69. Christina Caffarra: The biggest issue facing European tech

0:00Welcome to The Difference Engine, the show for tech founders, investors and innovators.

0:11Cristina Caffarra:Boy, we've got something special for you this week. We've just had a very special in-depth chat with somebody that you're going to want to know. Remember the name, Cristina Caffarra. How was that, Jonathan? Really, really quite amazing. I think we're still both recovering from this conversation. So, Christina has spent most of her life in antitrust around tech and believes that Europe has become essentially the digital colony of the US. And it's really unusual to hear from a gamekeeper that's now turned poacher, if you will. She's worked for the regulators against big tech. She's also worked on the side of the big US companies defending them against.

0:54Cristina Caffarra:And so she has a really good view of the game. She really is, you know, the chess master here. Christina isn't just there to carp from the sidelines. She's actually doing something about it. And she's building an organization or has been building over the last year, an organization called Eurostack, which is dedicated to galvanizing Europe's tech leaders to start building genuine European infrastructure. So sit down, grab a drink, grab your foibles and listen to Christina Gaffara.

1:32Cristina Caffarra:Christina, thanks ever so much for joining us here on The Difference Engine. We are delighted to have you. Could you give us a little bit of background on Eurostack and yourself, please? So maybe we'll swap things a little bit, because in order to explain how Eurostack comes about, I need to give you a little bit of sense for my own journey. The two are very closely related. And what motivates Eurostacks personally is a journey indeed. Just very briefly, I have a career in antitrust as an economist. I spent 25 years doing antitrust and regulation. The antitrust people are those who just defend typically a client in front of a judge, in front of a regulator for a particular measure, for a particular case.

2:20And of course, cutting to the chase, the European Commission has been, at least on paper, quite a pioneer in enforcing rules against digital platforms since 2010. So in that kind of flow, I was very involved since then, pretty much, in all of the cases that the commission and that the member states and then also the U.S. initiated against digital platforms. And this is pretty much initially antitrust. So the commission started moving in 2010 against Google. They started with Google Search, and then they opened a case against Google on Android and then AdSense. And then they pursued cases against Apple, against Amazon, against Microsoft, in which cases I was actually involved on the defendant side, because at the time, as a consultant, those were my clients.

3:13So this is to say that I've been very deep in the tent of antitrust regulation, but also worked for some of the biggest platforms. So I have, I think, a vision of the business model in various cases and the importance to think about things in business model terms, which is the thread that goes into Eurostack, as I'll explain in a moment. The net result of all of that regulatory and enforcement effort, in fact, initially antitrust effort, has been a fat zero. Nothing has really been achieved. The commission has sought to, of course, establish and affirm that what they were doing was clearly unique and pioneering.

4:05And in some sense, it was. But when you look at what matters, which is outcomes, did this shift anything on the ground? Answer no, because the result of all these cases has been absolutely no change on the ground. These companies are bigger than ever with market caps that are bigger than Canada. The reality is that antitrust achieved nothing. Then you've had in Europe a pivot towards regulation. So instead of saying to companies, you know, you've done this bad stuff, we'll now try and correct you, delay and late and so on, we'll try and tell you exactly what you shouldn't do. Again, and for reasons that we can indulge in if you have time, that entire regulatory design was destined to fail.

4:49It was destined to fail because the law was poorly designed, not because it was willfully badly designed, but just because when you have monopolies, digital monopolies that are very powerful, very entrenched, it's very, very difficult to actually design a law that holds them back in any way. If you add to that delays and the fact that they have infinite resources to defend themselves and to do soft compliance, this stuff isn't working.

5:17Cristina Caffarra:And I think that the way that the big companies and US people interpret this is, you know, EU regulates, Europe regulates and we innovate. Is there a sense in which European innovation has suffered whilst the other guys have got so successful? How do you feel innovation in Europe is seen on the tech side by all the other people you work with? This is a big conversation, of course. The regulation that Europe has put in place rules like the media says, being effectively targeted at the large American companies, just not because of a discrimination intent, but because they are the large companies whose conduct we need to observe and whose market power, in some sense, needs to be kept in some sort of check.

6:07There is a big narrative in the Trump administration right now, which is the result of very successful lobbying by these companies who've been capable of weaponizing the White House. And the narrative is Europeans are targeting us because they don't have any successful funds of their own. This is effectively a form of discrimination, an extraction, a taxation, and we should resist it at all cost. To which you get the feeble European response that says, no, but we will enforce, we will continue to enforce rule of law, rule of law. This is our institutional right. All of these people's set of answers.

