1. Europe’s
    Digital Ambitions

    By Heather Farmbrough. Spring 2021
    Illustrations by Emiliano Ponzi.
  2. European companies have quietly built up some of the world’s largest digital platforms for commerce. The next stage will be anything but quiet, Stephen Paice and Moritz Sitte, joint managers of Baillie Gifford European Growth Trust, tell Heather Farmbrough

    Please remember that the value of an investment can fall and you may not get back the amount invested.

    This article originally featured in Baillie Gifford’s Spring 2021 issue of Trust magazine.

  3. Put a frog into a pan of boiling water, it will jump out. Put the frog into a cold pan of water and gently heat it up, it won’t notice the gradual change in temperature and will eventually boil to death. While the science behind this unethical 19th century experiment has been debunked, Stephen Paice finds the analogy useful.

    It can be hard, he says, to see incremental change taking place when close to it, especially in a crisis when the priority is getting back to normal. If, however, you can step back, and look not just five years into the future, but 10 or even 20, you’re more likely to discern trends and recognise opportunities.

    In Europe’s case, the important trend is the shift away from old economy retailers and banks, towards ecommerce and fintech firms. This has created an opportunity for innovative businesses. In terms of the unfortunate frog, it’s more important to recognise that its death is inevitable than to speculate about how and when it will expire. Or in Paice’s words, “Traditional European business is facing a slow and prolonged corporate extinction.”

    European companies are just beginning to see the kind of success based on digital scale and network effects that Amazon, Google, Facebook and Uber have enjoyed in other markets. “To benefit from this kind of scale, you need to be ambitious, and to be able to put growth above everything else, and to put profitability to one side,” observes Paice. “This is something that has been missing in Europe for far too long.

    “When we think creatively and optimistically about the potential for some of the digital disrupters to take more and more of their markets, and the potential to move into adjacent markets, we begin to see how big some of these companies can be.”


  4. Trustworthy trio

    Paice, and joint manager Sitte, identify three of these digital disrupters which are scaling up fast.



    Today’s global merchant needs to be able to accept all kinds of payments because customers like to pay in different ways, from cash to Mastercard and Visa, Apple and Alibaba to Mercado Libre and old-school bank transfers. Adyen makes all this possible while ensuring that only bona fide payments are accepted and fraudulent ones declined. Its customers include Uber, eBay, Spotify, Booking.com, Etsy and TransferWise.

    When Adyen – the name means ‘start over again’ in Surinamese – was launched in the Netherlands in 2006, its founders wanted to do things differently. In contrast to most other payment solutions businesses, which often use a patchwork of systems after years of mergers and acquisitions and the addition of new services, Adyen built its own single payment platform.

    “Over the long run, it is easier for a company to innovate from a single platform than on a patchwork system,” observes Sitte. “So Adyen has been able to focus on rapidly rolling out improvements for merchants, while deriving the maximum benefit from scaling up.”

    While technology is important, Sitte believes Adyen’s edge lies elsewhere, in a culture that fosters innovation and an organisation whose sole focus is to create as much value as possible for its customers.

    Over the years, Adyen has grown organically and rapidly. “It is a best-in-class provider,” adds Sitte, “providing service to the crème de la crème. The management team has the skills and experience to scale up, and is united by international ambition.”



    The trust’s managers admit that 10 years ago the idea of buying a classified advertising ecommerce platform might have seemed unlikely. Yet the experience and ambition of Adevinta’s management team in local ecommerce have put a different spin on things.

    Spun off in 2019 from Schibsted, the largest media marketplace in Scandinavia, Adevinta’s digital marketplaces connect buyers and sellers of homes, cars and other consumer goods. Rolv Erik Ryssdal, chief executive officer of Adevinta, used to run Schibsted and is backed by several other former Schibsted senior executives.

    Some 1.3bn people visit the various brands on Adevinta’s sites each month, to exchange goods and services locally in 12 countries from Europe to Latin America. These brands include the shopping app Shpock; Coches, the Spanish car sales platform; InfoJobs, one of the leading online jobs platforms in Italy; and large Brazilian and Chilean classified ads services OLX and Yapo. Adevinta is also currently absorbing eBay’s global classified ads business and wants to have the largest collection of ecommerce marketplaces in the world.

    “Companies which benefit from digital scale and network effects will generate additional returns as they become bigger,” explains Paice. “Once a network business reaches the critical mass where it’s larger than everyone else, customers are more likely to go there – they will go to whoever has the most buyers and sellers.”



    Just Eat Takeaway

    Earlier this year, the Dutch company Takeaway.com acquired Just Eat. Helped by the combined company’s $7.3bn acquisition of its US rival Grubhub, Just Eat Takeaway is now the largest food delivery company in the world outside China.

    Just Eat was one of the first successful online food delivery businesses. It was launched by five Danish entrepreneurs in 2001, linking customers to restaurants, before branching out into its own deliveries. When Takeaway.com decided to buy Just Eat, the trust’s managers welcomed the merger.


    Just Eat Takeaway is now the largest food delivery company in the world outside China


    Although the coronavirus pandemic has hit the restaurant delivery business, it also opened up other opportunities. Just Eat Takeaway pushed into new markets, including deliveries from supermarkets and convenience stores.

    The global meal delivery industry is about scale, but there are a small number of major players already and competition is fierce. How do the managers know who will win?

    “The honest answer is that we will have to wait and see,” replies Sitte. “The food delivery business is still at an early stage, and the range of possible outcomes is wide. Ultimately, it just comes down to a judgement call that the management has the right skills and expertise to win. And we believe that is the case for Just Eat Takeaway.”

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  7. Heather Farmbrough

    Heather Farmbrough is a freelance journalist and former fund manager. She is a Forbes senior contributor and writes for several other publications including the Financial Times.

    Illustration by darlingforsyth.