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The Innovator #11

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11th Issue of The Innovator, Les Echos' anglophone publication on technology, innovation and digital transformation.

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The Innovator #11

  1. 1. AI IN THE EU A €2.7 TRILLION OPPORTUNITY GOING DIGITAL AN INTERVIEW WITH L’OREAL’S CEO AND CDO 5G WILL EUROPE LAG BEHIND? #11 – May 2019 - Viva Technology 2019 Distributed at VivaTech and in Les Echos # 22946 SUPPLÉMENT GRATUIT AU #22946 DU QUOTIDIEN « LES ÉCHOS DU 13 MAI 2019 » NE PEUT ÊTRE VENDU SÉPARÉMENT CAN DIGITAL EUROPE COMPETE?
  2. 2. — P.3 LETTER FROM THE EDITOR This issue marks the Innovator’s two year anniver- sary. The launch pad for our magazine was Viva Technology’s 2017 conference. The raison d’être for the Paris conference, which is jointly owned by Les Echos and Publicis, is to bring to- gether big corporates and startups and highlight the technolo- gy disruptions that will transform business and society. This is also the key mission of The Innovator. In this issue we have focused on whether digital Europe can compete. The World Economic Forum and the Continent’s digital leaders have an action plan and corporates are expected to play a key role. The stakes are high. Although United Tech of Europe is a ma- jor theme at this year’s VivaTech the long sought after goal of creating a single digital market has yet to be achieved. The same risks to be true with newer technologies, such as artificial intel- ligence. Without a united effort, industry observers say it will be difficult for Europe to compete against the U.S. and China and Europe will miss the chance to add trillions to its GDP and shape its future. Let's hope by the time VivaTech rolls around next year that there will be lots of progress to report. ByJenniferL.Schenker Editor-in-Chief,TheInnovator THEBRIEF COVERSTORY: CANEUROPELEADININNOVATION? WHYTHENEXTTECHCHAMPIONCOULD BEBUILTINEUROPE EUROPE’STECHUNICORNS N26ANDTHERISEOFEUROPE’S CHALLENGERBANKS 5G:WILLEUROPELAGBEHIND? AIINTHEEU:A$2TRILLION OPPORTUNITY ANINTERVIEWWITHCAPGEMINICEO ANDCHAIRMANPAULHERMELIN WHOWILLDRIVETHEFUTUREOF MOBILITY? THERACETODOMINATEAUTONOMOUS CARS BEYONDSMARTTIRES:MICHELIN’S LATESTSTRATEGY GOINGDIGITAL:L’OREALCEO JEAN-PAULAGONANDCDO LUBOMIRAROCHETDISCUSSTHE COMPANY’SPROGRESS ACCORHOTELS’DIGITAL TRANSFORMATION THETOP25STARTUPSTOMEETATVIVA TECHNOLOGY WHOWILLLEADINBUILDINGTHE FACTORIESOFTHEFUTURE? DEMOCRATIZINGHEALTHDATA P.04 P.06 P.11 P.12 P.13 P.14 P.18 P.22 P.24 P.26 P.28 P.30 P.32 P.34 P.36 P.38 TABLE OF CONTENTS Everyone wants to spot Europe’s next extraordinary tech entrepreneur. Someone already has. VENTURE CAPITAL FOR THE WORLD’S TECH ENTREPRENEURS LAKESTAR.COM BERLIN LONDON ZURICH
  3. 3. — P.5P.4 — THE INNOVATOR THE BRIEF THE BRIEF Entrepreneurs are building groundbreaking solutions to some of the world’s most pressing problems: from bio-based chemicals to animal-free meat, zero-emissions transportation, secure land registries that empower smallholder farmers in developing countries, and satellite imagerypreventinghumantrafficking. Nowcorporatesarejumpingonboard. Corporate-startup collaboration is rampingupinimpacttech–technology that helps achieve progress on the 17 Sustainable Development Goals (SDGs) for 2030 agreed by all U.N. member states. And the potential for positiveimpactonsocietyandbusiness is enormous. That’s one of the major conclusions of a report to be released May 16 at Viva Technology by Good Tech Lab, a Paris-based research and innovation firm. Thegrowingnumberofcollaborations is due in part to market forces, says the report. "The Frontiers of Impact Tech: An overview of moonshots worth taking in the 21st century," is being published with support from MAIF, Michelin, thecamp, Autodesk, ComicRelief,andtheFrenchNational Energy and Environment Agency (Ademe). The report notes that the SDGs represent at least a $12 trillion annualmarketopportunity,according to the Business and Sustainable DevelopmentCommissionco-founded by Unilever ex-CEO Paul Polman. Meanwhile, Project Drawdown estimated the net financial gain of removing 1,000 gigatons of CO2 from the atmosphere, to achieve carbon neutrality by 2050, at $45 Togettechnologynewsincontexteveryweek,subscribetoournewsletter:http://innovator.news trillion. Among 180 impact tech trends, the report outlines how the food sector is being disrupted in a good way. Examples include startups using AI to prevent food waste in restaurants, others engineering soil micro-organisms to replace unsustainable synthetic fertilizers, and French agtech startup Ynsect, which just raised €110 million to buildaroboticfarmthatwillproduce 20,000 tons of insect protein for the aquaculturemarket.Cell-basedmeat, made from in-vitro cultivation of animal cells, and plant-based meat, couldmakeindustrialanimalfarming obsolete. Even Tyson Foods, one of the world’s largest meat processors, has invested in “new meat” startups Memphis Meats and Beyond Meat, in addition to launching its own line of plant-based products. Impacttechinnovatorsaredisrupting almost every sector, and large companies are taking notice. Ecovative, which produces bio-based packagingfrommyceliummushrooms, has partnered with furniture giant IKEA. In clean energy and clean mobility, startups are attracting massiveinvestmentfromEngie,Enel, Michelin, Air Liquide, Schneider Electric, BMW and Renault, among many others. Some companies, such as Unilever and Danone, are even creating impact investing funds. Building The New Carbon Economy Is Today’s Moonshot The report also stresses that the increased interest of corporates in impact tech is not driven solely by social responsibility, but also by a wide range of business factors, a trend recognized by the World Economic Forum, Boston Consulting Group, and various business think tanks.GoodTechLab’ssecondreport, planned for late 2019, will focus on those drivers, such as opening new markets, product innovation, strengthening supply chains and partnernetworks,fosteringcustomer engagement, securing licenses to operate, and responding to new investor expectations — including institutional investors aiming to increase their portfolio’s societal impact. With mounting interest in impact tech rise it’s not surprising that the topic will be on the agenda at Viva Technology. French President Emmanuel Macron is expected to convene some of the world’s biggest tech stars to discuss the topic on May 15, the day before the conference’s official opening. Impact tech innovations aimed at solving some of the world’s biggest problems will be on display at Viva Tech with multiple sessions scheduled on the topic. Benjamin Tincq, co-founder and CEO of Good Tech Lab, the producer of the report, will be leading one of them. He sees the growing startup activity and corporate interest as very positive signs. “In the last year, we have seen many citizens and business leaders joining scientists in declaring a climate emergency,” says Tincq. “Impact Tech can help create a New Carbon Economy — aprosperouseconomywhichcaptures morecarbonthanitemits.Fiftyyears ago, the first humans set foot on the moon. Building that new economy istoday’smoonshot,anditwillrequire systemic collaboration. I think partnerships between Impact Tech innovatorsandcorporatescouldhelp us achieve that at startup speed and industrial scale.” J.L.S. Fatoumata Ba, founder and CEOofJanngo,atechforgoodplatform, is passionate about using technology to help Africa leapfrog ahead, by empowering women and helping strengthen small- and medium-sized businessesacrosstheAfricancontinent. The goal is to create a network effect for good. Prior to launching Janngo, Ba, a scheduledspeakeratVivaTechnology, worked at e-commerce marketplace Jumia, the first African unicorn, serving as Ivory Coast CEO, a managing director in Nigeria and a member of the executive committee at Africa level, helping drive the performance of 130+ operations across Africa, spanning around 10+ verticalsin30+countrieswith3,000+ direct jobs, 7,0000+ indirect jobs and creating opportunities for more than 500,000 SMEs across Africa. Inhernewventure,Janngo,Babuilds digital ecosystems in high growth sectorsbyprovidingbusinesssupport to small and medium enterprises. The goal is to help SMEs to scale and contribute to the economic empowerment of youth and women through job creation and capacity building. Through this approach Janngo, which means future, hopes to create inclusive economic models for the future, generating profits and a positive social impact, says Ba. In the run-up to Viva Technology, Ba told The Innovator she is in the process of raising a new Africa- dedicated early stage fund that will be distributed evenly between male and female entrepreneurs and seek to more evenly distribute capital across Africa. Over 90% of funding currentlyflowstojustthreecountries, she says. Ba is just one of a large groupofentrepreneursandinvestors attending Viva Tech this year. Topics of planned sessions include access to funding, competition between local and international startups targeting the African market, and difficulty for investors to overcome theirperceptionofrisk.SevenAfrican startup competitions will take place during the conference sponsored by four large corporates: Drug maker Sanofi, energy companies Vinci and Total, and Société Générale, the French bank. Euclideon’s Hologram Table for business, is just one of the innovations that will be on display at Viva Technology this year. It displays digital models of cities or buildings as miniatures, with the ability to zoom in down to single blades of grass or even smaller. It is being used by architects, city planners, military and university researchers, and industrial players who want to keep track of large-scale assets, including railways and power lines. REINFORCINGAFRICA’S DIGITAL ECOSYSTEMS PROJECTING THEFUTURE MARKETFORCESARE BOOSTINGTECHFORGOOD $12 TRILLION Sizeoftheannualmarketopportunityfor techforgoodinfoureconomic sectors-foodandagriculture,cities, energyandmaterials,health andwellbeing,accordingtotheBusiness andSustainableDevelopment Commission,co-foundedbyUnilever ex-CEOPaulPolman. VivaTechspeaker, FatoumataBa VivaTechspeaker, BenjaminTincq
