Digital technology, media and intellectual property
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Why Apple, Google and Samsung want Blackberry to succeed (and other thoughts in the run-up to the Mobile World Congress)

February 21st, 2013 |  Published in Apple, Digital and Mobile Technology, Intellectual Property, Media 2.0, Mobile World Congress 2013, Samsung, Telecom and broadband, The Smartphone Wars

 

21 February 2013 – My favorite event of the year starts this coming Monday, February 25th and runs for 4 full days: The Mobile World Congress (MWC) which is run by the ever brilliant GSMA Organization.  And there is quite a lot happening Sunday with some “pre-MWC” events so let’s call it a 5-day event.

If you are in the TMT (telecom-media-technology) space, this is heaven. 70,000+ attendees (and potential clients), over 1,500 exhibitors, vendors with video booths scattered throughout where you can do short video clips to instantly Tweet, recharging stations galore for cell phone, laptops, tablets, etc., 50+ food/drink outlets abound so you are always a few steps away from refreshment and so do not miss the beat of the conference, scores of private “meet & greet” and networking areas, Wi-Fi connections throughout the complex, etc., etc.

You start by hitting Barcelona airport where there is a “fast track” registration booth to pick-up your conference badge, with a crackerjack GSM staff that can resolve any problem you might have, make scores of suggestions concerning how to cover the event, where to take a eat/drink break, accommodations etc. If you need, you can hop over to TIM (if you want) to collect a SIM card for your smartphone and or tablet.

And of course by now you have downloaded the conference interactive agenda, you have explored the exhibitor list and set up your networking contacts/meetings with your MWC personal account. Oh, and you have set up your Mobile World Live TV account to stream the stuff that you cannot fit into your schedule.

Yes, there is a very impressive roster of keynote speeches and presenters. Typical of the caliber (and one of my favorites) is Yael Garten, Senior Data Scientist and Team Lead for Mobile Analytics at LinkedIn. Stanford University School of Medicine grad, specializing in text mining and natural language processing, data mining and analytics, data integration, pharmacogenomics, personalized medicine, algorithms, data visualization, scientific writing.

Plus people like Paul-François Fournier who runs Orange’s Technocentre, the group’s “product and design factory” which is responsible for overseeing the marketing and development of the group’s innovations. He has a simple task: develop and deliver the right products and services at the right time and make these innovations accessible to as many customers as possible. No sweat. But probably no better person to explain revenue streams and how mobile can be used to further engage with consumers as part of a holistic media mix.

But MWC is not really about education although it is there, in extreme depth. It is about mobile industry networking, new business opportunities and deal-making. All in all, this event is about revenue-building strategies for mobile-phone operators, financial services in a mobile world, convergence, and how to capture more of the connected consumer’s time and money — the battle for dominance across a range of other telecoms-sector-related channels from smartphone operating systems.

No, not your normal “conference” as most of us know the word. To get a flavor, read our coverage of MWC 2012 last year (click here).

For me, besides the networking and client building, the personal take-aways have been huge. Some past MWC take-aways:

1. I had an off-the-main-floor presentation of how an ediscovery/forensics expert breaks out a mobile phone and extracts its data as part of a data investigation.

2. The IBM brainiacs set-up IBM SmartCloud Desktop to access all my at-home desk top applications, from any location, and IBM Content Navigator which allows our staff to access, manage and work with any of our content directly from mobile devices, tablets, desktops, laptops any time, anywhere.

3. I learned about Lockitron which my wife and I installed on our homes, eliminating key locks. From any smartphone you instantly share access to your home for family and friends when you aren’t available. We eliminated the infernal “the key is with a neighbor, under a rock, behind a secret door in the shed” issue. This I learned about at “App Planet” which brings together some 12,000 app developers at MWC.

This year: more sessions on mobile forensics.

The territory to cover at MWC … and I mean both physical and subjective … is enormous.  This year we are at Fira Gran Via, the new home of Mobile World Congress, which is a state of the art venue that GSM selected based on all the feedback it received from exhibitors, attendees, sponsors and participants to more efficiently and effectively achieve their goals at the event. It is sprawling. How big? The complex has 240,000 square metres of working space with 94,000 square feet  dedicated just to exhibition space. Very well configured (I had a sneak peak) with a brilliant interactive app to get you around. With a little “location analytics” thrown in, I think (see below).

