The European technology industry continues to evolve rapidly as we move into 2015, writes Stephen Georgiadis (pictured). On a recent trip to Hanover, David Cameron suggested the UK and Germany are leading the next digital revolution in Europe. Both countries are affected by similar technology sector trends, so what are the key themes?
One hot topic is the internet of things (IoT) or, as it is known in Germany, Industry 4.0.
The interconnection of computing devices via both mobile and internet infrastructure offers technology companies a whole new set of opportunities.
Over the next few years, interconnected technology will continue to find its way into every aspect of life, with examples such as mobile phones used to control your central heating, cars reporting on the performance of their drivers to their insurance companies, fridges telling their owners to pick up more milk and specialised sensors monitoring elderly people in their homes. There are many intriguing possibilities; the trick will be guessing which ones will build valuable and sustainable business models.
The move to cloud computing is also accelerating, albeit at slightly different rates with Germany – for once – lagging behind the UK.
Decentralised technology hubs
Unsurprisingly, there are few differences between the UK and Germany when it comes to major technology trends. But how do the two compare in where these major technology developments are happening? Is the technology industry centred around the capitals of London and Berlin, or are we seeing other regions stepping into the limelight?
In the UK, it’s certainly true that London’s technology scene has skyrocketed since 2010. An estimated 200 technology startups were based in London in 2010. Now in 2014, there are over 3,000 fledgling technology groups, with nearly 20 London-based companies listed on the London Stock Exchange and, in the past quarter, $1bn (£629m) has made its way into various technology-based venture funds.
Increased government support is in part driving this growth, with the UK government investing £50m in Tech City, which has also attracted large US companies including Amazon, Google and Twitter. London clearly is a technology hotspot; but are any other areas of the UK attracting technology-based entrepreneurs?
Manchester’s certainly up there. The city that invented the first stored-programme computer is home to over 6,000 technology-related companies, employing more than 100,000 staff. With the largest student population in Europe, Manchester benefits from a pool of labour and is fast becoming one of the hotspots for technology startups. Typical examples include App55, a digital payments technology, and online ticketing firm Fatsoma – both of which have seen strong growth figures in their early stages.
Manchester benefits from cheaper rent, access to plentiful power and international links via the airport, all of which create a nurturing environment for technology startups. This trend has developed over recent years, with EON Reality co-founder, Dan Lejerskar, dubbing Manchester the perfect location for the UK’s digital city in 2012. With the recent establishment and growth of MediaCityUK, it’s clear that Manchester is also rapidly becoming a major media hub in the UK.
So the UK has a technology and media focus around its two biggest cities, London and Manchester; how does Germany compare?
Berlin, which has a thriving technology scene, has also joined the silicon family, nicknamed "Silicon Allee". A recent study by consultancy firm McKinsey estimates that Berlin technology start-ups could generate as many as 100,000 jobs by 2020 – vital for a city with the highest unemployment rate in the country. With companies such as Google, Mozilla and Microsoft moving to Berlin, the city has proved its attraction to technology companies of varying sizes.
Another example is Rocket Internet, the incubator of fast growth companies, which has recently floated to much fanfare, and at a huge price. Germany aspires to bringing world-dominating technology to market in the same way as Silicon Valley and the venture funds of the San Francisco Bay.
However, technology hubs in Germany are not limited to major cities. The famous Rhine-Main-Neckar (RMN) IT cluster, located in south-western Germany, is one of the most important ICT locations worldwide, often referenced as "the Silicon Valley of Europe". Apart from universities, many software companies – including SAP, Software AG and T-Systems – are based in the region. In 2010, the RMN area was home to 50% of the top 100 global software companies – clearly a significant hub for technology in Germany.
While the RMN area is known for ICT, Dresden is renowned for being the country’s main technology research area. With around 300 hi-tech companies – including Airbus A380 manufacturer EADS – the area provides excellent economic and scientific infrastructure. The Technical University of Dresden, which serves as a state-of-the-art training facility for young professionals, also provides new businesses with an abundance of highly skilled and motivated workers, making Dresden a perfect technology hub.
Munich represents an important centre for technology in Germany, home to major companies such as Siemens AG. However, it was not always so. In the 1990s, the area lacked technological innovation. As a result, the Bavarian state government provided the High-Tech-Offensive Bayern, which sought to invest €2.9bn into R&D in the region. This has allowed Munich’s technology scene to thrive, with 30,000 IT companies such as Adobe, Fujitsu and IBM using Munich as a European base.
UK provincial cities forging ahead
With active technology hubs located in Berlin, RMN, Dresden and Munich, Germany appears to have a less centralised technology scene when compared with the UK. But there are signs the UK is beginning to change in this respect. Manchester’s technology economy has demonstrated enormous growth in recent years and there is evidence of a slow rise in the technology scene across the likes of Sheffield, Leeds, Newcastle, Scotland and Brighton.
With London’s property prices already reaching prohibitive levels, many technology companies are now considering other locations in the UK. Examples such as Sheffield-based dotforge, which attracts and nurtures technology startups around the world, and DYN, a Brighton-based email delivery and traffic management service provider, demonstrate that the technology sector may be beginning to disperse outside the capital.
Stephen Georgiadis is managing director at international investment bank Altium