Germany's IT Industry

Abstract

Germany built the world’s first working program-controlled computer, Konrad Zuse’s Z3 of 1941, and one of the world’s most successful enterprise software companies, SAP, yet never produced a global consumer technology giant. Its IT industry grew close to manufacturing and process automation, financed by banks rather than venture capital. In March 2025 SAP was worth about twice as much as Volkswagen, Mercedes-Benz and BMW together, but the consumer internet was built by others, mainly in the United States and China.

SAP headquarters in Walldorf. Image: Vladislav Bezrukov from Walldorf, Germany, CC BY 2.0, via Wikimedia Commons.

Konrad Zuse and the Forgotten Origin

A Zuse Z22, one of Zuse KG’s postwar computers. Image: Lemming81, CC BY-SA 3.0, via Wikimedia Commons.

Germany’s claim to computing primacy rests on Konrad Zuse, who completed the Z3 in Berlin in 1941, the world’s first working programmable, fully automatic digital computer: electromechanical, with binary floating-point arithmetic, reading its program from punched film. Zuse worked largely on his own, with some funding from the aeronautical research institute DVL, and unaware of parallel developments in Britain and the United States. The Z3 was destroyed in the 1943 Allied bombing of Berlin.

Zuse continued after the war, founding Zuse KG in 1949 to commercialize his designs. He invented Plankalkül (Plan Calculus) in 1945, arguably the first high-level programming language, though it was not published until 1972 and had no practical implementations during Zuse’s active years. Zuse KG built around 250 computers before Siemens took it over (Brown, Boveri & Cie. had bought the firm in 1964 and sold a majority stake to Siemens in 1967, the remainder following in 1969), one of Europe’s first commercially successful computer manufacturers.

Zuse’s work was acknowledged slowly. Histories of computing written in the United States centred on ENIAC and von Neumann, and the Z3’s place as the first working program-controlled computer gained wide recognition only decades later.

Siemens and the Mainframe Era

A Siemens System 4004 mainframe at the Museum of Technology. Image: The Museum of Technology, CC0, via Wikimedia Commons.

Siemens, founded in 1847 and already one of the world’s largest electrical engineering companies by the twentieth century, entered computing in the late 1950s: its transistorised Siemens 2002 was shown at the Hannover fair that opened on 26 April 1959, and 42 were built. Two rivals followed with one large machine each. Standard Elektrik Lorenz built nine of its ER 56 from 1959 in Stuttgart (one generated early computer graphics at the Technical University of Stuttgart), and Telefunken presented the TR 4 in Hannover in 1962 at DM 5 million, of which about 25 were installed. Twenty years after the 2002, in 1979, Siemens showed its first small computer in Hannover, the PC 100, with a microprocessor and a thermal printer but no screen. Its mainframes of the 1960s and 1970s, starting with the System 4004, were licensed copies of RCA’s Spectra 70, itself compatible with IBM’s System/360, and its BS2000 operating system, introduced in the mid-1970s and derived from RCA’s TSOS, became a platform for government and banking IT in Germany and Austria. Siemens sold it mainly in the German-speaking market.

This approach was typical of the broader European computing industry of the era: each major nation had national champions (Bull in France, ICL in Britain, Siemens and Nixdorf in Germany) that competed with IBM with the help of government procurement preferences. East of the border, the other Germany ran its own computer industry on the same IBM architecture, cloned rather than licensed (see Computing in East Germany: Robotron and the Kombinate). The European Commission funded numerous programs attempting to create European computing standards and European semiconductor industries. None succeeded in producing globally competitive platforms.

