business advice | Paul Wallbank - Communications Professional

So you think services are easy?

The differences between service, hardware and software businesses shouldn’t be understated.

ZDNet columnist Ed Bott is possibly one of Microsoft’s closest followers and among the few to defend Windows Vista, Ed though can’t be faulted for doing the hard yards including reading Microsoft’s stock market10-K filings.

In their most recent filing, Ed finds Microsoft has used the word “service” 73 times as opposed to 44 appearances last year.

A key phrase in the filing is “a growing part of our strategy involves cloud-based services used with smart client devices.”

This is consistent with the hands on previews of Windows 8 which Microsoft have been giving journalists over the last few months. Something that leaps out is the integration with online services; something that both Google and Apple have also been pushing.

What should worry investors is that moving into services isn’t easy. Service businesses are far more labour intensive and, as a consequence, far less profitable.

Despite having relatively low labour costs, cloud computing services are problematic as many sectors have been commoditised, which is the genius of Salesforce in establishing a profitable niche.

The fat margins Microsoft are used to in their core software business can’t be replicated in the cloud based markets, which is one of the reasons why customers are switching to the cloud.

Microsoft’s problem is shared by telecommunications companies who are finding their cloud offering don’t generate the same ARPUs — Annual Revenue Per User — that they’ve become accustomed to in the mobile phone market. Which means pain for executives whose KPIs are tied to historical performance.

For Microsoft, the problem is compounded by their simultaneous move into hardware with the Surface tablets. Meaning the company’s has to deal with two significantly different business models to the ones they are used to.

Again Microsoft aren’t alone in this, Google is having similar problems adjusting to the hardware market though its acquisition of Motorola Mobility.

Integrating hardware with services and manufacturing isn’t impossible, we only have to look at Apple for how a company can succeed in that space although most managements struggle with the very different demands of each sector.

During the 1980s we saw the rise of the “all business is soap” philosophy where MBAs and management consultants preached that the challenges of running a business were the same regardless of whether you sold cleaning products, soft drinks, computers or automobiles.

Those folk were wrong. Most famously the Australian media company Fairfax hired as CEO a business school professor who preached this philosophy and managed to ignore the rise of the Internet, the echoes of the failed McKinsey ideas haunt Fairfax over a decade later.

While its possible for a software company to succeed at services or hardware, the magnitude and complexity of the management challenge shouldn’t be understated. Both Google and Microsoft will be defined by how well their leaders succeed.

Accounting for business change

Cloud computing is changing the accounting industry, how are the incumbents dealing with this?

Small businesses owe a lot to Craig Winkler – in 1991 he bought a obscure Mac based accounting package called Mind Your Own Business (MYOB) and built it into Australia’s leading small business accounting software.

Today Craig is a director and investor of Xero, a cloud computing service which is MYOB’s fastest growing competitor

At Xero’s Australian partner conference, Craig described how the development of business accounting software has evolved around technology opportunities.

MYOB’s massive growth happened as desktop computers became accessible to small businesses. Prior to 1990, it was rare to find a computer sitting on a business desk and they were largely confined to large financial, engineering and government organisations.

In the early 1990s computer prices dropped and as small businesses started using them, the need for desktop based office software exploded. This drove the growth of software like MYOB, Quickbooks and – most profitably of all – Microsoft Office.

Today a similar revolution is happening as computing moves onto the cloud, further reducing business costs and giving small organisations access to the same resources that only big corporations could access a decade ago.

Cloud based companies like Xero and Saasu are now threatening the incumbents like Quickbooks and MYOB who are responding with their own online products.

Tim Reed, the CEO of MYOB yesterday discussed how his business is moving to the cloud. With MYOB’s legacy of desktop based applications which they claim is used by 40% of Australia’s small to medium businesses it isn’t a straight forward process of dropping the old software and embracing the cloud.

Not that their customers are rushing to the cloud, Tim claims that a survey of their clients found that most want a ‘hybrid’ system where data is saved both on the cloud and on the desktop.

MYOB are catering for the hybrid cloud demand with a pilot program of their AccountRight Live product that adds online capabilities to their desktop software.

