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The wave of digitization — a series of trends that have transformed how we shop, consume media and drive efficiencies in all aspects of doing business — is well advanced in Europe in our view.
The European Union alone boasts approximately 368 million online users and 193 million Facebook users1 versus 245 million online users and 166 million Facebook users in the U.S.,2 and a broadband penetration rate of 72 percent3 (vs. 70 percent in the U.S.).4 In 2012, European business-to-consumer (B2C) e-commerce grew by 19 percent to reach €311.6 billion,5 according to Ecommerce Europe.
In fact, the United Kingdom (UK) has the highest e-commerce penetration globally with 87 percent of the UK’s Internet population having bought a product or service online versus 43 percent in
the U.S.6 Mobile adoption has also been rapid, with smartphone penetration in the UK and parts of Northern Europe already being higher than in the U.S.7
So if European consumers and businesses have so fully embraced the digital economy, why is it essentially dominated by U.S. companies like Google, Amazon, Facebook and others?8 Why is the “digital balance of trade” so skewed toward the U.S. with Europe being a large “net importer” of digital services and technology from the U.S.? Is this imbalance changing and what could be the potential drivers behind such a change?
The following analysis explores these questions, drawing on KKR’s insights as well as interviews with leading entrepreneurs, investors and officials from across Europe. We will discuss the key structural advantages that are underpinning Europe’s digitization. In addition, we will explore the key reasons why Europe is lagging behind the U.S. in the creation of successful global digital powerhouses. In particular, this paper will examine the role that limited access togrowth capital may be playing. We will also discuss an emerging “funding chain” that is developing around a complex international eco-system, which will hopefully help Europe to unlock its full digital potential, and in which private equity can play an important role. Finally, we will look at the potential of large exits to energize the European digital landscape and reinject capital into the next generation of startups.