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Copyright 2001 John Zipperer. 

From and copyright by Internet World:

In Focus: Germany
By John Zipperer

(08/01/01) There is a tremendous focus all over the world these days on the slowing of the global economy. Even Europe, which had entertained hopes of escaping the drag of America’s slowdown, has realized that its markets are also suffering. And Germany, which boasts the continent’s largest economy, is bearing the brunt of the sluggish market. But the current state of Germany’s economy shouldn’t define it, any more than the short-term performance of the U.S. economy can serve as an accurate predictor of its long-term prospects.

Germany lies at the geographical and economic center of a rising Europe—a fact which may distress French leaders who had hoped to hold on to their country’s status as the core of a growing European Union. Germany currently holds court as the world’s third largest economy, trailing only the United States and Japan. And for the first time in its turbulent history, Germany is surrounded by friends. Instead of playing the role of intimidator to Europe’s smaller countries, it has become their advocate in deliberations over the growth of the Union.

But a fair amount of Germany’s economic and political power has yet to be harnessed. By its own admission, Germany has been late to the Internet business party. Consumed with the task of modernizing its laws and regulations over the past few years, Germany has tried to maintain a delicate balance between the interests of industry and workers, loosening labor and investment laws to increase the ability of German businesses to react to opportunities at Internet speed. In conversations with German businesspeople this spring, I was repeatedly informed of dramatic changes in how the German government conducts business and heard stories of innovative products and services, business strategies, and plans for the future.

This special focus on Germany is to some extent the outcome of a personal journey, the origins of which lie in a private trip I took to Berlin in March 2001. My experiences and impressions laid the groundwork for a trip I took a few months later to cover the Internet World Berlin 2001 trade show and conference. In the process, I came to believe that any business paying more than mere lip service to the idea of globalization ought to make the same kind of pilgrimage.

The Internet World show is a good place to get a sampling of the way German businesses are using technology to evolve. As is the case at Internet World shows in the U.S., the spotlight is shifting from dot-coms to the ongoing technology needs of businesses of all types. As in U.S., the big players are reasserting their leadership roles in the German Internet scene. Yes, there are still brightly colored pitches from startups, but they compete for space with companies such as the mammoth Deutsche Post, which is transitioning from a state-owned postal service to a broad-based business-services company.

The articles that follow examine some of the trends, individuals, policies, and companies driving business technology, and the technology business, in Germany today. The companies included have different histories and diverse human capital. But they have something very important in common. They want to do business with you—whether as a customer, a buyer, a partner, or a competitor.

• The German advertising industry deals with privacy controls
• Germany nurtures its next generation of e-business leaders
• German firms use partnerships to leverage assets
• Benefits and perils of working with the German government
• The German e-business market offers hot opportunities to U.S. firms
• Worth A Look

This special focus on Germany was written by John Zipperer, technology editor of Internet World magazine. He can be reached at zipperer@iw.com.

(08/01/01) When a spat erupted last August over Microsoft’s bid to help browser users block third-party cookies, the ad-serving industry in the United States was caught unaware. It complained that it was being discriminated against, arguing that its members could be trusted with information collected from users. Nine months later, cookies are still on the plate of just about every site in the States. In Germany, however, even within the ad industry, there are some distinctly different views about the use of cookies and whether they are necessary to the success of ad serving.

German law on the protection of personal data mandates opt-in methods. This may create a problem for spammers, but as a result, marketing professionals here say that e-mail marketing in Germany is very specialized and targeted. Marketers try to take advantage of this environment while waiting for changes in the legal landscape.

Oliver Vater, managing director of online ad agency Add2media, says, “Normally, we look to the U.S. and say the Americans are more relaxed about cookies and the Germans are not.” Vater expects the resistance to cookies to decline over time; the legal infrastructure “is changing all the time on this,” he says. Cookies will yet have their day in Germany, he predicts, because at this time, there is no other tool for collecting relevant personal data.