  4. 4. P.6 — THE INNOVATOR CANEUROPEBECOME AGLOBALINNOVATION LEADER? OlliMartikainen,aFinn,starteddevelopingarouter — hardware that directs streams of data from one computer to another — back in 1982 at VTT, a research institute in Espoo. The Finnish companies financing the research — including Nokia — didn’t see the potential, so the project was droppedin1986,shortlybeforeanAmericanstart-upcalledCiscocommercialized similar technology. Cisco went on to dominate basic corporate networking gear, with annual sales of billions of dollars. Martikainen continued working as a professor and researcher while his prototype gathered dust in a university display. There have been many other disappointments: Germany’s Fraunhofer research institute invented MP3 technology and Britain’s Sir Tim Berners Lee invented the World Wide Web but it was Americans who capitalized on these breakthrough inventions. With the exception of Swedish music streaming service Spotify, which went public last April with a valuation of $26.5 billion, Europe missed the consumer Internet. European companies pioneered mobile phone operating systems but Apple and Google are now the global leaders. And Finland’s Nokia and Sweden’s Ericsson, global players in wireless networking technology, are trailing behind China’s Huawei on contracts for 5G next generation networking equipment. (See the story on 5G on page 14.) The question now is whether Europe can leverage the new wave of digital or digitally enabled technologies – such as artificial intelligence (AI), machine learning and blockchain – to create new jobs and new types of products and services, says the World Economic Forum’s 2019 Innovate Europe: Competing For Global Innovation Leadership report, part of the Digital Europe Project, a collaborative effort between the Forum and McKinsey. Getting it right could have enormous benefits for the European economy. For example, it’s estimated that developing and diffusing AI could add up to €2.7 trillion to European economic output by 2030, the report says. (For more on Europe’s ability to compete on AI see the story on page 18.) Beyond AI, Europe has identified a few key enabling technologies it wants to lead in: photonics, nanotechnology,electronics,additivemanufacturing,robotics,sensors,materials and energy. (For more on manufacturing see the story on page 36.) Europe has the talent. The question is whether it can keep it here. Among those that got away: Frenchmen Yann Lacun, Facebook’s Chief AI Scientist, is leading the social networking giant’s efforts from the U.S. Sebastian Thurn, a native of Germany, moved to the U.S. and ended up heading Google’s autonomous car project, becoming the chief executive of Kitty Hawk, the hover bike startup backed by Google co-founder Larry Page, and founding Udacity, a global MOOC, short for massive open online course. Germany’s Carsten Breiffeld, who worked at BMW for 20 years heading the car maker’s i8 vehicle program and holding top management positions in the departments of chassis development, powertrain development and corporate strategy, departed to co-found Byton, a Chinese electric car company. (He has since left Byton and at press time was rumored to have accepted a position with another Chinese carmaker.) Funding of innovation is an issue throughout the value chain. Startups can’t raise enough growth funding in Europe. Europe is attracting only a fraction of global venture capital into future technologies such as artificial intelligence and it is lagging in both public and private investment in R&D, according to the Forum report. Market Fragmentation Although United Tech of Europe is a major theme at this year’s Viva Technology conference in Paris, the long sought-after goal of creating a single digital market has yet to be achieved. The same risks to be true with newer technologies. Individual countries such as France and Germany are forging ahead and funding their own national AI strategies, as are regions such as Flanders in Belgium. Without a united effort, industry observers say it will be difficult for Europe to compete against the U.S. and China in the global AI race. Reasons For Optimism Despite these and many other challenges some argue that there are reasons for optimism. To be sure, Europe cannot compete on a global level by just mimicking its competitors’ ingredients for success, says the Forum report. Many digital technologies and business models exhibit zero-marginal cost and winner-take-most characteristics and Europe has not grown any of the large platform companies that in recent years have come to dominate the technology world and capture large revenue shares. So, the Forum report argues, Europe needs to develop its own, more ambitious innovation model. “For Europe to have a chance for success in becoming a world leader in digital innovation in this coming wave of the Fourth Industrial Revolution, it will need to catalyze its own strengths. These include a highly skilled population, including in science, technology, engineering and mathematics; a history of collaboration and standard setting; an industrial base that is leading in many manufacturing and service sectors and has many market leaders in SMEs; and a public sector that provides many critical services to citizens,” capturing rich pools of data in the process, the report says. The Forum has convened a group called Digital Leaders of Europe, comprised of more than 80 entrepreneurs, investors, corporate executives and political leaders, to come up with an action plan, which is currently being put into place. The plan identifies four catalysts which it says could help Europe become a global innovation leader: promoting public-sector leadership in procurement and standardization; leveraging industrial assets; tapping talent pools both abroad and at home; and leading on governance for data access and trust, which could give it a competitive edge at a time when trust in U.S. and Chinese players is wavering. The Public Sector’s Role One idea discussed in the Forum report is doubling the share of digital innovation requirements in tenders for Europe’s €2 trillion annual public procurement spend. It also recommends that Europe consider establishing common digital government standards for public services, encouraging more innovation in government technology. Reigniting Europe’s Traditional Industries But to really achieve scale Europe needs to leverage its industrial assets, says the Forum report. Over the past 10 years, many of the traditional industries that make up the backbone of the European economy have either stagnated COVER STORY — P.7 — The World Economic Forum and digital leaders have an action plan. Corporates are expected to play a key role. By Jennifer L. Schenker
  5. 5. — P.9P.8 — THE INNOVATOR COVER STORY DigitalLeadersofEuropeworkinggroupandaFoundingPartnerofFACTOR10, an independent corporate company builder that helps corporates do just that. While European businesses are embracing digital technologies into the core parts of their businesses most are not yet embracing the type of new business models that have a major impact on revenues, says says Simon Torrance, Managing Director UK, FACTOR10 and chairman of the Platform Economy Summit conference. “European companies are not as bold as some of their American and Chinese counterparts who have integrated platform business models into their mix more effectively,” says Torrance. Both Staeritz and Torrance are members of the World Economic Forum’s Digital Platforms & Ecosystems group, part of the Forum’s Digital Economy and Society initiative. Over 50 large corporations – including some of Europe’s largest companies – are participating in the group to determine how they might adopt platform business models: the creation of digital communities and marketplaces that allow different groups to interact and transact. Seven of the 10 most valuable companies globally are now based on platform business models. Companies like Apple, Google, Amazon and Alibaba have used the model to grow exponentially and grab significant market share from established players. Platforms could account for more than $60 trillion by 2025, or more than30%ofglobalcorporaterevenue,andyetonly3%ofestablishedcompanies have adopted an effective platform strategy. “European boards and leadership teams don’t have a real understanding of the types of business models that are effective in the digital world,” says Torrance. He and Staeritz are co- authoring a book and creating a community called “Fightback” to help Europe’s corporates get up to speed. “I am frustrated by how slow European corporates are adopting and executing new business models and ventures,” he says. “In order to accelerate their ability to transform rather than being left behind we are building up a community of corporates, entrepreneurs, investors and policy makers who are not satisfied with the pace of Europe’s digital activity.” There is a need for a radical new way to solve problems from a commercial point of view but also from a societal point of view, says Staeritz. “The same digital platforms that can be used to transform corporates’ business model can be applied to societal challenges in areas like climate change or future jobs training or transportation or health care. But we can’t do it with linear thinking,” he says. “We need more entrepreneurial thinking not only for Europe’s corporates to fight back but also to create better jobs, better health and to take better care of the Earth.” Enlarging The Talent Pool If it is going to tackle such tough challenges, the Forum report calls for Europe to do more to attract international talent by improving compensation and emphasizing advantages such as the quality of life. And it says Europe should do more to tap into existing talent pools.Women and minorities are underrepresented at every level of the ecosystem.. Using Data Access and Trust As A Competitive Edge European companies have amassed fewer customers and less data than non-European global platforms, leading some to argue that the EU will never be able to catch up with the U.S. and China. To level the playing field Europe could open its large vaults of government owned non- personal and anonymized data for research, while creating new governance rules that give citizens more control over their data and more companies access to them, says the Forum report. Europeans’ strong belief in data privacy is not reflected in the technology being developed in the U.S. and China, so fostering secure platforms that make transparent which data are shared and when and that allow citizens to change access rights for data sets, could be a real market differentiator. “It is very important that Europe has an offer – not just a law – but an offer of technical products that embody ethics in them, ethics as a design principle,” says Francoise Soulié, a scheduled speaker at Viva Technology 2019 who has more than 40 years of experience working with neural networks, machine learning, social network and Big Data analysis in both academia and industry. “This is going to be a competitive advantage,” says Soulié. “The European mark will say ‘this can be trusted’ – and they are going to be on the market side by side with American and Chinese products without that label.” Learning From The Past As Europe forges ahead, it is vital that it “makes the most of our second mover advantage – both in the companies we build and in our approach to building them,” says the Atomico report. “European tech has escaped most of the backlash that has engulfed big U.S. technology companies. For this to continue, we’ll need to learn from past failures and act ethically from day one.” or declined, undermining Europe’s overall rate of growth, says European venture capital firm Atomico’s December, 2018 report, The State of European Tech. (See the chart.) As of Q3 2018, European growth was flat-lining at 0.2%, the lowest in four years, while Europe’s software industry is growing at least five times faster than the rest of the European economy. And the report predicts tech’s importance to the overall economy will only increase. Yet the European economy today remains heavily dependent on traditional industries,suchasindustrialmanufacturing,construction,retailandtransportation. “As technology becomes an increasingly more transformative force across all parts of the economy, there is a huge opportunity to digitize and reignite Europe’s traditional industries with trillions of dollars of value in play,” says the Atomico report. It notes that the combined market capitalization of European constituents of the S&P Global 1,200 equates to $8.8 trillion in just the top 10 most valuable traditional industries. The median age of the incumbent