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Ask HN: Why Does the European Tech Industry Have Such a B2B Focus?

• hef19898 8y ago
  I'm not tu sure regarding the start up scene in particular, and thus can only provide my 5 cents on European business culture in general. First, Europe is not, historically, the center of consumerism. Most smaller companies, the famous Gean Mittelstand for example, which is usually run by the founder focuses on corporate customers (apart from small electrician and construction companies and the like). So the whole infrastructure and financing through banks is comfortable with these companies. I could imagine this spreads even to VCs to a certain degree. Second, at least in Germany, we don't have a great failure culture. Esentially, you fail once and you are burned. Unless you are well conected in the corporate and political spheres. Which again makes launching B2B endevours less risky. In the end that means that B2B become somewhat a strength of European companies. But that is juat my opinion. As one counter example to the above, Germans did come up with Flixbus.
  • ItsMe000001 8y ago
    Not quite on topic but I would like to share it because I'm curious (not sure what to expect, just testing the global mind): When I lived in the US I was employed so I can't compare, but when I founded a small business together with a friend banks (yes, plural) were only willing to "Lend" us exactly the money we already had, and that is a general policy for them when "lending" to small new businesses. It means, we had about 100k - so if we gave them the 100k and put it into a no-withdrawals account they would lend us 100k. Okay. Yes, I get it, "tax reasons". This is just silly. First, you have plenty to write off at the start anyway, second, if you are worrid about paying a lot of taxes it means you are making a lot of money. I actually don't mind paying taxes at all (I do mind the many fees many organizations want from my new company, from GEZ for public TV to IHK - none of which do anything for me, unlike the state as a whole, plus taxes are coupled with income, those many fees are not). The main point is that you only get the money that you already have anyway.
    • brianwawok 8y ago
      Risk. Banks aren’t in the business of unsecured risky loans. VCs are. If you want an unsecured risky loan, talk to VCs.
      • ItsMe000001 8y ago
        1) Risk isn't black/white but a continuum. 2) Banks ARE in the business of risk, very much so. What are you talking about??? They make risky investments all the time! They just prefer 200 million over 100k because they've become too big to care about anything but mega-projects.
    • hef19898 8y ago
      Welcome to Germany... I thought for the majority of last year to try it and found my own company. Financing was the main reason I didn't, besides the fact that I reallsy suck at sales. Banks wanted basically everything I had to cover the initial purchasing of goods with the goods itself not being sufficient. Public funding, in the scope of increasing the number of young comapnies, fell short because my idea was not inovative enougj. Never mind the a start-up selling locally sourced vegetables via app was inovative enough for them... And I didn't want CV founding to gwt the initial cash flow issues solved. So here I am, employed again.
      • maxxxxx 8y ago
        If you suck at sales then financing is not your problem. There are plenty of successful companies in Germany.
        • hef19898 8y ago
          Well, let's put that way. If I would have gotten some positive signs regarding financing I would have looked for some one for the sales part. I know, kind of backwarsa thinking. So being employed in the end turned out to be not such bad idea. At least I can say I tried, so no regrets from my side.
• adotjdotr 8y ago
  Because in Europe no one has made money from consumer facing businesses. European investors are all ex-banking / private equity spread sheet modelling morons who do not understand risk capital and are looking for risk free bets. When you have this lens u eschew anything that can harm you holding onto your career. That is why. B2B businesses have a very clear path to revenue / margin / profit. A B2C business is effectively a punt, yes a punt, US VCs arent some sort of fucking oracles. If you look at the analysis Social Capital did for who backed the biggest co's at the series a level its effectively spread evenly so there is no "science" here.
  • coldtea 8y ago
    >European investors are all ex-banking / private equity spread sheet modelling morons who do not understand risk capital and are looking for risk free bets. And that's not prudent because? Why don't you go there with your investment money and show them how it's done?
  • jacquesm 8y ago
    What a load of crap. There are tens of thousands of money making consumer facing businesses, the division - in my practice - between b2b and b2c is roughly 50/50. What the USA has that Europe does not have is a huge advantage in terms of one language and currency to be able to address 300M+ people, and if you just look at the language you can add another 45M or so. That's impossible to compete with for anything with network effects or a market to launch a product in.
    • Mahn 8y ago
      I think at its core this is basically it. We can argue all day about the differences in culture and mindset, but the most significant advantage the USA has that the EU cannot effectively replicate (yet) is the access to a large, homogeneous single language single currency market from the get go. The more interesting question would be why are Google and Facebook American and not Chinese or Indian.