German ad servers do collect information about their users on an opt-in basis, but they have other challenges besides the law and consumer resistance. For one thing, IP targeting is more difficult. “[Germany has] dynamic IP addressing; in the U.S., it’s usually fixed,” said Dirk Freytag, vice president of corporate communication for ad server Adtech. “So we don’t get user information. The only way to get user information is to use cookies, and most of our clients use cookies.”

There is also some disagreement among ad firms about the popularity of cookies. Vater says the resistance to cookies is strong, with many Web sites refusing ads that include them. The up-and-coming market for mobile commerce may resolve the matter at least partially, because mobile devices have other ways to personalize information. On the other hand, Freytag reports that 95 percent of users accept cookies, perhaps mainly because they don’t know how to turn them off, but also because cookies aren’t being used to collect much information right now. He complains that the data-mining tools advertisers need do not yet exist. “We are not able to handle the volume of data that potentially could come from fuller use of cookies,” he reports.

Thomas Simmons, CEO of Novaville, a small ad-serving company that markets its service to organizations and communities that want to offer branded Internet services to their customers or employees, says his service does collect information about users, but that employees enter the data into user profiles manually. According to Simmons, this data is separated from the individual user’s name during the ad-serving process, and is only used to send ads that match stated areas of interest. “I think it’s really important to be open about stuff,” said the American-born Simmons. “It’ll come back to you if you try to hide something, especially if it’s that important. It’s like selling vegetables and hiding the rotten ones under the fresh ones and hoping the customer will return—and he won’t.”

(08/01/01) As I exited Berlin's convention center at the end of the first day of Internet World Berlin 2001, two teenagers ahead of me each grabbed a handful of the Gloocorp.com’s promotional pens from the registration table. In a most un-German exhibition of sloppiness, they proceeded to leave a trail of pens out the doors and down the stairs.

In his wonderful post-World War I travel book, Vagabonding Through a Changing Germany, Harry A. Franke observed the omnipresence of children in German streets and homes, calling German “a nation of youth.” A similar impression is made in modern Berlin, where teenagers and twenty-somethings appear everywhere you look. At the Internet trade show, the crowd appears to be younger than that at the U.S. shows. So if you happened to be looking to partner with an Internet company in central Europe, you might be forgiven for thinking that you should follow the trail of pens and make a business deal at the other end, because the teens that were everywhere at the show are no longer mere consumers of technology: They are destined to play a large part in determining how German e-business develops from the inside.

This does not imply that Germany's youth are better prepared than U.S. youth to build an e-future, however, as informal discussions with Internet professionals at the show suggested. In fact, Germany has a way to go just to catch up with its European neighbors—a fact which may be affecting its ability to compete. German e-business folks point to higher levels of Internet usage, computer-based education, and even government support for technology efforts in Scandinavia, Switzerland, and elsewhere.

“In Germany, the government is not regarded as being very tech savvy, and they want to change that,” says Thomas Nisters, manager of corporate communications for e-biz consultancy IconMedialab. Improving schools is one area that would have a big payoff, he says, noting that businesses can play a role in putting pressure on government to bring the schools up to speed in teaching technology and in developing programs to actually get computers into the schools. Nister recalls promises from Germany's leaders to ensure a computer—yes, one computer —in every school. These eventually gave way to calls for a computer in every classroom, and now the talk is about providing a laptop for every student. Despite ambitious plans, however, Germany still lags.

The German government isn't sitting on its hands, however. It does, after all, put its money where its hopes are by investing in technology upstarts. Thomas Simmons is CEO of Novaville, an online ad-serving company that began by winning a government-sponsored contest for new technology and then receiving government funding that matched financing provided by one of its VC supporters. As Simmons reports, “the government has changed a lot of laws on venture funding to make it easier to build jobs.” Other German companies report similar involvement of government funders at critical early stages of growth. The government also has lent a hand to help new-media companies make the relocate to Berlin, now restored to its former status national capital of a united Germany.

But Amadee, a maker of software that ties corporate systems over the Internet, sought no government funding. “It takes years to get it,” the company’s marketing director, Kai Tesmer, says. Amadee needed the financing more quickly, and more importantly, says Tesmer, it wanted an investor with a global network. The company eventually got its wish with the 3i Group, which provided a second round of financing in May 2000.