companies in these industries is well over 100 years. “In the battle of incumbent versus startup, it is not the young who beats the old or the large who beats the small,” says the Atomico report. “It is those who are fast that are more likely to succeed against the slow.” The only way for Europe to become an innovation leader is to create stronger ties between Europe’s new technology players and traditional industries, say industry observers. Europe’s corporates will need to up their game in other ways. Creating joint venture “speedboats” with successful entrepreneurs to grab new market opportunities can be an effective way to test new business models, says German serial entrepreneur Felix Staeritz, a board member of the Forum’s OVER THE PAST 10 YEARS MANY OF THE CONTINENT'S TRADITIONAL INDUSTRIES HAVE EITHER STAGNATED OR DECLINED, UNDERMINING THE EUROPEAN ECONOMY'S OVERALL RATE OF GROWTH Tech Real estate activities Wholesale and retail trade, transport, accommodation and food service activities Industry Financial and insurance activities Construction Telecommunication 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 140 120 100 80 SOURCE: Eurostat EUROPE LAGS BEHIND THE UNITED STATES AND CHINA ON DIGITAL INFORMATION COMMUNICATION TECHNOLOGIES (ICT) DIGITAL ICT 20171 % OF GDP, ESTIMATE 3.33 3.0 2.8 2.6 2.2 1.6 1.5 1.5 1.3 1.2 1.1 1.66 2.16 UnitedStates China Europe Finland Sweden Netherlands Denmark Belgium Germany France Spain Italy Greece 1 Digital share of ICT value added is estimated by taking the share of revenue made through digital channels and by taking the portion of cost of all functions performed digitally SOURCE: Directorate-General for Research and Innovation, European Commission, 2018; McKinsey Digital Survey, 2018; McKinsey Global Institute analysis
  6. 6. — P.11P.10 — THE INNOVATOR VENTURE CAPITAL Your fund is aimed at Canada and Europe. What is the link between these markets? PP: The upcoming wave of applied machine learning and AI gives advantages to Canada, the U.K. and Europe for a number of reasons. First, these ecosystems have taken a long- term view on investments. TechnologieslikeAIwillrequirealong arc to maturity and so taking a long- term view is a distinct advantage over short-term financial returns. In addition, all three of these ecosystems are united by what I call a “gentler” form of capitalism: one that protects civil liberties and privacy to a much greater extent. Take, for example, healthcare data. Sharing anonymized data is much easier in Canada and Europe than it is in the U.S. — which means that the benefits of broad studies and data analysis will take hold here sooner than in the U.S. Of course, there is hyper awareness of privacyintheU.S.,butwithdatabeing siloed, there will be less advancement through the applications of AI. So the piece. The reason I joined Inovia — and the reason we are building this growth fund and our practices here in the U.K. — is simply that founders need experienced leadership to help them structure their ideas, their businessmodels,theirteams,andtheir global growth strategies. Scaling up a powerhouse global brand is not for the faint of heart, and it really helps to have advisors who know how to listen, and have been in the founders’ shoes before so that they may best support their growth cycles. I have a massive amount of experience, as do the other general partners at Inovia — and beyond the money, we’re looking to really transform how early stage founders with tons of potential think about themselves and their opportunities. In the past, European companies such as DeepMind sold out early to companies like Google rather than grow into behemoths in their own right. Do you see that changing? PP: There is no reason why the next champion cannot be built here. We hope to act as a turbo-charger for promising startups. If you just look at the numbers there are well over 200,000 startups in the U.K. alone. Beyondthat,havingdonemygraduate work here in Oxford, I know first- hand that there is a deep well of top- quality thought leadership here; roots that are in deep and respected academic areas have the potential to fuel enormous gains for the U.K. The game has changed in the past decade, andsothoserulesthatappliedtoearly- aughts companies may not apply today; that’s why Inovia’s global approach is so important as well. We are giving founders here the chance to envision a global growth trajectory plusthecoachingandfinancialsupport they need to succeed. WhyTheNextGlobalTech ChampionCouldBeBuiltHere AnInterview With PatrickPichette Google’sformerChiefFinancial Officerandaboardmember ofTwitter,isnowleadingCanadian venturecapitalfirmInoviaCapital’s newLondonoffice.InoviaCapital recentlyraised $600million acrosstwofunds,whichwillbeused inparttoinvestinEuropeantech startups.ThisspringPichettealso assumedtheroleofchairman ofOxfordSciencesInnovation, whichaimstocommercialize technologiesdevelopedatOxford University.Herecentlymetwith TheInnovator’sEditor-in-Chief JenniferL.Schenkertodiscuss whyheisbullishonEurope European model is very promising and can offer benefits that are essentially lost in committee in the U.S.It’stime;Europecanquicklymove into a leadership position. China says it will win the AI race because it can collect more data. Do you agree? PP:It depends on what you are trying to solve. If you want to control every citizen’s keyboard then you end up with the Chinese model. But if you respect privacy and you want to cure Alzheimer’s, or other diseases, then there is enough data in Europe and you don’t need the Chinese data on top of that. Europe has a lack of growth capital. How will your new fund help fix that? PP: This year we plan to make a few large investments and several other veryearlystageinvestmentsinbiotech, fundamental materials, and other deep-science technologies. The investment, in terms of dollars, is only part of the story, and I would argue, potentially the less valuable CUMULATIVE NUMBER OF EUROPEAN UNICORNS BY YEARS IN WHICH $1 BILLION VALUATION MARK WAS CROSSED UnitedKingdom RestofEurope Germany Netherlands Sweden 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2019 YTD1999 62 47 27 13 11 50 42 34 24 131211 9 666 4332222 SOURCE: Dealroom.co COVER STORY One of the Continent’s biggest handicaps has been the inability of its startupstoscalebecauseofalackofgrowthfunding. The good news is Europe now has a swelling group of unicorns, companies with valuations of $1 billion or more. (See the story on page 12). Expect that number to rise. At this year’s Viva Technology conference in Paris, 30 scale-ups are competing in a contesttonameEurope’snextunicorns.AmongthemisFrance’sShiftTechnology, which is ranked as one of the top 100 AI companies in the world. But the bad news is that lack of late stage capital from European sources means that even when high-growth companies stay here the value flows elsewhere. London-based Deepmind, one of – if not the best – artificial intelligence companies to come out of Europe, is now owned by Google while N26, a Berlin-based digital challenger bank with a valuation of $2.7 billion, has raised most of its $500 million in capital from foreign investors. (See the story on page 13). And one of four new unicorns, Belgium’s Collibra, which has developed a data governance platform, reached that status in January after it raised $100 million in a Series-E funding round led by CapitalG, the growth equity investment fund of Google’s parent company, Alphabet. Against this backdrop, the Digital Leaders of Europe, a group comprised of over 80 entrepreneurs, investors, heads of incubators, corporate leaders and public figures convened by the World Economic Forum, is examining how to close the gap in scale-up funding for startups in Europe, says Martina Larkin, the Forum’s Head of Regional Strategies-Europe and Eurasia and a member of its executive committee. The Digital Leaders of Europe is looking at “how best to leverage private funding across Europe, the role of institutional capital, and the possible creation of new financial vehicles,” she says. Over the last five years, pension funds have invested just $1.7 billion in European venture capital, but have invested 45 times more in European buyout funds, equivalent to more than $75 billion over that period, notes a December 2018 report by European venture capital firm Atomico. “We need to work to get European private money into the ecosystem to foster entrepreneurship,” says German serial entrepreneur Felix Staeritz, a board member of the Forum’s Digital Leaders of Europe and Digital Platforms EcosystemsworkinggroupsandaFoundingPartnerofFactor10,anindependent corporate company builder. “We are building unicorns in Europe but we don’t provide them with enough growth capital and then they have to raise money from Asia and the U.S. to keep on growing, which is totally ridiculous,” he says. It is time to change regulations in Europe, which limit pension funds from investing more than a small percentage in risk capital, says Staeritz. The same constraints do not exist in the U.S. “The total share of how much money can be invested into risk capital is way higher in the U.S. – they have so much more growth capital,” says Staeritz. Leveraging more private funding here would have multiple benefits, says the Atomico report. “If pension funds rebalance their allocations away from legacy industries towards game-changing technology instead, they can democratize access to the spoils of European tech.” J.L.S. Europe’sLackOf GrowthStageFunding — The Digital Leaders Of Europe, a group convened by the World Economic Forum, is exploring the creation of new financial vehicles that could help close the gap. InoviaCapital's PatrickPichette
  7. 7. — P.13P.12 — THE INNOVATOR Darktrace,acompanythatusesartificialintelligence to combat cyber threats, is one of Europe’s unicorns, the term used to describe scale-ups that have a valuation of $1 billion or more. Founded in 2013 by mathematicians and machine learning specialists from the University of Cambridge, together with British intelligence agency veterans, Darktrace has raised $230.5 million in venture capital to date, giving the company a valuation of $1.65 billion. It has 900 employees across five continents and splits its headquarters between London and San Francisco. Darktrace has thousands of customers in top industries, including three of the top five European banks, top insurance firms, two of the world’s top three consumer goods companies, two of the top five media companies, and the U.S.’s number one telecom operator. The company’s machine learning and AI technology is designed to detect threats without any pre-existing knowledge of attacker targets, tools or capabilities. While traditional security tools depend on specific indicators of compromise to identify malicious activity, Darktrace’s technology is self-learning, embedding in a network, learning on the fly what be¬¬haviors are normal, and automatically responding to emerging threats. “In order to leverage the technology’s power, corporates need to learn to trust AI to make real-time autonomous decisions about the best way to respond to cyber-attacks,” says Darktrace co-founder and Chief Marketing Officer Emily Orton, a scheduled speaker at Viva Technology, a Paris conference taking place May 16-18. “By now the industry has recognized the importance of using AI in cyber security because the threats are simply outpacing humans,” she says. “However, critical to the adoption of AI, is