Paul Wallbank | Paul Wallbank - Communications Professional

Nothing is stabilising – welcome to an era of exponential innovation

John Hagel of Deloitte’s Centre for the Edge joined Decoding the New Economy to discuss his view that we’re living in an age of exponential innovation.

“Increasingly our view is that it’s creating a challenge for companies, traditional businesses who say ‘we’ve been operating in a linear fashion for decades or in some cases centuries or more’ but how do we move to an exponential approach to technology so we don’t get overwhelmed.”

I’ll be writing the interview up in more detail later, but for the moment enjoy the video.

Image of John Hagel by Trycatch though Wikimedia

The taxing business of options

The Australian attempt to reform the tax system is an interesting exercise in international comparisons.

I’m burning the midnight oil tonight pulling together a story for Business Spectator on reforming Australia’s tax treatment of employee option schemes.

This is a fraught subject as Australia bucked the global trend in 2009 after it became obvious the corporate sector was abusing the existing tax rules that were largely in line with most OECD nations.

In a clumsy, poorly thought out reaction – which is sadly the mark of modern Australian governments of all shades – the then Rudd Labor government radically changed the rules governing employee schemes that made it difficult for any business to offer stock to their staff.

Last week I spoke to Sydney business intelligence company Encompass and after the video the founders told me about the importance of their share scheme, it illustrated exactly the problem facing Australian startups.

Five years on and it’s apparent the strict rules are working against Australian business and various industry associations, accounting groups and startups are lobbying for reform.

One of the lobbying initiatives is Deloitte’s Retaining Talent project that has some fairly modest proposals in bringing fairer rules back for smaller and younger startups.

The story’s particularly interesting for me in that I’m bringing together a number of previous posts citing how other countries and cities like San Francisco and the United Kingdom have changed their rules on option schemes.

For Australia, the closure of the country’s car manufacturing industry and the struggles of the agricultural sector are bringing home to voters and the government just how seriously the country squandered the massive mining boom of the last decade.

While reforming startup option schemes is a useful start, it’s hard not to think it’s way too little and way too late for the country to begin planning for the post mining boom economy.

Avoiding the smartphone commodity trap

Can HTC avoid the looming commodity trap for smartphone manufacturers?

HTC’s announcement that the company going to focus on lower margin, mid market smartphones illustrates the maturing of the phone marketplace.

Smartphones have been a huge, and immensely profitable, business for cellphone manufacturers however the devices are now becoming a commodity as the high end western markets become saturated and cheaper devices start to enter the marketplace.

Having been comprehensively defeated in the high end marketplace by Samsung and Apple, Taiwanese manufacturer HTC hopes to make money in the lower end of the market.

For HTC it’s questionable how profitable these cheaper markets will be; rebates to telcos and distributor markups tend to eat up most the margin while pushing up retail costs.

The biggest factor of all though is the entry of newer Chinese businesses into the market, it’s going to be a tough for the Taiwanese manufacturer to compete with these suppliers.

Even Apple and Samsung are being affected by the slowing demand for high end smartphones.

HTC’s dilemma would be familiar to most electronic manufacturers; the high end of the market is a narrow niche – the premium smartphone market, like PCs, is dominated by Apple – while the other suppliers fight not to find themselves locked into the commodity end of the market.

For HTC the trap is not to fall into the commodity trap; although it’s hard to see how they’ll do this in a smartphone market that’s increasingly becoming a low margin, high volume game where, like the PC market, there is no middle ground.

Seeing the full picture

Data visualisation service Encompass is an example of finding a business opportunity from a scarring experience.

Being able to make sense of data is one of the challenges of modern business.

In the case of data visualization service Encompass, the business was founded after its founders were caught out by not knowing all the information behind business deal.

The latest Decoding The New Economy video is an interview with Roger Carson and Wayne Johnson, the co-founders of Encompass, a cloud based data visualisation company.

Encompass takes corporate information such as credit information and business registration details and renders it into a form that’s easy to read for salespeople, bankers or anyone doing due diligence on an organisation or individual.

“A lot of it is about bringing the information together and making it usuable and simple to use,” says Wayne. “If you can’t get that information easily and it takes relationships with lawyers to put it all together or your own legal advisor takes a long time to get this together, it’s costly and you may miss things.