      • xnyan 8y ago
• DrNuke 8y ago
  Family businesses since markets inception 2k years ago and small-to-medium businesses in the late 20th century were the norm everywhere in Europe, that’s also why the EU started well as a common market. It is going tits up right now exactly because surrendering its roots to the US neo-liberist approach has killed the middle class. Many thousand businesses moving €500k/year and using money locally is much better for local communities than 5 unicorns moving €50b/year, draining that money out to fiscal havens and employing a few elite thousands people with millions left unemployed and getting more and more angry.
  • friedman23 8y ago
    This comment is out of touch with the current economic reality in the US. Unemployment is the lowest it has been in decades and real wages are rising. Meanwhile emerging markets all around the world are crumbling. Is there always a segment of the population that believe the economic apocalypse is about to happen (or in this case happening)? If you want me to believe your doom and gloom try providing actual statistics that back up your assertions instead of vague hand wavings. > Many thousand businesses moving €500k/year and using money locally is much better for local communities than 5 unicorns moving €50b/year Do you have a citation for this claim? Also why should we be helping "local communities" and not simply helping people?
    • coldtea 8y ago
      >This comment is out of touch with the current economic reality in the US. Unemployment is the lowest it has been in decades and real wages are rising. That's because those things are increasingly more creatively measured to paint a nice picture. For example today any crap job regardless of quality/wages/precariousness etc is measured as "unemployment", whereas in the past you could have the same number of jobs but they would be much more solid (the "company man" and so on. Heck, a GM factory worker in the 50s could buy a house and raise 2 kids earning the only income in his family). People who given up looking for work, because they can't find any, are also not counted, while still unemployed and struggling to make ends meet. "The stock market, for example, has completely recovered from the financial crisis, and then some. Stocks are now worth almost 60 percent more than when the crisis began in 2007, according to a inflation-adjusted measure from Moody’s Analytics. But wealthy households own the bulk of stocks. Most Americans are much more dependent on their houses. That’s why the net worth of the median household is still about 20 percent lower than it was in early 2007. When television commentators drone on about the Dow, they’re not talking about a good measure of most people’s wealth. The unemployment rate has also become less meaningful than it once was. In recent decades, the number of idle working-age adults has surged. They are not working, not looking for work, not going to school and not taking care of children. Many of them would like to work, but they can’t find a decent-paying job and have given up looking. They are not counted in the official unemployment rate." https://www.nytimes.com/2018/09/14/opinion/columnists/great-recession-economy-gdp.html https://www.nytimes.com/2018/09/14/opinion/columnists/great-... >Do you have a citation for this claim? Also why should we be helping "local communities" and not simply helping people? For one, because tax havens (where that money go instead of local communities, e.g. Apple's Ireland's cash stock) aren't "people". Second because those local communities where the business is located are what should thrive first and foremost. You can't help "people" without first helping yourself.
• bwb 8y ago
  Europe is also a lot more fractured than the USA in terms of culture and languages and laws. Something that works in Germany is much harder to make work in France as opposed to Texas/Cali.
  • gcatalfamo 8y ago
    This. In addition, an American startup has a starting potential consumer market of 300mil people speaking the same language, facing the same laws, government, customs. That's an easier starting point, while the average European country has less than 60. (Germany has 80)
    • TheAceOfHearts 8y ago
      It really depends on what market you're targeting, but having to deal with 50 states' worth of law is usually not that easy unless it's an already well established segment. For example, even calculating sales tax and shipping costs online used to be considered a fairly complex problem until stuff like Stripe and friends took off.
    • giobox 8y ago
      > Facing the same laws, government, customs Except the US is a federal system, so one can argue that rather than facing the same law, you actually have 51 legal systems (states + federal government) and 51 different legislatures - most certainly not universally the “same government”. As another commenter pointed out, this rears it’s head for US startups all the time, with many different sales tax implementations, drug policy (marijuana legaliszation) etc etc. Even while at work the law varies enormously - my paternity leave rights as a father in California are vastly different than many other states. The US isn’t as obviously simpler than the EU than one might expect in this regard, ~28 legal systems (if we ignore pseudo-federal arrangements like the U.K. etc) with a common core of business law established via EU statute, not 100 miles away from the common body of federal legislation found throughout the 50 states. Cultural, language and custom differences can certainly be argued to be simpler in the US though.