trust in AI, and knowing when to relinquish our control to the machine.” Darktrace developed a mobile app that gives humans the power to approve the AI’s proposed actions in the short term. After four to six weeks most companies realize the AI consistently proposes the right course of action, and the decision is made to switch to autonomous mode, without the need for human confirmation, she says. “Allowing AI to make autonomous decisions is an important defensive weapon for corporates to have in their arsenal against cyber-attacks,” says Orton. “It is incredibly difficult for companies to defend themselves against sophisticated threats and will be even more so when we see offensive AI used by adversaries to supercharge their missions. That’s why it is important for companies to get ahead of the curve.” More and more corporates are starting to heed that advice, helping this European unicorn to further increase its growth trajectory. he company’s machine learning and AI technology is designed to detect threats without any pre-existing knowledge of attacker targets, tools or capabilities. While traditional security tools depend on specific indicators of compromise to identify malicious activity, Darktrace’s technology is self- learning, embedding in a network, learning on the fly what be¬¬haviors are normal, and automatically responding to emerging threats. “In order to leverage the technology’s power, corporates need to learn to trust AI to make real-time autonomous decisions about the best way to respond to cyber- attacks,” says Darktrace co-founder and Chief Marketing Officer Emily Orton, a scheduled speaker at Viva Technology, a Paris conference taking place May 16-18. “By now the industry has recognized the importance of using AI in cyber security because the threats are simply outpacing humans,” she says. “However, critical to the adoption of AI, is trust in AI, and knowing when to relinquish our control to the machine.” Darktrace developed a mobile app that gives humans the power to approve the AI’s proposed actions in the short term. After four to six weeks most companies realize the AI consistently proposes the right course of action, and the decision is made to switch to autonomous mode, without the need for human confirmation, she says. “Allowing AI to make autonomous decisions is an important defensive weapon for corporates to have in their arsenal against cyber-attacks,” says Orton. “It is incredibly difficult for companies to defend themselves against sophisticated threats and will be even more so when we see offensive AI used by adversaries to supercharge their missions. J.L.S. EUROPEAN UNICORNSEUROPEAN UNICORNS FightingCybercrime withAI AfterDisrupting BankingInEurope N26SetsItsSights OnTheU.S. Valentin Stalf, co-founder of European unicorn N26 – one of the Continent’s hottest digital challenger banks with a valuation of $2.7 billion –learnedhowtobuildcompaniesatRocketInternet,theBerlin-basedincubator created by Germany’s Samwer brothers. Like many young entrepreneurs, Stalfandhisco-founder,MaximilianTayenthal,bothnativesofVienna,decided to headquarter their company in Berlin because they knew it would be easier to find financial backing and talent in the German capital. They incubated their venture in an accelerator created by Axel Springer. The German media company invested, as did Earlybird, one of Germany’s most active venture funds, and Swiss venture fund Redalpine. But almost all of the funds N26 has since raised – about a half billion dollars – came from U.S. and Asian investors, including PayPal co-founder Peter Thiel’s Valar Ventures, China’s Tencent and Singapore’s sovereign wealth fund GIC. It is just one example of how – due to Europe’s lack of growth capital – even when scale-ups remain headquartered in Europe, the value flows elsewhere. But N26, which now has 2.5 million customers and is processing $2 billion in transactions per month, is also a symbol for how far OTHERNOTABLE EUROPEAN CHALLENGER BANKS REVOLUT UNITEDKINGDOM Some4.7millioncustomershavejoinedRevolut,with12,000 newaccountssigningupeachday.ItoperatesacrossEurope andhasannouncedplanstolaunchintotheU.S.,Canada, Japan,SingaporeandAustralia.ItsCEO,NikolayStoronsky,isa scheduledspeakeratVivaTechnology. https://www.revolut.com/en-FR MONZO UNITEDKINGDOM Accordingtopressreports,Monzoissettoraisefundingfrom aU.S.investorthatcoulddoubleitsvalueto£2billion.Ifthe newinvestmentgoesahead,Monzowouldleapfrogrival RevolutastheUK’ssecondmostvaluablefintechstartup, behindsmallbusinesslenderOakNorth.Itissaidtobe planningexpansiontotheU.S. https://monzo.com STARLINGBANK UNITEDKINGDOM Createdin2014,Starlinghasreceivedmorethan$300million infundingandoperatesaround460,000consumerbanking accountsand30,000businessaccounts.Itisexpectedto expandintoEuropelaterthisyear,openingbranchesin Ireland,GermanyandFrance. https://www.starlingbank.com BUNQ NETHERLANDS Bunqstartedoutinpaymentsbutexpandedtodeposit accountsandreceiveditsofficialbankinglicensein2015.It operatesinFrance,Germany,Belgium,Austriaanditshome countryoftheNetherlands. https://www.bunq.com Europe has come. In just four short years N26 was able to roll out services to 24 European countries plus the U.K. because the EU has a single market for banking licenses. That and new rules – such as one enabling digital “know your customer” verification – make the EU more attractive for challenger banks than many other markets, says Alexander Weber, N26’s Director of International Expansion and a scheduled speaker at Viva Technology 2019. “The evolution in European regulation has really enabled our business,” says Weber.“AfterChina,Europeis probablythebiggestmarket–some500million people – that can be accessed with a single banking license.” Next up for N26? The U.S. and Brazil. “We recognize the general problem we are trying tosolveisverymuchaglobalproblem,”saysWeber.“Theshiftinuserbehavior that is being driven and led by global digital companies has really raised the bar in terms of expectations towards digital user experience,” he says. U.S. banks, like their European counterparts, are still being driven by legacy tech. “People use checks and the cost of wire transfers is still high, so we think that this is a market that needs some innovation,” says Weber. J.L.S — Darktrace is helping corporates learn to trust artificial intelligence to make autonomous decisions AlexanderWeber,N26'sDirectorofInternationalExpansion EmilyOrton,Darktraceco-founder andChiefMarketingOfficer
  8. 8. — P.15P.14 — THE INNOVATOR On an early April morning, a line of nattily dressed business executives snaked around the exterior of Palais Brongniart in Paris. The neoclassical Napoleon-era building was formerly the home of the Paris Stock Exchange. But on this day, it was the scene of a conference organized by telecom carrier Orange to explain the importance of 5G, short for fifth generation wireless broadband technology. Orange CEO Stéphane Richard kicked off the conference by stating that industry will feel the effects of 5G sooner and more profoundly than consumers. While the transition is just beginning, he said, Orange wants to start now to help companies in transportation, retail, healthcare and media to rethink their business models from the ground up. “Identify all the possible uses of tomorrow and imagine all the possibilities of the day after tomorrow,” said Richard, a scheduled speaker at Viva Technology, a Paris conference taking place May 16-18. “That, in summary, is what awaits us with 5G.” While wireless standards evolve every 10 years or so, industry experts say the shift from 4G to 5G will have a far greater impact than previous upgrades. Not only will speed increase from 4G’s 1 gigabytes per second to 5G’s 10 gigabytes per second or more, but a far greater number of devices can be connected, and latency -- delay in data communication over a network – is expected to all but disappear. That’s important because 5G is positioned as a way of enabling real-time, mission-critical applications such as autonomous vehicles, smart grids, industrial automation, remote surgeries and managing drones. “There is widespread recognition that 5G is a genuine break from the past,” says Tim Hatt, head of research for GSMA Intelligence. “Before, it was about speed upgrades. Now, it’s about WillEurope LagBehindIn5G? — Fifth generation networking technology will enable real-time, mission-critical applications such as autonomous vehicles, smart grids, industrial automation, remote surgeries and the management of drones, impacting the health of businesses and economies By Chris O’Brien 5G the digitization of the broader economy.” A report by IHS Markit and Berkeley Research Group that assesses the importance of 5G technology to the global economy predicts that by 2035 5G will create 22 million new jobs globally, directly generate $3.5 trillion in economic activity and fuel sustainable long-term growth to global real GDP, impacting the competitiveness of nations. China, for example, views 5G as key to helping it become a tech leader not just in wireless but in the Internet of Things and artificial intelligence while at the same time boosting its own industries over those of others. While the U.S. had an early lead in 5G, it is expected to be quickly surpassed by China, as is Europe. It is imperative that European companies embrace 5G technologies quickly, Richard said, because other regions are already moving ahead, and any hesitation could have dire consequences. “I am convinced the story of 5G is a different story than 4G,” Richard said. “This is not a story where everyone can work in their own silo. It’s a story we have to write together. Because we don’t want to fall behind.” Indeed, as the rollout of 5G mobile wireless networks begins, the stakes for Europe’s economy are higher and more complex than ever before, thanks in part to the political drama surrounding Chinese telecom equipment maker Huawei, which claims it has better technology and can enable 5G faster than anyone else. To shut out Huawei would be to risk Europe’s economic future, the company says. “We rank number one in terms of commercial 5G contracts,” scheduled Viva Technology speaker Ken Hu, Huawei’s rotating chairman, said during a December 18 press conference. “This is the result of our far-leading technological innovation.” Huawei claims to be the first company that can deploy 5G networks at scale. “We can bring powerful, simple and intelligent 5G networks to carriers anywhere in the world, faster than anyone else,” Guo Ping, Huawei’s deputy chairman of the board, said during a February keynote at Mobile World Congress 2019 in Barcelona. While it is clear that falling behind could leave Europe’s traditional industries at a competitive disadvantage, the U.S. government has raised concerns that Huawei’s technology includes a back door that the Chinese government could use to conduct espionage, introducing security flaws that could leave increasingly critical data vulnerable to theft or spying. Local champions Finland’s Nokia and Sweden’s Ericsson, two of Huawei’s biggest telecom equipment competitors, offer alternative technology. Both companies have fallen mightily from their respective perches two decades ago when they ruled the global telecom equipment markets. The decision about whether to let Huawei compete in Europe could profoundly affect the future of these two former super stars at a moment when they are beginning to stabilize their businesses. Can Europe Succeed Without Huawei? At