Niche No More

Driven by its start-up industry, Berlin has become a hotspot for international investors. Even Germans are beginning to realize that the internet has become an important sector of the country’s economy.

Last year, I co-authored a book on freedom and anarchy on the internet alongside the Social Democratic politician Björn Böhning. During the launch event’s panel discussion, Björn and I disagreed on the importance of the “creative industry” for the German economy. My optimistic vision for “creative work” stemmed from the emerging possibilities for decentralized work, from the overhaul of traditional processes of the production and distribution of goods, and from the realization that demographic change – in Europe as well as in Russia and China – will surely increase demand for internet-based services. Germany’s economy has ceased to be fueled by heavy industry and manufacturing alone. Björn responded along the following lines: ‘Don’t over-estimate the number of people who are employed in the online industries. The majority of people is still waking up every morning to take their place on an assembly line, and the glowing vision of a new work environment remains a dream.’

Björn and I agreed on most other aspects of digital change: New technologies challenge existing industries but also spawn new business ideas and revenue models. Media businesses often provide good case studies: For years, the print circulation of major newspapers and weekly journals has been declining. News are increasingly consumed online, but last year also ended with record ratings for traditional TV stations in Germany. Old-style publishing houses appear to be losing the battle, while television is experiencing a temporary resurgence. But the problems of television are well-known: Public stations continue to suffer from an aging audience. Those below the age of forty make use of online media archives instead of following the traditional daily programming schedule. On-demand is becoming the new standard, and new business ideas are born as a result.

Those business ideas have long transcended the browser-based internet and focus instead on mobile access. Smartphones – whether manufactured by Apple or by one of its competitors – are the product for which most services are currently designed. In the past decade, the share of smartphone-based internet use has increased from one percent to ten percent. It doesn’t require a prophet to predict further growth in the future.

The more evident these trends become, the more interested traditional investors are in the start-up industry. Investors are no longer limited to venture capitalists but increasingly include small-scale investors as well. I am not surprised that the number of invitations from private banks have increased: They are interested in bringing start-up entrepreneurs into their offices, and in exploring new investment opportunities that usually aim at minimizing risk for inexperienced start-up investors while preserving some of the mechanics of traditional investment funds. Politicians, too, have discovered the potential of the start-up industry. German chancellor Angela Merkel recently invited a number of internet entrepreneurs to meet with her. If we count political interest as an indicator of importance, the start-up industry’s clout is surely increasing. As this development continues, start-up entrepreneurs will have to learn to articulate their interests in the political arena.

And, by the way: Björn Böhning was wrong. According to the Bitkom association, internet and telecommunications companies employed 843,000 people in Germany in 2010. It’s the second-biggest industrial sector behind mechanical engineering.

Newconomy is the new weekly column for the start-up industry. It focuses on the intersection of classical and new economies and of politics and entrepreneurialism. Newconomy is sponsored by Factory, the new start-up hub in Berlin.

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