Cyberposium 2000 - Keynote Address - Andreas Schmidt

by Martha Lagace, Staff Writer, HBS Working Knowledge

"Europe is a continent searching for its own e-dentity," says Andreas Schmidt (HBS AMP 155), President and CEO of AOL Europe.

"I could also call this a report from the Internet colonies," he said of his Cyberposium 2000 keynote speech. "But things can change fast and dramatically, and there are some great opportunities in Europe."

Nevertheless, Schmidt said, in talking about Europe you have to talk about barriers: barriers not only in language and culture, but also in online penetration. Europe doesn't have growth in e-commerce right now, he said, because it still doesn't have the day-to-day usage of the Internet that the United States does.

In looking for reasons, he said, it is necessary to examine the whole European landscape, and in doing so one simple fact becomes clear. "We don't have deregulated telephone access," he lamented. "Telephone monopolies still control the market. We have a system in place that charges the users by the minute. If you have to pay high prices for Internet access by the minute, guess what people do? They don't spend as much time online as they could and as they should.

"That's why it's a broader issue," he continued. "It's not only about releasing [Internet] access, it's also about how we can educate the leaders and politicians in Europe as well as the leaders in the economy about what's really going on."

Telecommunications companies and regulators hold the future of European economies in their hands, he said. People are only now starting to understand what the Internet economy means in terms of countering unemployment and revitalizing industries, and in his opinion this delay is hampering Internet growth.

"We have to get rid of the phone charge," he told the audience. "This has been my mantra for the past 12 months, saying, ‘Stop the clock.'"

Education is also vital, he said. "In Germany, where you have the same number of students studying archaeology as studying computer science, there is something wrong in this world," he charged. "I have nothing against archaeologists, and maybe in time the computer scientists will be archeologists in a different way. But I think this shows mismanagement right now in the whole educational system."

"I have to run around like a preacher and tell people these are the issues," Schmidt said. "If you look at the public perception of the Internet and see where most politicians spend their time, then steel and iron and the automobile industry still have a firm grasp."

Lobbying and education are therefore very much a part of his job description, he said. He predicted that among Europe's major markets, the U.K. was most likely to change its flat-rate system sooner rather than later, followed by Germany. "In France I have no clue if this will happen. France is always special. But if one country starts, I see it as a domino — nobody can lag behind."

Another factor European executives must reckon with is the plethora of what he termed "so-called ‘free'" Internet service providers (ISP) in Europe. The providers make an arrangement with the telephone monopolies, he said, where both benefit to the detriment of consumers who must continue to pay high rates. He predicted that this typical kind of ISP business model will fail because the providers are not investing in content or pursuing advertising or e-commerce on a larger scale. And consumers who think they are getting a good deal because the ISP promotes its services as free, are, he said, "idiots."

These ISPs also lack customer relations, according to Schmidt. "I signed up in the United Kingdom with a free ISP under the name of Boris Yeltsin," he told the audience. "Am I real as a customer?

The only way to gauge customers, Schmidt said, "is to look at usage, because the usage tells you the truth: if the customers use the service, then they are real customers."

Nevertheless, he said, there is some good news in Europe. He reeled off a list of categories where Europe is up to par with the United States, including such critical areas as innovation, talent, a common currency, and a plentitude of venture capital.

Citing statistics from Jupiter Communications, he said that online penetration currently consists of 40 million households, but because the whole European market has 370 million households, there is a lot of potential for the future.

Another ray of hope for the future, he said, is in mobile and WAP (wireless application protocol) phones. Schmidt drew laughs from the audience by explaining that he could not demonstrate his European WAP phone for them because it was not able to communicate with "old American technology."

"More and more mobile phones will be sold with Internet access," Schmidt predicted. "In two years, not a single phone sold in Europe will not be Internet enabled." Although mobile phone use is also expensive in Europe, he said that competition among the providers, which are not regulated, would eventually bring prices down for consumers.

A challenge for the future, then, is to transform the fixed-line personal computer onto the mobile phone and thereby create new services. This kind of innovation needs to come from a multitude of companies with partnerships and alliances, he said. "You won't get people with great ideas in one single service in one company," he continued. "It would be as if Microsoft invented the Internet all by itself; we all know what kind of content and services we would be looking at. That is a good analogy for what is happening with mobile phones."

Europe does have much stricter privacy laws than the United States, he said, adding that cookies are technically illegal in Europe.

"But the reality is something different," he noted. "In Europe, we are a bit too strict because we cannot use databases across companies without the consent of the consumer. On the other hand, you're too lax in the USA. You do not do enough for privacy.

"If the consumer is misused just one time, he will never come back."

He said that he tries to have discussions on privacy with policy makers rather than with the public at this point, and thinks the issue will take a long time to resolve.

"Of course this is not happening on Internet time," he said, "and until then we will have the wild, wild West."

In conclusion, Schmidt strongly urged members of the audience to consider Europe their career destination. "If you're ready for an extraordinary challenge — not just business-wise, but also on the cultural side and on the political side — and if you want to bring leading-edge technology to the next level, Europe is a great place to be," he said.