1. Trends shaping innovation in the digital age
& consequences for business and labour markets
Meeting of EFTA Consultative Committee
Natacha FAULLIMMEL
Analyst, European Political Strategy Centre European Commission
@natfau
21 November 2018
Disclaimer: these slides were designed to stimulate a discussion about the trends affecting the EU in the future and do not represent official positions of the European Commission

2. Why focus on innovation in the digital age?
How is innovation changing?
Some implications and seeds for optimism about the future 1

3. Global Corporate Top Ten Moves Towards Digital
Not a single European company in the global top ten
Market valuation in billion US dollars
Source: Bloomberg, ycharts 2

4. The World’s Top 20 Digital Companies
American and Chinese companies occupy the entire top 20 of Internet giants
Source: Kleiner Perkins Caufield & Byers Internet Trends Report 2018, Forbes, Company Reports 3

5. Concerns about European firms in a changing global landscape
Source: European Political Strategy Centre 4

6. The Stock of European Companies in the Top 100 Significantly Reduced in One Decade (2007 – 2017)
Ten year evolution of global firms, by region
Source: Fortune 5

7. At The Same Time, Unicorns Are Mainly Concentrated
In The US And China
There are no European unicorns among the top 10
Note: A unicorn is a privately held startup company with a current valuation of US$1 billion or more
Source: Fortune, WEF, WSJ 6

8. The innovation toolbox New infrastructure needs Scale, redefined
What’s changing?
The rise of Asia
The innovation toolbox
New infrastructure needs
Scale, redefined
David vs Goliath
Lack of growth capital 7

9. Global economy shifting East
Share of developing Asia in total world GDP (constant 2011 international $ PPP)
Source: World Bank 8

10. China is investing in R&D at a rate that eclipses both the EU and the US
Gross domestic expenditure on research and development, in billion current PPP dollars
Notes: *EPSC estimates based on current growth rates
Source: UNESCO Institute for Statistics: 9

11. China is well on its way to AI supremacy
Market valuation in billions of dollars, April 2018
Note: Companies considered include seed, early and late stage start-ups
Source: Crunchbase, Bloomberg 10

12. The innovation toolbox is changing
Intangible investments have overtaken tangibles
Share of GDP, US+EU11, whole economy
Note: The aggregated EU11 includes: Austria, Czech Republic, Germany, Denmark, Finland, Italy, Netherlands, Portugal, Slovenia, Sweden and the United Kingdom.
Source: Haskel, Westlake (2018). 'Productivity and secular stagnation in the intangible economy' 12

13. Global Explosion In Data Fuels New Paradigm
Worldwide data storage in exabytes
Data enables innovation for a ‘segment-of-one’ market
Source: International Data Corporation Digital Universe Study 13

14. A New Infrastructure For A New Age: Connectivity
Sweden: where early investments in world-class connectivity enabled the creation of Europe’s most prolific tech hub
Share of fast (>100 Mbps) broadband as a % of total broadband, December 2016
Source: Organisation for Economic Co-operation and Development 14

15. A New Infrastructure For A New Age: Skills
Skills and resilience for a world of change
Note: This framework is inspired by the T-Skill framework
Source: EPSC 15

16. Scale Of Networks And Customer Pools
Facebook’s acquisition of WhatsApp leaves it controlling 48% of online messaging apps
% of monthly active users, April 2018
‘scale without mass’:
WhatsApp has a global presence and just 55 employees.
Source: Statista 16

17. In A World Of Disruptive Innovation, The Nature Of Competition Is Changing
Start-ups are seen in a new light:: as a means of completing a service offerings, or acquiring talent
Artificial Intelligence start-up acquisitions rose by 44% in 2017
Source: CB Insights 17

18. At risk of an ‘AI start-up drain’?
The number of AI start-up acquisitions rose from 22 in 2013 to 115 in 2017 – a fivefold increase.
In the first half of 2018:
63% of targeted companies were in the US
23% were in Europe – a testimony to Europe’s growing competitiveness in AI technology, but also sparking fears of a ‘start-up drain’, as 56% of EU start-ups were bought up by non-EU firms.
Lack of talent holds back the AI wave
Global executives' answers to the question: 'What is the biggest roadblock to AI adoption?'
(Share of respondents, %)
Source: Gartner, November 2017 18

19. Acquisition as a business strategy when capital for growth is lacking?
Growth capital pales in comparison to the US
Investments in Europe and US by stage focus in 2017, in billion US Dollars
Source: Dow Jones VentureScore 19

20. Building on Europe’s strengths and seeds for optimism about the future20

21. We can learn from the mistakes of others
Current tech backlash
Avoiding over-hype 21

22. Europe Boasts Top Human Capital: 12 Out of 20 Best Countries
Source: World Bank Human Capital Index (2018) 22

23. Europe Produces More PhDs in STEM than United States
Number of graduates in STEM fields per year by region
Source: World Bank Human Capital Index (2018) 23

24. EU Home to Steady Business Creation
Enterprise birth rate, as a % of total active enterprises
Source: European Commission, Eurostat; US Census Bureau 24

25. Europe is Becoming a Start-Up Powerhouse
Digital start-up intensity across Europe
Source: European Digital City Index 25

26. Thank you for your attention
Natacha FAULLIMMEL
Analyst, European Political Strategy Centre European Commission
@natfau