Spotify CEO Daniel Ek: Europe Is Falling Behind - Here Is How to Fix It | MD MEETS #4

Straightforward. You are European. You have created one of the most successful and biggest European companies. Your role model has always been Silicon Valley. Why do you care about Europe? Well, I think it starts kind of with where you started, which is I'm European. I'm born here. I've been incredibly fortunate to grow up in Sweden, but also because of many other advancements in technology, whether it's airplanes and trains and so on, been able to experience the amazing culture of Europe and, for me, it is the greatest place on earth. It is the culture, the diversity, it's the food, it's so many things. It's the languages. It's just an amazing place to be.

Yeah. It's an interesting framing and obviously it's one that I also hear a lot. It's the sort of in a much simpler framing. I think people call it Europe is the museum of the world. And I just don't know that I agree with the framing. I totally see what other people are seeing that there's better economic growth elsewhere than perhaps what Europe has delivered in the past 20 years. And we certainly have our share of challenges. But I think every society does. I think certainly America does. I think certainly many of the Asian countries do as well. So for me I choose to look at this as sort of the glass half full rather than the glass is half empty. And what I see instead is that the world has, if you really dumb it down over the past 20, 30 years, essentially all come down to the power of the internet and the power of software eating the world as Marc Andreessen famously said. And if you look at the progress in economic terms, that's been the major driver. Certainly Europe has underperformed. But I think the key portion for me that I think is the most important one is it's not underperformed on the basis of talent. It's underperformed on the basis that we haven't built amazing software and internet companies here at the same scale that for instance the US or China has. So I kind of look at it and say much of the economic progress really comes down to that. Going forward, I think the most important thing we can do is obviously rectify that and to take a famous Wayne Gretzky quote: skate to where the puck is going, not necessarily to where it is at the moment. And if we do that and we do that well, I think Europe has amazing potential.

Yeah, it's one where I struggle with it even myself quite a bit. On the one hand, I am incredibly Swedish. I have two Swedish parents. I have a wife that's Swedish as well. So in many ways I'm incredibly Swedish, but I was born in the early 80s which means I was an internet native generation. And so for me I'm truly a globalist in that sense too where the internet, many of my friends I met on the internet and later formed deep friendships with all over the world. The European part of myself actually is more of a recent take. Even during COVID, not being able to travel as extensively as I had been, I sort of reaffirmed my love for Europe in a much bigger way. So these days I would definitely say that I've realized more and more having traveled the world just how amazing Europe is and how much I care about both protecting what we already have but honestly also making sure that Europe in the future is prosperous.

Well, structurally and fundamentally, I do believe that we in Europe are underinvesting in research and development, so R&D. And in every way, I think we're underinvesting in science. I think we're underinvesting in research. I think we're underinvesting corporate R&D projects to try to grow our corporations much better, too. And we can obviously try to dissect why that is the case. But I think one of the more foundational structural things that is incredibly important if you go back to the early 20th century is that much of the R&D and much of the innovation essentially was financed by banks and banks had that charter within them to actually take a lot of risks and enable a lot of new businesses to come up. And there was a great push by governments to invest in research to a great extent. If you look at what's certainly happened over the last 20, 30 years, a lot of that has changed with the advent of venture capital as a new form of financing R&D, with regulation on the banking side that means that banks no longer play the same role in innovation that they used to. And then with the hyper capital markets which really look towards very hyperefficient companies which tends to also be capital efficient companies, which means things like R&D and other things may not be invested to the same extent. So if you take the confluence of all of these things together, I believe that it's just a structure where Europe hasn't really adapted to the same extent that it should be and therefore we've underinvested in research and that means we've underinvested in innovation. And if we're underinvesting in innovation, I certainly believe that's the pinnacle and the most important ingredient for us to get right in order to get prosperity right because that leads to growth, new jobs, a future positive outlook.

Yeah. So talking about the glass is half full versus half empty, I think this is a pretty startling perspective. It's undoubtedly so that the US economy has grown much faster over the last 20 years than the European economy has. And if you double click on that, you can see that pretty much all of it has to do with its R&D spend on software, getting all of these things right and really investing in the future. So it's easy then to say okay, they got ahead. But I think it's important to state that where Europe is now, if we look at raw opportunities, we have 33 trillion in savings sitting on the sidelines. That is a massive amount of capital. It's about 10x the amount that the US has in savings sitting on the sidelines. So if we took 1% of that, just 1%, and put that in new innovation, so let's take venture capital as an asset class just one example of this, we would more than double the entire venture capital landscape in Europe. So I think that that's a very simple way to think about that we have a lot of potential levers to pull here in order to shift how we think about R&D, how we think about innovation.

