In the last year alone, eight UK tech businesses have reached a valuation of at least $1bn
There are many problems with the British economy, but also plenty of success stories. Take the tech industry: a decade ago, we were global also-rans, looking on enviously at America’s astonishing domination of that market. Today, the picture is very different: while the US remains self-evidently the market leader, a new generation of British entrepreneurs has helped build an increasingly promising home-grown tech industry.
We have become good at applying and developing technology – in retail or banking, for example – as well as in starting up standalone tech businesses. Many of these make use of the infrastructure created by the US giants to sell their wares, but that should be seen as a sign of clever adaptability, not a weakness. It is no different to hedge funds that trade dollars or yen from London. Companies don’t need to reinvent the wheel to earn a living.
Over the last decade, more international tech investment projects have come to London than to Paris, Dublin, Madrid, Amsterdam and Munich put together – or so argues London and Partners, a body that promotes the UK capital. London grabbed 1,009, against just 381 for Paris, according to research from EY, the accountancy giant.
The UK’s tech rebirth, and London’s crucial role in the story, is remarkable. The number of companies in London’s digital technology sector has grown by 46pc since 2010, while the sector now employs close to 200,000 people, a 17pc increase on five years ago, according to Oxford Economics.
By contrast, overall employment has risen by 7.8pc . Digital technology now accounts for 3.5pc of all jobs in London and for 5pc of gross value added produced, confirming that these are overwhelmingly well-paid, high productivity roles. There are now 40,000 or so digital tech firms in the capital, with many based in Westminster, Tower Hamlets, the City of London and Camden, and with output expected to grow by 5pc a year over the coming decade.
In addition to the companies themselves, London now boasts an increasingly successful support infrastructure, including venture capitalists (VCs) such as Index Ventures, accelerators, incubators and workspaces. Outside London, a number of areas – and not just Cambridge – are also successfully attracting tech start-ups.
GP Bullhound, a specialist tech investment bank, calculates that in the last 12 months no fewer than eight extra UK tech businesses have reached a valuation of at least $1bn. Seven of these are based in London. Such superstar European tech firms are now known as unicorns; to join the club, they must have been founded in 2000 or later, their equity needs to be traded in the public or private market, and they need to operate in the digital or software arenas (the data thus excludes biotech or clean energy firms).
Of the 40 unicorns currently in existence across Europe, no fewer than 17 are based in the UK, including Rightmove, Markit, Transferwise and AO (formerly Appliances Online). Sweden hosts six, Germany four and France just three. Not all unicorns maintain that status; some fall as fast as they rise. But what matters is the net number, and Britain is performing better than ever on that score.
Needless to say, the fact that there has been so much progress to date is no reason for complacency. Britain’s unicorns remain tiny compared to Silicon Valley’s second or third tier firms, let alone giants such as Apple. It is still much easier to operate from the US than from the UK, even if the gap is narrowing. But Britain’s increasing success in the tech world helps to explain why we are more relaxed about the success of the likes of Google than many of our European neighbours.
The EC’s obsession with the US tech giant – it has accused it of abusing its dominance of the search market – is largely a manifestation of continental Europe’s failure in the technology start-up race. Winners compete and cooperate, depending on what is most relevant; losers try and use the power of the state to hurt those that they can’t defeat in the market. It is no surprise that it is politicians from Germany and France that are pushing the hardest for the current anti-trust action against Google: neither country has been able to grow enough unicorns or to attract sufficient tech investment. The French economy is closed, decaying, overregulated and over-taxed. Being an entrepreneur in France can all too easily turn into a nightmare, while Germany has been unable to create any new SAPs.
It ought to be clear by now that corporate giants, even the largest and most powerful, eventually meet their match. Market forces are especially ruthless in the tech world, where change tears down barriers to entry faster than any antitrust office could ever manage. IBM no longer makes computers . History keeps repeating itself – and politicians, officials and even many economists never seem to learn.
Take the attacks on Microsoft in the 1990s and 2000s, when European and US policymakers were convinced that the Seattle-based giant was so powerful that it would easily crush all of its competitors. Because the company came to dominate the desktop, it was assumed that it would control the entire software market for ever. Entire theories about network externalities and other supposed tech market failures were constructed to justify this. Two decades later, the world has changed beyond recognition: Microsoft continues to make vasts amounts of money but has nevertheless become a shadow of its former shelf. It is no longer exciting or dominant.
Microsoft’s attempt to buy Intuit, a maker of accountancy software, was blocked in 1994 – today, that decision seems laughable. Even more absurdly, as recently as during the 2000s, policymakers were convinced that the real battleground lay in web browsers . Time and again, the officials were hopelessly wrong, and no wonder: the evolutions of markets and technological change cannot be predicted.
Instead of bemoaning Google’s current success, European policy-makers should free up their own economies and unleash their own tech-led revolutions. Some of these new businesses would doubtless find new ways of using Google’s search prowess to build markets and innovate. Others may even end up one day beating the US giant at its own game. One thing is certain: they would all quickly realise that whining doesn’t work.
This article was written by Allister Heath from The Daily Telegraph and was legally licensed through the NewsCred publisher network.