The Guest Blog

Guest blog post by Mark Hiley, CEO of The Analyst; and Jakob Kucharczyk, Director of CCIA Europe.

Investors are betting on the success of Europe’s ecommerce ventures, with investment growing from millions to billions since 2012. A November study prepared by The Analyst, an independent equity research house, reveals an upward trend in capital investment in both public and private ecommerce companies.

Over the last three years, the 25 publicly traded, pure ecommerce businesses analysed in the study were able to raise more than €12bn. The study’s analysis of 500 private companies, many in the start-up or early development phase, revealed a total of more than €5bn capital raised in that same period. Over this three year span investments into these publicly traded ecommerce businesses increased by 27 times while capital inflows into the group of private companies increased by 4.5 times. In addition, corporate expenditure of the group of publicly traded e-commerce companies has amounted to at least €12bn.

The strong upward trend in investments is a sign that the European e-commerce market is in excellent health with a strong level of innovation and ingenuity. Contrary to often heard statements about European e-commerce companies being unable to compete, European ventures are attracting investors and are evolving by diversifying and targeting new market segments.

After only eight years, Germany’s Zalando became Europe’s largest mass-market fashion etailer. Rightmove has become the UK’s leading residential property portal, providing services to estate agents. Italian-Swiss Yoox/Net-a-Porter operates the leading online, luxury apparel portal in Europe and after only four years the online food ordering platform Delivery Hero operates in 34 markets across five continents. There are far more European success stories in the study indicating that there is no reason to be pessimistic about Europe’s digital future.

These examples highlight the beauty of the Internet and one of its key characteristics: low barriers to entry. The ability to grow the ecommerce pie by entering into new, often more niche markets and to challenge today’s most successful businesses is what drives investments. The flipside of this is a healthy, dynamic and highly competitive marketplace — especially in Europe. It’s time these European success stories receive more attention as investors’ activity points to a picture that is far more positive than most policy debates on the Internet economy.

There are further interesting findings. The study examined the variance in return on capital of online retail when compared to offline retail. While most would intuitively expect higher returns on capital in online retail, the opposite is true. According to the financial analysts this is because of the current immaturity of most online business models, rather than factors inherent to online retail. However, when scaled, online retail will have a higher return on capital than offline due to the lower physical asset requirement for an online model.

It is important to put this into proper context. Ecommerce businesses, as well as their financial backers, are betting the ecommerce pie will only become bigger in the future. In a highly competitive environment, European ecommerce companies expect to grow and to achieve higher return on capital. EU and national policymakers have identified growing ecommerce as an economic priority. To do so they will need to ensure policies are in place that are conducive for companies to keep innovating in Europe. The European Commission’s vision of a truly unified digital single market is certainly laudable. A functioning digital single market would help companies in scaling their business for the ultimate benefit of consumers.

Europe’s digital ecosystem thrives in an open and highly competitive environment. Investment into European ecommerce companies is booming while they in turn spend billions. There are strong levels of investment, diversification and innovation with a marked upwards trend during the last three years. This is a trend worth celebrating and supporting.

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