      • 8y ago
• jacques_chester 8y ago
  I'd suggest that the vast bulk of software is written for inhouse use and B2B use, not consumer use. The impression you have would boil down to sample bias. This is simply a reflection of the "structure of production": for any given consumer product, there is a vast graph of exchanges and transformations that lead to it. Most of the inventory and money is not passing between consumers and consumer companies. It is in the structure of production. Consider: manufacturing is not instantaneous. Primary resource production is not instantaneous. Transportation is not instantaneous. Tertiary services are not instantaneous. Per Little's Law, average items in a system = average throughput * average item latency. The consumer market is the throughput. The structure of production represents a multiple of the consumer market. The reason we overweight consumer brands is because they are consumer brands. Within each industry and niche, everyone knows who the leading firms are. But outside the niche, nobody knows that a) the firms exist or b) that the niche exists. But all of us are in the consumer market, so we all know about consumer brands (they literally make it their business to ensure this is so). Every journalist can write about a consumer brand. Every reader can read about the consumer brand. So on sheer volume, consumer brands are vastly overrepresented in the media relative to their total share of the economy. So even a relatively small lead in consumer-facing firms will seem much larger than it actually is. B2B is a massive segment in the US software market. But it's the invisible dark matter of our industry: it constitutes almost all of the mass in the software universe, but few folks realise it's there unless it's pointed out.
  • hef19898 8y ago
    Nicely written and ao true. In the B2B market revenue streams a lot more stable. Less sexy, sure. But the problems tend to be harder as well, compared to say developing an app to have other peoples dogs walked.
  • TheAceOfHearts 8y ago
    I wish I could upvote this comment again. When I joined the industry as a software engineer I was blown away by all the large companies in the space which I'd never even heard of. And I'd agree that despite it not being nearly as sexy, it's way more stable and you generally get to tackle more interesting problems. There are plenty of companies most people have probably never heard of which are basically setup as infrastructure or support for the Fortune 500.
• rapsey 8y ago
  The US has two advantages: - Access to huge amounts of capital that can support businesses that focus on consumers for a good period of time before they start worrying about profit. - A large domestic consumer market. Europe is fragmented.
  • checkyoursudo 8y ago
    I have no idea one way or the other, but I wonder how less fragmented the US market is? For some things, sure, an extremely common language and some other things etc etc. However, having traveled around a lot of the US, and a good portion of EU, my instinct is that the US is pretty fragmented too when it comes to a whole lot of things. Regional cultural differences in the US can be really strong. Though maybe that doesn't affect markets as much as EU with probably more diverse cultures and certainly more diversity of languages. Anyway, really interesting to think about! Maybe I'll research it sometime.
    • rapsey 8y ago
      > but I wonder how less fragmented the US market is? Far far less. Different languages mean the large majority of a countries population is largely culturally isolated from its neighbors. No one watches a pan-european news channel, read a pan-european newspaper or browse a pan-european website. They don't exist. Different way of doing business, different mindsets, different world view, different media systems, different politics and different economic markets and conditions.
      • checkyoursudo 8y ago
        Makes sense.
      • bausshf 8y ago
        This. Netflix is a good example of how it's very different. The price of Netflix may be totally different in every country in Europe, because the cost of living etc. is different. In the US the price of Netflix is the same regardless of what state you live in. That's just a small example. Yes each state has different regulations, taxing etc. too, but overall they're mostly the same. In Europe everything is different, the cost of living, the language, the culture etc. and thus you cannot have a product with the same price in every European country (Well you can, but most likely you wouldn't!)
• deleted 8y ago
  [deleted]
• samuell 8y ago
  My guess: Taxes. In Sweden at least, roughly half of the money any company makes, is going to taxes before getting in the hands of the employees, leaving much less buying power for consumers. Add to that a 25% VAT on anything you buy, and, yeah.
  • Mankaninen 8y ago
    I don't know the percentage B2B vs consumer-focused startups in EU or US so giving a few examples makes no real sense but Spotify, iZettle, Skype and Pirate bay are all of swedish origin. And business taxes in Sweden are among the low ones in OECD. Salary (after tax) is lower than in US but schools and health care is free so compared to US the living standard is not that bad, i.e. assuming the original poster assumption is correct, I don't think taxes is the explanation.
    • charlesdm 8y ago
      Those companies however, pay no corporate and dividend withholding taxes. And the founders make their money from booking capital gains by selling the stock of a loss making entity.
