California's Silicon Valley is just like Sophia Antipolis, the "science city" in the South of France where Philippe Bossut, vice president of technology at Live Picture of Scotts Valley, California, earned his Ph.D. "It's true: it's so similar that sometimes you wonder if it's not the same place," he claims. Europe's loss, America's gain. Indeed, the story of Live Picture and its associated companies could be used in a movie promoting Silicon Valley. The plot: programmer Bruno Delean has brilliant idea and starts software house in France; programmer moves to California and gets backing from rich venture capitalist; idea is adopted by leading companies, which set out to make it a world standard.
The venture capitalist in this case was John Sculley, former CEO of Apple Computer, and the companies backing Mr. Delean's idea--the FlashPix file format for digital images--include Kodak, Hewlett-Packard, and Microsoft (see "The Big Picture").
The question is, could that success have been achieved from the South of France or elsewhere in Europe? The honest answer is that it's possible, but unlikely. With a population of 380 million people--50 percent more than the United States--Europe offers a huge potential market. The International Data Corporation predicts that Europe's information technology spending will grow to $211 billion next year. But Europe's IT industry has been in relative decline for 30 years, and only a handful of software companies have made it onto the world stage. That these include SAP of Germany, Business Objects of France, and Micro Focus of Britain shows the extent of the problem: with the greatest respect, they're not household names.
The hardware situation is worse. The European governments' strategy of backing national champions like Siemens in Germany, Groupe Bull in France, Olivetti in Italy, and ICL in the United Kingdom has been a disaster. (Finland's Nokia has been successful, but with mobile phones rather than computers.) The few European companies to have any impact in the United States include Great Britain's Psion, which makes beautifully designed electronic organizers, and Madge Networks, a British company registered in the Netherlands that develops token ring network cards.
Where are Europe's Compaqs and Dells, its Intels and Microsofts, its Ciscos? There aren't any.
In search of EurovalleysScotland is one of the world's largest PC manufacturing countries only because IBM and Compaq own factories there. Ireland has factories that make Intel Pentium chips and motherboards; Apple and Gateway 2000 assemble PCs there. There are lots of small, indigenous manufacturers and some pan-European ones, but according to research from United Kingdombased Context, Europe's top three PC suppliers--Compaq, IBM, and Hewlett-Packard--are American, with Germany's Siemens in fourth place.
European governments have, of course, been keeping an eye on information technology for decades because of its potential for job creation and the effect of imports on their trade balances. They have poured tens of millions of dollars into what the European Union calls RTD (research and technological development), and the union has backed more than 7,000 joint projects through its Framework programs. Each nation would like to create its own version of Silicon Valley. Unfortunately, doing that isn't easy, as Sophia Antipolis and England's Cambridge Science Park show.
Plugging the brain drainThe Cambridge Science Park claims to be Europe's first such creation. It was founded in 1970 on derelict land used by the U.S. Army during the Second World War; the first company moved in three years later. According to Information Officer Lindy Beveridge, it was inspired by Stanford University's industrial park in Palo Alto. She says, however, that it was only the "final touch" to other things that were happening in the '60s, when Britain became alarmed by a "brain drain" of British technologists moving to the United States. The need for the park had already been established in a report by Sir Neville Mott in 1969.
The Cambridge Science Park now comprises 75 companies employing 4,350 people, and the Cambridge area has more than 1,000 high-tech companies that retain more than 35,000 employees. "People have begun to believe in it: Bill Gates believes in it too!" Ms. Beveridge exclaims. Microsoft recently announced an investment in the area and opened an office close to the highly regarded Cambridge University Computer Lab.