6:47The reality, though, is that we find ourselves in the paradoxical situation of defending a regulation because of the kind of characterization on the other side that this is extractive and discriminatory that actually is doing nothing for us. And here comes Eurostack, and this is what I really wanted to really get to.

7:07Cristina Caffarra:Yeah, please. Because even before Donald Trump, even before the way in which his administration is being weaponized completely rationally by the digital tech companies to protect themselves from what they see as just an annoying interference in their business, not existential, but annoying, even before we get to that, there is a clear sense that these rules don't do almost anything. They nibble at the margin. They do things that are really marginal. But it isn't because of the Trump effect. This law is an ass. And as an ass, it cannot deliver very much. This is what led me then to think about, so what are we really doing?

7:53Because having, and this is the issue in Eurostack, having effectively focused all the energy, having taken all the oxygen in the room to essentially advertise that we as Europeans were regulating big tech with bicep emojis, all sorts of nonsense on social media by our regulators. What is absolutely clear is that not only have we failed to control Google search and Apple app stores and Amazon e-commerce, all of these app and services, but the entire infrastructure on which this operates. So the entire thing from cloud to software to connectivity is actually owned by non-European. And that exposes us, of course, to problems of security and resilience and more, I would argue.

8:49So to me, the motivation for Eurostack, having had this big, long career in antitrust, having come to the point at which it is very clear that antitrust and regulation are a complete failure and will not deliver us an industry. The question for Europe is, what will we do that allows us to build? Now, have DMA and DSA prevented Europeans from building? No, they've only come into force three years ago, and it's not what has prevented Europeans from building. They have sought to tame the giants, but Europeans are not in that league. They have been giving European companies some hope that they could possibly benefit from these laws by giving them an opportunity.

9:36But again, they are completely ineffectual. So there is no upside. Christina, why is it? Because, I mean, this is what I'm saying when I talk about business models. You tell me how putting another app store in here or telling Google to somewhat change the way in which they allocate search is going to create me a cloud industry for Europe, is going to create to me a software industry for Europe, is going to create me a chip industry or any connectivity industry. The two shall not meet. We are talking about regulating them. I mean, you're Brits. Let me tell you a story. You understand the novel Goomengast, or at least you will have heard it.

10:21Cristina Caffarra:I've heard of it. Melvin Peake. Melvin Peake. Yes. So when I came to this country many, many years ago, there was a fabulous adaptation of the novel Goomengast, which is, of course, this famous trilogy about how this mythical castle in a mythical place, inhabited by his lordship and his ladyship, very eccentric. just carried on. And then there were at the bottom of the castle on the ramparts, these kind of peasants. They were known as the woodcarvers. And they were scratching at the door of the castle and kept saying, let us in, let us in. And his lordship from time to time would look down from the turret and say, who are you?

11:04Oh, okay. Just, okay, come in. Ground floor only, don't move the furniture. So this is Gourmet Gas Castle. Apple owns it.

11:14Cristina Caffarra:This is a really interesting, and I love the setup here where you're talking about all the oxygen in the room being taken out by effectively the category leaders. We think about software, you know, the way Jonathan and I think about it is categories. You win a category, then you win a market afterwards. Do you feel with those guys, you know, loan people in where they want, and mostly, as you said, it's ineffectual of this regulation. Let's talk about the bit that we should focus on, I think, from your narrative, which is European innovation. How do you think those guys and the world views European innovation as second rate?

11:48No, no, no, no, no. European innovation is second to none. We have tremendous research, tremendous universities, tremendous capabilities in the research space. This is well known to all. The problem we have in Europe is the stuff that is invented and created at the level of prototypes types of ideas, startups don't stay. This is, you know, the diagnosis is known to my cat. They don't stay and they don't scale. Why not? And again, we can describe the diagnosis, again, we've heard it a hundred times, because there is no capital markets union, because there isn't enough risk capital, because there are barriers to entry or to expansion across member states.

12:31We know that. The issue with Europe is not lack of innovation. The innovation is there. It's lack of opportunities to actually fund it and fund the growth, the startup growth and the scale up.

12:42Cristina Caffarra:Our last episode, the episode before last, we looked at some of the figures. I think they were from Boulderton. Jonathan, you can maybe help me out with that. Things seem to be turning around a little bit on the funding side. But there seems to be what you're describing is a problem to own the narrative. and if somebody else owns the narrative, you know, you start to have a bit of a negative view of like maybe what's possible and what's not possible in terms of scaling these great prototypes and innovations into becoming global category leaders. It seems like the problem is almost at the imagination level or the narrative level, not just, you know, the regulation level.