Nixdorf Computer, which Heinz Nixdorf built from the Labor für Impulstechnik he founded in Essen in 1952 (moved to Paderborn in 1959, renamed Nixdorf Computer AG in 1968), became Germany’s most successful independent computer maker. Nixdorf specialized in minicomputers and point-of-sale systems, reaching annual revenues of DM 5 billion by the late 1980s. After Nixdorf’s death at CeBIT in 1986, his successor Klaus Luft kept expanding, hiring 5,000 additional sales staff while the business turned downward from 1988; a strike pushed the company from just-in-time delivery to stockpiling a full year of parts, a policy Luft later admitted was a heavy burden in a market of falling prices. In 1989 the company lost roughly DM 1 billion on DM 5 billion in revenue, and on October 1, 1990 it merged with Siemens’s data-technology division to form Siemens Nixdorf Informationssysteme (SNI): with over 50,000 employees Europe’s largest computer maker, but worldwide only number six behind IBM, DEC, Fujitsu, NEC, and Unisys. That same autumn, Unisys concluded that hardware and software were diverging into separate businesses and abandoned computer manufacturing for services. SNI drew the opposite conclusion and spent five loss-making years as a full-line maker of midrange systems and PCs before the dismantling began: services and telecommunications were spun off in 1995 into Siemens Business Services (today part of Atos), the PC business went to Fujitsu (Fujitsu Siemens Computers, 1999), and the banking and retail technology spun out as Wincor Nixdorf (1999), which dominated the ATM and retail banking technology market globally before merging with Diebold to form Diebold Nixdorf in 2016. Fujitsu closed the Augsburg plant, the last large computer factory in Germany, on September 30, 2020, one day before the merger’s thirtieth anniversary.

The Cadmus Workstations

Germany also produced a Unix workstation industry, briefly. PCS (Periphere Computer Systeme), founded in Munich in 1969 by the brothers Georg and Eberhard Färber, began by building peripherals and process-control systems around DEC minicomputers. In 1982 the company introduced its own Motorola 68000 machines on DEC’s Q-Bus, sold under the Cadmus brand, and ported AT&T’s System V to them. The port, named MUNIX, was the first Unix System V port carried out in Germany, and PCS followed it with MUNIX/net, a network file access protocol based on the Newcastle Connection that competed with Sun’s NFS. Later models moved to the 68020 and 68030 and then to MIPS RISC processors. Cadmus machines were common in German and European university computing pools and research institutes through the late 1980s, one of the few European alternatives to Sun and Apollo, and in 1985 PCS opened a US subsidiary to sell them in the American market.

The episode ended the way most European hardware stories of the era did: acquisition rather than scale. PCS was bought by Mannesmann Kienzle, which was in turn absorbed by Digital Equipment; the workstation line disappeared, and in 1996 a management buyout re-established the company as PCS Systemtechnik, which survives today making access-control and time-recording terminals. The technology was competitive; the domestic market was too small, and the capital and distribution to fight a US volume player were never assembled.

The Mid-Range Makers

Nixdorf had company in the market for office and technical computers. Dietz of Mülheim an der Ruhr was number two in process computers in 1975 and among the leading German computer makers in 1982 before Norway’s Norsk Data took it over; Krantz in Aachen built minicomputers for technical uses and had passed DM 10 million in sales in 1976 when the American firm Varian bought it; and Computertechnik Müller (CTM), founded by Otto and Ilse Müller on 24 April 1972, built well-regarded office systems, alongside Kienzle, Ruf and Triumph-Adler. The most colourful figure of the scene was Günter Wagner, who founded a Berlin measuring-instrument company in 1963, sold it at a profit in 1969, and then built computers and teaching machines on financing so adventurous that his firms eventually dissolved, and his investors’ money with them.

Software AG and the First Enterprise Software Companies

Software AG headquarters in Darmstadt. Image: Snipermatze, CC BY-SA 3.0, via Wikimedia Commons.

Software AG, founded in 1969 in Darmstadt, is one of the oldest independent software companies in the world. Its flagship product, ADABAS (a database management system) was released in 1971 and became widely used in mainframe environments. Natural, Software AG’s 4GL programming language for ADABAS, was used by large organizations worldwide through the 1980s and 1990s.

