Digital Europe

A huge market slipping away from local veteran players

by Vincent BONNEAU

Europe’s digital market remains substantial (more than 1,000 billion EUR by 2023) but is benefitting non-European companies more and more, and US players in particular. The relatively open regulatory framework makes it easier for new entrants to set up shop there.

Slower progression

The digital market in Europe is growing more slowly than in virtually any other region (with the exception of the Middle East), with annual growth over the next three years forecast to stand at an average 4.3%, which is one point below the global average. Europe lags behind in every sector, but especially in Internet services, due to less efficient monetisation. At close to 875 billion EUR in 2019, the European market nevertheless remains attractive, particularly its IT services sector which is reaping the benefits of traditional industries’ digital transformation. Competition in consumer markets often drives down prices, especially in the telecoms sector, and innovations tend to develop first in other parts of the world.

Progression of Europe's digital services market, by segment

Progression of Europe's digital services market, by segment

Source : IDATE DigiWorld

Telecom players still holding their own

Europe’s poor showing in digital tech is more stark on the supply than the demand side. Europe is turning in sub-par performance on the world stage in consumer electronics, software (despite SAP and Dassault Systems) and digital content. It is virtually absent from traditional Internet services, has no OTT heavyweight and only a handful of emblematic unicorns, most in the areas of e-commerce, financial services and health. Europe does, however, remain a major player in IT and especially telecoms, thanks to equipment suppliers Nokia and Ericsson, but also to its pan-European operators. These telcos have also built a footprint that extends well beyond European borders, into Africa/the Middle East (Orange, Vodafone), Latin America (Telefónica), Asia (Telenor, Vodafone), and even the United States.

European telcoms remains a serious challenger

The world's top telcos in 2018, by revenue

Source : IDATE DigiWorld

A (too) great capacity to regulate, coupled with public financial support

Europe stands out for its very high capacity to regulate, for the consumer’s benefit, to develop competition (notably in the telecoms market), foster the development of a single market (among countries with disparate objectives) and better protect citizens, thanks to a Europe-wide privacy protection regulation. The prime beneficiaries of this approach designed to stimulate and open the market have often been powerful, non-European companies (except in those markets with a highly local dimension). But this is tending to diminish somewhat, and be replaced by an approach that seeks to develop European Big Tech. This includes support for R&D but also quasi-protectionist moves (sovereign cloud, taxing OTT giants, quotas…). Europe also stands out for its desire to promote certain digital development imperatives, such as ethical tech.

Strong public support for revamping Europe's position on digital tech

European AI financing schemes

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Source : IDATE DigiWorld in "National AI Strategies"

Will verticals’ transformation drive the digital sector’s development?

If Europe’s tech sector remains underdeveloped, especially in software and adjacent sectors, the Old Continent’s more veteran industry players (i.e. verticals) are powerful and very often global corporations. Europe does appear to lag too far behind in consumer markets to be able to catch up. But there is still hope in B2B markets, both thanks to verticals’ digital transformation, which relies on local 5G, IoT, security and cloud solutions (offering better value and better fending off products from emerging countries), and the development of major tech companies from the existing stable of venerable verticals, such as Siemens, Philips, Thales, Bosch, ABB, Schneider Electric, Veolia, Engie et al, capable of delivering a blend of digital and industrial savoir-faire in B2B segments. This is the tack that the European Commission is taking for the development of 5G and even 6G in Europe.

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