a shareholder’s meeting, Ericsson CEO Borje Ekholm, a scheduled speaker at Viva Technology, insisted: “We are well prepared to make the switch to 5G as easy as possible for our customers.” Orange, for example, will deploy virtuous investment cycle,” says Phil Twist, Nokia’s vice president for networks marketing and communications. “You can bring in new capabilities now. Many of these new models will start to be delivered by 4G. Because 4G is going to be an important part of the equation for several more years.” China Racing Ahead Europe may continue to rely on 4G but China is racing ahead (see the chart). One of the biggest changes between 4G and 5G is the ability to take the advanced computing power usually kept in the protected “core” of a network and distribute it to other parts of the system. This will provide more reliable high-speed connections and support a massive expansion in the Internet of Things (IoT) -a shorthand term for connecting all kinds of machines, devices and vehicles to each other and to the Internet. A recent report by the telecom industry association GMSA projected that global IoT connections would triple to 25 billion by 2025. It also forecast that global IoT revenue would quadruple to $1.1 trillion. During a February speech at Mobile World Congress 2019 in Barcelona, Cisco Systems CEO Chuck Robbins said the company expects there will be 4 billion machine- to-machine connections in the coming years. And beyond just the number of connections, each device connected would generate six or more times as much data as a typical device connected today. This data can be used to train computers and develop artificial intelligence (AI), a field China its initial 5G services using a mix of hardware from Ericsson and Nokia. Its 4G networks also run on equipment from these two vendors. Most recently, Ericsson notched a win when Danish service provider TDC selected it to roll out nationwide commercial 5G, as part of a major network overhaul, to provide managed services through the Ericsson Operations Engine. While the company reported flat revenue for 2018, it claimed victory for ending years of declines. At press time it said it had 18 publicly announced 5G deals. Nokia also reported relatively flat sales for 2018, but it too says it’s making strong progress in 5G partnerships, particularly in North America. During a Nokia press event at MWC 2019, CEO Rajeev Suri addressed the Huawei drama by insisting other providers could offer fast, affordable 5G rollouts on par with the offers of the Chinese vendor. “People everywhere are asking legitimate questions about how best to secure critical networks, about which vendors are appropriate to use, and which are not,” Suri said to media and analysts in Barcelona. “I do want to address comments suggesting that if certain vendors are held back, then Europe’s 5G roll-out will stall and costs will rise. Bluntly, the facts just do not support the claims.” Even as these companies try to push the pace of 5G, they are also trying to convince business partners that they best be ready for this transition by doing more with 4G. “We see it as a “Iamconvincedthestoryof5Gisadifferentstorythan4G. Thisisnotastorywhereeveryonecanworkintheirownsilo. It’sastorywehavetowritetogetherbecausewedon’twanttofallbehind.” ScheduledVivaTechnologySpeakerOrangeCEOStéphaneRichard
  9. 9. — P.17P.16 — THE INNOVATOR 5G questions telecom operators have about how to monetize 5G.” As a result, GSMA Intelligence projects that 30% of Europe’s mobile connections will run on 5G by 2025, compared to more than 50% for the U.S. That pace is already making insiders nervous. Speaking at MWC, Ericsson CEO Ekholm lamented that while North America now has 85% to 90% coverage of 4G networks, Europe is stuck at around 60%. Ekholm warned that the European Union’s regulatory structure is slowing adoption of 5G in the region and urged reforms, or face watching as Europe falls further behind the U.S. and China. “The progress in Europe is being blocked by high spectrum fees, uncertain spectrum duration and heavy regulation,” he said at a company press conference. Battleground Europe Huawei’s emergence as a global force introduces a new dimension to that already complex European telecom picture. When 4G was emerging last decade, Huawei was a small Chinese company. Now it is the leading seller of telecommunications equipment around the world. The company spends 14% of its annual revenue on research and development. And last year it filed the most patent applications of any companyintheworld,accordingtotheWorldIntellectualPropertyOrganization, more than double the number by Ericsson and Nokia combined. That prowess helped Huawei win more than 30% of the global telecom equipment market in 2018, according to the Dell’Oro Group. In contrast, Nokia’s share fell to around 17%, and Ericsson’s below 16%. Back in 2013, the three had around 20% of the market each. Huawei’s growth has triggered a fierce lobbying campaign by the U.S., which has insisted for several years that Huawei’s equipment will be used to create backdoors for Chinese spying. The U.S. has continued to ratchet up the pressure in recent months. In December, Meng Wanzhou, Huawei’s CFO and daughter of its founder, was arrested in Canada. And U.S. prosecutors filed criminal changes against Wanzhou and Huawei, alleging theft of intellectual property from T-Mobile and other companies. Meanwhile, Australia and New Zealand have banned use of Huawei equipment, as has Taiwan, over concerns that Huawei could build backdoors into its products on behalf of the Chinese government. In an MWC 2019 keynote, Vice-Chairman Ping fired back at the accusations that Huawei equipment includes backdoors for spying by the Chinese government by pointing to the Prism program used to collect data by the U.S. government (which was exposed by Edward Snowden). Ping said there is no evidence Huawei hardware allows such abuses. “Let me say this as clearly as possible: Huawei has never built backdoors, and we will never allow anyone to do so in our equipment,” he said. “We take this responsibility very seriously.” In March, the company filed a lawsuit in a U.S. court, challenging the constitutionality of the 2019 National Defense Authorization Act that was used to justify the government’s ban on its equipment. The company said if allowed to compete for deals, it could lower costs of wireless infrastructure in the U.S. by 15% to 40%. In the meantime Huawei is placing even greater emphasis on Europe, opening a cyber security center in Brussels and courting the European press. The EU and various member states are under pressure from the U.S., which has threatened to limit cooperation with allies that use Huawei equipment, but there is no consensus on banning Huawei equipment in Europe. The European Union declined to call for a ban on Huawei equipment. At press time the U.K. government was considering giving Huawei a contract for parts of its 5G network. Germany has also stopped short of banning Huawei. “There are two things I don’t believe in,” German Chancellor Angela Merkel said of Huawei at a March conference in Berlin. “First, to discuss these very sensitive security questions publicly, and second, to exclude a company simply because it’s from a certain country.” Meanwhile, Sunrise, a carrier in Switzerland, has announced it would use Huawei equipment to begin deploying 5G networks this year. “Despite the efforts in some markets to create fear about Huawei, and to use politics to interfere with industry growth, we are proud to say that our customers continue to trust us and recognize our contribution to the industry,” Hu said in a statement posted on the company’s website. Huawei could end up leading in Europe, but analysts say Europe does not look poised to be a leader in 5G. And if predictions that it will lag behind are true it won’t just be European telecom equipment makers but European industry as a whole that will lose out. has vowed to lead. Serving the world’s largest population and a vast domestic market, China’s tech companies can potentially collect data on a much greater scale than their counterparts elsewhere. The rewards could be huge. Accenture, the global consultancy, estimated that the IoT could deliver gains of up to $1.8 trillion in cumulative GDP for China by 2030 through the transformation of manufacturing, resources and utilities. It is little wonder then that telecom insiders and economists are already warning that failure to launch 5G in a timely way could be catastrophic for the European economy. Why Europe Risks Falling Behind The need for speed is being hampered by Europe’s structure. While the EU has set some goals and rules around 5G, ultimately, it’s the member states that make decisions about spectrum auctions. And while the U.S. has essentially four major carriers, Europe has 120 scattered across 28 members states. And many of them are still focused on making back the money they invested in their 4G networks. “Europe is still lagging behind compared to U.S., China and South Korea when it comes to 5G,” says Pierre Fortier, Capgemini’s principal consultant for telecom, media and technology. “Europe is a much more fragmented market. And in a lot of European countries, the 5G spectrum hasn’t been awarded. That creates a climate of uncertainty which adds to the main “ProgressinEuropeisbeingblockedbyhighspectrumfees, uncertainspectrumdurationandheavyregulation.” ScheduledVivaTechnologyspeakerBorjeEkholm, CEOofSweden-basedglobaltelecomequipmentmakerEricsson DespitetheeffortsinsomemarketstocreatefearaboutHuawei, andtousepoliticstointerferewithindustrygrowth,weareproudtosaythatour customerscontinuetotrustusandrecognizeourcontributiontotheindustry.” ScheduledVivaTechnologySpeakerKenHu,Chinesetelecomequipmentmaker Huawei’sRotatingChairman 5G CONNECTIONS, WORLDWIDE 2018-2025 20222021 0,8 1,4 1,9 2,7 2020 0,06 0,28 2019 0,012 2018 0,0001 2023 2024 2025 3,0 2,5 2,0 1,5 1,0 0,5 0 Rest of the World China Asia-Pacific Developed Western Europe North America CCS Insight Market Forecast