    • samuell 8y ago
      What I mean is that businesses, even small companies, will have a lot more money than any consumer, as any money being paid as wage is decimated to such a large degree. Spotify, Skype etc are addressing an international market, so the exact situation in Sweden wouldn't affect that much, and also I don't know if e.g. Spotify is even really making that much money yet from customers.
• mlinksva 8y ago
  One difference is that US regulation (on intrmediary liability, privacy, and copyright) has been much more favorable to consumer platforms than has EU regulation over the last few decades. http://law.emory.edu/elj/_documents/volumes/63/3/articles/chander.pdf http://law.emory.edu/elj/_documents/volumes/63/3/articles/ch... is a good summary.
• auganov 8y ago
  There just isn't much innovation going on in Europe. Consumer goods are hyper global - the best wins. B2B is more nuanced, locality matters. Plus so many playing the grant game (which only works for B2B). That said there are enough success stories to know that you absolutely can do it in Europe. It's really more about how few are even trying rather than how impossible it is.
  • louisswiss 8y ago
    > There just isn't much innovation going on in Europe. Wow. I'd argue the opposite is true. There's a lot of innovation going on in Europe - but a) it takes a long time for 'innovation' to filter through to the consumer, and b) successful consumer companies tend to win on brand, not tech. The big problem in Europe (vs US) IMO is the risk tolerance of VCs, capital available, valuations, and large market size. I personally know quite a few founders who started consumer tech companies in Europe and quickly moved at least part of their operations to the US as soon as they were ready to scale.
    • wutbrodo 8y ago
      I'm not opposed to this view, since I don't really know the European tech market very well, but can you give me some examples to understand better? I'm sure in some absolute sense there is "a lot" of innovation in the European tech industry, but my uninformed impression was that, in the context of US tech innovation, it's fairly minimal.
      • louisswiss 8y ago
        Check out Barrin92's answer (above/below my original comment) for some examples. I'm no expert on how you'd measure tech innovation. Perhaps patents - but US patents are much easier to get and much more easily awarded than in the EU, so probably not a great indicator of innovation (especially considering that more patent applications were filed in China in 2016 than the rest of the world combined). Elite research universities might be a good indicator. I haven't got the rankings to hand, but am willing to stand corrected that the EU is at least on a par with the US in that regard. Consumer banking is probably one area where 'tech innovation' has been much more widely embraced in Europe than in the US. Is that the kind of thing you meant? If not, perhaps you could give me some examples of technical innovation which is common in the US and rare/lacking in Europe?
• caseysoftware 8y ago
  I think it's primarily due to mindset. With a B2B business, you see more revenue earlier. That revenue then goes on to fund the next stage, product, market, whatever. In B2C businesses, it takes quite a bit more effort to become profitable and you're likely to scale long before that point. If you're in an ecosystem that is used to making bets on B2C companies (not just investors but founders, leadership, and employees), you know and have lived this difference and plan accordingly. If your ecosystem has less venture capital and less people who have lived that, you need cashflow sooner and something resembling profitability earlier. * I worked for a London-based startup that moved to the US midway through it's life. (While this thread is about Europe, the same distinction applies for SF vs US Midwest ecosystems.)
• yuhong 8y ago
  I dislike the current debt-based economy (based on extracting more US dollars from consumers) partly because of this reason. There is a reason why I wrote the Google DoubleClick Mozilla essay.
• jbverschoor 8y ago
  Because there is no proper funding in Europe for those kinds of risks.
• deleted 8y ago
  [deleted]
• krn 8y ago
  European tech industry is B2B focused, because it has no single consumer market, like the US. By the time a startup becomes a success in Spain, its copies will be already launched by somebody in France and Germany. In consumer fintech, for instance, UK has Monzo, Germany has N26, and Poland has mBank. Currenly, Flixbus is a major exception to this rule, because it managed to conquer almost the entire EEA long-distance bus market in 5 years, and has just entered the US. Revolut is trying to do the same in fintech.
  • maaaats 8y ago
    Yeah, and then the single big player in US can pick off each European country with time. The small players in each country will have a hard time when the force of a USA-wide company tries. Happens in other businesses as well. McDonalds, Starbucks etc.
  • expertentipp 8y ago
    National economies are very hermetic and their regulations are foreign-hostile (xenophobic?), it's impossible to enter and smoothly operate without some high level "green light", e.g. Polish/Czech direct banks like Fio, mBank, Inteligo couple of years ago were much ahead of what banks in e.g. Germany, UK, or Italy were offering to their individual consumers but had zero chance of launching in these countries. Furniture production in Poland is significant but to sell internationally they're basically submitted to IKEA. Screw those who were selling the "capital has no nationality" mantra in post-Communist countries during the 90s-00s. Flixbus? They spread all over EU with no new value created - the coaches are driving the same as they have always been, quality unchanged, if anything they look like some predatory business sucking in everything into their franchising model.