Software AG lived on deep technical capability in a specific domain, long relationships with large institutional customers, and long-term maintenance contracts. It later added business-process software (ARIS, through the purchase of IDS Scheer in 2009) and integration platforms. In 2023 the investor Silver Lake took it private and broke it up: IBM bought the webMethods and StreamSets integration businesses for €2.13 billion in 2024, and Adabas & Natural and ARIS continued as separate units.

Info

Software AG was founded a year after Intel (1968), six years before Microsoft (1975) and eight years before Oracle (1977). It stayed independent for more than fifty years, carried by customers who rarely replace their core systems.

The software trade began earlier than its famous names. In 1957 fourteen industrial firms opened the first German software house in Dortmund, the Mathematischer Beratungs- und Programmierungsdienst (mbp), led by Hans Konrad Schuff; computing centres such as the Deutsches Rechenzentrum in Darmstadt, founded on 3 October 1961, ran IBM machines for outside customers and specialised in text processing until it was absorbed into the GMD in 1973. By the end of 1968 West Germany had only 38 software firms. IBM’s decision to price software separately, effective in West Germany from 1 April 1972, changed that: 39 new firms appeared in 1969 and 1970 and 33 more in the next two years. Tax advisers built their own data centre: DATEV, founded in Nuremberg on 14 February 1966 to cope with the value-added tax due from 1 January 1968, received its members’ bookkeeping on punched tape.

SAP

In 1972 five former IBM employees (Dietmar Hopp, Hasso Plattner, Hans-Werner Hector, Klaus Tschira, and Claus Wellenreuther) founded Systemanalyse und Programmentwicklung in Weinheim. The company is known by its German acronym: SAP.

SAP’s founding insight was that large companies needed integrated business software that connected accounting, procurement, manufacturing, sales, and human resources in a single coherent system, replacing the fragmented, department-by-department systems that existed in most organizations. The founders had been working on such a system for an IBM customer, and when IBM did not pursue it they left to build it themselves.

The first product, a real-time financial accounting system later counted as R/1, went into use in 1973 at the German subsidiary of the British chemicals company ICI. SAP R/2, a mainframe system released in 1979, became the backbone of financial management in hundreds of large European companies. SAP R/3, released in 1992, was the breakthrough that made SAP a global company: it was client-server-based, modular, and could run on multiple hardware platforms. R/3 arrived as large companies were moving from mainframes to distributed client-server systems.

By the mid-1990s, SAP was the world’s largest vendor of enterprise applications software; Oracle remained larger in total software revenue, driven by its database business, but SAP dominated business applications. It became the standard system for the business processes of large enterprises (manufacturing, procurement, logistics, finance, HR), so deeply woven into customers’ operations that replacing it meant re-engineering the company.

Tip

SAP’s software created what economists call high “switching costs”. A large company running SAP typically has many customizations, integrations with external systems, and years of trained staff, so migrating to a competitor is a multi-year project. SAP has kept its large customers for decades despite persistent complaints about complexity and cost.

The Mittelstand Software Ecosystem

Beneath SAP, Germany developed a dense ecosystem of software companies serving the Mittelstand, the middle-market manufacturing and industrial companies that form the backbone of the German economy. Most were not venture-backed and few went public. They built software for specific industrial applications: production planning for automotive suppliers, quality management for chemical plants, financial consolidation for manufacturing conglomerates.

Companies like IDS Scheer (process modeling, founded in Saarbrücken in 1984, acquired by Software AG in 2009) and GFT Technologies built businesses worth hundreds of millions of euros on deep domain expertise. They fit the “Hidden Champions” pattern described by the management professor Hermann Simon: German mid-sized companies that lead global niche markets without public name recognition.