So to cope with MWC one needs to narrow his/her scope on what to follow/what to do/who to see. But with lots of wiggle room for serendipity. The following is my key topics list for this year based on sessions I will attend, folks I will meet and interview, etc.:

▪ Ah, the glory of a competitive mobile market!  

Eric De Grasse, my Chief Technology Officer, has the opportunity do analysis on numerous devices, some as a member of a “beta” team before a product goes out, other times by just buying the product. So it explains why I have an iPhone, a Galaxy Note and now a BB 10.

I had a Blackberry pager since 2002 when the idea of mobile email was somewhat supernatural. Email was all via a PC or laptop. It did not take long for me to become a Crackberry. I lived and died by email. It changed my business life and had a real impact on my family life, too.

So over 10+ years RIM created a powerful and secure email platform that was adopted in droves by businesses, government, military etc. At first, RIM did not feel threatened by Apple’s original iPhone and even when it started getting some minor attention in business. It clung to its old OS and business model believing its position in business, military and government markets unshakeable.

Yes, there are terabytes of analysis on the web on how RIM misjudged the impact of the iPhone on the entire smartphone market and how Apple began unseating them in hundreds of business, military and government accounts. For many pundits the launch of the new BB 10 OS was too little, too late to now compete with Apple and Google/Android (the last Gartner survey I read show that together they own about 85% of the current smartphone market). For an excellent piece that lays out why Apple has won so much territory in the smart phone wars, and what Google has done/not done and what Blackberry needs to do to be even remotely successful read John Kirk’s piece.

But I look at this market not only as a TMT guy but as a lawyer as well. And I had the opportunity at a recent GCR workshop to hear thoughts from some major players in the TMT markets on the competitive aspects of what is going on. The key points:

1. Competition … just like greed … is good. Well, for consumers. It is the basis of innovation, yes? The theory goes something like “if there is another OS that is really solid and competitive it will only force Apple and Google to try harder and to innovate faster”.

2. Another force in the market will make those nasty brutes at the DOJ and DG COMP find it more difficult to go after Apple or Google for monopolistic practices. Yes, Microsoft and Nokia have helped take some of the regulatory heat off The Big Dogs but Blackberry could really broaden the competitive landscape .

3. Security, security, security. It seems you can’t turn around without hearing of another big company being hacked, a mobile system being compromised.  The National Institute of Standards and Technology has certainly tried to be helpful with its draft guidelines that outline the baseline security technologies mobile devices should include to protect the information they handle. But we have seen how Android’s “open application” model has led to multiple instances of malicious applications with hidden functionality that surreptitiously harvest user data. Plus multiple incidents of hacking and data loss. Yes, Apple is more secure. The closed ecosystem arising from Apple’s insistence on controlling which apps are allowed to run on their devices probably makes them a little safer than Android equivalents, although iOS APIs are still open to developers and of course, vulnerabilities still exist. Unlike Android, where patches require collaboration of multiple parties (Google, the phone manufacturer, the app developer and so on) the Apple ecosystem does, at least in theory, react faster. But with Blackberry you have a system that seems to have perfected ultra secure devices and specialized email servers.

I don’t know if BB 10 has any real chance of catching up with either Apple’s iOS or Google’s Android. Or whether Tim Cook is doomed to become the “Steve Ballmer of Apple”, or whether Android is dead.  In fact, I suspect that if BB 10 has any success it will be in a niche area where extremely secure email tops the list of things needed in a smartphone platform. But I hope to learn more at MWC.

Location analytics

In all the brouhaha this past fall over Apple’s problem with its new mapping application in its operating system what was missed by most was the real issue: the brutal competitive environment of the location analytics market. Apple simply must be in this space with its own product. It has become THE major focus in the mobile industry.

And it is so very simple. Imagine yourself a retailing executive. Most likely, you want to improve your understanding of actual customer behavior so that you could develop better inventory, marketing, and merchandising programs. What if your firm had the ability to track real consumer behavior across multiple locations, ranging from where they come from, to their buying habits and through to why they made specific transactions. That would be very powerful. And all due to the emerging field of Location Analytics (LA).

Simply put, LA collects, aggregates and analyzes a person’s credit card and GPS-device activity (e.g., interacting through social networking sites) to find relationships between place and action on their shopping and purchasing behavior. LA’s uniqueness traces to its ability to mine insights between the interplay of unstructured data like physical location, geographic context, behavioral activities and social habits. The power of LA is further magnified when it can overlay these location-centered insights with structured data found in existing databases like the census, internal CRM information and traditional geospatial technology that collects static information on roads, homes etc.

