Vacation rentals were going to be Peter Ingelbrecht's road to riches. After having trouble finding a house for a holiday on Spain's Costa del Sol two years ago, the 35-year-old Belgian consultant teamed up with friend Laurent Coppieters to found Rent-a-Holiday--an online booking agency for villas and apartments. ''I wanted to create something like in Silicon Valley,'' Ingelbrecht says. But across the globe, Microsoft Corp. (MSFT) alumni Greg Slyngstad and Steve Murch were dreaming of a similar path to fortune. They had spent a combined 14 years at the software giant. ''Microsoft was getting so big,'' Slyngstad says. ''I wanted to create something on my own.'' In October, 1997, nine months after the Belgians started their company, Slyngstad and Murch founded VacationSpot.com, aiming to serve the same villa and home rental market worldwide. The ensuing competition crystallizes the obstacles facing European Internet entrepreneurs. Rent-a-Holiday succeeded in signing up as many real estate agents as its transatlantic competitor. But the Europeans found it harder than the Americans to raise money and recruit staff. They had more trouble gaining precious exposure on portals such as Yahoo! (YHOO) And they were unable to charge the same premiums for ad space as the Americans. The denouement was inevitable: In an all-stock deal this summer, VacationSpot.com bought Rent-a-Holiday for an undisclosed sum. While the founders of Rent-a-Holiday made some errors that led to the buyout, their story also reveals systemic problems that need to be redressed if Europe wants to be a serious contender in e-commerce. NO PROOF. What hobbled the Europeans? Their difficulties started with finance. Soon after Ingelbrecht returned from his Spanish holiday, he and Coppieters pitched their business plan to local venture capitalists. Both had strong resumes: Coppieters had a degree from Belgium's prestigious Solvay Business School, and Ingelbrecht graduated from Stanford University Graduate School of Business. They met while working at technology advisers Boston Consulting Group Inc. But Belgian financiers rebuffed their overtures. ''They wanted to see proven assets and a proven cash flow,'' recalls Coppieters. ''If we had that, we wouldn't have needed them.'' In the end, the two put together $400,000 of their own savings and family money. Three months later, in June, 1997, a Belgian venture capitalist finally agreed to chip in $850,000. By contrast, the American entrepreneurs were deluged with financial options. ''These tremendous executives with great experience at Microsoft walked into my office with an interesting idea,'' says Jay Hoag, a managing partner at Technology Crossover Ventures, backer of such successes as Real Networks (RNWK) and CNET (CNET). ''Of course we were interested.'' After sifting through a half-dozen offers, Slyngstad and Murch took $5 million from Technology Crossover and $4 million from other investors. ''It's heaven for entrepreneurs now in America,'' says Slyngstad. Hiring good staff proved to be another bugaboo in Europe, where many rising stars still prefer established companies to startups. ''Success for most of my friends still means working for an IBM (IBM) or Procter & Gamble (PG) and making your way up the ladder until you are 55 years old with a big office and a big cigar,'' says Ingelbrecht. When he told friends he was quitting his job to start a Net company, they were shocked. Even mid-level employees were tough to find. Although Western Europe suffers from 10% unemployment, technical staff such as Web designers are rare. International Data Corp. says 320,000 such jobs are unfilled in Europe. ''There may be a lot of jobless here, but not in computer fields,'' says Coppieters. The Americans faced no such difficulties. ''MBAs were fighting to join up with us,'' says Slyngstad. Within a few months, VacationSpot.com had hired 45 employees--three times the number the Europeans could attract. Slyngstad didn't have to offer huge salaries, either. Stock options sufficed. DREAM HOMES. And then there's strategy. The Europeans focused on signing up real estate agents and expanding their listings to an impressive 9,000 rental properties. Visitors to the site would find their vacation dream house, jot down the details, and get in touch via e-mail or phone. Rent-a-Holiday made money by charging real estate agents a flat fee for listings. The Americans attacked a larger target. Like the Europeans, they began by signing up real estate agents. But since Internet penetration is much higher in the U.S. than Europe, VacationSpot could charge twice the price per listing. At the same time, Slyngstad began building a full-service site that would allow customers to book a holiday villa online. Instead of just taking a fee from agents, the company charges a commission on each rental. Attracting traffic is key to success on the Net, and here, too, the Americans had an advantage because portals are much less developed in Europe. Rent-a-Holiday did strike a deal with portal Lycos Inc. (LCOS) But VacationSpot.com became a preferred supplier to Yahoo!, Microsoft Expedia, Preview Travel, Travelocity, and others. ''We underestimated both the importance and cost'' of such agreements, admits Ingelbrecht. After a year, VacationSpot was getting five times more hits than Rent-a-Holiday. The Europeans faced other mounting pressures. Their investors wanted to see a profit. The Americans' backers weren't in such a rush. ''We wanted VacationSpot.com to become a dominant player in the long run, not make money in the short term,'' says venture capitalist Hoag. The Americans did have one major weakness: few European listings. ''We needed better coverage there,'' Slyngstad says. Building a European presence from the ground up would have been too slow to please investors, so Slyngstad called Brussels in March. Ingelbrecht and Coppieters saw the logic of selling out. They would gain VacationSpot's superior financing and technology and be able to offer their staff its stock-option plan. The Belgians flew to Seattle in April, but the talks broke down over price. The Americans offered the Europeans less than 20% of the combined company in an all-stock takeover. VacationSpot had five times Rent-a-Holiday's traffic so Slyngstad and Murch argued this was fair. But Rent-a-Holiday had nearly as many listings as VacationSpot, so the Europeans thought the split should be closer to equal. The Americans didn't give up. They upped their offer, and by July the deal was done. The Europeans ended up with a little more than 20% of the new company. Slyngstad remains as chief operating officer. VacationSpot.com will be the single brand name. Ingelbrecht and Coppieters become joint directors of European operations. Rather than feel defeated, the two Belgian entrepreneurs are optimistic. Rent-a-Holiday was years away from going public in Europe's underdeveloped Internet capital markets. But VacationSpot plans an initial public offering next year. ''We get to share an American valuation,'' Ingelbrecht says with a smile. Indeed. He and Coppieters walked away with a fistful of stock and options, although they decline to provide details. As it turns out, vacation rentals over the Web may still prove to be their road to riches. But the message for other European entrepreneurs is sobering: Competing with U.S. startups--even with a head start--is likely to be an uphill, uneven fight.

a) Porter's theory of national competitive advantage suggests that characteristics of individual nations shape the ability of firms to compete. For US entrepreneurs, what advantages are offered by US location? Any disadvantages?

b) Compare EU entrepreneurs & their European location advantages & disadvantages?