  10. 10. — P.19P.18 — THE INNOVATOR AI In mid-April some 200 VIPs – including two French ministers and some of Europe’s top AI scientists crowded into a gilded room at the French Foreign Ministry. The occasion was a gathering of AI4EU, a new umbrella organization that is seeking to serve as a kind of one-stop shop to unify Europe’s artificial intelligence initiatives. It was a fitting venue. “The declaration drafted by (then-French foreign minister) Robert Schuman in an adjoining room was the first attempt to build the EU,” noted France Digitale CEO Nicolas Brien, the evening’s host. “Today Europe has to be built with data and AI… To be strong in AI we have to do it at the Continental level.” His remarks underscore the growing recognition that wide adoption of AI technologies will be critical to the global competitiveness of Europe. If the EU-28 develop and diffuse AI using current digital and AI capabilities, the region could add some €2.7 trillion, or 19 %, to its economic output by 2030, without sacrificing employment, says Eric Hazan, a McKinsey Company senior partner. But there is a substantial difference in the investment in AI between regions, says Hazan. Most AI investments are concentrated in the U.S. and Asia while Europe lags behind. So, unless things change radically, Mckinsey is predicting that Europe’s disadvantage in digital diffusion will spill over into AI. A new gap is already appearing. Early digital companies in Europe were among the first to develop strong positions in AI, yet only two European companies are in the worldwide digital top 30, and Europe is home to only 10% of the world’s digital unicorns, the report says. Europe has about 25% of AI startups, in line with its size in the world economy, but the report says its early-stage investment in AI lags behind that of the United States and China. Lagging Behind The U.S. With the exception of smart robotics, Europe is not ahead of the U.S. in AI adoption, and less than half of European firms have adopted one AI technology, with a majority of those still in the pilot stage, the report says. AI initiatives remain fragmented in Europe. Europe attracted only 11% of global venture capital and corporate funding in 2016 with 50 % of total funds devoted to U.S. companies and the balance going to Asia (mostly China). That share was about the same in AIInTheEU: A$2.7Trillion Opportunity — The boost to Europe’s economy could be huge but the gap with the world’s digital leaders is now being compounded by an emerging gap in artificial intelligence. EricHazan, SeniorPartner,McKinseyAndCompany FrançoiseSoulie, Co-founderofHubFranceIntelligence Artificialleandamemberof theEU’sHigh-LevelExpertGrouponAI “MostAIinvestments areconcentrated intheU.S.andAsia, andEuropelags behind.” “Don’ttellme Europecandonothing inthisbattle. Europehasagame toplayhere. Thisisnotover.” Top 25% Bottom 25 UnitedStates Ireland Sweden UnitedKingdom Netherlands Finland Germany Denmark Estonia Austria France Belgium Spain Portugal Italy Greece Human skills ICT2 connectedness Digital readiness AI start-up AI—readiness index Automation Saving rate Innovation Thereisalargespreadofartificial-intelligence(AI)readinessinEurope,buteventhemostreadycountriesare behindtheUnitedStatesontheAIfrontier. COUNTRIES RANKED BY KEY COMPONENTS OF AI - READINESS INDEX, % SOURCE: McKinsey
  11. 11. P.20 — THE INNOVATOR AI Digital Council of the German Chancellor. “But then this is a data point that does not have to have a very long validity.” “Europe is behind today because we don’t have any platform companies investing massively in all kinds of AI applications,” he says. European companies in sectors as diverse as steel distribution, energy, corporate pensions, cement and insurance are starting to embrace such platform business models, models based on the creation of digital communities and marketplaces that allow different groups to interact and transact. But it doesn’t have deep-pocketed Internet giants like Apple, Google, Amazon and Alibaba which have used the model to grow exponentially and grab significant market share from established firms. Failure to executive is another issue. “We have strategies,” says Boos, “but contrary to other geographies, we take the publishing of a strategy as an invitation for discussion instead of an invitation for execution and alignment.” Boos says that, while “none of these points are directly related to AI, they are more about execution in an economic or corporate sense.” And he believes that’s where Europe must improve. “We do have talent, we do have fundamental research, we even have people who want to move forward, but we have a lot of institutions and corporations who prefer to see problems instead of opportunities, and having identified these problems, choose to do nothing or keep others from doing anything.”Still, Boos says he thinks Europe could easily enter the race. “We have the financial means, we have the talent, we even have much more knowledge on the value chain than anyone else – which AI needs as input – but we have to start executing rapidly.” Market Fragmentation Easier said then done. French, German and EU politicians all want to create their own AI strategies, making it difficult for Europe to compete as a continent. The AI4EU group is expected to go some way toward solving the issue, says Francoise Soulie, co-founder of HubFrance Intelligence Artificialle and a member of the EU’s High-Level Expert Group on AI. She remains bullish on Europe. “Don’t tell me Europe can do nothing in this battle,” she says. “Europe has a game to play here – this is not over.” She points to Europe’s strengths in B2B technology and says the Continent’s 2018. Only four European companies are in the top 100 global AI startups, the report says. While available data on AI adoption is scarce, McKinsey’s survey research demonstrates that European companies may lag behind their U.S. counterparts in their adoption of big data architecture and of the advanced machine learning techniques that are the foundations of AI — with 12 % less use than in the U.S. What’s more, a possible gap may exist between Europe and the U.S. on the use of AI tools such as smart workflows, cognitive agents, and language processing. And, European AI is yet to be deployed broadly by enterprises and instead is typically used in one or only a few functions. Mckinsey found that only 5% of European AI adopters (compared with about 8% in the U.S.) are using these tools in about 90% of their entire organizations. “Carefully managing the disruption during the transition to AI and seizing the potential will be challenging,” says Hazan, a co-author of the McKinsey report. “However, Europe has some strengths on which to build, notably one of the world’s largest bases of software developers, outstanding innovation in some countries, a social model that can help support the transition toward new skills, and several European AI leaders — in Northern Europe, for instance — that already compare well with the United States in their ability to benefit from AI.” Will Europe Be The Loser ? Not everybody agrees. Kai Fu Lee, an ex-head of Google China, investor and author of “AI Superpowers: China, Silicon Valley and The New World Order,” sees the battle to dominate in AI as a two-way race. “China and the United States are currently incubating the AIgiants that will dominate global markets and extract wealth from consumers around the globe,” he writes in his book. As far as he is concerned Europe is a distant third and doesn’t even merit a bronze metal. “Unfortunately, he is absolutely right,” says Hans-Christian Boos, the founder of artificial intelligence company Argos and a Member of the focus on public services will help it collect rich data sets to improve health care and innovate new types of services. Trust As A Differentiator At a time when people mistrust the handling of data by U.S. and Chinese actors, Soulie and others believe that there is an opportunity for Europe to differentiate itself by making its brand of AI more human-centric, transparent and trustworthy, incorporating European values, such as data privacy, so that people know that European AI can be trusted. “Creating AI in Europe that is ethical is going to become like ‘Intel inside,’ a trustworthy label, not a regulation, but something that people are going to expect and demand,” predicts Barry O’Sullivan, Vice Chair, of the European Commission High-level Expert Group on AI, a speaker at the April event in Paris. “It is a great idea,” says Boos, “but first we have to get going, be relevant, step on the playing field. I believe this third way is an excellent idea and it is precisely why I am in Europe, but we need to learn to crawl before we learn to walk.” J.L.S. Hans-ChristianBoos FounderandCEOofGermanAIcompany aragoandamemberoftheDigitalCouncil oftheGermanChancellor NicolasBrien, CEOofFranceDigitale Kai-FuLee, Ex-headofGoogleChina,investorand authorof“AISuperpowers:China,Silicon ValleyandTheNewWorldOrder” BarryO’Sullivan, ViceChair,EuropeanCommission High-levelExpertGrouponAI “ Contrarytoother geographieswetake thepublishingofa strategyasaninvitation fordiscussioninstead ofaninvitation forexecution andalignment.” “TodayEuropehas tobebuiltwithdata andAI… TobestronginAI wehavetodoitatthe continentallevel.” “ChinaandtheUnited Statesarecurrently incubatingtheAIgiants thatwilldominate globalmarkets andextractwealthfrom consumersaround theglobe.” “CreatingAIinEurope thatisethicalisgoingto becomelike‘Intelinside,’ atrustworthylabel.Not aregulation,but somethingthatpeople aregoingtoexpectand demand.”
  12. 12. P.22 — THE INNOVATOR CAPGEMINI We need to work on this. There is a lot of fear and misunderstanding around AI. And so now there’s an emphasis on transparency, and how to build trust. What do you think companies need to do, in order to build trust with their suppliers and their clients? PH: I will give you an example. I received a tentative code of ethics fromwithinCapgemini,to determine where we can work on AI, and where we should not. I think we will issue guidelines and I would want these guidelinestoberevisitedeveryquarter or twice a year. My view is that after thesuccessofGDPR(shortforGeneral Data Protection Regulation, an EU law on data protection and privacy) people will want to have the GDPR of AI. If that is developed too early, it will restrict the eventual usage of AI. So, I think we should accept that there will be rules but at this stage we should provide a few directions and accept that we will need to progressively adapt the rules. So, let’s get ready, let’s get there, but let’s not rush there. PaulHermelinischairman and CEO of Capgemini, a global company specializing in consulting, technology services and digital transformation. He was recently interviewed by The Innovator’s Jennifer L. Schenker during a fireside chat at the French Foreign Ministry, in the presence of 200 European artificial intelligence (AI) experts and two French ministers. The following is an edited excerpt of the discussion. Statistics show that private companies in Europe are investing less in AI than their counterparts in China and the U.S. Do they risk falling behind and, if so, how might this affect the overall competitiveness of Europe? PH:Large,European-basedcompanies or multinationals are on par with their U.S. counterparts, they all work with AI with the same amount of energy. So the question is more in Europe how can we help small companies to adopt AI, and do we invest enough in European AI startups? These are big challenges. arepushingandfavoringmetropolitan areas, at the expense of other geographies. In France, in the last 14 years, 84% of new jobs created by the private sector were created in large metropolitan areas so, unfortunately, if you’re the mother and the father of a young boy or a young girl and you live in rural areas, if you want your kid to find a job they will need to go to the big cities. I took the initiative to create a tech acceleratorinAvignon,myhometown. I am the chairman of that initiative and I can tell you that it’s really tough tocompeteagainstcitiesfromAvignon. And the problem is not just in France. I really believe that this challenging gap, this increasing gap, between metropolitan areas and the rest of our geographies, explains the Brexit vote. London voted remain, and Newcastle voted exit. It’s not about the EU, it’s about globalization. It is how the new world is really favoring employment in service jobs that are concentrated in large, metropolitan areas. So we have to think about how to secure employment in small towns. “Howcanwehelp smallcompanies toadoptAI, anddoweinvest enoughin EuropeanAI startups?” Europe’s AIChallenges AnInterview WithPaulHermelin Chairman and CEO of Capgemini, which is hosting an AI corner and eight startup challenges during Viva Technology Somebody once said, “the future is already here, it’s just not evenly distributed.” How