Europe is behind the USA in technology and the gap is only getting worse by Oscar Michelsson

Assessing the present, reflecting on the past, and unpacking the reasons for Europe's tech lag.

In my previous article, I touched on the question that keeps coming back to me: why is Europe falling behind in adopting new technologies, especially compared to Silicon Valley? This isn't just a trivial matter; it's crucial for understanding where Europe stands in the tech world.

When I first set foot in Silicon Valley, the difference was clear. Small and medium businesses there used tech that I hadn’t seen in Europe. Sales teams were equipped with tools that made their work not just easier but far more efficient, highlighting a gap between the two regions. These tools were mostly designed and developed in the US, showing that we in Europe have some catching up to do.

This hit me hard, but it also pushed me to dig deeper. Why has Europe, the birthplace of industry leaders like Nokia fallen behind? I've been searching for answers in Silicon Valley trying to get a sense of this gap. In this series, I'm going to take you through what I've learned, looking at why Europe is trailing and how it might not just make up ground but also become a leader in the tech industry. Let's continue this journey together, and I'll share more insights from my experiences and thoughts on what Europe can do to improve its standing in the tech race.

Europe and the Tech Value Gap: A Tough Reality

When you take a good hard look at the tech world, the numbers speak volumes. Out of the 100 biggest tech companies in the world, just seven are based in the European Union. Combined, these companies contribute less than 4% to the tech industry's global economic footprint. That's tiny, especially when you stack it up against Europe's overall economy, which accounts for more than 13% of the world's total according to World Economics Data. Moreover, within this group of seven, only one company, SAP, is within the top 50 that can be considered a platform with any meaningful data. This further underscores the critical shortage of European tech firms that not only push the boundaries of innovation but also anchor the vast and growing ecosystem of data—a key asset in the modern digital economy. This sizeable discrepancy is a stark warning sign that Europe is not on par with the rest of the world in the digital age, where tech is the foundation of nearly every business sector.

Let's focus on the automotive industry for a second. Germany, for instance, has long been a shining star with its rich automotive history. But if you line up the market values of its biggest car manufacturers—Porsche, Daimler, BMW, and Volkswagen—against Tesla's market cap, as listed on the largest automakers by market cap, there's a glaring discrepancy. Even with Tesla's stock declining by 30% in the past five months, the collective market cap of these German powerhouses doesn't come close to half of Tesla's. The reason? Tesla is not just about cars; it's leading the charge in software, autonomous driving, batteries, and solar energy. Sure, there's a debate about craftsmanship versus technology, but the real story is that they're focusing and excelling in completely different areas. Tesla's towering market value is a testament to its tech dominance, while Europe's car giants, with their legacy of engineering prowess, are racing to bridge the tech gap. Their market value is a stark indicator of their standing in the current tech-driven market shift. As Marc Andreessen famously said, Technology Is Eating The World, and nowhere is this more apparent than in the race for innovation in the automotive industry.

Should Europe Place Its Faith in France?

As we delve into Europe's AI scene, France stands out with promising companies like Mistral and Hugging Face. They're more than just tech-savvy; they're Europe's potential bridge to Silicon Valley's level of innovation. Yet, three major challenges keep my excitement in check.

The Funding Face-off: A Stark Contrast

Let's get real about funding—it's the lifeblood of the tech world. And in this department, Europe’s contenders are in the shadow of American giants. OpenAI, for instance, secured a hefty rumored $13 billion in total from Microsoft, pushing their valuation to above $80 billion. On our side, Mistral has done well for itself, snagging over $500 million with a $2 billion valuation. Word has it they might even reach a $5 billion valuation soon. Sure, these numbers might be different if you look up close, and, indeed, the comparison isn't entirely apples to apples. OpenAI, for example, is not an open-source entity, whereas Mistral operates on an open-source model. However, even considering the open-source angle, we must acknowledge that Meta allocated $10 billion to develop their open-source project, Lama. Despite these nuances, the bigger picture is clear—we're in a financial David versus Goliath scenario.

The Open-Source Arena: U.S. Dominance

Moving on to open-source AI, where sharing is supposed to level the playing field. When looking at Hugging Faces leader boards the reality is, that the trendsetting datasets and models are mostly made in America. This trend is further amplifying the U.S.'s lead in AI innovation, leaving Europe with a steep hill to climb.

The Silicon Valley Magnet: Europe's Brain Drain

From my experience, Mistral stands out as one of the most, if not the most, active foundational LLM companies in the Valley ecosystem, frequently hosting events and maintaining a strong presence. This European pioneer has intentionally set down roots in Silicon Valley, a move that's far from coincidental. To become a significant force, being immersed in the Silicon Valley ecosystem is crucial, where unparalleled resources, talent, and networks are at your fingertips. It's a strategic choice, but it underscores the magnetic pull of the Valley.