And we’ll leave for another day the massive work being done in LA by the U.S. National Security Agency and it’s unrelenting drive to measure, aggregate, and analyze the paths and places of seemingly everybody in the physical world.

There will be numerous vendors at MWC in the contextual data analytics technology space and at least one … Cisco … has some planned data analytics presentations with it’s new platform that focuses on analyzing location-based information stemming from mobile devices in public hotspots such as retail stores, hotels and hospitals. At a recent Cisco “Connected” presentation we saw how Copenhagen Airport in Denmark is using Cisco’s Connected Mobile Experience to determine the appropriate level of security personnel and staff required to support their passengers on a daily basis. And in the U.S. the Fernbank Museum of Natural History in Atlanta is deploying the technology to offer visitors with a mobile app that will guide them through the exhibits with the expertise of a paleontologist — potentially eliminating the need for those additional audio guide walkie-talkies we all know and love when we visit museums.

▪ E-discovery/mobility and the cloud

As most readers know one segment of my business is in the litigation support/e-discovery world.  Our Project Counsel unit provides corporations and law firms with attorneys and data analysts for temporary/short-term assignments, much of that work in the TMT and intellectual property space.

My U.S.-based crew recently covered LegalTech 2013 which is one of the largest legal technology events held every year. There seemed to be three themes this year: mobile is important, Big Data is hard to figure out and scary, and “for the love of God, people, IT simply MUST align with legal. And visa-versa!!” This last one is required by all legal conferences. It has been for years. You cannot be considered a “real” legal conference unless you have … at minimum … 4 panels/sessions that address that issue.  Although to be fair I heard one of the most succinct(?) definitions of Big Data governance: “Big data governance is part of a broader information governance program that formulates policy relating to the optimization, privacy, and monetization of Big Data by aligning the objectives of multiple functions.”  I am still parsing that one. (And to my legal technology readers, predictive coding is too long of a story to tell).

IT folks at events like MWC will recognize the point about IT/legal aligning.  It is the legal version of “for the love of God, people, IT simply MUST align with business goals. And visa-versa!!”

The legal focus on mobile flops over into our coverage of MWC. As I have noted in past coverage of MWC, there is an increasing number of legal vendors and law firms that have been attending MWC. Not presenting, just attending although this year there will be e-discovery personnel in several vendor exhibit booths. As I wrote last year, it is a “mobile first” world. Companies have realized that mobility is the new front end for engagement systems. Apps are increasingly context aware, fed by the cloud, sensors, history and social data. That requires companies to reconsider how they deploy apps for customers, their partners.

And it is creeping into the legal world. IT has helped the legal world … companies like EMC and IBM and Symantec have really has been at the forefront … see that categories are blurring. Data source, cloud, social, mobile. Trends in the workplace are driving enterprises to cater to the information needs of workers who are not only mobile but smart-device enabled and cloud integrated. Knowledge management discussions take place all over MWC … not least by the e-discovery/information management folks … about how the data, the process needs to move into the hands of those who need, who really can understand it, quickly, easily. From anywhere.

So just as IT has focused on mobility to put production, sales, and customer-sentiment data in the hands of the business side whenever and wherever, so have vendors on the e-discovery technology side done the same. They have already developed comprehensive, real-time snapshots … with ease-of-use … of the legal data’s progress through e-discovery processing and review system with some very good dashboard presentations and analytics for the desktop.

At an IBM workshop just a few weeks ago on Big Data (SURPRISE!) and how IT/business-department managers/legal can work together, I saw great examples of how employees and lawyers can access, manipulate, and understand the gigabytes of information now under their control via dashboards that … and I quote … “will liberate IT from basic data-management tasks”. There was a very well presented “how-you-do-it” strategy for big-data implementations, how all of these groups in an enterprise … IT, legal, accounting, higher level management … are going to use the information collected in multiple formats, from various sources, to create actionable decisions. While IT is the engine, business managers are the drivers. One e-discovery vendor at the session noted that they have developed dashboards and integration tools that data centers have used for years. So all they did was tailor them for overseeing information, not networks. And they were “tweaked” to allow drill down into detail a lawyer would want to do.

