Britain is in danger of being left behind in Europe's emergent internet economy, a leading accountancy firm warned yesterday. Germany is powering ahead, according to PricewaterhouseCoopers, unsettling Tony Blair's hopes of making Britain the leading new economy.
In a survey of Europe's biggest internet companies, more than a third of the largest 150 are German. Britain has only 35 in the top rank.
The German market is more mature, with half of the businesses surveyed already in profit compared with little more than a quarter of British net firms. Kevin Ellis, a partner with PwC, said the Germans were bolstered by better access to the web.
The survey findings will pile further political pressure on British Telecom which has been criticised for holding up the introduction of broadband services. Rivals have accused the former monopoly of dragging its feet over the break-up of its local network next year.
The head of one internet company also pointed to the success of the German Neuer Markt as one reason for the gap with Britain.
"The Neuer Markt is largely responsible for the success of e-commerce companies in Germany... It makes it easier to raise money and make acquisitions," said Raphael Fuchs, chief operating officer of europeaninvestor.com, which operates websites for other companies and provides financial information. Frankfurt moved faster than London to set up a specialist market dedicated to hi-tech companies, so Germany had become a natural focus for investors looking to back young companies with high growth potential.
It was not all bad news for Britain. The PwC survey noted clear evidence of better management, leading to lower costs and reduced "cash burn" - the rate at which money is consumed by a start-up business.
The average burn rate is now 20 months before the need to raise new money, an increase of seven months since last December. One company in the survey slowed its burn rate by up to four times.
Mr Ellis said: "I am surprised at how much companies appear to have taken action to improve their burn rates. Forty-two out of 150 are not burning cash any more, which is encouraging. It means that people are moving into the next stage of development."
High risk
The survey ranked 20 of the 150 companies as being at "high risk" of running out of cash within a year unless they act. It does not name the individual stocks because of concern that this could upset the still volatile internet market. "At risk is a combined market capitalisation of €26bn (£16bn), representing more than 10% of the European market," the report said.
PwC also found a difference between consumer businesses - known as B2C - and business to business (B2B) companies. B2C companies are more vulnerable with an average burn rate of 15 months, compared to 23 months for B2B organisations, due to higher marketing costs.
There are also sector distinctions, with software and infrastructure internet companies performing better than content producers and internet service providers.
Rivals doubted PwC's findings. Richard Punt, head of e-business at Deloitte and Touche, said it was difficult to conclude that Germany was the dominant country because the survey was based on market value and ignored factors such as funding types or internet penetration.
Peter Bradshaw, head of internet research at Merrill Lynch, said: "To us the report looks like gross misrepresentation of a few figures."
Mr Ellis concluded that the next six months will see consolidation in the internet sector, with some big success stories but some more big failures. "There still will be some failures because this is a start-up area in a brand new sector, but failures don't necessarily mean it's the end of the sector or a disaster."