The Wires of Science: How the Internet Reached Germany

Germany’s connection to the global research networks was built by a handful of university computer scientists. On August 3, 1984, at the University of Karlsruhe, Michael Rotert (working in the group of Werner Zorn) received Germany’s first Internet email, a welcome message sent by Laura Breeden of the American CSNET coordination office (“Willkommen in CSNET!”). Karlsruhe became the German CSNET relay, the country’s gateway to the American research internet. (Karlsruhe’s own accounts often call Germany the “second country” outside the USA online; the ranking is contested, since Israel joined CSNET earlier the same year. See Myths and Misconceptions.) This happened at a time when the official European telecommunications world was committed to the competing OSI/X.25 protocol suite and regarded TCP/IP as an American academic aberration (see Early Networking Failures). Three years later the same Karlsruhe group extended that gateway across a much larger wall: on September 20, 1987, China’s first email left the Institute for Computer Applications (ICA) in Beijing over a CSNET link that Zorn’s team had helped set up with Chinese colleagues, addressed to Karlsruhe. Its English text became famous in China: “Across the Great Wall we can reach every corner in the world.” Germany’s gateway to the American internet was, for a moment, also China’s. The .de country domain, delegated on November 5, 1986 (among the first country codes), was administered from the universities (Dortmund, later Karlsruhe) for a decade before the registry DENIC, founded in 1996, moved it to Frankfurt; the first .de domains were university names. East Germany’s counterpart .dd was never delegated at all: Cold War politics kept Warsaw Pact states out of the root zone, and the code disappeared with reunification (see The Domain Name System).

The University of Dortmund took over the administration of .de in March 1988, when six domains had been registered. The institutional backbone followed the same academic path. The DFN-Verein (Deutsches Forschungsnetz), founded in 1984 as an association of universities and research institutions, built the national science network: the X.25-based WiN (Wissenschaftsnetz, 1990), upgraded through B-WiN (1996) and the IP-based G-WiN (2000) to today’s X-WiN. Behind those acronyms were computing-centre staff at universities large and small who adapted protocols, configured the first routers, fought the Bundespost’s monopoly pricing, and argued their institutions onto the network years before commercial providers existed. Commercialization, when it came, grew out of the same academic groups. Zorn’s Karlsruhe team spun off Xlink in November 1989 to sell internet connectivity, first to southern German universities and then, in 1990, to its first corporate customer BASF; the group of Dortmund researchers around the EUnet project incorporated EUnet Deutschland in Dortmund in December 1992, the country’s first commercial internet service provider, with Xlink privatized as the second in 1993.

The Web arrived through the physicists. The research centre DESY in Hamburg had a homepage from September 1992, probably the first in Germany, before CERN released the Web software into the public domain on 30 April 1993. Politics and media followed: in 1995 the SPD member of parliament Jörg Tauss founded a “virtual local branch” of his party, and a Free University of Berlin pilot gave six members of the Bundestag homepages; Der Spiegel, available on CompuServe from 30 April 1994, opened SPIEGEL ONLINE on 25 October 1994, by its own account the first news magazine on the web. In October 1998 the Mannheim student Henrik Pfluger wrote buddyPhone, an early internet telephony program, which had more than a million users in 1999.

Deutsche Telekom and the Internet

Germany’s internet development was shaped significantly by Deutsche Telekom’s monopoly on telecommunications infrastructure. The company, privatized from 1996, controlled the local loop (the copper wire connecting homes to telephone exchanges) and set the terms for competitors’ access to it. Telekom launched its T-DSL service in 1999, but competitors depended on access to its lines, and Germany later fell behind most of Europe in fibre-optic connections.

CompuServe Germany, AOL Germany, and later T-Online (Deutsche Telekom’s own ISP) were the dominant early access providers. Until flat rates spread in the early 2000s, connections were billed by the minute.

The Samwer brothers (Oliver, Marc, and Alexander) built a significant German technology business by systematically cloning successful American internet businesses for European markets before the American originals could expand: Alando (eBay clone, sold to eBay in 1999), Jamba (ringtone business), Zalando (Zappos model, IPO 2014), and through Rocket Internet, dozens of “copycat” businesses in emerging markets. The model was commercially successful and controversial: critics called it parasitic, while the Samwers called it execution in markets American companies were too slow to enter.