So while an event like LegalTech will have vendors at the top of their game with good dashboard presentations and analytics for lawyers … companies like Exterro, Hitachi Data Systems, StoredIQ, and ZyLAB spring to mind … it is at an event like MWC that you can see/learn about even better business applications that redesign the way you interact with data. From folks that deal with petabytes+ every day.

▪ Samsung.  Apple.  Again.  Forever?  What say ye, Microsoft?

My only question is: what materials will Samsung use for the Galaxy S4 case. Generic plastic again or something more premium?

Ok, maybe some bigger questions. I spend a lot of time looking at Apple and Samsung. Right now, I think, Samsung has a lot of momentum. A new Galaxy S4 is on tap and appears to be poised to tackle the mid-tier smartphone market. As a result, say the pundits, Apple needs to “answer the bell in a hurry”. But despite all the scuttlebutt about Apple’s lower-priced iPhone (I do not believe it) and how important it is, the bigger issue is why Samsung is now considered the innovator and Apple is not.

Samsung is huge. It controls more than 80 companies that make everything from defense equipment to oil tankers and household appliances. The mammoth size of the company relative to the size of the South Korean economy has given Korea the nickname “Republic of Samsung.”

Side note: as most of us know, in the U.S. the Super Bowl (what the U.S. dares call “football”)  has a slew of high-profile ads for which big brands pay big bucks to air during the big game. Advertisers have to pay up for prime placement during the sporting event that this year attracted some 90m+ viewers and, if they used any of the trademarked terms associated with the event, the price went way up. But Samsung Mobile’s USA branch skirted around this issue and ran a brilliant ad.  I have a link to the ad in the right hand column. Very funny.  Take a look.

But Apple is … well, Apple. I listened to Tim Cook’s conference chat last week where he noted that the smartphone market is huge and that Apple has a lot of running room to grow. What he didn’t say was that the one monkey wrench in that master plan would be … ah, Samsung.

Ben Reitzes, a Barclays analyst, sent out a brilliant report last week. Reitzes largely agreed with Cook. He said that Apple can regain momentum with iPhone deals with NTT Docomo and China Mobile and launch a lower-cost phone and even a phablet  (and there will be a boatload of these babies on tap at MWC next week). But let me quote the Reitzes paragraph I found most interesting:

“We believe Apple is a platform company and its next great innovations have to come in the form of software and web/data services. We believe these services are needed to keep Apple’s ecosystem ahead of the pack and to attract and retain more users. We believe Apple needs to up its game in web services and platform integration to compete with Android and Samsung. We are hoping to see the seeds of this innovation when the company previews iOS 7 as early as March in an iPad launch event.”

That March timeframe is also critical for Apple given that Samsung is likely to launch the Galaxy S4 in mid-March and ship it in April. Apple lacks at 5-inch screen and that’s part of the reason Barclays expects the Galaxy S4 to do well.

And as for Windows 8 and Microsoft let’s not plan the funeral just yet. There has been a lot of criticism, for sure. High-profile technology launches suffer the “Hollywood box office mentality”: when it comes out and people aren’t immediately lining up for your latest-and-greatest, then it’s a flop. Adoption will take awhile. This is software, this is a change in systems. A lot of folks do not want to pay the “early adoption” tax. Organizations that upgrade to Windows 8 need to consider a corresponding hardware refresh — touch PCs and tablets, in particular — for an optimal deployment. And hardware aside, there’s the basic fact that Windows 8′s mobile-minded UI requires most users to reset their traditional PC habits. So if Windows 8 is going to succeed with businesses, consumers, or both, it’s going to take a while. The problem isn’t necessarily with Windows 8 and the changes it ushers in. The problem is that “it’s going to take a while” isn’t a popular saying in the technology business, or in any business these days.

But IT people I have spoken with say the operating system could still play a notable role in enterprise IT soon for staff who want mobile tablet apps.

More intriguing is why Office is not yet on the iPad, and in particular a recent note penned by Morgan Stanley analyst Adam Holt that addresses that issue.  Holt estimates that, priced at $60, about 30 percent of iPad users would buy the Office app. With 200 million iPad users in 2014, Microsoft could generate $2.5 billion in revenue, and that is after it pays Apple a 30 percent App Store commission. For the pundits … who have been all over this story … it has to do with pride which is the reason that Microsoft is reluctant to offer a full version of its software suite on Apple’s iOS. Holt said in the note that ultimately Microsoft would have to give up and decide there is more upside with Office on iPads, particularly if Windows tablets fall short of expectations.

