Europe's Technological Irrelevance: Time To Panic.

A few days ago, I was watching Apple's unveiling of new products in San Francisco. I've used and loved Apple products for a long time, and these events are always very exciting to me personally. I'm also heading a Digital Epidemiology Lab at EPFL, and whatever is happening in Silicon Valley is of great professional interest to me as well. Increasingly however, when Apple announces new products, I'm not just feeling excitement, but also dread. The dread of realizing that the mobile revolution, which dwarfs both the internet revolution and the PC revolution, occurs completely outside of Europe.

In a few days, I will be able to download a new, much improved operating system onto my Apple Watch. I'm essentially getting a completely new watch, with completely new functionality, for free. I was already amazed by Apple Watch 1.0, but the second iteration sounds just spectacular. There is no reason whatsoever for me to ever buy a watch that is not smart for the rest of my life. I see no reason why any of my children would ever even think about buying a watch that is not smart. And since the smartness of a watch is largely driven by its software, and its ecosystem of services it integrates with, Apple is going to dominate this space thoroughly. Perhaps there will be competition from other players that can challenge Apple's dominance. But whoever those players will be, they will be major software companies (such as Google). In other words, they will not be European.

I'm Swiss, and I have just recently returned to Switzerland after almost a decade in the US. So it's particularly painful to me to see the clear writing on the wall, which is that the watch industry will suffer drastically. Of course, there will always be people who are willing to spend hundreds of thousands of dollars for a beautiful mechanical watch. But this is not a big enough industry to build an economy on. Worse, it's not an exciting industry where innovation will come from. It's not the future.

And the entrance of Apple into the watch business is just one example of a repeating pattern of software companies getting into other markets - markets that were seemingly immune to competition by software - being able to offer a vastly superior product. It's happened before with typewriters and business machines; it's happened before with phones; it's happening now with watches; and it will happen again and again. The phrase "software is eating the world" is now so clichéd, trivial, and true, that you have to wonder why people are still debating it. The question is not if software companies will provide better cars, better drugs, better homes, etc., but when. The only companies that will survive this disruption are the ones that will manage to transform themselves into software companies as well. But time is running out very fast.

What software company is there in Europe to speak of, at the moment (I am not discounting the hopeful possibility that a major one is in the making right now somewhere in a European garage)? Where is Europe's Google, Europe's Apple, Europe's Facebook, Europe's Twitter, Europe's Uber? All we can see are the flames of cars burning in Paris, protesting innovation. All we can read about are Spain's efforts to ban Google News, misunderstanding how the internet works. Remember just a decode ago, when the mobile phone industry was largely a European affair? That's how fast things are moving now, and they will move even faster in the future. The time to feel dread is over. It's time to panic.

There are many smart people in Europe who see this. And they are working like crazy to steer the ship around. Everybody wants to build the next Silicon Valley. Now that it's becoming clear that nobody seems to be able to do that, everybody is trying to build at least some valley (health valley, drone valley, fintech valley, etc.). But how to do that? Marc Andreessen, Netscape founder and tech visionary, argues that de-regulation is a major component. If true, that would be bad news for Europe, which has a hard time with de-regulation. But I'm not entirely sure I'm buying the argument. The US is also a heavily regulated market, and its government is in my experience much more bureaucratic than the Swiss one, for example. In fact, California is probably one of the most regulated, if not the most regulated, of the states in the US. So something else must be going on. That something else is outstanding universities. 

If you look at the distribution of innovation hotspots in the US, there is a very clear correlation with outstanding academic institutions. It turns out that there is more to correlation than just location though. First Round Capital, a leading seed-stage VC firm with investments in Uber, Square, Mint, and others, has recently crunched their data of 10 years of experience. The largest effect of company success was having gone to a top school (Ivy league, Stanford, MIT, Caltech). Even without those data, the connection between innovation and top academic institutions is so obvious that it's completely non-controversial. Indeed, the source of Silicon Valley itself can be found at Stanford University. And this is the area where Europe can move the needle in the right direction relatively quickly.

Europe has a great system of universities, but has in the last century lost its dominance to US institutions. Nevertheless, there are still many European institutions that are at the very top. There should be more. And the way to achieve this is to provide more resources, and to ensure that these resources are allocated smartly (i.e. pick the right leaders who understand the software-driven mobile revolution). The correlation between the ranking and the endowment of a school is striking. Even if you are skeptical about rankings (as you should, since their methodologies are mostly flawed), it's not hard to see that the top schools have huge endowments, and schools with large endowments are more likely to be at the top. While correlation is not causation, recent data from Germany shows that more funds leads to better schools (no one working at a university would object to that - we could all do more and better with more resources).

One very obvious source to obtain more funding is from the wealthy. And by that, I mean pretty much everyone with a university degree in Europe. European Universities are a bargain. You can go to ETH or EPFL, two of the best technical schools in the world, and pay $600 a semester. Yes, you read that correctly. No, there is no zero missing. Other European institutions are even free. And this is as it should be. The one colossally bad idea we should not copy from the US is to raise tuition fees, and to put our students into debt when they want to get an education. The one good idea we absolutely should copy is that once they have received their education, and probably go on to get well-paying jobs, is to ask them to pay it forward to the next generation. Yes, they already pay some of if through taxes, but everyone does. Those of us who have benefited from a virtually free education should, and I think would, pay voluntarily more.

I graduated from the University of Basel in 2002. Since then, I have never been asked to contribute even a single dollar (or rather, Swiss Franc). This is insane. I would very gladly pay a decent amount of money to support my alma mater in its quest to become a world-leading institution. I would love the swag, and I would love to go to events, concerts, soccer games, and network with my peers. What a colossal non-use of potential resources! And it's also the fairest system: it asks us for our contributions at a time in our lives when we can actually afford to make them, unlike the system that asks us to pay tuition fees when we are essentially broke teenagers.

So please, European universities, stop playing in the second league when it comes to fundraising. Go out and ask your alumni for resources to help you build the next Stanford. Because the next Stanford will give rise to the next Google, the next Apple, and the next Uber, ensuring that we are the ones who are doing the eating, rather than being eaten.