do we make sure that, as AI gradually replaces current jobs and new jobs are formed, that these new jobs are not created only in big cities, but also in smaller cities and rural areas, so that we can prevent more social unrest, like we’ve seen with the yellow vests in France? PH: This is something absolutely crucial. At the global scale, globalization and now digitization, PaulHermelin,CEOofCapgemini How does L’Oréal attract innovators? ©Copyright2018L’Oréal-Allrightsreserved On May 23, for the first time, the leading company in the Beauty Industry will offer the winners of its international student competition “Brandstorm”, a 3 months immersive Program in Station F, the biggest startups campus in the world and a partner of L’Oréal. Eva Azoulay, L’Oréal’s Head of Talent Acquisition tells us more about this initiative and the recruitment ecosystem of a Group that receives more than 1 million applications each year. Brandstorm was born 27 years ago and the worldwide competition keeps attracting more students every year. How do you meet the young generations’ expectations, keeping in mind that their interests are constantly changing? — To keep a step ahead, we place innovation at the heart of everything. Following the business strategy, recruitment constantly evolves in order to identify and attract talents who will invent the beauty of the future. Brandstorm has never stopped transforming itself and that’s probably the key of its amazing success - more than 40,000 students from 65 countries in 2019 and over 200,000 students worldwide since its creation. • The initial marketing competition has branched out to offer a multi-disciplinary and innovation experience. With this new positioning, we enlarged the audience to broader backgrounds by adding engineering profiles to our business student target. We also increased the focus on tech, digital and CSR. • The competition has been entirely digitalized, with a 100% of the process taking place online, while keeping the “real-life experience” DNA of the game. • L’Oréal is also more and more committed to providing participants with learning resources, coaching, workshops, etc. And today, students are challenged to pitch their ideas in a startup-like fair. For this 2019 edition, the participants have been challenged by “Active Cosmetics”, L’Oréal’s dermocosmetics Division to invent the future skincare experience for health-conscious consumers For the first time, the winners will get a three-month fully immersive Program in Station F... — Indeed! We have launched this year the Intrapreneurship Award to give winning students an opportunity to implement their idea thanks to a three-month immersion Programme at Station F, the biggest startups campus in the world and a partner of L’Oréal. The winning team will be mentored by L’Oréal experts to demonstrate the feasibility of their concept to the Group’s decision-makers and will be given the unique opportunity to create a prototype of their project by a L’Oréal business team. Through this immersion, the Group is continuing to develop the next generations of beauty entrepreneurs. Do you recruit via Brandstorm? — For sure, Brandstorm is a key element of our recruitment ecosystem. The real-life experience reveals skills, even soft skills the Group is looking for, such as entrepreneur spirit and innovation, tenacity and audacity, or the ability to take risks and to create a team to leverage collective intelligence. Around 200 students are recruited via Brandstorm each year either for internships or for permanent jobs. Brandstorm contributes to identify the talents that will foster the Beauty Tech Company. Besides, who knows... May be the future CEO of L’Oréal will be among these new recruits!... Another cutting edge innovation at L’Oréal is the way you now integrate AI into the recruitment process. How does it work exactly? — In HR, our mission is to hire the best and most diversified talents on each market. On their end, candidates expect transparency and reactivity. IA is really about enhancing “people centricity”, for the recruiters as well as for the candidates. For example, we have deployed, the Mya Chatbot, in 15 countries. This solution targets candidates seeking internships and positions such as Beauty Advisors which involves high volumes. The bot answers frequently asked questions and performs a first screening round by clarifying availability dates, location, language, level of education expected for the job… By freeing up time, this technology allows HR to focus on the human dimension of recruitment. HR can also devote more time to feedback which in turn improves the candidate journey. We see digital as a tool that amplifies the human capabilities of our recruiters, and helps diversify sourcing by processing higher volumes of applications. https://brandstorm.loreal.com Eva AZOULAY L’Oréal’s Head of Talent Acquisition ADVERTORIAL Innovation Fair, International Finals 2018 in Paris, Brazilian Team
  13. 13. — P.25P.24 — THE INNOVATOR Europe’scarmakersareshiftingfromsellingandservicingvehicles to becoming mobility players that can offer multiple ways of transporting people and goods. To that end, German auto makers BMW and Daimler announced earlier this year that they are pooling their resources in a joint mobility effort called NOW that spans autonomous cars, ride-hailing, electric scooters, car-sharing, and electric car charging. “We have a clear vision: these five services will merge ever more closely to form a single mobility service portfolio with an all-electric, self-driving fleet of vehicles that charge and park autonomously and interconnect with the other modes of transport,” Harald Krüger, Management Board Chairman of BMW said during the new venture’s launch. The German auto makers said they plan to spend €1.1 billion on the joint venture. While that might sound like a lot it is only a fraction of what is needed to remain competitive.In an April 2019 report McKinsey estimate that securing a strong position across the four new mobility growth areas - autonomous driving, connected cars, electrified vehicles, and smart mobility—would cost a single player an estimated $70 billion through 2030. « It’s doubtful any individual OEM could shoulder this level of investment alone, which is why partnerships and targeted acquisitions offer an attractive strategy for staying ahead of competitors, » the report says. Its explains why Daimler and BMW, two fierce rivals, have merged their mobility activities, a move that would have been unthinkable just a short time ago. The cooperation comprises five joint ventures: REACH NOW focuses on trip-planning and ticketing, SHARE NOW is a platform for MOBILITY car-sharing; FREE NOW is a ride-hailing platform; PARK NOW puts drivers in touch with parking options; and CHARGE NOW connects electric vehicle drivers with public charging services. Ride-hailing is a key part of the joint venture. BMW and Daimler don't want to let Uber, Lyft and other global ride-sharing companies dominate the future of transportation. To keep ahead of the curve the two German automakers are treating each NOW unit like a stand-alone autonomous company. FREE NOW, the ride-hailing platform is headed by Marc Berg, the former head of GetTaxi, one of a number of European ride-hailing startups acquired by Daimler. At the end of April the NOW ride-hailng unit announced that it is rebranding as a mobility platform, adding e-scooters and launching its own fleet of private hire vehicles. « This is a key decision, » says Berg. « We are opening up the platform to capture a broader share of transportation. » Globally, $55 billion has been invested in the ride-hailing industry in the past seven years, according to McKinsey. It is the first step towards the move to autonomous vehicles, which is why automakers need to be in this space. Autonomous Vehicles The projected global revenues associated with driverless cars in urban areas could reach $1.6 trillion a year in 2030—more than two times the combined 2017 revenues of Ford, General Motors, Toyota, and Volkswagen, according to the McKinsey Mobility Institute. And, driverless cars will unlock far more sophisticated types of connected services such as preference- based personalization and live dialogue, culminating with cars functioning as virtual chauffeurs, according to McKinsey. Its research suggests that by 2030, 45% of new vehicles will reach a level of connectivity that will allow all occupants to use personalized controls for infotainment content and targeted contextual advertising, representing a market the consultancy says could be worth anywhere from $450 billion to $750 billion. This not only represents a lucrative new revenue stream for Europe’s automakers it could signficantly impact car sales. The consultancy’s surveys indicate that 40 % of today’s drivers would be willing to change vehicle brands for their next purchase in return for greater connectivity. The Future Is Electric Traditional auto makers risk losing customers in other ways. Electronic vehicle (EV) sales have doubled annually in several markets with the help of subsidies and regulations that encourage adoption, notes a McKinsey report. Norway is an example of how fast the transition can happen: EVs soared to 32 % of car sales, from 11%, between 2014 to 2018. China has taken the global lead in sales—electric vehicle sales increased by 72 % in 2017— and the growth trajectory looks set to continue. Europe is at somewhat of a disadvantage as the EU is developing the manufacturing capacity for lithium-ion batteries used in electric vehicles later than other leading global regions, says an April 1 briefing paper authored by the European Citroënwillrevealaconceptcaranda newmobilityprojectatVivaTech. Traditionalcarmakersareentering intotheridesharingmarket. BMWandDaimlerareteamingonthecreationofnew mobilityservices. ReinventingThe Wheel — The shift to new technologies and services and the entrance of deep-pocketed Silicon Valley players is pushing Europe’s auto industry into new areas. Court of Auditors.« As it will enter the battery-production market as a ‘second mover’, it may have difficulties gaining a competitive advantage, » the paper says. Europe is « somewhat behind on electric batteries and power train technology, » acknowledges Markus Winkler, Executive Vice President, Global Head of Automotive at Capgemini. « It has to catch up but in the overall connected world batteries will become more of a commodity. » And, Winkler says, Europe’s car makers have an edge : they know how to scale in an industry that involves heavy manufacturing and is very product focused. Still, when it comes to EVs Tesla is a force to contend with and so are the Chinese. Several top BMW executives departed to co-found Byton, a Chinese electric car company. Moving On Given all of the changes and competitive pressures will the European industry succeed in this new world of mobility? « Billions are being shifted into autonomous and shared areas and that gives me hope. » says Winkler. “The future will be a mix of mobility services and I am personally confident that European OEMs can still be successful.’’But he says, in order to to stay ahead « Europe has to learn to speak with one voice and bundle innovation in a different way – not only to follow but to futher innovative the market, » says. « And this will require not only pure mechanical engineering knowledge but also the development of new European software, technology and electronics. » J.L.S.
