in recent years…

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  • The European tech sector not only contributes to the overall economy, but directly employs roughly 1.9 million more people than in 2009 – an increase of 79%.
  • In the same period, the total labor force in Europe increased by only 2%.
  • While the overall employment level fell in the first year of the pandemic, the tech sector was able to add new jobs to the economy. It benefited from a change in consumer habits and will most likely emerge stronger from the pandemic.

  • However, the leap from 2019 to 2020 is less pronounced than that shown in the data due to statistical adaptations at Eurostat.

1) Tech employees comprise all employees in business sectors J62 and J63 (NACE) / Europe = EU27, Norway and Switzerland

2) Source: Eurostat, Roland Berger

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5

... and are now increasing their workforce at a faster pace than their US competitors

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  • The US tech sector increased its workforce by 55% since 2009, while the rest of the economy grew by only 8% on average (agriculture sector excluded).
  • The relative growth of tech workers in the US is smaller than the growth seen in Europe.
  • Given the fact that the US tech sector's GVA has grown much faster than in Europe, this hints at a widening productivity gap: Europe's workforce increase has not translated into a similar growth in GVA as witnessed in the US. (Between 2009 and 2018, gross value added in the US tech sector grew by 122%. In the same period, the tech labor force grew by only 55%.)

1) Tech employees comprise all employees in business sectors 5415, 518 and 519 (NAICS); non-tech employees include only non-farm labor

2) Source: United States Bureau of Economic Analysis, Daxx.com, OECD, Roland Berger

6

On average, European publicly listed internet companies grew their revenues much faster than the average Stoxx Europe 600-member

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  • In the period under review, Stoxx Europe 600 members experienced a decrease in revenue. Compared to that, European internet companies were able to increase their profits substantially.
  • For data sampling and comparison, publicly listed internet companies were excluded from the StoxxEurope 600; in 2012, only six of the top 100 publicly listed internet companies were part of the StoxxEurope 600; by 2020, this index included 23 such companies.

  • In 2020, whereas internet companies were able to increase their revenues, Stoxx Europe 600 companies experienced a substantial drop in revenues of 13% compared to 2019.

1) Top 100 publicly listed companies in Europe by revenues, with internet companies being defined as sectors "Application Software", "E-Commerce Discretionary", "Infrastructure Software", "Internet Based Services", "Internet Media"

2) Source: Bloomberg, Roland Berger

7

The difference is less pronounced in the US, where all companies saw stronger revenue growth when compared to Europe

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  • Between 2012 and 2020, US publicly listed internet companies, on average, grew their revenues four times as much as the average member of the S&P 500 index.
  • For data sampling and comparison, publicly listed internet companies were excluded from the S&P 500; in 2012, 21 of the top 100 publicly listed internet companies were part of the S&P 500; by 2020, this index held 29 such companies.
  • Here, the pandemic has left its mark. In 2020, the revenues of S&P 500 listed companies did not grow. Internet companies, on the other hand, were able to benefit substantially from the push in digitalization.

1) Top 100 publicly listed companies in the US by revenues, with internet companies being defined as sectors "Application Software", "E-Commerce Discretionary", "Infrastructure Software", "Internet Based Services", "Internet Media"

2) Source: Bloomberg, Roland Berger

8

A comparison of the ten most valuable internet companies reveals the dominance of the US economy in the digital arena

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  • Though comparisons of specific sectors are always difficult because they depend on a common definition of what exactly constitutes an internet company, the chart impressively illuminates the US dominance in the internet economy.

1) 1) Top 10 publicly listed companies in the US, China and Europe by market cap, with internet companies being defined as sectors "Application Software", "E-Commerce Discretionary", "Infrastructure Software", "Internet Media & Services"

2) Source: Bloomberg, Roland Berger

9

Hallo Test

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Das ist ein Test

1) RB

01

Key Takeaway

The European tech sector’s growth outstrips growth levels seen in the wider economy but remains below US tech sector levels.

1

Mobile data traffic per smartphone is increasing at a record pace across Europe

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  • In 2020, the average individual smartphone user consumed 9.2 GB of mobile data per month. Since 2012, this number has grown by an average of 58% each year.

  • Overall, the amount of mobile data traffic per smartphone is growing rapidly: between 2012 and 2015, mobile data traffic per smartphone grew by 1.6 GB, but between 2017 to 2020 it accelerated by a factor of three to 5.3 GB.
  • Total mobile data traffic in Europe amounts to 5.7 EB (exabytes) each month.
  • The lower volume increase for 2020 can be explained in part by reduced mobility and increased working from home during the pandemic. Particularly countries with good fixed broadband connections witnessed a downturn in the amount of mobile data used.

