Published on: February 8, 2025 / Updated on: February 8, 2025 – Author: Konrad Wolfenstein
Startup graveyard or innovation lab? This is the true state of the German ICT market – Image: Xpert.Digital
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The German market for information and communication technology (ICT) is booming. The sector is experiencing record sales, rising investments, and a growing number of jobs. However, at the same time, the number of new startups is plummeting to a historic low. This paradox between strong industry growth and a stagnating startup culture raises many questions.
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Growth and labor market developments in the ICT sector
The ICT sector is one of the pillars of the German economy and continues its growth trajectory despite global uncertainties.
- Revenue development: The industry generated revenue of €222.6 billion in 2024, an increase of 3.3% compared to the previous year. Growth of 4.6% to €232.8 billion is forecast for 2025.
- Employment boom: The ICT sector continues to create new jobs. By 2025, an estimated 20,000 new jobs will be created, bringing the total number of people employed in this sector to 1.371 million – more than in the automotive industry.
These figures underline the growing importance of the industry, particularly in the context of digitalization and automation, which is transforming many sectors of the economy.
Startup slump despite booming ICT sector
Despite the positive economic development, the industry is experiencing a dramatic decline in new business start-ups:
- Historic decline: In 2023, only 6,100 new ICT companies were founded (IT services: 5,950, hardware: 150). This is the lowest figure since 2002.
- Comparison with other industries: The start-up rate of the ICT industry is 6.5%, which puts it above industries such as mechanical engineering (2.1%) or trade (4.7%), but still points to a structural problem.
This development suggests that startups are increasingly facing hurdles that make it more difficult for them to enter the market.
Reasons for the stagnant start-up activity
Market dominance of established companies
Large ICT companies dominate the market through economies of scale and targeted investments in future technologies:
- Technology investments: Established companies are investing heavily in artificial intelligence (AI) (+43% growth), cloud services (+17%), and software development (+9.8%). Startups often cannot afford this level of capital commitment.
- Stable investment policy: 59% of ICT companies are keeping their investments stable, while 17% are increasing them specifically in strategic growth areas.
- Network effects and market access: The existing infrastructure and customer base give large providers a significant competitive advantage.
Economic and regulatory challenges
- Access to capital: While the industry as a whole is growing, smaller companies often barely benefit from this upswing. Venture capital is harder to obtain, particularly due to political uncertainties such as data protection regulations or rising energy costs.
- Bureaucratic hurdles: High compliance costs and regulatory requirements deter many founders. Particularly in the field of AI, there are strict regulations that can stifle innovation.
Global competitive dynamics
- International growth rates: Germany, with ICT growth of 4.6%, lags behind the USA (+7.3%) and India (+8%). More favorable regulatory frameworks and funding programs in these countries provide additional incentives for new business start-ups.
- Outflow of talent and capital: Due to better financing and scaling opportunities, many German startups are moving abroad.
Influence of technological developments on the start-up process
Technological innovations can act as both a catalyst and a barrier to startups.
Market entry barriers due to high-tech trends
- Capital-intensive future technologies:
- AI and machine learning require significant investments in computing power and data.
- International tech companies control 75% of the global AI market.
- Infrastructural dependencies:
- Large companies benefit from high-performance data centers like DE-CIX Frankfurt.
- Startups are forced to resort to expensive cloud solutions.
- AI-driven market maturity:
- 45% of ICT startups see AI as a driver of innovation.
- Standardized solutions dominate the market, causing niches for startups to shrink.
Positive impulses through digital innovations
- New startup tools: Platforms like ITONICS help generate innovative ideas with AI-supported technology radars.
- Cross-industry digitalization: The ICT industry is driving the digitalization of other sectors, thereby indirectly creating opportunities for startups.
- Niche markets as an opportunity: New areas such as edge computing or 5G satellite networks can be profitable for young companies.
Possible strategies for promoting new business start-ups
To stop the decline in new business start-ups, targeted measures are needed:
- Improvement of financing conditions:
- Expansion of government funding programs for deep-tech startups.
- Simplification of loan guarantee programs for innovative business start-ups.
- Reduction of regulatory hurdles:
- Simplified approval processes for tech startups.
- Flexibility in data protection regulations without hindering innovation.
- Strengthening the startup infrastructure:
- Development of technology parks and incubators with specialized infrastructure.
- Promoting networking opportunities between startups and established companies.
- Promotion of high-tech training:
- More practice-oriented degree programs in artificial intelligence, cybersecurity and cloud technologies.
- Cooperation between universities and industry to promote entrepreneurial spirit at an early stage.
Innovation at risk: Why Germany must act
The German ICT sector remains a growth driver, but the decline in new business start-ups could jeopardize its long-term innovative capacity and competitiveness. Targeted support policies, easier financing conditions, and an innovation-friendly regulatory framework are crucial to re-establishing greater entrepreneurship in the sector. Germany has the opportunity to strengthen its position as an ICT business location – but only if targeted investments are made in the right areas.
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