Far more important than the government’s role, however, is the role foreign corporations play in partnering with German firms, with the goal of increasing the global reach of both parties and leveraging critical local knowledge. While it may be an oversimplification to suggest that growing up in polyglot and multicultural Europe has better prepared its businesspeople for international trade, the teenagers soaking up information on the floor of the Internet World Berlin trade show don’t talk about multiculturalism as the next big thing. Neither do their slightly older compatriots running the computer, consulting, design, and software firms. It is simply something that they have been doing all along. So when all of those U.S. Internet companies that closed their European offices when the market slumped are ready to return, they’ll be dealing with young people who are already old-timers at internationalization.

(08/01/01) Berlin is a great place to consider the politics of partnering. Just a block away from the city’s Mauer Park is the office of Fork Unstable Media, a Web development and design agency. It’s in an interesting neighborhood that is a sobering reminder of how international affairs can affect the life of business. Mauer is German for “wall.” The park commemorates the Berlin Wall that until 1989 made this area part of what was then known as East Berlin.

Fork’s offices are standard-cool loft space. One wall of the conference room is a garage door. Some offices are separated by simple glass walls; other workstations share large sunny rooms. It looks like the kind of place where you’d find talented young people playing loud music and pushing technology to the limits, sometimes for pay and sometimes just to see if they can crash the technology. And that’s exactly the kind of place Fork is.

It also is the kind of place that not too long ago, when U.S. agencies set out to conquer the Old World, seemed a natural target for purchase or partnership. Fork’s experience with these American suitors offers two related lessons to American firms doing business overseas: Be aware of the uniqueness of local markets as you expand globally, and focus on your core abilities, partnering to obtain expertise that falls outside that core area.

Failure on these two scores is why many U.S. agencies have closed their European offices and gone home. The collapse of the e-business market in the U.S. was another reason, but still, says Manuel Funk, a partner at Fork, “It’s really hard to adapt an American business model to Germany.” The same applies to German companies in the States. Last year, when every U.S. agency wanted to rush into Europe, Fork had a lot of purchase offers. “We talked to practically all the network agencies,” says Funk. But no deal was made.

“Most of them thought it was just as easy as buying a German company and renaming it,” says Funk. “Their first mistake was to put Europe in one pot—‘Okay, we entered Europe with an office in London’—and after a couple years discover that London is not Europe. Then they came to Scandinavia or Germany, and it’s very different. There are so many differences just between northern and southern Germany.” Another mistake, Funk says, was allowing “very centralized companies with management in New York” to tell their European offices how to do things.

Partnering is a way of life for Fork. Its creative and branding staff works with in-house designers and programmers. For tasks lying outside these core activities, it partners with a number of outside specialists. Fork’s strong points are Web design, Java-driven interfaces, and brand development—strengths that have led to a five-year relationship with Nivea. Other clients include Mannesmann (now Vodafone), Lufthansa, Hotwired.com, DaimlerChrysler, and German cigarette maker Davidoff.

Germany’s government is encouraging the emergence of Berlin as Central Europe’s media capital. Fork is part of a steady flow of media companies from nearby Hamburg into Berlin to which the government provided moving assistance. Co-founder David Lindermann even appears on the cover of a city brochure devoted to business partnerships.

Yes, the mix of programmers, marketers, and artists at Fork resembles the culture of Silicon Alley, but the business culture is different, says Funk. “There are parties and other networking events in Berlin and other German cities, but it’s a different style than in New York, because Americans are more open.”

Fork bridges some of these cultural gaps by hiring staff from many countries; it even maintains an office in New York City’s Williamsburg district. But Funk dismisses any idea that Fork is attempting to run an American office. The U.S. office is for meeting clients and feeding into the staff in Germany. In the end, it’s a German company he and his partners are running, but a German company that taps global talent. That’s a nice mix.

(08/01/01) Some companies face the pain of bankruptcy after a long and arduous struggle, often after having soldiered on through fluctuations in demand or dried-up financing. Novaville, a Berlin-based company whose first product was an ad-supported content distribution platform, had a different experience: It started in bankruptcy. The experience, happily, was temporary, but it resulted from the German government’s tardiness in completing the company’s incorporation. Novaville’s near-death experience is typical of the ups and downs of dealing with the German government, in fact.