Wayne and Roger’s path to starting Encompass came from being caught out in a property deal where it turned out some of the business partners wouldn’t have passed close examination.

“The property venture we went into was not a success,” Roger explains. “If we had known about the people and the properties and the companies involved on the other side of that transaction we probably would not have got involved in it.

“The genesis of this product really came about because we were involved in a transaction where we didn’t have the full picture, we couldn’t get the full information quickly and we therefore realised there had to be a better way for people to look at commercial transactions and get the full picture.”

It’s often said that information is power, but the real power lies in being able to understand the data we’re being flooded with. Encompass are a good example of the new breed of business that’s helping others deal with the masses of information we’re all being inundated with.

Refining the pitch

LinkedIn founder Reid Hoffman has some great advice for businesses

LinkedIn founder Reid Hoffman has a great post on his website dissecting his original investor pitch in the light of what he’s learned in the subsequent decade.

The post is full of excellent advice from a business leader; the importance of finance versus product strategy, the risks of confirmation bias and finding what makes your business stand out from a crowded market are just three good points.

Hoffman also flags how pitching a business to sceptical investors helps entrepreneurs figure out what the real risks are in their business.

Another important point is that investment come into and go out of fashion, with 2003’s investment climate being very different to today’s.

In 2013, it’s whether you can break through the noise. Today, there are probably a thousand consumer internet startups founded every quarter — how do you become one of the 1 to 3 that matter in a 7-year timeframe? Those are the kinds of objections you need to steer into at the beginning of your pitch.

Ultimately though, Hoffman emphasizes how a business needs to be defensible, saying of LinkedIn: “It’s a network effects business, which means it has inherent defensibility with a network.”

Even for businesses that aren’t tech or web startups, Hoffman’s post is a great guide to developing a business plan and promoting a venture to investors and customers.

Technology’s Ayn Rand fallacy

The tech industry’s love affair with Ayn Rand and libertarianism is a deep contradiction with its roots.

Adam Curtis in his wonderful BBC series All Watched Over By Machines of Loving Grace discusses how Ayn Rand influenced many in the tech industry.

Having been accused of being a ‘techno-utopist’ Curtis’ story is a good reminder of the limits of technology and how the future doesn’t usually turn out how we imagine.

The Ayn Rand influence is worth reflecting on as Rand’s libertarian outloook is shared by many in the technology industry – from the lowest PC technician to the highest flying software mogul.

Rand’s beliefs are best portrayed in her own words, in a 1958 interview with Mike Wallace she tells of how she believes in “challenging the moral code of altruism.”

In Rand’s world view it was the duty of each man to achieve their own happiness, self sacrifice and caring for other is weakness.

That technologists should have those views is curious in that the entire computer industry, the internet and Silicon Valley itself is the result of massive US government spending during World War II and the Cold War.

An more delicious irony is the centre of Silicon Valley, Stanford University, is itself the result of a bequest by railroad tycoon and former Californian governor Leland Stanford.

So self-sacrifice, altruism and government spending forms the basis of the entire modern tech industry – something that computer industry’s libertarians ignore, if they are conscious of history at all.

An even bigger contradiction is the belief that the internet dismantles government and corporate power – one of the lessons of Edward Snowden’s revelations is how comprehensively intelligence agencies monitor online communications.

When the history of Silicon Valley and the 21st Century tech boom is written, one of the compelling themes will be the contrast between the industry’s beliefs and reality.

The final chapters of that history will describe how that contrast between reality and beliefs is resolved.

Has the social media bubble popped?

Poor LinkedIn and Twitter earnings could be marking the end of the social media bubble

Last week Facebook’s stock soared after the company reported better than expected earnings on its advertising services.

It seemed that the social media sites had finally cracked the code on how to make money out of their billions of enthusiastic users.

This week sees a different story as both Twitter and LinkedIn disappointed investors with missed revenues targets in their quarterly earnings reports.

Twitter’s blues

For Twitter the market reaction was merciless – the stock price dropped 24% – as a $500 million loss in it’s first quarter of trading on the stock market is not a good look.

In Twitter’s defense, all of that loss was due to the cost of acquisitions being booked by the company. In 2013 the social media site spent over $500 million buying out various advertising, curation and and analytics services.

The question now for Twitter is whether they can weld together a profitable platform from the collections of businesses they’ve acquired and start delivering a return to investors.