The logic appears to be that Microsoft is only holding off on sticking Office on the iPad because it wants to keep it as the killer app for the Surface tablets. And that if the Surface fails there is no point keeping Office from Apple fanboys. But then it gets complicated. As TechEye recently put it: “But even if the Surface fails there is a perfectly logical reason why Microsoft would not want to put Office on the iPad. If it carried out such a port it would give the iPad an app which is actually useful. It could also cannibalize Microsoft’s Windows by giving an endorsement to Apple’s iOS operating system. It is worth losing a billion or two just to prevent that happening.”

Ah, mobile. In the TMT world, you cannot open your email without seeing what seems to be an almost weekly report: the ever growing amount of data carried on mobile networks around the world, which according to numerous studies seem to have doubled between the fourth quarter of 2011 and the fourth quarter of 2012. The reports I tend to read cover-to-cover are the ones from Ericsson. One just issued this week (actually a short interim update which you can access here) that suggests the growth in mobile data usage is not slowing down. Bear in mind that the figures don’t even take into account mobile usage over Wi-Fi networks (or mobile WiMax, for what that’s worth), so the real numbers will be even greater if you’re concerned with what people do on their phones, as opposed to what type of connection they use.

But … shock of all shocks as I read the Ericsson report … it’s also worth reminding ourselves that the mobile world is still not predominantly driven by smartphones – not by a long shot. According to Ericsson’s data, smartphones account for only 15-20 percent of the global installed base for cellphones, and only 40 percent of handsets sold in 2012.  So, a lot of room to grow for Apple and Samsung.

More on all of this after MWC.

 For European telecoms, no quick fix

For Europe’s financially hard-pressed telecommunications sector, the spending cuts incorporated in the EU’s 2014-20 budget, at the behest of “cost-conscious governments”, leave a particularly bitter taste. The bottom line is the cuts were so deep that they left no room for EU-level investment in high-speed broadband networks. So … horrors … it will be harder to hit the target of fast broadband coverage for all Europeans by 2020. And we are talking big numbers. Instead of the €9.2bn originally proposed by the EU’s executive commission, there will be only €1bn in EU funds for broadband and digital infrastructure in the next seven-year budget cycle.

So the Commission or the member state governments or somebody wants fast broadband coverage … but not on their Euro.

Their solution? Well, “Brussels” says faster consolidation in the telecoms sector is the way to spur investment. Query whether “Brussels” is up to devising policies that encourage competition, efficiency and investment in the sector as a whole.

Given: the European market is fragmented and overcrowded. According to a Financial Times report more than 1,200 companies offer fixed-line services alone. The industry’s revenues declined in 2011 for a third consecutive year and are unlikely to have picked up last year. So widely are revenues distributed that it is hard for all but the biggest and most successful operators to manage the multibillion-euro investments required to exploit the latest advances in technology.

And just what is meant by “consolidation”? Some define it in terms of shared networks and nothing more. Others may be open to grand, full-scale mergers. All know the days are gone when they held their domestic markets in an exclusive grip. Customers are free to abandon old brand names for technological trailblazers, such as Skype and WhatsApp, and competitively priced upstarts, such as Iliad in France and Spain’s Jazztel. And cynics say “yes, cross-border mergers within Europe start to look appealing. But if they happen, they must happen not to satisfy defensive-minded ex-monopolies but because they drive innovation and are good for customers and shareholders.”

But given the profound structural changes in the industry that make price competition so fierce, to what end? Considering that US telcos are doing relatively fine, the malaise in Europe suggests that there are structural problems facing the industry. Over the years, Europe has created a resounding success story in telecoms. Yet, increasingly, the rewards of this success are flowing mostly to customers through intense competition-induced price cuts, handset subsidies, enterprises with their strong buying power, and regulator-mandated cuts to termination and international roaming rates. Other beneficiaries have been new entrants like the ones we mnetioned … Iliad, Skype and WhatsApp.

So, a paradox. Never has this industry been such a central contributor to the European economy and society at large. Yet, as epitomized by financial markets’ cautious sentiment towards the sector, and government reluctance, never has the industry’s outlook appeared so challenging.

