Interview
Europe’s Digital Economy at a Tipping Point
- Europe's digital economy is projected to experience a permanent structural shift, with online penetration accelerated by the pandemic expected to represent a gain of three to five years in one year, potentially up to 10 years in immature categories like food.
- Public cloud and infrastructure as a service are anticipated to drive unconstrained growth given that only 20 to 25 percent of current computer workloads are cloud-based, while platform as a service will facilitate the development of richer applications through out-of-the-box components.
- Venture capital funding in European tech, though currently three times lower than in the US or Asia, is expected to support the proliferation and scaling of internet companies, alongside public market funding trends intended to help retain local champions that previously listed in the US.
- The digital transition is fueled by concerns over the influence of US and Asian tech firms and is supported financially by the allocation of 20 percent of the 670 billion Euro European recovery and resilience facility.
- The European Commission's regulatory overhaul, specifically the Digital Services Act and Digital Markets Act, aims to create a level playing field against US big tech and harmonize rules, with fines potentially reaching up to 10 percent of annual global turnover and repeat violations risking corporate breakups.
- New regulations will require e-commerce platforms to proactively assess merchant risks, increase transparency in algorithmic recommendations and ad targeting, and force gatekeepers to open access to advertising inventory and data, potentially ending the use of business customer data to compete.
- Over 70 identified digital champions already account for 30 percent of the European Stock 600 Index, including pure plays in verticals such as classifieds, food delivery, online gambling, luxury, and fashion.
- Companies in sectors such as payments, logistics, tower infrastructure, and software services are expected to benefit as digital enablers, while traditional players with strong barriers to entry in grocery or strong brand recognition in beauty, luxury, and sportswear are projected to see improved growth and returns.