1) 1) Western, Central and Eastern Europe

2) Source: Ericsson, GSMA, Roland Berger

2

5G is expected to grow steadily in the coming years, with Asia comprising more than half of global 5G subscriptions

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  • The spread of 5G is expected to grow significantly within the coming years, with the number of subscriptions in 2026 set to be 16 times higher than in 2020.
  • Asia and Oceania are investing heavily in the expansion of 5G. This has resulted in around 33 billion 5G mobile connections by the end of 2020.

  • The EU aims to provide 5G to every EU citizen by 2030 according to the digital targets of Europe’s "Digital Decade". Currently, in broader Europe (including non-EU member states), only 7.8 m inhabitants have a 5G connection, thus leaving huge market potential for the current decade.

1) Source: Ericsson, IE.F, Roland Berger

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3

5G offers unprecedented possibilities for end users, but download speed will differ significantly between countries

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  • While the increase in mobile download speed
    will be only moderate in some countries (e.g. 1.6-fold increase in the Netherlands), the 5G revolution is expected to have a major effect in other countries (e.g. 14.3-fold increase in Saudi Arabia)
  • The actual speed of 5G depends on the number of 5G towers deployed because covering a larger area with one 5G tower leads to lower transmission speed. In order to avoid exorbitant costs of building transmission towers, companies in some countries choose a low frequency range at the expense of transmission speed, while other countries opt for a higher frequency range
  • A faster download speed and a shorter latency will enable the introduction of a completely new generation of services and applications, such as "on the go" streaming of 4K videos or self-driving autonomous cars

1) Opensignal, Vodafone, Roland Berger

04

Key Takeaway

A quick and comprehensive rollout of high-performance 5G is a prerequisite for Europe's economic future – To this end, more competition among mobile operators should be enabled by open radio-access networks

5

The market for public cloud services is forecast to grow strongly in the coming years

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  • Public cloud computing refers to scalable and elastic IT capacities that are provided as a service to external customers
  • The market is growing at double-digit rates each year
  • Application services, also known as Software as a Service (SaaS), constitute the largest segment of the public cloud computing market
  • However, Desktop as a Service (DaaS) is estimated to be the public cloud computing segment with the highest growth rates (about 60% each year between 2019 and 2022)

1) Source: Gartner, Roland Berger

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6

Cloud infrastructure services are dominated by market players from the US and China, posing data protection issues

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  • The market for cloud infrastructureis dominated by non-European providers – with the risk of European public cloud data potentially becoming subject to non-European jurisdiction, posing data protection issues
  • The US Clarifying Lawful Overseas Use of Data (CLOUD) Act, for example, requires US cloud service providers to preserve, back up or disclose customer data if requested to do so by federal law enforcement authorities – regardless of where the data in question are stored
  • This means that data stored on a European server that is operated by a US cloud service provider might be transferred to US authorities – resulting in a possible violation of European data protection rules

1) Source: Gartner, Roland Berger

07

Key Takeaway

Cloud computing is the backbone of digitalization. Therefore, a competitive and innovative cloud market is paramount for Europe's future

02

Key Takeaway

A quick and comprehensive rollout of high-performance 5G is a prerequisite for Europe's economic future – to this end, more competition among mobile operators should be enabled by open radio-access networks .

1

The US and China have extended their lead in patent filings for digital technologies…


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  • Between 2010 and 2019, the number of patents for digital technologies granted to applicants from the US, Europe and China rose by 12% each year
  • The number of patents granted to applicants from the US rose by 99% between 2010 and 2019 – concurrently, the number of patents granted to Chinese applicants rose by an extraordinary 583%
  • However, the increase in patents granted to Chinese applicants partly reflects the strong incentives the Chinese government put in place to boost the number of patents
  • Europe trails behind the two regions in terms of growth rate (+65%) as well as in absolute numbers

1) 1) Audio-visual technology, digital communication, computer technology, IT methods for management

2) 2) EU-27, Norway and Switzerland

3) Source: World Intellectual Property Organization, Roland Berger

2

… but innovation capacity is more than just patents: European countries score high on Bloomberg's Innovation Index

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  • Each year Bloomberg ranks 66 countries across the globe by their overall innovation capacity.
  • Each country is scored on a 0-100 scale based on seven equally weighted metrics:
    • R&D intensity
    • Manufacturing value-added
    • Productivity
    • High-tech density
    • Tertiary education efficiency
    • Research concentration
    • Patent activity
  • There are 13 European countries among the global top 20.