Privacy Culture and Regulatory Influence

Germany’s history, from the Nazi regime’s use of population registers for persecution to the Stasi’s surveillance of East German citizens, produced an unusually strong privacy culture. The German state of Hesse passed the world’s first data protection law in 1970, and Sweden’s 1973 Data Act was the first at national level. The federal Bundesdatenschutzgesetz (Federal Data Protection Act) followed in 1977. In its census ruling of 15 December 1983 the Federal Constitutional Court derived a basic right to “informational self-determination” from the constitution, a concept that later shaped European data protection law.

When Google launched Street View in Germany in 2010, about 245,000 objections forced it to blur the houses concerned, and Google stopped updating the German imagery until it began photographing again in June 2023. Facebook switched off automatic face recognition in Europe in 2012 after objections led by the Hamburg data protection commissioner and Ireland’s regulator.

The same instinct settled Germany’s part in the 1990s crypto wars. Interior Minister Manfred Kanther pushed in 1997 for mandatory key escrow, government access to every encrypted message, but coalition partners and the economics and justice ministries blocked him, and in 1999 the Schröder government’s Eckpunkte der deutschen Kryptopolitik committed the state to protecting rather than restricting strong encryption, a stance it still holds. Germany went on to fund GnuPG, the free encryption tool much of the world relies on (see Phil Zimmermann and PGP).

German ideas fed into the European Union’s General Data Protection Regulation (GDPR), adopted in 2016 and applied from 25 May 2018; its rapporteur in the European Parliament was the German Green MEP Jan Philipp Albrecht. It applies to every company serving users in the EU, American technology companies included.

Why No German Google?

Why Germany, with its engineering culture, research universities, industrial capacity, and wealth, never produced a global consumer technology platform has several structural explanations. German university research was strong in engineering and natural sciences but organized around traditional academic career paths; the American model of founding companies to commercialize research was culturally and institutionally unusual. German finance was bank-dominated: the Hausbank relationships between companies and their lending banks provided patient capital for manufacturing investment but were poorly suited to high-risk, equity-funded technology ventures. The venture capital industry in Germany was a fraction of the US equivalent in both scale and sophistication through the 1990s and 2000s.

The German language itself was a partial barrier, software built for a German market had a natural ceiling in a country of 83 million people before expensive localization. American companies, building in English, had immediate access to a global market. The European Common Market reduced but did not eliminate this friction.

Cultural factors mattered too. German business culture valorized engineering precision, long-term relationships, and institutional reliability. The Silicon Valley culture of “move fast and break things” (of shipping half-built products to test market reaction, of failing publicly and pivoting) was poorly received by German customers and uncomfortable for German engineers. German employees had strong legal protections against dismissal, making the rapid scaling and rapid contracting of startup headcount operationally difficult.

Finally, Germany’s existing industrial strength was both asset and constraint. The Mittelstand created a domestic market for B2B software that absorbed engineering talent and entrepreneurial energy. Building world-class software for BMW’s supply chain was commercially sensible and technically demanding; it was also a path away from the consumer internet.

The Current Landscape

SAP remains the largest enterprise-applications company in the world, with revenues of €34 billion in 2024. TeamViewer became a significant remote access software company. Zalando is one of Europe’s largest e-commerce platforms. DeepL, founded in Cologne in 2017, built a machine translation system that technical users widely prefer to Google Translate for European languages.

The startup ecosystem has matured. Berlin became the most significant startup hub in continental Europe, attracting capital and talent from across Europe and beyond. N26, Delivery Hero, HelloFresh, and Auto1 reached unicorn valuations. Celonis, founded in Munich in 2011, became a leading process mining company with a multi-billion-dollar valuation.

The largest global technology platforms (search, social networks, cloud infrastructure, consumer devices, operating systems) remain American or Chinese.