A miss for LinkedIn

LinkedIn has a similar bent towards acquisitions having announced its purchase of data analytics company Bright on the same day as its disappointing results, however the company’s undershooting expectations was because of lower than expected revenues.

‘Disappointing’ is an interesting word in the context of LinkedIn as revenues were up 47% over the previous year.

What possibly should have been more concerning for analysts than the headline revenue number are Linkedin’s soaring costs of doing business – both sales & marketing and product development costs were up 50% year on year – which cut profits by over two thirds.

The most worrying part of LinkedIn’s earnings miss is the company’s price to earnings ratio. Currently the stock trades at an eye-watering P/E of 1,000 which implies investors are expecting a lot more revenue into the business.

Over-inflated expectations

It’s hard to argue that social media stocks aren’t in a bubble with those multiples. Even Facebook trades a hefty one hundred times earnings despite its improved revenues.

Perhaps the simple fact is we’re expecting too much from social media services; they are good businesses, but maybe they’ll never be the fantastic profit machines that Apple, Google or Microsoft have been.

Could the Internet of Things grow by fifty times?

Cisco Systems’ Visual Networking Index forecasts M2M data traffic will grow fifty fold in the next four years.

One of the annual events in the tech world is Cisco’s Visual Networking Index, the company’s survey of internet traffic trends.

The numbers, as always, are staggering and this year Cisco are forecasting that global internet traffic will grow by a factor of eleven over the next four years to 190 exabytes – that’s 190,000,000,000,000Mb or the equivalent of 19o billion hard drives.

What’s particularly fascinating about this year’s index Cisco forecast that by 2018 there will be more mobile devices on the planet than people.

Many of those devices will be the sensors and equipment that makes up the Internet of Things (IoT), or Machine to Machine (M2M) technologies and Cisco expects the internet traffic in this area to surge fifty-fold over the next four years.

This is remarkable as most of the M2M devices don’t use much data as the vast majority only need to send out the odd short signal – as opposed to smartphones that download megabytes of information each day.Cisco’s predictions underscore just how pervasive this technology is going to become in the next few years, the challenge for us is to understand how to use and protect the masses of data these systems are going to generate.

Trapped in orbit – the founder’s dilemma

Walking away from a business is not always a simple task as Bill Gates is finding

Earlier this week Microsoft co-founder Paul Allen celebrated his Seattle Hawks winning the Super Bowl while his former business partner, Bill Gates, still struggles to escape the clutches of the software giant they founded forty years ago.

After a long drawn out process, software giant Microsoft has finally chosen its replacement for CEO Steve Ballmer however founder Bill Gates finds himself firmly trapped in the company’s orbit.

Hoodie wearing Satya Nadella‘s ascension to Microsoft CEO was probably the poorest held secret in the tech industry having been openly reported for several weeks.

Nadella has a massive task ahead of him as the industry that’s been so lucrative for Microsoft over the past thirty years evolves to deal with the post-PC era.

How Nadella manages Microsoft’s transition will define his business career and tenure at the top job, it will also determine the company’s position in a marketplace where PCs running Windows are no longer relevant.

The biggest news from Microsoft’s announcement though was that Bill Gates will step down as Chairman of the Board and take a new position as ‘founder and technology advisor’.

Microsoft also announced that Bill Gates, previously Chairman of the Board of Directors, will assume a new role on the Board as Founder and Technology Advisor, and will devote more time to the company, supporting Nadella in shaping technology and product direction. John Thompson, lead independent director for the Board of Directors, will assume the role of Chairman of the Board of Directors and remain an independent director on the Board.

Despite leaving the CEO role over a decade ago, Gates finds himself back in a hands on role at the company.

The value of Bill Gates

It’s questionable what value Gates is going to add in the role of ‘Technology Advisor’ as Microsoft’s markets are very different to those the company was founded in and came to dominate in the 1980s and 90s.

For Nadella, it’s not exactly a vote of confidence from the board in appointing the company’s founder to hover over his shoulder offering helpful advice.

On a personal level this must be disappointing for the founder and former CEO as well in that his mind is on far greater topics such as eliminating malaria through the Bill and Melinda Gates Foundation.

Trapped by Microsoft’s gravity

Gates’ situation though is a classic example of a business founder who’s never been able to get out of the orbit of their business. Despite their best efforts, they keep being dragged back to give a helping hand.

