Features

Europe’s digital ambitions

European companies have quietly built up some of the world’s largest digital platforms for ecommerce. The next stage will be anything but quiet say Stephen Paice and Moritz Sitte, joint managers of Baillie Gifford European Growth Trust.
Baillie Gifford
Last update 21 May 2021

This is a non-independent marketing communication commissioned by Baillie Gifford. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

The value of your investment and any income from it can go down as well as up and as a result your capital may be at risk.

Put a frog into a pan of boiling water, it will jump out. Put the frog into a cold pan of water and gently heat it up, it won’t notice the gradual change in temperature and eventually boil to death.

While the science behind this unethical 19th century experiment has been debunked, Stephen Paice finds the analogy helpful.

It can be hard, he says, to see incremental change taking place when close to it, especially in a crisis when the priority is getting back to normal. By stepping back and looking 10 or even 20 years into the future, however, you’re more likely to discern trends and recognise opportunities.

In Europe’s case, the important trend is the shift away from old economy retailers and banks, towards ecommerce and fintech firms, which has created an opportunity for innovative businesses.

As far as the frog goes, it’s more important to recognise that its death is inevitable, than to speculate about how and when. Similarly, says Paice, “Traditional European business is facing a slow and prolonged corporate extinction.”

In contrast, European companies are beginning to see the kind of success based on digital scale and network effects that Amazon, Google, Facebook and Uber have enjoyed elsewhere. “To benefit from this kind of scale, you need to be ambitious and prioritise growth above everything else,” observes Paice. “This has been missing in Europe for far too long.

“When we think creatively about the potential for digital disrupters to take more of their markets and move into adjacent ones, we see how big some of these companies can be.” 

Trustworthy trio 

Paice, and joint manager Sitte, identify three of these digital disrupters which are scaling up fast. 

Adyen 

Today’s global merchant needs to accept all kinds of payments because customers like to pay in different ways, from cash to Mastercard and Visa, Apple and Alibaba to Mercado Libre and old-school bank transfers.

Adyen makes all this possible while ensuring that only bona fide payments are accepted, and fraudulent ones declined. Customers include Uber, eBay, Spotify, Booking.com, Etsy and TransferWise.

When Adyen – meaning ‘start over again’ in Surinamese – was launched in the Netherlands in 2006, its founders wanted to do things differently. Rather than using a patchwork of systems, as most other payment solutions providers do, Adyen built its own single payment platform.

“Over the long run, using a single platform makes innovation easier,” comments Sitte. “So Adyen has been able to focus on rapidly rolling out improvements for merchants, while deriving the maximum benefit from scaling up.” 

Adevinta 

Spun off in 2019 from Schibsted, the leading media marketplace in Scandinavia, Adevinta’s digital marketplaces connect buyers and sellers of homes, cars and other consumer goods. Adevinta wants to have the largest collection of ecommerce marketplaces in the world.

Some 1.3bn people visit the various brands on Adevinta’s sites each month, to exchange goods and services locally in 12 countries from Europe to Latin America. These brands include the shopping app Shpock; Coches, the Spanish car sales platform; InfoJobs, one of the leading online jobs platforms in Italy; and large Brazilian and Chilean classified ads services OLX and Yapo.

“Companies which benefit from digital scale and network effects will generate additional returns as they become bigger,” explains Paice. “Once a network business reaches the critical mass where it’s larger than everyone else, customers will go to whoever has the most buyers and sellers.”  

Just Eat Takeaway 

Earlier this year, the Dutch company Takeaway.com bought Just Eat. Helped by the combined company’s $7.3bn acquisition of its US rival Grubhub, Just Eat Takeaway is now the world’s largest food delivery company outside China.

Just Eat was one of the first successful online food delivery businesses linking customers to restaurants, before branching out into its own deliveries. Recently Just Eat Takeaway has pushed into new markets including deliveries from supermarkets and convenience stores.

The global meal delivery industry is about scale, but there are a small number of big players already, and competition is fierce. How do the managers know who will win?

“Ultimately, it just comes down to a judgement call that the management has the right skills and expertise,” replies Sitte. “And we believe Just Eat Takeaway has these.”

Stephen Paice and Moritz Sitte were speaking to Heather Farmbrough

A longer version of this article appeared in the spring edition of Baillie Gifford's Trust magazine.

You can subscribe to Trust by clicking here.

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