More than a dozen travel startups are united in a battle with Google over allegations of anti-competitive behaviour. But what does it mean for the rest of the Berlin startup ecosystem? Jewell Sparks weighs in.
Startups will play a central role in strengthening our economy after the coronavirus crisis, so we have a chance to set a new course for the future. There is a battle going on between Google and travel startups who have lost money. Let’s backtrack…
In November 2012, Google made its first investment in the Berlin startup ecosystem, announcing its initiative with a startup center / accelerator called Factory. The partnership truly channeled the concept of a startup campus in the Silicon Valley style. A €1 million contribution that included resources from “Google Entrepreneurs” was invested over three years. That sum is not a lot compared to Google’s investments in Paris and London, but this is Germany, where it’s hard for foreign entities to truly set up shop. Believe it or not, there was a time when people were happy that Google had arrived in Berlin. It meant the city had established a reputation as a startup place to be. From 2012 until around 2016, everyone loved Google’s involvement with startups.
Corona and the change of heart
I find it puzzling that people are complaining about Google and the services it offers. Google is a search engine but most of its income comes from advertising, hence why it expanded into the cloud computing, software and hardware. (The company’s Covid-19 relief efforts of refunding small- and medium-sized entities who had advertised are located here.) Google stated that it would give a maximum of $1000 in credit to companies who advertise with them. The company committed to launching and auto-applying the credits on July 1st. The amount they would reimburse worldwide would be around $340 million.
According to CNBC, Google experienced a drop in revenue in March but their ad revenue rose to $33.76 billion from $30.59 billion the prior year. In the grand scheme of things, reimbursing approximately 10 percent of ad revenue to Covid-stricken companies is pretty admirable. Google is in the data business and always has been. That is why people use their service in the first place.
A case against Google
German unicorns have demanded that Google adjust their payment terms due to fear of survival during the Corona crisis. According to Gründerszene, in an April open letter to Google sales director Philipp Schindler, the founders of the startups Dreamlines, Flixbus, GetYourGuide, Homelike, HomeToGo, Omio, Tourlane and Trivago demanded flexible regulation of products and services and a hold on payments until they get back on their feet. The letter was also signed by Christian Miele of the Federal German Startups Association. The problem is: if you visit the startups’ websites, several of them reassure their customers that they are weathering the storm. In fact, some even state they have funding for a couple of years and are still hiring.
The argument is that these companies are receiving and / or will receive government support and feel that tax money should not go directly to Google. This is all true! Government funding should not go to a company as profitable as Google. However, there are a lot of struggling startups in Germany who are not in the travel business, instead providing “human needs”-based services. I think they should be eligible for government support, but they are not.
The question is?
Who should receive government support first? Venture-backed or startups who are not venture-backed? There have been several Covid-19 bridge funding initiatives underway and the goal has been to support companies in need. Real need. Who should receive government relief funding Startups whose funding rounds were interrupted, startups who have burn rates which are reasonable and aligned with their revenue generation as well as startups that are a necessity now and are foreseen to be a business necessity in the near future. Do unicorns who happen to socialize in the right circles, and receive funding no matter what, qualify? Should these government funding opportunities be utilized to reassess what a successful business model looks like? Is it time for us to disrupt the funding / startup ecosystem altogether? Google is not an angel, but the bro-based startup ecosystem isn’t either. Google is helping small businesses during this time.
Is this just another rant from founders who receive all the funding and attention, or is this criticism valid? I am sure that Google helps those in need. But it appears that in both Germany and the US, the rich always seem to get richer and the poor get poorer. This is capitalism.
To lighten things up a bit, let’s reflect on the following song, and remember the time when we all loved each other. There is a saying, don’t forget those who helped you become great!
“Do you remember / How it all began / It just seemed like heaven so why did it end?”
That’s all, folks! More to come on this topic next week. Stay tuned for more TechScale Berlin updates, your weekly tech and startup briefing.
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