Yeah, it is actually something that I think a lot about because at the end of the day I completely agree with you. One of the biggest barriers we have in Europe is a mentality barrier. And I think it stems from the fact that we in so many places have essentially been playing a zero sum game. If we in one way need to grow, then clearly something else must lose. But that is just not how I view the world. I think what's so amazing about the concept of the economy is that it can actually grow. It is not a fixed pie. It is a growing pie and growing the GDP is one of the most important things we can do in order to increase prosperity for everyone. I completely agree with you that this is one of the big things that we spend a lot of time analyzing our failures and it certainly has some value, I'm not going to discount that, but in my experience I think we tend to overestimate the downside and underestimate the upside in many cases. In the investing world, there's usually a saying between errors of commission or errors of omission. Omission means basically what you didn't do and it tends to, certainly when you think about technology and as I look back at my 20 years at Spotify, the things I regret the most isn't the mistakes I made, it's the things that I actually didn't do. I think a lot about that. And I think as you rightly pointed out, culturally for Europe, this is a massive thing for us to try to get right. I don't pretend to know how to fix this because I think it's very deeply rooted. But I think one of the big things that media can do is obviously start painting more stories not just of the ones that are failing but about also the ones that are succeeding. And I realize that it probably aren't as engaging of stories to tell, but I think suddenly if we start celebrating more of the successes that exist in Europe, it would be a remarkable positive story. For me, I think it's so cool to think about how take this company ASML. I don't think that is a super well-reported story, how important that company from Netherlands is for the world at the moment. I also don't think it's a well-reported story that Revolut might be one of the most, if not the most important fintech company in the world. Both of these are European companies and we can keep adding more and more of these. There's a German company called Isar Aerospace that had a space launch more recently. I didn't even realize we had a space company in Europe. But it does turn out that there are all of these amazing companies that for whatever reason right now aren't probably getting their stories out there. So I think media has a big role to play in balancing the critical reporting, which I think is important, but also to play the optimist game.

Yeah, I think it's obviously hard to self diagnose oneself and certainly I don't know to what extent was genetic versus environmental. But what I can say that I think is interesting is that in the US, entrepreneurs often talk about there being no option than succeeding because failure means essentially you end up on the street. I have had quite the opposite reason for going big on a personal basis, which is I knew that whatever I would do I would not end up on the streets. I would still always be able to feed myself, have a roof over my head. So I figured the option for going for greatness, actually the cost of failing wasn't very high. And the upside if we succeeded, because I loved music and I love technology, to be able to put those two things together and hopefully in a way grow the music industry again which at the time was really hurt by piracy, it just felt like a very good asymmetric opportunity where there was lots of upside and not much downside.

Well, I think it comes from in my case the Swedish social model. A little told story is that there was a period of time when I didn't have a job and for a few months I managed to get by with friends, but I was this close to getting on a welfare program. And you're right. I come from a working class. My mother brought me up, she was working in a kindergarten as a teacher, so it's not a super well-paid job. We didn't have a lot of money, but I knew I could always return to her and I could probably get a welfare check to survive and keep doing what I wanted to do. And those didn't feel like bad options to me.