At least though Gates has at least been able to step away to some degree, many baby boomers with smaller businesses are going to be locked into their companies as GenX or Y entrepreneurs don’t have the funds to pay what the proprietors need to retire.

Those boomer entrepreneurs are going to work in their businesses until either they or their venture is put to rest.

Bill Gates’ dilemma though shows how tough it is for business founders to escape the gravitational pull of their creations, even when it’s as big a business as Microsoft.

Paul Allen showed how to step away from a business and is enjoying life, Bill Gates’ story though is much more typical for business founders trapped in the enterprises they built.

Mortein and The Queen

The story of Queen Elizabeth II and fly spray tells us much about modern scientific research.

A great little story from the Australian government’s research arm, the CSIRO, tells the story of how the Queen Elizabeth II lead the commercial insect repellent industry and how intellectual property has changed.

The story tells how the original experiments were carried out in 1940 to see what substances were best in repelling mosquitos as part of the preparation for a tropical war against Japan.

After the war, research continued and during the 1963 Royal Tour of Australia, the Queen was sprayed with the government repellant to keep flies off her while she played golf.

Journalists following the Queen noted the absence of flies around the official party, and word about CSIRO’s new fly-repellent spread. A few days later representatives from the company making Mortein insecticides called Doug Waterhouse for his formula, which he passed on freely, as was CSIRO’s policy at the time and the rest, as they say, is history.

It’s unthinkable today that any research organisation would give intellectual property away and a modern agreement would include hansom royalties for the formula.

There’s an argument that giving away the intellectual property helped innovation and public health, but in these stingy and cash strapped days it’s hard to see how government scientific organisations could survive without royalty payments.

It certainly is true that the past is a different country.

Fly spray can courtesy of Wikipedia

Buzzfeed and the cat problem

Can Buzzfeed become social media’s New York Times?

Last week, the viral news site Buzzfeed launched its Australian operation with a visit from Scott Lamb, the company’s Vice President for International operations.

As the “media company for the social age” in Scott’s words, Buzzfeed has led the way in ‘viral media’.

The viral media model revolves around audience reach, and revenue, being measured on the amount of sharing on social media services like Facebook and Twitter rather than how many people view or visit their websites.

Buzzfeed’s Cat problem

For Buzzfeed attracting this traffic mean cats – people love sharing pictures of cats on the web.

While Scott likes cats as much as any of his readers, he describes the industry as facing a ‘cat problem’.

“The cat problem is that we all love cats, but they’re also a barrier to taking the internet seriously,” Scott said. “It’s true for Buzzfeed and it’s true for a lot of other websites as well.”

Cats may be both a problem and a boon for Buzzfeed but there’s more to the business with Scott describing to the Sydney audience what he saw as the four myths of online media;

Long form writing doesn’t work on the web
Paying attention to clicks leads to lowest common denominator stories
Social is merely a box you need to check
Creating sharing content is easy and trivial

There’s no doubt that item four is hard, although how much harder re-purposing stuff found on the web is compared to creating original content is open to question.

Point three is a given for Buzzfeed given its business model and there would be few media sites that weren’t concerned about how often their stories aren’t shared on social media.

Being taken seriously though weighs heavily on Buzzfeed so it was the two first points that Scott emphasised in his Sydney presentation.

Long form journalism

Scott was proud to show off BuzzRead stories like Why I Bought A House In Detroit For $500 or The Most Dangerous Sentence in US History to show the site’s credibility as a reputable, considered venue for long form journalism, just like the New York Times.

The problem for Buzzfeed’s aspirations though is the US Presidential story received 1,400 tweets and just over four thousand Facebook shares, the Detroit story gained five thousand tweets and 29,000 shares.

On the other hand, a quiz on what city should you live in received 578,000 shares and 26,000 tweets. For the record, I got London which is something I’m ambivalent about but certainly beats getting Murmansk.

That meme proved so good that Buzz Feed repeated it a week later with a what sort of job you should have quiz.

You can’t blame them for exploiting a meme, particularly one that gets half a million shares.

Scott though didn’t see the traffic mismatch between the worthy and the tabloid as being a problem; “we know we can’t equate an 8,000 world article to a quiz,” Scott said. “In terms of our business model our revenue isn’t tied to page views.”