1) Source: Bloomberg, Roland Berger

3

China has an edge in AI research – one of the most important and contested fields of innovation

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  • China overtook the EU in 2017 and became the leading publisher of AI papers. While it published 3.5 times more papers in 2019 than five years ago, the EU could only double its number of published research papers
  • This increase in China could be explained by the fact that government funds have flowed into the field, thus promoting scientific development
  • The share of publications from authors affiliated with a private sector company correlates with the data regime of the different economic powers. In the US, for example, private companies can acquire and collect data relatively easily, while in the EU, care is taken to collect as little data as possible. In China, the government tries to maintain its monopoly position by claiming stronger control of data

1) Source: Artificial Intelligence Index Report 2021, Roland Berger

2) Comment: Total number differs from the shares, since some publications are assigned to multiple Institutions

4

When it comes to private investments in AI, the US was able to extend its lead – Europe is catching up with China

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  • The US is the leader by far in terms of private AI investments. In 2020, private investments in AI technologies were eleven times higher in the US than in Europe. Looking at the trend over time, this gap has increased compared to 2017
  • However, the gap in private investments between China and Europe is slowly closing, with Europe's investments having grown faster than those in China
  • Given the strong AI investments in the US, it is not surprising that 70% of AI experts work for Google, Facebook, Microsoft or Amazon

1) Source: Artificial Intelligence Index Report 2021, Roland Berger

5

Apart from two outliers, the share of companies using AI in Europe is relatively low compared to the EU's goal of 80% in 2030

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  • Across Europe, only about 7% of all companies use at least one AI system
  • The relatively high share AI companies in Ireland and Malta can be partly explained by the fact that they are very attractive places for foreign headquarters of non-European (technology) companies, which shift their profits to those European tax havens
  • According to the Digital Decade Plan, the EU aims to reach an EU-wide share of 80% of firms using AI. Digital Europe program funding (2021-2027) therefore provides EUR 2.5 bn to foster AI

1) Source: Eurostat, Roland Berger

6

Unlike in the US and China, high valuations for AI startups remain the exception in Europe

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  • Unicorns are startups with a market valuation of at least USD 1 bn
  • There are 63 AI unicorns in the world, with a market value of approximately USD 290 bn
  • Almost half of AI unicorns can be found in the US. In the EU, more precisely in France, there are only two unicorns in the AI sector
  • Almost half of the valuation is accounted for by one Chinese unicorn, Bytedance (USD 140 bn)

1) Source: CB Insights, Roland Berger

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7

However, the AI Readiness Index indicates that twelve European countries are well prepared for rapid adoption

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  • When it comes to the Readiness Index, twelve European countries are listed in top 20, demonstrating that Europe is largely ready to implement AI. However, further investments are needed in order to increase AI adoption
  • The index measures the readiness of countries by considering three main pillars: government, technology sector, and data and infrastructure. Each pillar consists of three subdimensions

1) Source: Oxford Insights, Roland Berger

8

Europe is leading when it comes to responsible AI adoption by governments – Will it also translate into a competitive advantage?

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  • The Responsible AI Sub-Index measures how responsibly
    governments make use of AI
  • Four measures are considered: inclusivity, accountability, transparency and privacy
  • Only European countries account for the top 5 in the ranking, demonstrating strong performance when it comes to respecting individual digital rights
  • The US, as the most successful nation in AI in economic terms, achieved a score of just 50.0, putting them closer to the bottom 5 nations than to the top 5 nations
  • However, it remains to be seen whether Europe's lead in the responsible government-use of AI also translates into a competitive advantage, for example regarding so-called privacy-tech

1) Source: Oxford Insights, iconomy, Roland Berger

09

Key Takeaway

In terms of patents, Europe lags the US and China. While Europe's overall innovative potential is generally high, the Continent must do more to convert these innovations into market successes

03

Key Takeaway

In terms of patents, Europe lags the US and China. While Europe's overall innovative potential is generally high, the Continent must do more to convert these innovations into market successes

1

Europe has no single equivalent to Silicon Valley – Instead, there are many tech clusters spread across the continent

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  • The largest European tech hubs, as defined by the 20
    regions with the highest share of employees in knowledge-intensive services, are distributed across 20 countries in all parts of the continent
  • While the share of tech workers alone is not what creates digital products, tech workers do create regional ecosystems that foster creativity and innovation

1) Regions correspond to NUTS2 (for London, several NUTS2-levels have been merged for reasons of clarity), tech workers are employees in knowledge-intensive high-technology services as defined by NACE codes 59-63 and 72