Well, I think it's not a one-size-fits-all. And I think this is the mistake we do even when we look at school and we tend to think the future of education isn't that it's going to be lecture-based and everyone has to do written exam. I think that different people learn in different ways and similarly I think that there are different motivations for people to take risks. And as you rightly point out, perhaps one of the most contrarian viewpoints I have is that the Darwinistic system that the whole world thinks is the essential ingredient in order to promote entrepreneurship and innovation, certainly in my case was not true. It was the opposite. I am quite convinced that I would have never dared to be an entrepreneur if I thought that there was a huge risk that I might end up on the street and not be able to provide a meal for myself. And now the inverse can also be true. If you feel like you're getting everything provided for you and there's really no upside in striving for anything greater, then why go through with something as painful as starting a company, taking on all the naysayers, changing a business or an industry? So I don't think both extremes can be true. But I think if we channel it, for a lot of people this welfare model means that there's an essential ability for you to go for greatness. Let me take it in another domain to make the point. My home country Sweden is one of the biggest net exporters of music in the world of songwriters and music. I often get this question like why are we so successful and I think it actually comes down to two critical components. One of those components is the fact that we have very affordable music education from a very young age. It almost costs nothing to learn how to play music, which is an amazing thing and is broadly encouraged in society. But the other part why I think we have a lot of people who are really successful is because similarly again many of those people, as I've been talking to songwriters, many of them in the early days even the most successful ones, it wasn't sort of up and to the right. Many of them struggled, they had to take some extra jobs in order to survive, but some of them got on welfare in order to succeed in addition to that. But for them it was just such an important calling in their life that they didn't really care and it wasn't a hindrance because economically that wasn't the only driver for them. This was such an important personal thing for them to pursue. So the point that I'm trying to say is that for some people the Darwinistic model might be the better way to push them towards doing this thing. But for some people it's actually the opposite. It's the safety that allows them to think freely and pursue their passion. And that passion in the end means longevity, which I believe is a huge correlator to also being really good at something and then being successful.

Yeah, I try to more often than not focus on elements that are more within my control. And so the question I often ask is, is it a barrier, is it such a big barrier that it completely inhibits anyone from creating such a company, or is it a barrier to scale a company, and ultimately is it a barrier to succeed? Where I fall on regulation in Europe, I certainly would like to on average see more ability for companies to grow faster. The capital markets union is a great example of this. Making regulation easier for people to start new companies. Why is it easier for me to purchase stock in a company? I can do that in 2 minutes, but setting up a company in certain jurisdictions can be months. That makes no sense to me. And we should absolutely 100% fix those issues. But I also wonder sometimes if it's truly a barrier to creation. I've yet to come across an entrepreneur that have said to me, 'I couldn't start my company in Europe. It was impossible.' I've come across entrepreneurs that have said it's been easier to start a company in this jurisdiction than another one. But it's incredibly rare. So let me take two concrete examples where I think Europe is behind and absolutely should fix, and one where surprisingly Europe is ahead but we don't talk about it. Where we're behind, I think is on energy. Our energy regulation is a massive barrier for a lot of things, not just in tech, but I think it's a massive barrier for industry, for our competitiveness, that the energy prices are much higher in Europe than it is in America and other places in the world. And we have a lot of work to do on the regulatory front to enable more investments so that we can get energy prices down so we can increase the ability for industries to grow and invest in Europe. There I think it's 100% clear that we need to do a lot more than what we're doing.

I don't know Germany's situation specifically and I don't know if at the moment it is the right thing. But if I look back and say in hindsight with everything that we know, should nuclear have been a bigger part of the mix given the safety records of the newer things? I'm not an expert but the answer seems quite obvious that yes, we should have invested more.

Absolutely. And I don't think that's the only example by the way. I think that there's a lot of traditional industries that could grow much better if they had access to more affordable energy. So I think it's a competitive area where we should frame it as such. We need to get energy prices down because that's going to make us more competitive rather than ideologically what sort of energy mix. I think if we didn't call it nuclear and call it something else, the debate would probably be very different, but it's such a strong association with a particular word it's almost ironic I feel at this point. But energy mix is one thing, but let me take the other example where I think this question is more nuanced than just Europe is overregulated. On the financial side, fintech side, it's quite interesting because I would argue that Europe has better regulation than many places in the world and certainly in many cases than America does. And we can already see the fruits of that labor. If you look at the greatest fintech companies in the world, many of them are European. You got Adyen, you got Revolut, you got Klarna, you got Checkout.com, many of these fintech companies are European. When you looked at much of the innovation around tokenization of assets, what Robin Hood released, they did in Europe first because honestly the regulation isn't even done there. So this is an area where American companies are coming to Europe to innovate to then be able to take it to America and not the other way around. So I think that speaks volumes that it's not just that Europe overregulates everything. There are areas where Europe already is very good in the regulatory domain. There are areas where we're definitely behind and on average we can probably do with less regulation and make more innovation friendly policies across the board, like for instance on AI. Those are all quite obvious examples where Europe can do better, but I don't think it's a fundamental barrier for why we're not seeing more entrepreneurship.