13:18Well, I mean, it'd be nice to think that that is the main or the only problem. The problem, I mean, there is no question that these barriers are real. I mean, the lack of funding and the fact that there exist barriers, we are a fragmented market, which is not essentially pulling its weight, are absolutely facts. And the fact that, I mean, the paradox is that Europe is an incredibly rich continent and one which saves much more than America. So in Europe, we save 1.3 trillion euros a year. Americans save 700 to 800. So we are almost double the size of saving, except we send 200 or 300 billion every year over to the U.S.

14:05as risk capital. So we instead of keeping it in Europe. Simultaneously, Europe has effectively become a digital colony when it comes to infrastructure. The calculation is there's about$250 to$300 billion in revenues, essentially every year services which are bought by European companies and effectively are siphoned off to the United States. Look, the reality is fundamentally this. In around 2000, 20 years ago, Europe and the U.S. were fairly aligned in terms of their respective position in tech. Of course, the productivity growth was also comparable. What has happened over the last 20 years is that Europeans somewhat have gradually retreated from these markets and the Americans simply occupy the vacuum.

15:06There is no sense in which this is their fault. This is a fight that I always have. Eurostack is not about, in some way, demonizing or guilting the Americans for doing exactly what they should be doing. I was there when Amazon entered Europe. They established a headquarters in Germany, and then the instruction from Seattle was just Rome, France, Italy, Germany, Spain, UK. And they did. They created an incredibly efficient logistic structure, which killed effectively the Belgian post, the French post, the Spanish post and so on. Is it their fault? No. This is a great diagnosis of the problem. You have decided to, as we say, take the bull by the horns.

15:51You have formed Eurostack. And can you talk us through what Eurostack believes is the solution to bringing Europe forward in technology to at least catch up with the United States, to at least catch up with the pace that's being set in China? Eurostack is a movement. It isn't a product. It's a group of people who actually believe we need to absolutely act at this point. and certainly not wait for our distinguished regulators and bureaucrats to do something. They had the opportunity to do something for a very long time and they did nothing. Other than shower money, helicopter styling, random things that didn't really achieve anything.

16:42So Eurostack, of course, refers to the value chain. We're thinking about everything from chips to apps. It's not just cloud, although cloud is an important component of this. Some people kind of confuse me as some sort of cloud champion. No, I mean, it's no more than one of the components, but an important one. And then, of course, AI. Now, the reason I created Eurostack and I really populated it with CEOs and tech businesses is precisely because I do not believe that the regulators, the bureaucrats, the politicians, have the capability and the vision to remotely design the future of the European Union.

17:33industry. It is something they're not equipped for. You need business people and tech people to actually lead the way. So my position in Eurostack is that we want to get away as much as possible from a notion that the bureaucrats in the institution need to lead. They're not equipped, educated, and capable of doing it. They can be useful allies. You want to throw some money In, by all means, my friend, but don't even for a moment think you can leave. We need to get away as far as we possibly can from civil society and think tanks. Those are called the squirrels. Squirrels make a lot of noise and run around and don't do very much.

18:15But we've allowed the conversation, because they've got nothing to do all day. They sit at home in elasticated pants and slippers. They kind of write white papers that then occupy the conversation. they have no idea about how business works and they write things on word salads like distributed governance and you know this stuff that everyone in business kind of completely

18:40Cristina Caffarra:walks away from yeah but in europe they have the power right so over here you're probably aware of the online safety act in the uk which is uh took three years to come in as um you know it runs to 180 pages and still doesn't get to the heart of the problem these guys are the the folks are in control right now of the narrative and the regulation, how do we persuade them to give up that power? I'm very unpopular with this crowd because, of course, I say it like it is. I absolutely detest civil society, which does nothing, and think tanks that produce yet another working paper or white paper. There is only now one message that everyone needs to hear.

19:25We need to use brute force and build, build like crazy. The only sensible thing that von der Leyen in Brussels could do today is do what actually the White House tends to do when there is any sort of issue at stake. Gather the CEOs in a room and say, here's a bag with 300 billion. Do your worst. In two years, we want to see an alternative infrastructure being created. No more meetings, no more workshops, no more conferences, There's no more declaration of intent. Please put the civil society and the think tanks in a room so they can play with each other. But let's just do. Let's just cook. Yeah, I like that.