After winning first prize in a technology contest held by the German Federal Ministry for Education, Science, Research and Technology in 1997, Novaville’s founders sought funding for the fledgling company. They eventually received support from TFG Technologie-Fonds and received matching funding from Technologie-Beteiligungs-Gesellschaft mbH (TBG), a subsidiary of Deutsche Ausgleichsbank (DtA). DtA is a business start-up and SME promotion agency of the German federal government that invests in innovative technology companies.

“The technology company has to inform us regularly about its development,” says a TBG representative, noting that applicants must state exactly how they will utilize funds before receiving any money. Though the company must be German in order to qualify for government assistance, foreign companies are allowed to invest. TBG requires that a lead investor put up the same amount of capital as BG, which, for the most part, serves as a silent partner. From 1989 through March 2001, TBG reports making 2,210 investments, worth almost 1.4 billion euros, in 1,195 companies.

Bureaucracy remains an obstacle in this process, however, notes Thomas Simmons, CEO of Novaville, which found itself in the following catch-22: For a company to incorporate, it needs an address, for which it needs to rent space, which requires that it be incorporated. Technically, the company was bankrupt for a short period until the government finally came through on its end of the incorporation process, says Simmons.

Despite such snafus, government-sponsored matching funds for startups provides a competitive advantage, according to Anders Enochson, senior investment manager of Spark in Germany for New Media Spark, a U.K.-based venture capital firm that has been eagerly moving into the German market over the past year. “When we presented this idea to our colleagues in the U.K., they were surprised at the deals we could get here,” Enochson reports.

Enochson says that TBG’s preference for remaining a silent investor pays off both for both it and the VC, because TBG has too many investments in Germany to actively involve itself with each one. Instead, it allows the VC to make use of the TBG network.

A win-win situation, then? Not for everyone. Some companies still prefer the all-private route when seeking investors. The Minden, Germany–based Amadee, maker of a business applications integration platform, opted not to go to the government for funding. As Kai Tesmer, Amadee’s marketing director, explains, “It takes years to get it. We wanted it quickly. We wanted someone with a global network.” Amadee eventually got what it wanted in funding from Hornblower Fischer AG and 3i.

The government can move too slowly in other areas as well. Novaville’s Simmons reports that while his company already holds a patent in the U.S., where the process took two years, its German patent application “has taken three years so far, and it’s still pending.”

None of this is meant to imply that the German government handles its business investments better or worse than the U.S. government does. The stereotypical observation that Europeans are more wedded to government intervention while Americans are more hands-off has some truth to it, but it’s often overstated. After all, a policy of “nonintervention” often means that whatever industry has its hand in the federal pork barrels at a given time wants to make sure that competing industries don’t muscle in on their share. Even in the land of the libertarian supply-siders, businesses still depend on government to tweak the tax laws, modify immigration laws in favor of the human resources needs of employers, enforce patent laws, and maintain other necessities of a regulated market economy.

(08/01/01) Many companies in Germany that are not already international are planning to move beyond their borders. Although some are looking at setting up their own offices in foreign countries, others are seeking partnerships with companies in Europe and the United States. This is a good opportunity for American firms—blue-chip companies and smaller firms alike—to build or extend networks across Germany and take advantage of both the wealth of talent and the breadth of the market in central Europe.

In the United States, one is likely to hear about the two coasts running the e-business sector. Germany isn’t a bipolar market dominated by Silicon Alley and Silicon Valley, though there are some regional centers of technology business. Munich in the south of Germany probably enjoys pride of place as far as technology goes, but there are other economic centers, with important regional differences, to familiarize yourself with when you’re doing business in Germany.

