Generative AI: Europe’s Thriving Market Shows No Signs of Slowing Down
Main takeaways
- Due to low barriers to entry, Europe’s generative AI market is thriving
- Research shows that European generative AI start-ups compete on the global stage
- Non-exclusive partnership between larger and smaller players can help start-ups and enhance overall competition
Generative artificial intelligence (AI) has the potential to accelerate Europe’s digital transformation and boost our competitiveness. This rapidly evolving technology builds on significant advances in AI research and the increasing availability of high-quality data, computing power, and machine learning.
Today, generative AI is being deployed in a broad range of sectors, making it an invaluable tool for European businesses by increasing productivity and improving efficiency. Research by Copenhagen Economics shows that Europe’s rapidly expanding generative AI market is highly dynamic, with companies of various sizes currently facing no barriers to market entry – thus allowing innovative start-ups to directly compete with more established players.
By contrast, it’s actually access to finance and regulation that are regularly cited as the main obstacles to entering the generative AI market, in particular for smaller players.
1. Europe’s thriving generative AI market
The study by Copenhagen Economics finds that Europe’s generative AI market is diverse and competitive, with numerous new entrants and no immediate signs of barriers to entry. We also see this in practice, with prominent European start-ups already proving to be key competitors in this market. Think of companies such as Mistral AI, Hugging Face, and Deepl.
The transformative potential of generative AI lies in the rapid evolution of foundation models, which are trained on broad data sets and can be adapted to perform a wide range of tasks. These models power a wide range of systems, including generative AI systems that can create new content from scratch, including pictures, video, audio, and written text.
This shift promises to impact both digital and non-digital markets, with a 2023 study by Goldman Sachs suggesting that generative AI could provide a 7% boost to global GDP within a decade, particularly as it can drive up the productivity of the labour market. Copenhagen Economics argues this is likely a conservative estimate, especially given the pace of advancements in the year and a half that followed the Goldman Sachs study. The nearly fivefold increase in venture capital available for European companies (to €20 billion in 2023) already signals strong investor confidence in Europe’s competitive AI market.
2. No significant barriers to market entry
Copenhagen Economics finds that the main risks to market entry previously anticipated by competition authorities – including the lack of access to key inputs such as data, computing power, hardware, and talent – have not materialised. On the contrary, all signs indicate that the European generative AI market is diverse and vibrant, with a variety of active players of all sizes and a broad range of new innovative entrants.
Competition in the generative AI market is thus thriving and shows no signs of slowing down. While careful monitoring of any new market is recommended, it is clear that regulatory intervention in this dynamic market – especially at such an early stage – would be premature and slow down innovation just when our AI ecosystem begins to flourish.
3. Non-exclusive partnerships enhance efficiencies and competition
The authors also conclude that partnership agreements between larger and smaller players serve an important purpose. Indeed, collaborations between generative AI start-ups and larger tech firms have already generated efficiencies. They allow those start-ups to access high-tech specialised hardware and computing power, support, and investment (which otherwise wouldn’t have been available) at an early stage in their growth journey.
However, Copenhagen Economics does stress that such agreements need to be carefully assessed by regulators to prevent larger companies from using partnerships to excerpt or gain excessive power over a start-up, for example through exclusivity agreements. Because this could decrease competition and result in less innovation and choice in the generative AI market. Indeed, as long as we make sure they are carefully designed, partnerships between larger firms and new generative AI players do offer ways to diversify the market.
Conclusion
AI is transforming Europe with the recent growth in European generative AI start-ups having a positive impact on digital and non-digital markets alike. This is something that EU policymakers and regulators should be embracing – rather than constraining with premature regulatory intervention – as it has the potential to significantly strengthen Europe’s competitiveness.