    • krn 8y ago
      > Flixbus? They spread all over EU with no added value created That's not true. The added value to the passenger is that he can now travel across the entire Europe using a single ticketing system and a unified bus standard, saving a lot of time and hassle. But I agree, that it made a competition almost impossible. Flixbus competes not with other bus companies, but with trains and flights: in terms of price, time, and comfort. Sometimes in wins, sometimes it loses.
• expertentipp 8y ago
  developing countries - there are no clients, potential clients have no money, there are only global outsourcing corporations who are looking over here for "cheap" developed countries - dealing with individual consumers is a pain in the neck - documentation, guarantees, consumer rights, complaints, multiple languages, requirements research, various app stores which are entirely US based and controlled, certain transparency as the services portfolio is available publicly. Why bother with these when one can just sell something to German/French/British industries or telecoms, relax, hire some engineers, and implement whatever the minimal acceptable form is? There isn't a problem which cannot be solved during a "conference" of lawyers and sales people somewhere on Balearic Islands or in Swiss Alps, or by a brand new BMW discreetly shipped to a certain address - try solving product/service-related problems in a similar way when thousands or even millions of customers are looking at your hands. Individual consumers are pariahs in Europe.
• astura 8y ago
  It's been my observation that more businesses are B2B than B2C. Is just you don't hear about the B2B ones as much. And in software, the B2B market is just bigger. Consumers buy/use off the shelf software, businesses can pay you to create custom software. The margins are lower but the to risks are also lower. It's just nobody talks about the latter.
  • ozim 8y ago
    From my experience B2C has lower margins. Basically you have to give all for free to get consumer users on board. No one is buying software as a consumer, consumers buy services mostly. Like ordering pizza, and Takeaway.com is going big in Europe. They don't sell app, probably they hire some shop for app development. Anything in enterprise level costs loads of money. From developer perspective think about all consulting companies which do body leasing. How much companies pay for having hands to work is alone insane. Price for custom B2B development goes really high. Then you have to pay high price or your business is going to loose money in the future. Where consumers don't care, I am not going to loose money because I don't have someones app.
    • astura 8y ago
      I meant potential for higher margins. For my B2B projects I've done, the profit was written into the contract (and was usually around 3%), there was no way to make a larger profit margin, it was agreed upon beforehand and was a done deal. Whereas with B2C you can have something that goes viral and suddenly brings in a ton of money.
• shady-lady 8y ago
  Real money vs potential ad money.
• arthurrichards 8y ago
  It's simple. Fragmentation of the consumer market (languages, habits, economic values) leads to a rough ride up for B2C unicorns. Look at Spotify and Soundcloud, Skype, UStream... Whereas the current state in business due to the family owned businesses is one of fear. They don't have the resources to innovate internally, and the prevaling technical sophistication of the available labor force along with the disincentivised compensation plans for engineers means its hard for them to build solutions on their own. Building a B2B in europe just makes more sense from a founder perspective. Consider that in Berlin a couple years ago a pretty popular recruiting firm found that 85% of startup CTO's or VP Engineering's were Americans. I myself am a US expat, currently founding my second B2B business in Europe. A common truism is that european (german) investors say: do not tell me how much you will make. Tell me how much you will spend.
• torte 8y ago
  Access to venture capital and/or the effort to get it in the first place. To European businesses it often seems like it is much easier to raise funds in the US. Investors also tend to be more conservative here. B2C businesses traditionally need more funding to scale. Less funding, fewer B2C businesses. Bootstrapping a B2C business is even harder. B2B just makes more sense economically.
• wprapido 8y ago
  You were given many great answers. Largely it boils down to aversion risk, and a lack of access to cheap VC money. Also, the market is not big enough. You really can't replicate most things that work in Sweden in France, or Germany-Ireland. As such, focusing on B2B just makes much more sense. Don't mind that Europe is not a heavy consumerist society. Actually, as of the past decade or two, a huge chunk of Europe entered the post-money era, where people tend to own less, spend on personal growth, and live more frugal. Ad revenue (that keeps many B2C businesses afloat) in Europe is not nearly as high. Even AdWords in Europe compared to the States are cents to dollars.