As the nation’s capital, Berlin may be the German city most misunderstood by Americas. This is the result of the city’s tempestuous history in the last century. As the imperial capital of the Kaisers, the city served as the political, cultural, and economic center of the German empire and de facto leader of central Europe. The inter-war Berlin of the Weimar Republic became the epicenter of a tremendous outburst of art and innovation memorialized by writers such as Christopher Isherwood, but was soon felled by economic crisis and the rise of the Nazis. After the Second World War yet another Berlin emerged: a city divided whose population and business fled to other parts of West Germany as East Berlin fell victim to economic decay, symbolized by its ugly Soviet architecture.

The current, still-under-construction Berlin is working feverishly to erase the east-west division. But one of the biggest hurdles to its attempts to encourage business growth is that very little in the way of a corporate tax base remained in the metropolis after decades of Cold War division. Even with tax incentives to encourage people to live in the city, Berlin became less known for cultural, political, and economic leadership than for its anarchists and other fringe constituencies. Today, in an attempt to develop a viable tax base and to bolster the city’s renewed status as the capital of a united Germany, Berlin is offering businesses assistance with moving and setting themselves up in the city.

Is encouraging business migration a zero-sum game that only takes business away from another German city? Not necessarily. Fork Unstable Media, for example, was lured to Berlin with city aid to help it find new office space, but it retained its presence in Hamburg.

New Media Spark, which funds startups, is a U.K.-based firm with offices in Stockholm, Boston, Madrid, and India that opened a Berlin office in 2000. “It’s more fragmented here in Germany,” says Anders Enochson, senior investment manager of Spark in Germany. “It has to do with Germany being more decentralized. The first thing we had to decide was to go into Berlin or Munich. Most VCs are in Munich.”

Munich, says Enochson, was the first German city to realize what it could gain from providing assistance to technology startups. As a result, Munich is the home to more hard-core technology companies, while Berlin is making a name for itself as a center for creative media. Some of the latter’s success does come at the expense of nearby Hamburg, which has long served as Germany’s media capital.

A business trip to Berlin is pretty simple for Americans because English is widely spoken. In my first trip to Berlin, in fact, I found it difficult to find someone who did not speak English to serve as a victim of my poor German-language skills. This shouldn’t have surprised me, however, because ever since Frederick the Great and his parents welcomed victims of French religious persecution and other political refugees, Berlin has been a remarkably international city filled with a vibrant mix of languages and peoples. After suffering setbacks during the Nazi persecutions and the population outflow of the Cold War years, this internationalism is rebounding strongly.

Oliver Vater, managing director of Düsseldorf-based advertising firm Add2media, notes that northern Europe, in general, tends to have higher numbers of English-speakers than southern Europe; it also has higher levels of Internet adoption. “The Internet is a global medium,” Vater says, “but it is very localized.” As a result, he says, ad campaigns still need to be in local languages.

Localized marketing in the various regions of Germany is a capability touted by online marketer Adtech. “We’re able to localize the user in 80 regions,” says Dirk Freytag, public relations representative for Adtech. He notes some differences between Germany and surrounding countries; for example, he says, marketers in Spain want data on unique users, and consequently cookies are used more often there. German firms are more likely to simply count the number of ads served. “There’s no question in Germany about how many unique users you get,” Freytag says. “They’re not interested.”

The mix of regions, languages, and governments provides many opportunities for e-business in Germany, opportunities that German e-business has yet to fully exploit. Thomas Nisters, corporate communications manager for Hamburg-based consultancy IconMedialab, points to Stockholm, Sweden, where people can submit their government documents over the Internet, and says that electronic banking transactions are also more up-to-date in Scandinavia than in Germany. For now, Germany is playing an aggressive game of catch-up, building up its education sector, working with its technology businesses, and rethinking its regulation of employment and online commerce.

Wherever the technology business is based in Germany, it has a hard-working and well-educated workforce to draw on, as well as good connections with universities and research institutions. “The technology is excellent here, the knowledge, the skills,” says Enochson of Sparks. “They like technology.”

(08/01/01) On the occasion of the Internet World Berlin 2001 trade show and conference in May 2001, I took the opportunity to meet with some interesting companies there and get a brief view of the local market. I met with these companies in a wide variety of venues, from an outdoor café next to the Savignyplatz S-bahn station, to an ultra-hip eastern-Berlin office, to restaurants, to the trade show floor. This is my reporter’s notebook of the companies that piqued my interest. They in no way represent all of German technology and e-commerce (an impossible task anyway, in the world’s third-largest economy), but they do provide some insights into that economy and deserve a look if you’re interested in some useful products and services.