“There is incentive for us to get as many a views for an 8,000 word article as possible.”

Riding the Facebook tiger

Regardless of the viability of 8,000 words articles, the real problem for Buzzfeed in its aspirations to become a virally shared New York Times is the site’s reliance on Facebook.

Relying on Facebook is path to disappointment, the service has shown it’s quite willing to burn partners, including advertisers, small businesses and users in the interests of its own corporate interests.

For Buzzfeed, the assumption the media site’s corporate interests will always align with Facebook’s is brave assumption.

Another problem for Buzzfeed is content, the bulk of the site’s material and what drives most sharing are posts that gather pictures from the web – primarily Facebook.

Using other people’s content lies at the core of viral sharing sites and most of Buzzfeed’s competitors shamelessly steal material from other websites, particularly Buzzfeed, in the aim to drive shares from gullible users.

Buzzfeed itself isn’t immune from that risk, with a photographer suing the site for $3.6 million over a photograph used in one of its lists.

Risks in the model

On the scale of risks to Buzzfeed not being seen as an viral version of the New York Times is quite low; the real risks are of being overtaken by a savvier competitor, falling victim to a Facebook change of policy, or simply turning out to be a transition effect in an industry that’s undergoing massive and rapid change.

The aspiration of Buzzfeed becoming a New York Times is probably irrelevant anyway, most Facebook users don’t care about long form journalism – they like cats.

In an era where the public wants animal pictures and celebrity scandals – who needs to be the New York Times?

Perhaps the cat problem isn’t a problem, but the future for media channels like Buzzfeed.

Driving out inefficiencies

Inefficiencies are being squeezed out of business and corporations are going to have to adapt, warns the World Economic Forum.

“We’re driving inefficiencies out of every single facet of life,” AT&T CEO Randall L. Stephenson told The World Economic Forum’s New Digital Context panel last month.

The CEO panel at the Davos forum, which included Yahoo!’s Marissa Mayer, Salesforce’s Mac Benioff, Cisco’s John Chambers and Gavin Patterson of BT discussed how corporations of all sizes are being affected by rapid market changes.

“All this bandwidth, all these connected devices, are as disruptive as anything this society has ever seen,” Stephenson said.

“Companies that aren’t moving and driving the new technologies are companies that don’t stay alive.”

Stephenson’s view was supported by Cisco CEO John Chambers, “if you look at big companies only a third of us will exist in a meaningful way in two decades.”

Chambers cited Cisco’s experience from the past two decades to illustrate how business is rapidly changing, “my competitors from fifteen, twenty years ago – none of them exist or they’ve exited. From ten to fifteen years ago only one exists, from five to ten years ago only a few.”

“If you don’t disrupt, you get left behind,” warned Chambers.

Chambers’ advice to managers is that teams have to be empowered and encouraged to take risks and learn from failures, advice endorsed by Yahoo!’s Marissa Mayer.

“The best thing you can an executive can do is play defense, not offense. Get out everybody out of the way and set up an evironment where they can really run and make a difference.”

Yahoo!’s Marissa Mayer endorsed the change, describing a much flatter organization; “we try and run things really flat, really transparent.”

That flat organisation is really the biggest risk to many executives in staid, safe organisations; it means fewer middle managers as the workplace is increasingly automated.

As businesses adopt new technologies, the need for Executive Vice Presidents or Group General Managers is eliminated – along with the armies of assistants and underlings required to help these folk in their roles.

In the past, those layers of management have isolated senior executives from their customers which Salesforce’s Marc Benioff is a luxury companies can’t afford in the current marketplace, “everything is going faster, companies have to change faster.”

“Today if you’re not listening to your customers more deeply than ever before and not reacting to them more rapidly than every before,then you are probably making a mistake,” warns Benioff.

Most of those in the room at WEF were the world’s top executives and government officials, how many of them take note of how business is changing will become clear in the very near future.

There’s also a warning for those government leaders on how employment and government services are going change in the near future which a lesson that needs to be heeded as policies are developed.

Now’s the time for every manager, business owner or executive to look at the inefficiencies in their workplace and whether it can be eliminated either through technology or business restructuring. It may well save you from being identified as an inefficiency yourself.

Steam train image courtesy of Gabriel77 through sxc.hu