Cambridge's main rival is Sophia Antipolis, which was founded in 1969 on the Cфte d'Azur between Nice and Cannes and now has more than 1,000 companies employing 17,000 people. Sophia Antipolis was inspired by a French senator, Pierre Laffitte (see "The Revolution at Sophia Antipolis"), who wanted to create an "international city of wisdom, science, and technology." The area is sometimes known as Telecom Valley, after an association started there in 1991. Interestingly, the seven founders of the Telecom Valley Association include a majority of American companies: AT&T, Paradyne, Digital Equipment, IBM, and Texas Instruments. IBM opened its LaGaude research center nearby in 1961, before Sophia Antipolis was founded. Michel Mayer, IBM's general manager of networking systems, is based at LaGaude; he says the area's advantages are that it's a nice place to live, "the airport is well served, and a lot of people speak English. What are the minuses? It's a little isolated from the mainstream of high technology--you can spend a lot of time on planes--and I wish we had more local high-level education, but that's an area to improve, rather than being a problem."
Luxembourg, one of Europe's smallest countries, is also joining in, with Mediaport Village, which is based on the presence of the Astra satellite system and CLT/UFA, Europe's largest broadcaster. Luxembourg has a population of only 410,000 and little unemployment, but Marco Sgreccia from the prime minister's office says, "We are offering a lot of jobs for people who cross the border," commuting from France, Germany, and Belgium, where unemployment is higher. Mr. Sgreccia adds that MIT's Nicholas Negroponte visited the site and was impressed.
The Silicon Valley effectThere are many other Eurovalleys. For example, Spain has the Parc Tecnolтgic del Vallиs, a "tecnopolis" near Barcelona. Its general manager, Xavier Mateu, says that after ten years it hosts more than 100 companies. And last year, in the former East Germany, the Saxon Ministry for Economics and Labor launched Saxony Telematics Development (or SET), headed by an American, Howard Frederick.
Government-sponsored technoparks can encourage desirable clusters of expertise, but these clusters more commonly emerge on their own. For example, in the industrial revolution, which began in England, the cotton industry grew up in Lancashire and the wool industry in nearby Yorkshire, while steel production gathered speed in the town of Sheffield. There's nothing new about the "Silicon Valley effect" of people leaving established companies to found startups nearby. Indeed, it's probably inevitable. The information needed to create new industries isn't widely disseminated initially, and the people most likely to succeed have hands-on experience gained from working for someone else.
Two important clusters in Europe are the Thames Valley area to the west of London and the Technology Triangle around Karlsruhe, Heidelberg, and Mannheim in Germany. Neither has formal government backing, though the Thames Valley is promoted by the two-year-old Thames Valley Economic Partnership (TVEP). The area's American software stars include Microsoft, Computer Associates, and Oracle, and the TVEP says it has helped more than 50 companies, many of them U.S. high-tech businesses, to move into the Thames Valley.
According to the TVEP, the area's advantages are its proximity to Heathrow Airport, "excellent road and rail links," a "high skills base," and high-quality surroundings--not the sort of declining industrial wasteland to which governments usually try to lure new businesses. Those assets are great for TVEP, which is trying to attract inward investment, but not enough to re-create Silicon Valley. It doesn't have the concentration of world-class universities like Stanford and the University of California at Berkeley needed to generate ideas, and it doesn't have enough entrepreneurs starting new companies. Nor does it provide ready access to the necessary venture capital. As Jane Tozer, a consultant to the British venture capital firm Granville Holdings, says, "It's just a convenient place to live."
This is not to knock the TVEP or the Thames Valley. Much the same criticism could be made of Sophia Antipolis. In fact, these drawbacks are endemic across Europe.
Old World, new tricksPart of the problem is with academia, which supports and preserves Europe's centuries of artistic and cultural achievement but disdains both technology and trade. People who would be ashamed to admit ignorance of Dante, Shakespeare, and Goethe or Bach, Mozart, and Beethoven are proud that they can't use a keyboard. Colin Coulson-Thomas, a professor at Luton University and author of a book titled The Future of the Organisation,says, "In spite of the billions we invest in education in the western world, most people are functionally illiterate in science and technology, and will remain so. The future survival of our society and economic system and the whole [state-financed] welfare base--all the things we take for granted--the technologies that are emerging potentially put all these at risk."
