States of play: Tomorrow's tech stars may not be American

World

States of play: Tomorrow's tech stars may not be American

There is concern about the US' reign over the industry, but the sun may be setting on its dominance

Matthew Lynn


They are too big, too powerful and need to be brought under control. They are driving a revival of the US economy that is allowing it to pull away from the rest of the world. And they put awesome surveillance and political capabilities under the control of a single country.
Politicians, regulators and campaigners around the world, and especially in Europe, are increasingly concerned about the dominance of the all-important technology industry in the US. There is no question that the tech revolution has been powered by American firms, and its big beasts from Amazon to Apple to Facebook are all from its West Coast.
Yet that is not necessarily going to last. Under the surface, the share of venture-capital money going to US start-ups is in dramatic decline, and that means the stars of the next decade are likely to come from a far wider range of countries. In fact, in most industrial revolutions one country starts out with a dominant position, but others very quickly catch up.
The same may be about to happen with computing and the internet - and the sun may already be setting on America's lead. The dominance of US companies on the internet has become painfully obvious over the past decade. The internet and the app economy have become the preserve of a handful of mostly Seattle- and Silicon Valley-based corporate giants.
Alongside Apple and Amazon, there is Facebook, Microsoft and Alphabet, the parent of Google, while rising stars of the web such as Netflix, Airbnb and Uber are all from the US as well.
That is, of course, to that country’s credit. Its deep tradition of entrepreneurial energy, its pro-business political culture, its vast pools of seed capital and its technical brilliance have all enabled it to create the industrial giants of the era.
The internet might have originally been created by a British scientist in Europe (the World Wide Web is usually credited to the work of Sir Tim Berners-Lee at the CERN lab in Switzerland) but it is American entrepreneurs who seized on its potential and exploited it most effectively. Not surprisingly, that has started to worry the rest of the world.
In the European Union, in particular, there have been huge fines on the likes of Google and Apple, and investment in domestic rivals. Most recently, the EU has poured more than a billion euros into the creation of European champions in artificial intelligence, with the aim of preventing the continent being so completely outplayed in the next wave of technological change as it was in the last one.
The Russians, the Chinese and the Japanese have made it clear they are just as concerned: indeed, the Chinese are very careful about allowing the US giants to operate in their country. But as is so often the case, it turns out that the free market is already doing a far better job than the politicians could of achieving an equilibrium.
According to a report released this month by the Centre for American Entrepreneurship, the percentage of fresh money pouring into US start-ups is in steep decline. Rewind 20 years, and the US accounted for 95 percent of venture-capital investment in new technology businesses around the world. And today? It is down to 50 percent, with half that decline in the past five years alone.
True, American entrepreneurs are not exactly starved of cash. Overall global investment in venture capital has boomed, so they can access as much money as ever. But so can entrepreneurs in the rest of the world - their comparative lead has disappeared.
The correlation is not perfect. Plenty of investments fail and it may be there are more dud ideas elsewhere. But it is a fair bet that it will lead, in time, to a more even distribution of technology companies globally.
The report identifies the way that is starting to happen.
Both Beijing and London, for example, have joined what the report identifies as "superstar" cities for tech investment, putting them alongside the Bay Area around San Francisco, New York and Los Angeles. And we can see it as well in the type of companies that are coming through.
Stockholm-based Spotify is one of the few global web brands to emerge from outside the US. London has seen some huge IPOs, especially in areas such as fintech and food delivery. China's big players, such as Tencent and Alibaba, are pushing forward with global expansion.
The current wave of tech innovation already has a far more global feel to it. If you pause to think about it, there should be no real surprise about what is happening. In most industrial revolutions, one region takes an early lead, but its dominance is fairly quickly eroded. Britain in the 19th century was way ahead in textile manufacturing, but it wasn't long before the rest of the world figured out how to match it.
There will be two important consequences of this trend.
First, the new tech hubs springing up around the world will keep growing in importance. As they do, they will nurture the next wave of tech giants and those companies will make the web feel like a far more global enterprise, as well as creating vast amounts of wealth for those countries. Other stock markets, not just the Nasdaq and the Dow, will start to outperform as well.
Second, it won't be a disaster for the American economy, but it will take away some of the gloss. For all the fashionable talk of how the American tech giants need to be brought under control, the sun may already be starting to set on America's tech dominance - and that will become increasingly evident over the next decade.
– © Telegraph Media Group Limited

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