Paul Wallbank is a speaker and writer charting how technology is changing society and business. Paul has four regular technology advice radio programs on ABC, a weekly column on the smartcompany.com.au website and has published seven books.
That suspicion comes from running an IT support business though the turn of the century virus epidemic, it’s hard to take the same companies whose products failed to detect the malware — and in some cases made problems worse.
At the annual Tech Leaders Kickstart event today, I found that old hostility bubbling up as a series of security vendors warned us of the terrible threats in cyberland and how their product would solve most, if not all, of our problems.
The irritating thing with their pitches is that none of them would articulate how the threats are evolving, or give real time examples.
Deloitte Center for the Edge founder John Hagel talks about our era of exponential innovation.
“How do we move to an exponential approach to innovation” asks John Hagel, Director of Deloitte’s Centre for the Edge in the latest Decoding the New Economy video.
The Centre For The Edge is Deloitte’s Silicon Valley based think tank that identifies and explores emerging opportunities related to big shifts that are not yet on the senior management agenda.
John tells us how the cycles of change and innovation have varied over the last thirty years in the industry; “the biggest thing for me is that nothing is stabilising. I often go back into history and look at things like electricity, the steam engine and the telephone – all hugely disruptive to business practices.”
“But the interesting pattern is they all had a burst of innovation and then a levelling off,” says John . “You could stabilise and figure out how to use all this technology.”
“With digital technology there is no stabilisation.”
That lack of stabilisation leads to what John has termed ‘exponential innovation‘ where he sees business and education being rapidly transformed as technology upends established practices and methods.
Healthcare, financial services and “any industry that has a high degree of information content ” are the sectors currently facing the greatest challenges in John’s view.
John sees the solution for businesses and managers in looking at the current era not as a time of technology innovation but of institutional innovation. That institutions, like companies, have to reinvent how they are organised.
Reinventing well established companies or centuries old bureaucracies is a massive challenge, but if John Hagel’s view is right then that radical change to institutions is what is going to be needed to face a rapidly changing society.
Cloud computing has changed the way we expect software to work and changed the entire industry’s philosophy.
“I don’t use ninety percent of what’s in Microsoft Word” has been the complaint of computer users for years as they struggled through the myriad features of box software products.
In the days of floppy disks and CDs, software developers tried to deliver as many features as they could; despite the fact that the ordinary user only needed a core set of functions and that most items on the menus went untouched.
The result was bloated, difficult to use software. The cloud computing model changes this, particularly in business fields like accounting software.
Last week saw a blitz of releases from cloud accounting services with Xero, Intuit and MYOB all making big announcements.
MYOB announced a wide ranging product refresh, Intuit their mobile service and Xero its new board directors that point the direction for its US expansion.
A key part of all the announcement was how the services are all boasting of their partner ecosystems developing add ons that improve users’ functionality.
Once consequence of having an army of developers plugging into the product means that companies don’t have to ship bloated packages that have dozens of features that are irrelevant to each users’ needs.
Xero’s Australian CEO, Chris Ridd, put this well during the week by observing that company aims to “address the basic eighty percent of needs”.
This is the exact opposite of the box software model of the past where vendors would try to pack more features into their products which gave rise to the term bloatware.
Microsoft’s Office package was probably the best example of this massive growth in the product size, with the installation files eventually taking up a full 4.3Gb DVD to deliver something that most people were happy with when WordPerfect 2.0 shipped on three floppy disks.
That change to the software model is a good example of how business practices and methods change as technology evolves; it also illustrates just one of the fundamental changes older software companies are having to deal with as cloud services change their industry.
We can still have all the features we want in a software package, but we’ll just have to connect – and probably pay for the add ons.
Today, we’re more likely to be scrambling to find an add-on rather than complaining about features we don’t need.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Microsoft CEO Satya Nadella
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.
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.