Klaas Brьman of Disc Direct, a 1991 startup, grew up in Germany's Technology Triangle, and he sees a lack of American-style entrepreneurialism even within university science and technology departments. "German universities spend a lot of money, but they're slow-moving organizations, and there's very little interaction with industry and venture capital. It's not that there are no results at all, but there aren't enough for a country that needs to be competitive."
One man who is tackling this problem is Bernard Larrouturou, president of France's INRIA (Institut national de recherche en informatique et en automatique). INRIA has more than 2,000 staff, doctoral students, and visiting fellows spread across five locations, including Sophia Antipolis, where Mr. Larrouturou started. He says INRIA has produced more than 20 spin-off companies since 1984, and these now have a combined turnover of $100 million and employ 900 people. INRIA holds shares in three startups, including Ilog, a software house floated on Nasdaq (ILOGY), and Mr. Larrouturou is starting a seed capital fund to help more startups apart from INRIA.
"Our analysis is that venture capitalists are becoming more active in France," says Mr. Larrouturou, "and there's probably enough money for companies that are a few years old. But for those in the beginning stages, where it's more risky, it takes too much time to examine the business plan, so basically VCs do not invest."
Ms. Tozer and others agree that Europe "suffers from the lack of true venture capital--risk capital" and the tendency to think in national or, at best, European terms. "That means when we do invest, we've got to put in enough capital to think globally, which Americans do," she says.
One software company in Paris has proved such investing can be accomplished. Business Objects, founded in 1989, took an American-sounding name, rather than Objets Commerciaux. From the beginning, founder Bernard Liautaud targeted the U.S. market, and when the company was ready for an initial public offering in 1994, it went to America's Nasdaq (BOBJY). In effect, Business Objects has been a typical American startup in every way except staffing and location. Is this really the best that Europe can do?
Trading placesThings have improved since September of last year when a new stock exchange was added to the more than 30 already operating in Europe. This one, the Brussels-based Easdaq, attempted to emulate Nasdaq's success in providing a liquid market for small and medium-size companies. It also copied Nasdaq's system of telephone trading with computer-based confirmations.
The first company to be launched on Easdaq--which stands for European Association of Securities Dealers Automated Quotation--was a British antivirus software house, Dr Solomon's Group (SOLL). The company's finance director, David Stephens, says this honor arose partly because its venture capital partner, Apax Partners, was an Easdaq supporter. The new exchange "has been a bit slow taking off," Mr. Stephens says, but "it wasn't too painful an experience, and it brought in continental investors."
But Dr Solomon's was a management buyout, not a startup--the company was founded in 1984--and it went to Nasdaq(SOLLY) at the same time it went to Easdaq. "We'd have thought twice about listing on Easdaq alone," Mr. Stephens says.
Independence daysIn the long term, the success of Easdaq, and perhaps of other new exchanges like Frankfurt's Neuer Markt and Paris's Nouveau Marche, will be vital in helping European startups to market. If the exchange doesn't take off, Europe's most inventive young companies will continue to do what most have done for the last decade or more: sell out to large American and Japanese corporations.
Most of Europe has the infrastructure--the physical and electronic communications capabilities--to match the United States', and things are improving with the liberalization of the telecom market and the privatization of giant national phone companies. Europe also presents an enormous potential market, and it even has venture capital. In fact, the European Venture Capital Association says about $9 billion (7.97 billionecus) was raised in 1996. So what's holding Europe back?
"Clearly it's not the quality of our research, and it's not the quality of the people," says Mr. Larrouturou of INRIA. "As far as I can tell, it's not the amount of money available now, so I see both the lack of an entrepreneurial culture and the lack of investment at the early stages as the limiting factors."
Finding solutions will take time, but it needs to be done, if only because everyone can't emulate Live Picture and move to California. There isn't room.
Jack Schofield is the computer editor of The Guardian in London. Write to him at jack@cix.co.uk.