France has shown flashes of brilliance, akin to OVHcloud's stint in the cloud sector. However, it feels like we're just replaying the same old story. Tech titans—those with the fattest wallets—are still making the rules. It begs the question: Why do startups in places like Silicon Valley skyrocket, while we're just getting our engines ready?

So, there it is. France is stepping up in the AI game, bringing skill and drive to the table. But let's not kid ourselves—these aren't minor challenges to overcome. The AI train is charging full speed ahead, and Europe is still strapping on its boots.

Obstacles to Europe's Technological Progress

Let's cut to the chase and talk about why Europe is falling behind in the tech race. From my own experiences and the stumbling blocks I've faced, I've seen firsthand how a mix of issues is holding us back.

Regulation: A Double-Edged Sword

Europe wants to protect its citizens and companies with regulations, and that's admirable. But let's be real—the way these rules are put into practice can be a mess. Take the AI Act, for example. It was supposed to make it easier for businesses to use AI, but instead, it's scaring them off because nobody knows how it's going to shake out. I remember sitting down with a potential client who was on the fence about using our AI solution. They were worried about the AI Act, saying they couldn't make a move until the rules were crystal clear. It's the same old song and dance as with GDPR and cloud services; we've been at it for over 15 years and companies still scratch their heads over how to play by the rules. This kind of uncertainty kills the drive to innovate and puts everything on pause.

First-Mover Advantage: A Self-Fulfilling Prophecy

There's truth in the saying, "the early bird catches the worm," especially in tech. Start-ups in Silicon Valley get their hands on the latest tech goodies before anyone else, which lets them start building and scaling pronto. My co-founder and I felt a twinge of regret for not jumping into the fray sooner. If you're not rubbing elbows with the tech elite and catching the latest buzz, you're already a step behind. You’re missing a seat at the table with the big players, like the head of OpenAI developer relations, which can mean missing out on your big break.

Investment Landscape: Silicon Valley's Financial Magnetism

Money talks, and in the tech world, it's screaming for Silicon Valley. Some say the Valley pulls in more venture capital than the rest of the world combined, and that's even truer for cutting-edge fields like generative AI. Cash is king here—it fuels fast growth and expansion.

Market Fragmentation in Europe: A Scaling Hurdle

The U.S. benefits from a single, cohesive market that streamlines business growth from one coast to another. Europe, however, is splintered into individual countries, each with its own cultural and regulatory idiosyncrasies. This fragmentation means European companies face a patchwork of barriers when trying to expand, with the European Union's efforts only partially smoothing the path.

Language Barriers and AI Development Challenges

Language differences add to Europe's market complexity, as each nation speaks its language, complicating cross-border trade and communication. For AI, this is particularly problematic since the internet is predominantly English-speaking, leading to an imbalance in data availability. This data deficit restricts AI effectiveness across the EU, where limited data for less widely spoken languages translates to less powerful AI applications.

Exit Strategy: The European Dilemma

Too often, Europe's tech stars either get snapped up by bigger fish (usually from outside Europe) or decide to set up shop in the U.S. right from the get-go. Look at Wolt, which DoorDash gobbled up, or Supercell, now part of Tencent. Then there's Linear, which went straight for the U.S. market. This trend of selling out or relocating tells a story of limited growth potential in Europe. It's not always a bad thing, but it does lead to a brain drain and makes it tough for Europe to stand on its own two feet in tech.

In a nutshell, Europe's tech scene is getting tripped up by a bunch of stuff: tricky regulations, being late to the party, not enough investment, a fragmented market, and a tendency to cash in early. If we're serious about catching up to Silicon Valley and even leading the pack, we need to get our act together and tackle these problems head-on.

Cultivating Optimism and Potential in the European Tech Landscape

Despite these challenges, my heart remains optimistic. There's an instinctive belief within me that we possess the ability to not only catch up but also to lead the global tech race. The migration of entrepreneurs to the USA and the sale of their companies abroad isn't the end of the story. There are innumerable examples of these individuals reinvesting in the ecosystem they originated from. We must recognize that the triumphs of European entrepreneurs in the U.S. represent more than individual success; they create ripples of inspiration and knowledge that flow back to their homelands.

Their commitment to investing time and capital into initiatives like SILTA, which I'm proud to be a part of, is what's fueling the fire for Europe's tech ambitions. It's about more than just cash; it's about building a sense of togetherness and pushing the envelope on what we can achieve together.

Admittedly, the EU firmly holds the reins of regulation, partly to secure a portion of the technological investments for Europe. However, it's important to focus on the future. AI isn't just another advancement—it's as or even more revolutionary as the internet, offering a reset to the competitive landscape, and we must seize this opportunity.