2) Source: Eurostat, Roland Berger

2

This geographic diversity also manifests itself in the distribution of major startup clusters and top universities

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  • London-based startups received the highest amount of funding in 2020
  • The map of the 10 cities with the highest startup funding in 2020 highlights the fact that Europe's major startups clusters are distributed across the continent
  • Most startup clusters have grown in the vicinity of highly ranked universities

1) Source: Dealroom, Roland Berger

2) Source: https://2020.stateofeuropeantech.com/chapter/investments/article/investments-geo-industry/

3

Employee stock option programs help startups attract talent, but too few countries in Europe have a supportive regulatory framework

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  • Employee stock option programs are important for startups that lack the cash flows to pay high salaries
  • Instead, startups compensate their employees by offering stock options that give the employees the right to buy the company's stock at a specified price
  • The employees benefit if the company's value increases, and its stocks rise above the exercise price
  • However, national regulation often makes the implementation of employee stock option programs very difficult – especially in Spain, Germany and Belgium

1) Source: Index Ventures, Roland Berger

04

Key Takeaway

There are many tech cluster with lots of talent across Europe. However, attracting talent with employee stock option programs is difficult in many countries

5

Despite its economic power, the European Union is deeply divided when it comes to skills and access to digital applications

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  • Even though the EU is one of the most developed regions in the world, a digital divide can be observed here as well. Digital divide means that a part of the population is still excluded from using technological tools
  • The digital divide can manifest itself in three ways.
  1. Access divide: The financial situation of people determines if they have access to the internet or not
  2. Use divide: The extent of internet usage is determined by the skill level of users
  3. Area divide: Infrastructure determines the internet usage (mainly in rural areas)

1) Source: European Commission

6

The digital divide can also be seen in the education systems of different European countries


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  • When considering the number of primary level students per
    computer, a south-north gradient can be observed. While the Mediterranean European countries are relatively poorly equipped with computers,Nordic countries demonstrate a high level of equipment
  • The digital divide is supposed to be closed in schools through the EU Digital Education Plan (2021-2027). The goal of this plan is, among other objectives, to provide the infrastructure for a more efficient digital school system. Furthermore, it aims to strengthen the digital skills of both educators and students

1) Source: European Commission, Roland Berger

7

However, in a global comparison of digital inclusion Europe ranks in the middle of the pack

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  • The Roland Berger Digital Inclusion Index ranks countries regarding their level of digital inclusion based on four key levers:
    • Accessibility measures the availability of digital services
    • Affordability takes into account both the price of typical tariffs and the ownership of digital devices
    • Ability is an indicator based mainly on education level
    • Attitude measures, among others, technology adoption of companies

1) Source: Roland Berger

8

The high number of European institutions publishing AI-related research highlights the strength of the Continents' R&D ecosystem


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  • While more than half of all publications in the International Journal of Computer Vision are contributed by authors affiliated with US- and China-based institutions, Europe has a wide network of universities doing research in AI
  • Further analyses show that there is strong collaboration among European academic institutions, with 65% of European papers being co-authored with a European institution

1) 1) International Journal of Computer Vision, the most cited European AI journal

2) Source: International Journal of Computer Vision, Roland Berger

9

However, when it comes to the top universities for AI-related research, Europe is lagging both the US and China

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  • The ranking is based on the number of academic papers published on topics related to artificial intelligence
  • Almost half of the top 100 universities are located in the US, followed by China and Canada
  • Only 13 of these universities are in Europe, of these only 8 in the EU-27

1) Source: CSRankings, Roland Berger

10

ICT skills of tomorrow's researchers depend on teachers' ability to convey appropriate tools and methods


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  • In 2020, the OECD asked school principals to estimate whether the digital training of teachers is sufficiently professional
  • While four of the five countries with the highest results are located in Asia, Germany as Europe's larges economy is among the worst performers

1) Source: OECD; Roland Berger

11

Not all European countries provide a separate school subject to teach digital skills

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  • While a mandatory school subject on digital skills is not a silver bullet to ensure world-class ICT skills, it can help to raise interest in IT-related topics among students at an early age

1) Source: European Commission; Roland Berger

12

Especially the small European economies can boast a high share of bachelor graduates in ICT

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  • Teaching children in digital competences, at least for Europe, seems to correlate to some extend with the share of Bachelor Graduates in ICT, which includes subjects such as informatics, information and communication technologies or computer science.
  • Three of the four European countries that can be found in the top 5 provide a separate subject for digital competences.