This is clear difference between MYOB and its cloud competitors. Xero’s founder Rod Drury maintains that those hybrid solutions are cumbersome and adds far more complexity into software. In Rod’s view, “cloud technologies are the right technologies.”

The difference between the philosophies of MYOB and Xero is reflected across the software industry – most notably this is the difference between Google and Microsoft or Apple.

Both Microsoft and Apple see cloud computing as an adjunct to their desktop, tablet and smartphone products. Data is synchronised between the cloud and the device while work is carried out on both.

Google on the other hand tries to do everything on the cloud.

Both approaches have their benefits, particularly in a world where Internet access cannot always be taken for granted which is the cloud’s biggest weakness. Although as mobile broadband becomes ubiquitous in the developed world, that disadvantage is quickly eroding.

Regardless of the differences in the philosophies, everybody agrees that cloud services are going to revolutionise small business. Both Tim Reed and Rod Drury see how the Big Data opportunities in the cloud are going to give business much more access to real time sales, banking and expense data while being able to benchmark their operations against industry performance.

As Craig Winkler described, we are on another big wave of change and there are great opportunities for the businesses that figure out how to use it.

Paul travelled to Melbourne attended the Xero Australian Partner conference courtesy of Xero. He received a private media briefing from MYOB.

Eating the Old Man’s lunch

Optus’ purchase of Eatability is ironic given Fairfax’s and Telstra’s failure with Citysearch.

Optus today announced the purchase of restaurant review site Eatability for $6 million.

Eatability is one of the services that’s destroyed the business models of both the phone directory business and that of newspapers.

Thirty years ago the Sydney Morning Herald launched its Good Living section and it became the way people went found where the good places were to eat.

Diners wanting to make a reservation at the hip eating places being reviewed in Good Living picked up the phone book.

Now they do neither, they go to web sites like Eatabilty or Yelp where they get reviews, contact details and everything else they need about the venue.

Which killed the advertising revenues that newspapers and phone directories depended upon.

The sad thing is both the newspapers and Yellow Pages could have owned this space. Citysearch was setup by Fairfax to address the online market and it was sold to Telstra when the newspaper chain struggled to make it work.

Citysearch today languishes neglected and nearly forgotten under the Sensis umbrella. Optus now owning Citysearch’s biggest local competitor which must bring a hollow laugh to those involved in the early days of Fairfax’s digital experiment.

Whether Eatability thrives under Optus remains to be seen, but it illustrates just how incumbent strengths like telephone directories are being eroded in the online world.

Old men have to start moving quickly if they don’t want upstarts eating their lunch.

Being Steve Jobs

Imitating Steve Jobs is not a recipe for success

Wired Magazine asks is Steve Jobs’ story a cautionary or inspirational tale for entrepreneurs and managers.

It’s always worrying when any one individual is cited as being the role model for business leaders – over the years we’ve seen Jack Welsh, Warren Buffet, Bill Gates and dozens of others lauded as being the perfect CEO.

None has probably lauded more than Steve Jobs, in many ways rightly so given the way he way he steered his business back from disaster and by the time of his death had made Apple the leader in a range of technologies that barely existed a decade earlier.

Despite Steve Jobs’ successes there’s no doubt he was a very difficult man – the stories of his bullying and striking fear into Apple’s staff are legendary and no-one has chosen to contradict them. For many people, he was impossible to work with.

George Bernard Shaw once wrote “the reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.”

No-one would have ever claimed Steve Jobs was a reasonable man.

Steve Jobs was unique – as is Apple, Microsoft, IBM, News Limited, Nestle, Joe’s Pizza Bar and the local plumbing supply shop. Every business is unique and different in it’s own way

For some of those businesses, a manager being an unreasonable asshole like Steve Jobs could be a recipe for success although disaster is probably more likely.

Disaster was the result for most manager and businesses in the 1990s who blindly copied the then eulogized Jack Welsh’s Six Sigma strategies or “Chainsaw Al” Dunlap’s slash and burn philosophies without appreciating the subtle differences between their organisations and GE or Scott Paper.