20:07You are probably not a big fan of EU Inc. and the idea of EU Inc. Oh, no, no. EU Inc. are great. EU Inc. are great. Because at least they've actually turned, as they say, a meme into reality. EU Inc. is trying to push for something very aligned with what I'm doing. They have a particular vision, and they've actually achieved it, which is, or at least almost, they wanted to create this 28th regime in order to, you know, try and reduce the friction of a new company having to establish themselves in 27 member states or a subset of them. And so the solution, as proposed by Letta, was by the former prime minister of Italy, Letta, in his report, create this regime that effectively allows companies to incorporate once and then it will be effective across the but they are not i mean they are advocates they're not civil society parasites they're not the civil society parasites i have in mind and those who go along and talk about democracy our values all of that stuff that is completely turning off business more than this are you still developing separate marketing plans

21:18Cristina Caffarra:for each of your different channels to market? Can you really sanction messages reaching the same customers from unconnected targets? Listen, it's now the AI age. Things need to change. Positive is a different sort of AI-powered agency. From our very beginning, we've integrated marketing communications from PR to events, social to paid ads. Working smarter means working integrated. Let us show you what a truly joined-up strategy could do for your tech business. Contact Positive today. with an email to hello at positive marketing.com. Right, so I have a mission to make at this point. I did spend the first three years of my career as a civil society parasite.

22:05A squirrel. I was a squirrel. I'm quite prepared to say it. And I realized, Christina, that what I was doing is exactly what you say it was. So I decided to take myself out and actually go and build some tech businesses, which I did. Very good. I took my mouth to where the money was, so to speak. But, you know, you've got this organization. You've got the CEOs of the tech companies. How does it move forward? What does it actually do to change the status quo? Just to be clear, this thing didn't exist a year ago. This thing has been put on the map massively in a year. essentially by me and others talking about it.

22:48But it was remarkable, I've just come back from Davos, that Eurostack had an enormous name recognition with a lot of people out there. When you mentioned Eurostack, it was immediately known. They didn't know the full story or the background or the actual mission, but the name certainly has called the imagination. At the same time, I'm not a lobby. and I don't want to do a lobbying institution. I will never be a lobbyist. I have a career as an expert in the past. I don't do it anymore, but I will never turn into a lobbyist because that's the second worst category of people after the squirrels. So I'm not a lobbyist.

23:29So that is one thing. As a, you know, I'm not, I'm not, I haven't asked to the whatever 400 companies that have signed up to Eurostack to just pay any fees or to just contribute in any way because I don't want to create the expectation that I will be their lobbyist. Uh-uh, no. And I want to be able to say, I ain't your agent, I'm not your lobbyist, you off you walk. The intention, however, practically, what can we practically do, is to really motivate demand to essentially put their money where their mouth is, as you just said. We are not going to move the dial just with conversation and with great awareness of the problem.

24:17We can diagnose and diagnose 20 million times and scratch our chin, but that doesn't move the dial. What we need to see is demand shifting, contracts being signed, money being made. And that, of course, triggers the virtual cycle of investment to any one of these businesses. And of course, this will be very familiar to you, but not to the squirrels because they never talk to a business. When you talk to any business, they say, listen, I don't necessarily need subsidies. Subsidies give me the wrong incentives. I need to have some form of guarantee of demand. If I can sell my product, I can then go borrow money.

25:00I can find the money somehow. If I have a certain measure of guarantee that my product will sell. So there are two portions to demand. One is public demand and one is private demand. Public demand, public sector, it is completely insane that we continue to speak to the European Commission on teams, that I continue to speak to the German government on teams. Are we saying there is no collaboration software made in Europe? Of course there is. We just don't buy it. And you know why? I mean, the crazy thing is that everywhere in the world, the default mode for procurement of digital is by home. So Americans buy American.

25:48Try and ask an American government department, would you ever buy a French piece of software?

25:54Cristina Caffarra:Or ask the Chinese. I think you're on, and just specifically on Teams, because it's one of the worst products I think has ever been inflicted on mankind. and it started off good, but it ended up terrible. Yeah, there is an alternative. Right here in the UK, there's a secure alternative called Element used by NATO and the Ukrainian army, amongst others. Very secure and open source. It doesn't require teams. But this, I think you put your finger on the problem. We just recorded actually a podcast on this, myself and Jonathan. Like what Microsoft has got is the distribution. What you're talking about is interjecting and disrupting the distribution by creating demand at the government level.

26:35Cristina Caffarra:And do you think that's willful? Is it great lobbying by Microsoft, Amazon, Google, et cetera? Or is it just ignorance? No, I mean, you're talking to government departments, which are not savvy. They're not techie. And there is a great deal of comfort into buying a solution that is effectively integrated and plug and play and ready to use. I gave a keynote a few months back to Digit. Digit is the unit, the directorate inside the European Commission that procures digital services for the entirety of the Commission. There were 400 software engineers in the room from every corner of the Commission.