  14. 14. — P.27P.26 — THE INNOVATOR MOBILITY TheDriveTo Dominate AutonomousShuttles — As U.S. and Chinese competitors ratchet up efforts in this space can Europe maintain its early lead? By Chris O’Brien Whilemuchofthehypearoundautonomousvehicleshasfocused on passenger cars, the most advanced emerging use case is less sexy but more practical: self-driving shuttles that are already being used to ferry people in retirement communities, industrial complexes, shopping centers and airports. Because they can operate in well-defined spaces the number of pilot projects is multiplying and so are the number of players targeting this space. European companies, new and old, have an early lead but are facing growing competition from Chinese and U.S. rivals. “We are seeing newcomers making strong investments,” says Nicolas de Cremiers, head of marketing for Paris-based NAVYA, one of the earliest autonomousshuttlecompanies.“Thecompetitionwillbeverystrong.Idon’t know what the real future of the market will be. But it is 100% sure that there is a market.” NAVYA makes the kind of boxy, slow-moving vehicles that shuttle around passengers in defined areas. But self-driving shuttles embrace a much broader range of vehicles. Mercedes- Benz’s “Future Bus” is among them. The company demonstrated the bus – which uses its CityPilot autonomous software, in Amsterdam but it is not expected to be market ready for some time. Chinese Internet giant Baidu has developed 14-seater autonomous “Apolong” buses in collaboration with Chinese bus manufacturer King Long. The buses are already being deployed in several Chinese cities, with plans to introduce them in Japan by year’s end. These buses are capable of Level 4 autonomy: They can mostly drive on their own and need human intervention only under some circumstances when the special maps they rely on aren’t available. (Apolong buses run on the Baidu’s Apollo autonomous driving platform, which underpins its broader ambitions for self-driving cars. Apollo, which is open source, is now being used by Valeo and Jaguar Land Rover.) On the other end of the spectrum are “robot-taxi” services, such as the partnership between ride hailing leader Lyft and Dublin-based Aptiv which together deployed a fleet of 30 self-driving cars in Las Vegas. Aptiv acquired Ottomatika, a Carnegie Mellon University spinoff in 2015 for its software and systems development for self-driving vehicles. Like Lyft and Uber in America, Chinese ride-hailing giant Didi Chuxing is aiming to build autonomous robotaxis. And Voyage, a spin-out of Udacity University which was briefly chaired by Sebastian Thrun, the German founder of Google’s self-driving car project, has already launched autonomous car shuttle services in retirement communities in California and Florida. Waymo, the self-driving car unit owned by Alphabet, Google’s parent company, has conducted its own trial in Phoenix, Arizona with Walmart and shopping mall owner DDR to bring shoppers to stores after they purchased an item online. Waymo said it will continue to study such retail partnerships with an eye toward an eventual national rollout. The U.S. market also includes a number of other new entrants. Local Motors, a Phoenix-based manufacturer, has developed a self-driving electric shuttle dubbed “Olli” that is built using 3-D printing and open source tools at “microfactories” around the country. And in Michigan, May Mobility has now raised $34 million in venture capital for its autonomous driving platform, which is being used by some manufacturers to build low-cost shuttles. Shuttles using May Mobility’s technology are roaming streets in Columbus, Ohio and Detroit, Michigan. And with investors such as BMW and Toyota, it’s one more sign of the potential many see in this market. The Road Ahead A number of technical challenges must still be overcome before autonomous vehicles become commonplace on the roads, says Sam Abuelsamid, a principal analyst at Navigant Research, who tracks the autonomous vehicle market. Shuttles that have the ability to geofence their movements are a more interesting option in the short term with a clearer business model, he says. They’re also appealing as cities rethink urban mobility. As more people move to cities and they become more crowded and more polluted, urban leaders are becoming more aggressive in trying to redesign public and private transit, from scooter sharing to new forms of public transportation. Shuttles that can move people between public modes of transport could play a critical role in these new mobility systems. “They will not solve all the problems of urban transport,” says Abuelsamid. “But having shared autonomous vehicles will be an important part of an overall mobility system.” That’s NAVYA’s vision. Founded in 2014, the French company has focused exclusively on developing electric autonomous shuttles. The company raised €80+ million in venture capital in 2018 and has recently opened a sales office and manufacturing facility in Michigan. The company has sold more than 115 shuttles around the world in more than 20 countries. Some of the fleets have been running for several years now. Due to legislation, all its shuttles still have a human on board, but NAVYA says it is hopeful that will begin to change soon. “What we see in the near future is removing human operators from operations,” says de Cremiers. “For that, we really need to have a global regulatory framework. It’s not in place yet, but it’s coming.” While NAYVA is regularly ranked as one of the leaders in this space, there is no firm data about the number of self-driving shuttles operating. One of its rivals is EasyMile, based in Toulouse, France, which has raised €22 million in venture capital. The company’s fully-electric autonomous shuttle, the EZ10, transports up to 15 people and is being used at over 200 sites worldwide, including on the grounds of a factory in Sorigny, France owned by TLD Group, a maker of aviation ground support equipment. An EZ10 shuttle carries employees 1.5 km round trip to the company’s cafeteria. More recently, in the U.S., the Utah Department of Transportation and Utah Transit Authority has launched an autonomous shuttle pilot using an EasyMile EZ10. The shuttle will travel the state giving free rides to get feedback from the public as the state considers adopting more of them. France is also home to AutoKAB, short for Automation Kits for Autos and Buses. As the full name suggests, the company makes technology to allow current vehicles to convert to being autonomous. The company evolved out of France’s National Institute for Research in Computer Science and Automation which started a program to develop a public transit system using electric, automated vehicles in the mid-1990s. Having defined the market, these French players are watching warily as some deep-pocked competitors target the market. That said, NAVYA says it is confident its experience and long track record of testing will help it maintain an edge. And while it’s prepared to fight for deals, in some ways the growing attention validates the vision such early movers had when the rest of the market was more focused on consumer vehicles, de Cremiers says. “When we started there were just two or three players,” he says. “And this market was not obvious for everybody back then. But now that we are in 2019, based on what we achieved, we can see that we have been going in the right direction.” Anautonomousshuttle madebyParis-basedNAVYA,one ofthesector’spioneers. Mercedes-Benz’sFutureBus, whichusestheGermanautomaker’s CityPilot autonomousdrivingsoftware.
  15. 15. A 130-year-old French tire manufacturer may not seem like a likelypioneerindigitaltransformation.But Michelin began its journey early, launching tires-as-service back in 2000, charging for outcomes rather than just tires. The move was prescient: corporates the world over are now seeking to move from being product providers to service companies in order to ward off digital interlopers aiming to disrupt their sectors. The ability of Europe’s large corporates to embrace these types of new digital models is crucial if Europe is going to compete on the global stage. (See the cover story) That message is not lost on Michelin. “This is just the beginning of our digital transformation,” says Eric Chaniot, Michelin’s Chief Digital Officer, who previously worked for tech startups as well as Hewlett-Packard and Apple. “We don’t see ourselves as a tire company, we see ourselves as one of the leaders in mobility and if we want to continue to be one of the leaders in mobility we have to be much better at everything digital.” To that end, the tocommunicatethevaluepropositionoftheaddedservice(bettermaintained tires last longer), and its inability to align internal incentives, according to an analysis posted on Harvard Business School’s Digital Initiative page. For instance, Michelin’s sales teams felt that by selling the services, they would be undermining their sales of new tires. In 2013, the company decided to try again, creating a separate division – Michelin Solutions – to design services for commercial vehicles. Leveraging Internet of Things (IoT) technology, Michelin launched EFFIFUEL, a system that uses sensors inside trucks to collect data, like fuel consumption, tire pressure, temperature, speed and location. The data is then processed in the cloud and analyzed by Michelin experts, who provide recommendations and trainingineco-drivingtechniques.Thetiremakeroffersacontractualagreement to meet pre-defined targets or provide a refund in proportion to expenses incurred. EFFIFUEL encourages careful truck diving, leading to extra savings for companies and a potential doubling of per-vehicle profits, according to a World Economic Forum case study. A reduction in fuel consumption of 2.5 litres per 100 kilometers represents annual savings of €3,200 for long-haul transport, at least a 2.1% reduction in total cost of ownership and 8 tons in CO2 emissions, the study says. Michelin’s 2017 acquisition of Nextraq, a U.S. company specializing in GPS fleet and mobile workforce management, helped Michelin move into fleet management. “When you start to manage a fleet of trucks, guess what? Our customers start seeing us in a very different way, as a company that can help them optimize their business, enable them to be more efficient and generate more margins,” says Chaniot. “We are also convinced our fleet customers will give preference to Michelin tires, so it is a way to both differentiate ourselves and drive the core business.” Michelin is also currently exploring how to use connected tires to reduce safe waiting time between airplane flights, to help cities conduct predictive maintenance on buses, and make mining operations more efficient. At the same time it is experimenting with new materials that could help make tires more durable and environmentally friendly, and with new ways to engage consumers around food and travel to reinforce its brand. Mastering Change Management But the tire manufacturer – like all big corporates – still faces a number of challenges. Only about 5% of a successful digital transformation depends ontech,saysChaniot.Theother95%isaboutchangemanagement.Changing procedures and mindsets is hard, he says. “No one ever tells you ‘no’ but you can see in their eyes that they feel like saying it. Luckily I report to the global CEO so we always find a solution.” J.L.S MOBILITY tire-maker has formed its own venture capital unit and regularly collaborates with a wide range of startups. It has provided digital skills training to some 16,000 of its 140,000 employees. And it has built a digital accelerator in India to help it scale digital application deployments worldwide and master specific domains such as mobile app development, data analytics and user interfaces (with the aid of consultancy Capgemini.) “Everything we do – even on digital – is connected with the purpose of Michelin:toenablepeopleandgoodstotravelinabetterandmoresustainable way,” says Chaniot. “Our digital efforts are focused around the four pillars of our strategy: tires, services and solutions, mobility experience, and high- tech materials.” He points to Michelin’s history of innovating everything from radial tires and airplane landing gear to restaurant guides and travel maps. From Tires To Fleet Management Selling stand-alone tires is still an important part of Michelin’s revenues and that business is also going digital. The company does not own distribution channels in all countries but it is making it easier for consumers to find and buyitstiresfromdealersthroughMichelin-ownedwebsitesordigitalinitiatives supporting its partner dealers. That effort, along with other initiatives, should help the company reach its strategic objective of “a plus 20% increase in tire sales by 2020,” Chaniot says. Michelin first became a service provider 19 years ago with the launch of Michelin Fleet Solutions. The idea was to create a value-added service for fleet operators using large vehicles. Instead of having fleet operators bear the upfront cost of buying and replacing tires, the unit offered to maintain and guarantee the tires for a nominal monthly fee.The project was not as successful as hoped due to the company’s failure WhereTheRubber MeetsTheRoad — Michelin’s digital transformation journey has evolved from tires-as-service to fleet management and new forms of customer engagement STARTUPS WORKINGWITH MICHELIN EXOTICSYSTEMS FRANCE WHAT IT DOES: Provides connected solutions and robust sensors for hostile environments, such as mining. https://www.exotic-systems.com DATAWORDS FRANCE WHAT IT DOES: Provides technology and knowledge about different cultures to help brands roll out their international strategy across all digital platforms. https://datawords.com PIXLEE UNITEDSTATES WHAT IT DOES: Uses photos and videos from real customers to tell brands’ stories. https://www.pixlee.com P.28 — — P.29

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