Whenever startup ecosystem commentators discuss how to create European technology businesses of global scale they tend to name one company as a shining example: Skype. Headquartered in Luxembourg and developed in Estonia, Skype is a revolutionary product and, rightly, a European success story. It sold three times in the last seven years; most recently, to Microsoft for $8.5 billion.
But there is a Dutch company whose revenue is greater than Skype’s, a company that is seldom talked about, but which offers another template for European entrepreneurs to emulate. Its name is Booking.com and, listing 456,000 hotels and other accommodation in over 190 countries, it is massive.
The Booking.com you see today is the product of two predecesssors: Active Hotels, founded in Cambridge, UK, in 1998; and its peer, the original Booking.com, founded in The Netherlands in 1996. These two companies got acquired by the U.S. giant Priceline, in 2004 and 2005, respectively.
Priceline’s Netherlands office, which houses the combined Booking.com unit, did $4.1 billion in revenue last year. That’s 60 per cent of the group’s total and likely four times greater than Skype is reckoned to be pulling under Microsoft.
“It would be tough to argue that there’s been a better acquisition in Internet history,” according to some. Put that way, it is easy to wonder if Booking.com shouldn’t have remained independent and become Europe’s leading standalone Internet company.
In Europe, we can do international marketplaces better than anyone
When a U.S. company builds a marketplace site, one which connects buyers and sellers, it typically focuses on North America alone (AirBnB being one of the very few exceptions).
But when startups in our fragmented and diverse continent build an online marketplace, they have to acquire merchants, customers, users and market share in multiple European countries to get really big. As a result, it has historically been hard to impossible for large U.S. marketplace companies to expand internationally in any way other than through acquisitions. The best example to illustrate this is eBay, the non-U.S. success of which seems to be entirely based on acquired companies. Marketplaces of European origins are much more comfortable in going international, country by country.
That isn’t easy, cheap, or quick. It was a decade after its start that Booking.com had its exit. Building a European marketplace takes shoe leather — real, on-the-ground presence in multiple countries, gaining trust and growing relationships. Take Just-Eat or, in our investment portfolio, its counterpart Delivery Hero: You can’t build such a takeaway ordering service without employing dozens or hundreds of sales reps to go into restaurants in each country.
But the rewards can be great. Once a business has acquired a sufficient listings and customer base, once it has become the go-to brand, it is supremely defensible, and it is hard for any rivals to unseat it. This is enviable: An inter-European marketplace with top brand positions across the continent will always be an acquisition target or a strong IPO candidate in its own right.
Open marketplace opportunities
There are a number of still-underdeveloped areas open for upcoming European online marketplaces to dominate. My favorite examples are healthcare and beauty, which are highly recurring and very mainstream services representing huge markets of tens of billions of Euros of spend yearly.
At Point Nine Capital, we have invested in companies such as Docplanner, an international platform for booking medical appointments, or StyleSeat, a (U.S.-based) platform for booking beauty appointments. But there is much more to come: household cleaning services, handymen, car repair … lots of the services we use every day can make for a great marketplace opportunity.
As I pointed out in a recent blog post, I think that there are two types of startups: global and local/multi-local. It is very important for founders to understand which category their company is in, as it will have significant consequences for how they internationalize.
Skype will always be a great template for founders, but it’s just one template: one of a global brand and end-user product.
I would encourage European entrepreneurs to pursue the Booking.com playbook and creating scalable, multi-local marketplaces in large markets. And if you’re one of those startups, I’d love to hear about you.
Before co-founding Point Nine Capital in 2011, Pawel Chudzinski was a co-founder and partner at Team Europe where he led investment activities. Prior to that, Pawel worked as an associate for the U.S. investment banking firm Greenhill & Co. in Frankfurt and London. You can read his thoughts on the European investment scene on his blog.
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