1) Source: OECD; Roland Berger

13

In Europe, a comparatively medium-sized share of students graduate in ICT, in absolute numbers India is world-leading

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  • Small countries like Oman and Singapore boast high shares of graduates in ICT2) but the absolute number remains low
  • The high absolute numbers of India and US are explained by these countries' population size and thus overall large absolute number of students

1) 1) Includes level 6 and level 7 graduates, corresponding to bachelor's and master's degrees while excluding PhD degrees

2) 2) Informatics, information and communication technologies or computer science

3) Source: Worldbank; OECD; Roland Berger

14

A significant share of AI applications are developed in the US and exported to the rest of the world

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AI inventions and applications that have shaped the world

1950

1950

Alan Turing publishes an influential paper in which he formulates criteria to test AI (Turings Test)

1988

A famous paper about probabilistic learning is published by IBM employees that should revolutionize the understanding of artificial language building

1995

A.L.I.C.E. is one of the first chatbots that learns from the web to speak

1997

The IBM-built machine Deep Blue wins in chess against the world champion Garry Kasparov

2008

The first AI technology to process and display magnetic resonance datasets is approved by the FDA

2010

A humanoid robot from France that learns how to dance with the help of neural networks is launched

2011

Apple launches its virtual assistant Siri on October 4

2013

Googles self-driving cars are better drivers than human beings

2014

Chatbot Eugine Goostman passes Turings Test

2015

Google Brain AI research leads to a new art form called Inceptionism named after its algorithm

2015

Skype enables real-time translation with the help of AI

2016

TikTok, working with the help of one of the best AI to improve users experiences, is launched

2018

The London researcher and artist Memo Akten develops an AI that creates new landscapes and objects based on the pictures it is fed with. Those pictures are considered as the imagination of a machine

2021

AlphaFold, an AI-algorithm, invented in London, is used to predict a proteins 3D structure based on its amino acid sequence

Present

Regulation-related

Business-related

15

Key Takeaway

There are many tech clusters with lots of talent across Europe. However, the digital divide between Europe's citizens should be bridged to ensure equal opportunities across the bloc

1

Startups are important knowledge developers and trend scouts and thus strengthen the innovative power of the overall economy

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New business models

  • Startups exploit new markets and thereby create additional value
  • Competition is strengthened and established companies are forced to develop further

Disruptive technologies

  • Startups act as developers and drivers of technological disruption
  • Slow innovation cycles of established companies are disrupted
  • Innovation activities of entire industries are intensifie

1) Source: Roland Berger

2

Startups and scaleups create not only innovation but also jobs – And they do so at a much faster pace than established companies

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  • Startups have become genuine job engines in recent years
  • While large companies, especially those from the DAX, have provided for only moderate job growth within Germany in recent years or have even cut jobs, the number of jobs in startups has increased by 55% since 2018
  • Even in the coronavirus year 2020, when few established companies dared to hire people, startups proved to be growth drivers in the labor market, creating more than 70,000 jobs
  • By comparison, employment among DAX30 companies rose by just 1.3% between 2018 and 2019, and fell by 2.2% between 2019 and 2020 due to the pandemic

1) 1) Startups and scaleups that were founded from 2005 onwards, have at least two employees and are headquartered in Germany. Due to inconsistent data quality between the years under review, it can be assumed that the absolute employment figures are underestimated, especially in 2018, and that growth is overestimated accordingly

2) Source: Annual reports, Dealroom, Roland Berger

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3

Startups also create jobs beyond the startup scene as the German example reveals – There are indirect and induced job effects

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  • In addition to the jobs that startups create within their own ranks, they also indirectly create jobs for suppliers by demanding their products and services
  • In addition, the employees of startups and suppliers also act as demanders on the overall market by consuming everyday items – This is another way in which startups create induced job effects
  • Studies from the US indicate that startups already provide a job multiple of 4-5. This means that for every job created in a startup, 4 to 5 jobs are created in the overall economy
  • Since the German and European labor markets are set up differently than the US labor market, we assumed a more conservative multiple of 3 – which for Germany would mean that startups provide up to 1.6 million jobs

1) 1) Startups and scaleups that were founded from 2005 onwards, have at least two employees and are headquartered in Germany

2) Source: Annual reports, Dealroom, Roland Berger

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4

International comparison shows Europe's need to catch up – Germany in particular has a lot of room for improvement

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  • While in leading startup nations such as Israel or the US, a large share of the total workforce is employed in startups, in Europe it is only 1.1%
  • Germany performs particularly poorly in this statistic: In the world's fourth-largest economy, less than 1% of the workforce works in startups
  • Since startups have extremely positive effects on the labor market among other things, it is worthwhile at this point to facilitate the founding of startups through positive political incentives

1) 1) The Dealroom dataset was adjusted for spin-offs, German subsidiaries of international corporations, non-profit organizations and the like.