 

 Mobile cloud computing and the telecommunications ecosystem

One of the best parts of MWC is the opportunity to learn how the entire mobile telecom ecosystem is put together, learning about new mobile revenue streams, and new structures. Cloud computing has impacted the telecommunications industry across crucial fronts and now is in the process of amply changing its ecosystem. The ecosystem here is broad and spans business models, human behavior and technical issues like the networks versus the end-user devices, access points, core networks and the services. Just like in a natural ecosystem, adverse changes in the environment will cause organisms to change traits and behaviors in order to adapt to the change. The telecom world is now experiencing the “cloud wave” and will inevitably have to adapt.

As telecommunication architectures move towards a more cloud-oriented structure, there will be more demand on self-services. This is even more significant in the mobile telecoms world where people are now basically utilizing the cloud as the processing power unit for their mobile devices, turning them into high performance utility tools.

Anne Bouverot, Director General of GSMA which is hosting and organzing MWC, was recently interviewed and she gave an example of a real time translation service (cloud-based) by NTT DOCOMO in Japan. The need for such in a telecom ecosystem is infinitely vast and any ecosystem that supports the conception and sustenance of such will always thrive. Support may come in from the cloud technology, encouraging open source platforms like the Android system which will in turn enrich the ecosystem with billions of day to day solutions to complex applications courtesy of diverse developers.

There is a whole track of sessions focused on evaluating the business case for mobile cloud services and we hope to attend most of them. Or maybe just enjoy them on my Mobile World Live TV stream from one of the bars.

Oh, and one last bit.  We’ll have another opportunity to meet with some of the Watson team from IBM which we also did last year, and also at FutureMed. And more importantly, IBM unveiled today … just in time for MWC — its “MobileFirst” strategy, whereby it’s offering products for security, device management, analytics and application development. The company intends to double its spending on mobile technology in 2013, not including acquisitions, giving the strategy as high a priority as cloud and data analysis.

 

A note on the Spanish economy

The Mobile World Congress is a godsend for many. GSM and the vendors servicing the event will employee 3,000+ temporary workers to work the event as guides, to staff info kiosks, food service, maintenance, security, etc.

Unemployment in Spain is high. But not since the days of Franco has Spain suffered such high unemployment rates. The country was virtually a feudal, agrarian economy the last time almost six million workers were unemployed. If you have followed the “Euro Crisis” you know the devastation the housing crash wrought on the country’s banks and economy.

Youth unemployment has climbed to 56.5% without hitting a ceiling. Spain’s youth unemployment figure is surpassed only by Greece. As well as its troubled banking sector, Spain suffers from a lack of competitiveness inside the eurozone and excessive household and company debts.

And the politics astound. Spanish Prime Minister Mariano Rajoy faced strong criticism after he saved some of his toughest austerity measures for regional governments, which run the health and education services, while preserving the budgets of many departments run from Madrid. And the Twitter chatter of “is Spain the next Germany?” (not to the 26% of Spaniards who are unemployed) is more focused on the fact that Spain resembles the Germany of a decade ago, when Germany brought in reforms to turn the sick man of Europe into its strongest economy. The efforts by Rajoy’s government to loosen labor laws and cut public spending are aimed at a German-style miracle.

We had a chance to sit down with an economist for Ernst & Young who told us that there are shaky signs of progress in that unit labor costs are falling, partly because productivity is climbing. The current account has turned positive. And the number of self-employed workers is starting to rise even as unemployment increases. Spain is doing a lot of the things Germany did ten years ago, but in a much shorter time span and tougher global conditions. Yet the differences are huge. Germany’s education and training system is more job-friendly than Spain’s. The German recovery was spurred by tax cuts, but Rajoy has raised taxes to reduce a budget deficit which was still 6.7% of GDP in 2012. The huge cut in the structural deficit, claims Rajoy, was a first for an advanced economy. But austerity has contributed to a collapse in consumer spending. And exports are stalling as the euro zone, Spain’s biggest market, is in recession.

No surprises here. Europe is failing in the fight against youth unemployment. Southern European leaders seem to pander to older voters by defending the status quo. One of the people we interviewed for our Barcelona office is 25-years-old. She studied business at the University of Barcelona, completed a (paid) internship at a U.S. company, but then ended up at an unpaid internship although it led her to us. And she said she was lucky. Scores of her friends can find no work.

All austerity programs will be especially hard on young people. According to Eurostat, the European Union’s statistics office, the rate of unemployment among young adults in the EU has climbed to 23.5 percent. A lost generation is taking shape in Europe. And European governments seem clueless when they hear the things people like a Barcelona student who told us “we don’t want to leave Catalan but the constant uncertainty makes us tired and depressed”.