Add2media is an advertising firm that focuses on husbanding a campaign through its entire cycle, tweaking it as it plays out. Why was I impressed? I’m intrigued by the company’s optimization strategy for tracking the success of marketing campaigns and the ways they work to keep a campaign relevant for a longer period of time. They are consequently more interested in cookies and other ways of tracking users—which not only tends to raise my eyebrows, but is of even higher concern in Germany where there are stricter laws on opt-in and personal data protection than in the U.S. It should be interesting to see how Add2media responds if those laws are weakened.

Adtech makes ad-serving technology. Why was I impressed? I liked its focus on regionalization of marketing campaigns and its understanding of the varied international markets in which it does business.

Amadee makes a platform for process integration (called, in fact, the Amadee Process Integration Platform). Why was I impressed? There are other companies that are tackling integration, of course, but I liked the clear-headed approach described to me by Amadee’s representatives, including the marketing director, Kai Tesmer, who says the company developed its product with an international team of developers for eight years before marketing it in late 2000. “Some of our investors—the ones in the U.S.—said we were crazy, we should start marketing before we had a product,” says Tesmer. Let’s see if the wait was worth it.

Cocomore tackles a problem of interest to anyone worried about the quality (and need for quantity) of content on the Internet during a time of reduced staffs. The company creates turnkey content modules on various topics. Why was I impressed? They’ve got 700 of these modules so far (fitting into 20 themes, with hundreds of subthemes), and they’re making more of them. From the demonstrations I saw, they appeared to be pretty deep in content and quality.

Fork Unstable Media is, simply, a helluva lotta fun. It’s a media firm that has done work for Nivea, DaimlerChrysler, and many others. Why was I impressed? Not only is its work of high quality, but its staff obviously has a good time. Visit the company’s Web site, and you’ll see it right away (starting with the various reorganizations of the company’s name to spell silly phrases). This is a company that boasts about spending time developing programs, sometimes just to see if they can make their system crash. Naturally, they’ve done some games as well. A rare mixture of talent, energy, and light-heartedness.

IconMedialab is a business consultancy. Like other consultants, they’ve increased their “old economy” percentage of customers from 70 percent two years ago to 96 percent today. Clients include Sony, Motorola, Siemens, Volkswagen, and many others. Why was I impressed? They’ve got a good grasp of the opportunities and pitfalls of international e-business, which was a particular topic of interest during my visit.

Networks Unlimited has an ERP system called LEO E-Business Network, which connects between the supplier’s ERP system and the buyer. Why was I impressed? Well, the product sounds interesting, but I was also impressed by the description by Ralph Mocny, sales manager, of the company’s partnership with IBM and the way it is using that partnership to leverage its reach to a broader market. They’ll also be moving into the U.S. market, so if you haven’t heard of them yet, you will.

New Media Spark is a U.K.-based VC that is moving into Germany. Its trade show booth was located next to tbg’s (see below). Who said journalism was all hard work? Why was I impressed? A recurring theme in these companies that stood out was their understanding of the differences and opportunities in the various technology business markets of Europe in general, and Germany in specific. Spark not only had that understanding, but was enthusiastic about it. It also has an impressive network to support the companies in which it invests.

Novaville started off with a product to enable ad-supported ISPs, which is a real problem in a country where your local phone service is metered. Why was I impressed? They have not only demonstrated a high degree of integrity regarding issues of privacy and customer trust, but the company has some solid plans to make the transition to a new market with online communities such as e-tailers or other corporations that want to offer a heavily branded online experience.

Tbg is a government program for helping technology businesses get started in Germany. Why was I impressed? When the first two companies I met with in Berlin each mentioned they had received funding from tbg, I knew something was up. It’s nice to see an aggressive government program to help tech companies, especially one that stresses its role as a silent partner. The recipients as well as partner investors praised the work of tbg.