Yeah, I absolutely agree with you and I'm not saying that there aren't things we can't do better on the regulatory side. But I also wonder sometimes, I do believe you are what you measure. And so rather than talking about less regulation for the sake of less regulation, I think what we're trying to address here, which is more the critical point, is how do we increase innovation. So a better part would be to measure all new regulations or removal of regulations against, in a theoretical world if we were able to define a single KPI that said the pace of innovation in Europe or European competitiveness, and evaluate whether we're doing the right measures against that or actually by introducing new things potentially hindering innovation. I think those things would be the right approach. And I do think that in some instances what could actually be helpful, as ironic as it sounds, is a different regulation in a field might enable that to be more innovative. And in another field it might be removing regulation as you rightly pointed out.

Yeah, it's a great question and I'm not an expert, but I worry about regulating too early before we understand fully the consequences of a certain type of field. I think it's a different thing about when there is already a proven and a mature playing field and regulating in order to simplify and enable more innovation. So again take fintech as a great example. I really do believe that with MiCA and PSD2 and some of these new regulations, it is super cool and super innovative because essentially Europe on crypto, blockchains, many of these things now have EU-wide regulation already in place that enables that in a way that for instance America currently does not. And this is an area by the way which is really problematic in the US. So in that case the regulation was actually quite helpful I believe in putting in place, and in other places we have too much regulation and it's slowing us down. So I wonder if the better part here isn't to have different approaches for different areas. I totally believe like you said that an iterative approach to regulation might work as a way of testing in various places and maybe even a country and start there and see how that goes and then broaden it out because one of the big problems is we have to in the EU get 27 countries to agree and it's sometimes hard because it's a theoretical construct before we can see the evidence.

I think the most important thing that we can and should be doing is create amazing technologies and innovation in Europe. If we do that, we will create amazing businesses and create amazing prosperity and other countries and regions will want to trade even more with Europe and that becomes a sort of soft power where we have an even bigger seat at the table than perhaps we have at this moment. From an industrial perspective in the 20th century we certainly had that, certainly in the later part where much of our economy was growing, we had some of the world's leading companies in many industries. That's still the case, but the reality is much of the world as we started this conversation has been about software and there we've certainly lagged behind. My concern and worry is that now again the game is being redesigned to be one about not just software but, I put it as, if the world was about bits, the world is now about bits, atoms, and genes being pulled together. It's really important I believe that Europe becomes a leader in those new fields as software gets into the world of atoms, as software gets into the world of genes, so that we can create the next generation of best-in-class biotech companies, best-in-class new industrial companies, robotics, quantum, all of these other amazing fields that will become even bigger parts of the economy going forward. Maybe to take a step back, I think the world tends to look at things black and white. It tends to think about these things as zero sum. Someone has to win in order for someone to win, someone has to lose. That is just not how I view the world. I view the world as we can grow together. It will be an expanding pie. But in order to have the expanding pie, technology is the ultimate enabler for that to happen. And I think technology can solve many of the biggest issues that we're facing in the world. Whether it is climate change, whether it is inequality, whether it is healthcare or education, I think technology will play a critical role in solving those problems and therein we as Europe should invest more in that future in innovation.

Yeah, I don't pretend to know how the world will unfold. But what we can say with great certainty is that I believe that Europe is certainly at a size enough and at a values perspective enough where it's very important that we can defend ourselves and that we shouldn't have to rely on anyone else to defend ourselves. But can we defend ourselves today? I think it's debatable. But in my future worldview and future hope scenario, I certainly hope and believe that if you think about the fact that we are still a very sizable, if you take all of Europe together, a very sizable economy, we have 400 to 500 million people in the region. That is a sizable enough economy, a sizable enough population that it is kind of strange to me from a first principles basis just to say that we would have to rely on a nation of 300 million people to protect ourselves. And so that's from the basis that I operate. I'm not saying that we shouldn't collaborate and have strong alliances and strong relationships with like-minded partners. That is not what I'm saying. But I am saying that where perhaps I agree with America is that Europe needs to play a bigger role in its own defense. And I believe that it's really important and I don't understand why from a mentality standpoint we can't think of that with our size and our institutions, that why we shouldn't be able to protect ourselves without the reliance on anyone else. And that's how I think about this and I think a strong defense is the best deterrence from any future conflict.