2) Overall, the number of employees in startups in Germany was corrected downward by 22.6%. A correction of the same amount was made for the peer countries

3) Source: Dealroom, Oxford Economics, Roland Berger

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5

The example of Germany shows that thousands more jobs could be created if Germany leveraged its potential

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  • The startup sector has enormous potential for the labor market – both for Europe and especially for Germany
  • If Germany managed to increase the proportion of its workforce employed in startups to the level of Sweden (2.1%), this could create 523,000 jobs – directly. The newly created jobs would provide even more jobs through the induced and indirect effects
  • Even though an increase in the proportion to the US level seems unrealistic, it would bring about 3.7 million jobs

1) Source: Dealroom, Roland Berger

1

While the trend towards increasing VC investments in Europe persists, the COVID-19 pandemic has slowed VC growth

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  • The amount of venture capital invested in European companies has increased by 18% each year since 2012
  • In 2020, EUR 12 bn of venture capital was invested in European companies
  • Almost one quarter (~23%) of this sum was attracted by companies in the UK

1) Source: Invest Europe, Roland Berger

2

Highly important later stage investments are seeing their share of all VC investments increase after a low in 2018

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  • The amount of later stage
    venture capital invested in European companies has grown 17% each year between 2012 and 2020
  • The share of later stage venture capital has decreased markedly, from ~45% in 2012 to 31% in 2018, but has increased again over the last two years to 42%
  • To further nourish the vibrant European startup ecosystem, both the share and the absolute volume of later stage VC investments needs to grow further

1) Source: Invest Europe, Roland Berger

3

VC investments are on the rise across the globe – Yet Europe trails far behind markets in the US and Asia

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  • To compare venture capital investments across world regions, we draw on data by CB Insights, using a broader definition of what constitutes venture capital
  • Therefore, data on the European venture capital market displayed here differ from those shown in previous graphs
  • However, this does not limit the data's value for a global comparison
  • While the European venture capital market has grown by 32% each year, Europe is lagging behind Asia and the US in the absolute amount of venture capital invested

1) Source: Moneytree Report, CB Insights, Roland Berger

4

While the US and Europe are almost on a par at angel & seed stage, Europe clearly lags behind on early and later stage funding

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  • The relatively weak position
    of the European venture capital market becomes even clearer when looking at the median funding companies receive at different financing stages
  • While the median European company's funding in the angel & seed stage is comparable to that of companies in the US, there is a sizable gap when it comes to early and later stage funding
  • European companies' median deal size is ~50% less in the early and later stage than that of their US counterparts
  • However, the difference between median deal sizes for later stages in Europe and the US has been decreasing since 2012, showing that Europe is slowly catching up

1) Source: PitchBook, Roland Berger

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5

The EU is catching up significantly when it comes to the number of unicorns and their valuation – Starting from a low level, however

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  • The number of unicorns and their valuations are experiencing steady growth. The number has more than tripled from 2018 to 2020. The valuation has almost doubled at the same time
  • Starting from a negligible level, European unicorns have been able to manifest and expand their position globally. The share in unicorn valuations coming from an EU country has doubled in the time period under review
  • Among the list of unicorns are the variants of the decacorn, which includes startups valued at over USD 10 billion, and the hectocorn, which refers to companies valued at over USD 100 billion

1) 1) A unicorn company, or unicorn startup, is a private company with a valuation of more than USD 1 billion

2) Source: TechStartups, Roland Berger

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There is also a need to catch up with IPOs – Many German scale-ups are shying away from exiting via IPO or are shifting to the US

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  • A vital startup ecosystem also relies
    on attractive exit opportunities through which investors can sell successful companies
  • Particularly in the area of IPOs, Germany (but also Europe as a whole) has room for improvement – This is partly due to the lack of an equity culture in many European countries
  • For example, each of the three largest IPOs in the US last year, which included companies like Airbnb, raised more than twice as much capital as all the German companies put together in 2020, with even spin-offs from big-name companies like Siemens Energy going public

1) Source: Morningstar, German Bundestag, Roland Berger

07

Key Takeaway

Europe lacks venture capital to fund innovative companies, especially in the later stage. This shows in the number of unicorns – Europe has been catching up but still lags far behind the US and China

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Large digital platforms are the dominant key players of the internet economy – With huge market shares across the globe