Instead of launching effective education and training programs to prepare Southern European youth for a professional life after the crisis, the Continent’s political elites prefer to wage old ideological battles. There are growing calls for traditional economic stimulus programs at the European Commission in Brussels. The governments of debt-ridden countries paid more attention to the status quo of their primarily older voters. Meanwhile, the creditor nations in the north were opposed to anything that could cost money.

And there has been a lot of talk about how Germany’s dual vocational education and training model could be exported to other countries. Companies tout the advantages of the German system, with its emphasis on practical application, and are critical of the overly academic system in Southern Europe.

Spain, for example, has lagged behind the rest of Europe for years when it comes to education. It holds the questionable record of having the highest percentage of school dropouts in the EU: 24.9 percent. Paradoxically, Spain’s conservative government slashed €10 billion in education funding in 2012. It also eliminated tax breaks for companies that hire newcomers to the job market. The curtailment of support for education is especially noteworthy, given that the majority of the country’s 6.2 million unemployed are poorly trained and educated.

Spain’s problem is that workers are divided into two classes. Since the Franco dictatorship, it has been virtually impossible to fire people who already have jobs. Young people, on the other hand, have often had to settle for occasional jobs with almost no social security benefits. They were the first to be affected by the crisis. Those who had jobs lost them, and those who didn’t were unable to find work.

The Financial Times, as part of a series on start-ups and innovation in Europe, recently profiled a Spanish start-up. Some of that piece:

“When José Luis Martín de Bustamante and his partners decided to launch a start-up technology company last year, they were quick to settle on locations: the headquarters of their new business, called Nutrino, would be in Israel, with a commercial office in London and a third base in the US.

One location that failed to make the list was Mr Martín de Bustamante’s home country. The four founders decided to shun Spain even though two of them are Spanish (the others are Israeli), and despite the fact that three of them were studying at a business school in Barcelona when they hit on the idea to launch a company that provides nutrition plans based on a computer algorithm.

“I would love to do something in Spain. A city like Barcelona could be one of the best places in Europe to launch a start-up: it’s cheap, it has perfect weather and it has great connections to Europe,” says Mr Martín de Bustamante.

Spain’s attractions as a business location, however, were overshadowed by a series of drawbacks that have frustrated corporate leaders and budding entrepreneurs for many years: funding for start-ups is far more difficult to obtain in Spain than in countries such as Britain or Israel; the bureaucratic hurdles faced by new businesses are high; and Spain has been slow to match the incentives and tax breaks for new companies on offer elsewhere.

Encouraging more start-ups has emerged as a crucial new government priority. Earlier this month, the cabinet approved a sprawling “Entrepreneurship Law” that Madrid claims will sweep away many of the obstacles faced by new businesses and that promises new incentives for start-ups. Business groups say they like the general thrust of the law, but also warn that Spain has a long way to go.

The experience of Nutrino’s founders illustrates the scale of the challenge. “Starting a company here in the UK took us a day,” says Mr Martín de Bustamante. In Spain, where he and his partners launched a start-up while still at business school, the paperwork took them almost a month.”

His experience is far from unique: the World Bank currently puts Spain in 136th position on a list of 185 countries ranked according to the ease of starting a business – four places below Syria, 10 below Kenya. Starting a business in Spain, according to the bank, requires 10 procedures and takes 28 days – far longer than the averages for both the developed world and Europe. In neighboring Portugal, by comparison, a new business needs to clear only five procedures which typically last just five days. Italy, too, is far nimbler than Spain – demanding just six procedures lasting six days.

But the Spanish push on. The Círculo de Empresarios, Spain’s biggest business lobby group, keeps pushing the government to adopt measures to encourage co-operation between universities and the private sector, an area where it says Spain lags far behind other countries. A new drive to encourage a “spirit of entrepreneurship” in schools, on the other hand, has won strong backing. Said Círculo is a press release: “We are not looking only for short-term effects – we need to change the mentality. Traditionally, our model of education is very theoretical and conservative. It encourages people to look for safe jobs and not to launch themselves as entrepreneurs. We think education should encourage creativity and innovation.”

 

Hope to see you in Barcelona.

 

Gregory P Bufithis, Esq.    Founder/CEO     EAM Capital Partners

 

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