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  • Google dominates the marketfor search engines in the Western Hemisphere
  • The search engine market in China is less concentrated – The dominant player, Baidu, has a market share of 50%
  • Attempts to establish alternative search engines to Google have not gained traction so far – Microsoft's search engine Bing, for example, hasa market share of 12% in the US

1) Source: Statcounter, Roland Berger

2

In Europe and the US, Google and Apple split the market for mobile operating systems among themselves

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  • Mobile operating systems are the main
    gateway to the digital world for most consumers
  • Android is a Linux distribution, i.e. essentially an open-source platform
  • However, Google – via the Open Handset Alliance – has implemented an isolationist policy towards Android, developing only the platform's proprietary add-ons
  • The Digital Markets Act (DMA) demands an undertaking from Apple and Google (the so-called gatekeepers) to fairly compete and not to give preference to their own services. One example is that pre-installed apps in iOS and Android should be as easy to deinstall as third-party apps. Smaller competitors should also be guaranteed unbiased access to both platforms provided by the gatekeepers

1) Source: Statcounter, Roland Berger

3

The world of social media is to a large extent shaped by Facebook and Google's YouTube

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  • The graph depicts the share
    of specific social media platforms among the seven most popular social media platforms, measured by monthly active users
  • Facebook and its wholly owned subsidiary Instagram have a market share of around 39% combined
  • Another quarter of all monthly active users can be attributed to Google's YouTube
  • Thus, two companies dominate around 60% of the global social media market

1) Source: Datareportal, Roland Berger

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The market for mobile messenger apps mirrors this pattern – 
Large digital platforms divide the market among themselves

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  • Again, market share is measured
    as the share of each mobile messenger service among the six most popular mobile messengers, based on monthly active users
  • As with other digital services, the market is dominated by a very small number of internet platforms
  • Facebook and its wholly owned subsidiary WhatsApp have a market share of 53%

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Online hate speech skyrocketed during the pandemic – The Digital Services Act aims to combat illegal online activities

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  • With the onset of social networks,
    a lawless space emerged in which utterances could be shared without regard to laws
  • The Digital Services Act (DSA), proposed by the European Commission, aims at reducing illegal activities on the internet, especially on social media platforms. By way of example, reporting of hate speech is to be simplified, but at the same time the right to freedom of speech is to be promoted

1) Source: Facebook, Roland Berger

6

Global advertising spending is moving to the digital sphere, with spending on mobile advertising forecast to grow in particular

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  • Mobile internet has seen an ever-increasing interest in global advertising over the past decade
  • In the next two years, advertising is forecast to expand, especially on the mobile internet. The increase in spending is about 6.5 times greater than the increase in advertising spending in the outdoor segment
  • Traditional media will not benefit from expanded advertising spending
  • In the future, less will be invested in print media for advertising purposes. This is in line with the trend towards digitalization

1) Source: Zenith, Roland Berger

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The digital advertising market has been growing by 21% each year – Google and Facebook divide half of the market among themselves

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  • Since 2010, global digital
    advertising spending has been increasing by 21% each year
  • Until recently, Google and Facebook have steadily increased their share of this market – In 2018, the two digital platforms received 60% of the total global digital advertising expenditure
  • However, Google's and Facebook's market share has decreased in 2019, due – among other things – to rising competition from Amazon, especially in the US market

1) Source: eMarketer, Roland Berger

8

Digital platforms turn their market shares into economic success – Six of the ten most valuable companies are digital platforms

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  • Six of the ten most valuable companies are digital platforms
  • Just six years ago, only three of the most valuable companies were digital platforms (Apple, Alphabet, Microsoft)
  • A decade ago, just Apple and Microsoft ranked among the ten most valuable companies

1) Source: Bloomberg, Roland Berger

9

Market capitalization of the six most valuable digital platforms is more than twice as high as the total of all Euro Stoxx 50 members

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  • The seven most valuable digital platforms have a market capitalization of more than EUR 8 bn
  • This is more than twice the sum of the market capitalization of all member companies of the Euro Stoxx 50 Price Index

1) Source: Bloomberg, Roland Berger

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Platform-based business models have outgrown traditional industry sectors in recent years

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  • The high market capitalization of the seven most valuable digital platforms follows a
  • wider pattern: Companies whose business model focuses on the coordination of networks via digital platforms have seen much greater growth of revenues and market capitalization than companies that supply physical goods, design technology solutions or provide services
  • Examples of companies in the different groups:
    • Asset builders:
      Volkswagen, Coca-Cola, Walmart
    • Service providers:
      Allianz, Bank of America, Axa
    • Technology creators:
      SAP, IBM, Samsung
    • Network coordinators:
      Alphabet, Oracle, Tencent

1) Source: Bloomberg, Roland Berger

11

Key Takeaway

Digital platforms continue to dominate the internet. Europe needs its own innovative business models – and a regulatory framework to ensure fair competition

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In order to keep pace on digital issues, the ECB is planning to introduce a digital euro – This offers opportunities as well as risks

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Opportunities

2

Risks

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Introduction of a digital euro:

A monetary revolution?

  • In July 2021, the European Central Bank gave the go-ahead for the introduction of a digital euro
  • At first, this sounds unspectacular – After all, most Europeans pay with euro and have long done so digitally. However, the introduction of the digital euro extends beyond this by giving end users direct access to central bank money, although the exact technical design is still unclear
  • As of today, consumers do not have access to digital central bank money – Digital money is so far only offered in the form of scriptural money at banks or payment service providers; the only form of central bank money for consumers is cash
  • The use of blockchain technology is conceivable – Yet digital central bank money cannot be lumped together with cryptocurrencies like bitcoin as the decentralized component is missing from the digital euro
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How a central bank digital currency (CBDC) could reduce the need for intermediation

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Central banks state multiple reasons for issuing a CBDC – The most significant being payment efficiency and safety

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Introduction of a digital euro:

A monetary revolution?

  • While governments pursue different objectives and motivations with regard to the issuing of these CBDCs, payment efficiency and payment safety can be identified as the most important motivations, according to a survey by the BIS
  • The importance of the issuance of a CBDC also varies between advanced economies (AEs) and emerging markets and developing economies (EMDE)
  • It should be noted that EMDEs may have unique reasons for issuing a CBDC due to their low rates of financial inclusion

1) Source: BIS, Roland Berger

3

The usage of digital payment services via apps varies greatly across European countries – Cash payments still dominate

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Introduction of a digital euro:

A monetary revolution?

  • Before the pandemic, the vast majority of payment transactions in Europe were still carried out using cash – According to an ECB survey, however, the pandemic will fundamentally change the payment behavior of Europeans: 46% of respondents said they would certainly not return to their original payment behavior after the pandemic, and 41% said they would at least probably not do so
  • Meanwhile, usage of mobile payment solutions varies across Europe – and all European countries exhibit lower proximity mobile payment app usage as compared to China
  • The ECB is not the only central bank exploring the possibilities of a digital central bank money. Worldwide, 83 central banks have outlined CBDC projects
  • While the ECB and the FED are still in a research phase, the People's Bank of China has already started a pilot project
  • A CBDC has already been launched in the Bahamas and on some Caribbean islands such as Grenada and Antigua
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04

Key Takeaway

Numerous innovations are on the horizon – Europe should take care not to miss out on them. Sufficient investment in digitalization provides the basis for this

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Talent for the future: Support startups, simplify equity participation for employees, promote diversity

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The European Commission should push for rules that make it easier and more attractive to grant employees stock options across the continent

The EU should follow the example of France and establish a common framework to encourage the introduction of special tech visas in all member states

Diversity is key to broadening the base of entrepreneurs. Thus, governments should link the funding instruments they create more closely to the diversity of the startups and scaleups they help to finance

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Capital for growth and employment: Further improve access to late stage capital, strengthen exit channels and the equity culture

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Government authorities across Europe should further boost the market entry of successful startups by setting up dedicated later stage venture capital funds and use public funds to leverage private capital

This effort must be supported by measures dedicated towards making exit channels in Europe more attractive

A stronger equity culture across Europe would enable people to participate in the growth of the digital economy and to leverage private capital for the startup ecosystem

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3

Fair competition for innovation and growth: Regulate platforms, strengthen decentralized and interoperable single sign-on regimes

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The Digital Services Act can be an important tool to fight digital disinformation and online hate speech if users get full and easy control over the information they receive

The Digital Markets Act helps to ensure fair competition in the digital arena, but EU oversight authorities should be granted the power needed to ensure its application

End users would benefit even more from both acts if these also enforced decentralized and interoperable single sign-on regimes

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4

5G boosts innovation and new business models and therefore its potential should be leveraged by competitive telco markets

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European regulators should push for a further opening of (mobile) telecommunications markets across Europe

To this end, a broader frequency spectrum should be made available for the use of 5G. This also makes it easier for new market entrants to challenge incumbents and drive innovation

Furthermore, the use of software-defined technologies like Open Access Radio Networks should be encouraged to strengthen both competition and digital sovereignty

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GVA

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