In business – as in life – there’s no “right way” or “wrong way” and thinking in a “yes” or “no” mindset, doesn’t work in a nuanced, complex world.

The Wired article on Steve Jobs itself falls into this binary thinking in asking readers if they are an “acolyte” or “rejector” of Steve Jobs’ methods. In reality, few people would totally reject every aspect of Jobs’ behaviour but few of us would be capable of totally imitating his behaviour.

Perversely, aping Steve Jobs is probably a career limiting move for managers. As Adam Hartung writes in Forbes Magazine, Steve Jobs couldn’t find a job today and someone with his quest for perfection would struggle with the bureaucracy of a corporation or government agency.

Like our businesses, each of us is unique and here’s a bit of Steve Jobs in all of us – at the same time most of us would also be repelled by many of Steve Jobs’ characteristics.

Simply copying someone else is neglecting our own strengths and acquiring someone else’s weaknesses. Surely it makes more sense to work to our abilities.

Writedowns and triumphalism

Sometimes headlines don’t tell the full story

The contrast between Microsoft’s and Google’s results released on Thursday attracted a lot of interest – for the first time in twenty years Microsoft posted a quarterly loss with Google’s profits continue to grow.

While there’s no doubt Microsoft are challenged by the effects of their lost decade and bad decisions made in that time, but the business itself is still extremely profitable.

Microsoft’s posted loss is due writing down 6 billion dollars in their aQuantive investment, an attempt to compete with Google in the online ad placement space.

Despite a six billion dollar writedown, Microsoft only posted a 500 million dollar loss showing the business is still making over 5 billion dollars profit each quarter.

Google on the other hand posted a profit of 2.8 billion, up 11% from the same period last year.

But Google also has some nasty writedowns coming in the future – the purchase of Motorola will see some substantial write downs of that 12 billion dollar deal. It’s conceivable that a very big portion of that investment will have to be written off as well.

Right now, Google’s seeing some benefit from the Motorola acquisition as the phone company’s cashflow is covering a decline in online advertising revenue, a threat to Google’s core business.

It’s easy to be triumphant when the headlines proclaim you’re a winner, but it’s often worthwhile looking at the fine print to see the real story.

Outsourcing’s changing face

Freelancer’s 50 fastest movers job list shows some interesting trends

Outsourcing company freelancer.com regularly releases the fifty fastest moving job descriptions requested by their customers.

This year’s list shows how the online industry is changing – content creation, social media and SEO job requests are all down substantially as users and gatekeepers like Google adapt to the information flood we all have to deal with.

Keeping in mind the market that Freelancer.com caters to small businesses and many of the jobs posted are for fairly small – some would say laughingly tiny and insulting – amounts, it’s probably safe to say we’re looking at the low value end of the market.

Article writing (down 15%), proofreading (5%), blogging (13%) and submission (4%) jobs are probably the cheap and nasty “Demand Media” style of low quality content designed for SEO purposes.

SEO itself is in trouble with jobs in that sector down 7% indicating Google’s Panda and Penguin search engine changes have achieved their objectives of improving search results and knocking out those gaming the system with low quality content.

A similar thing has happened with social media. Facebook is too hard for many businesses and they’re not seeing a return on their substantial time investment.

“Companies in industries from consumer electronics to financial services tell us they’re no longer sure Facebook is the best place to dedicate their social marketing budget—a shocking fact given the site’s dominance among users,” Freelancer quotes Nate Elliott, an analyst at market research firm Forrester.

A bright part in Freelancer’s list is the rise is in open standards as HTML5 starts moving up the list with 20% growth.

“The Internet is becoming more interactive, and the technologies that are winning and will continue to win are open standards like HTML5 and jQuery- to the detriment of the incumbents proprietary technology providers like Adobe and Microsoft,” says Freelancer’s CEO Matt Barrie.

Open standards aren’t winning everywhere though as Apple’s iOS is clearly winning the developer war as iPhone grows by 30% and iPad by 26% compared to Android’s 20%.

Freelancer’s list is an interesting snapshot at where industry demand is right now, what’s we’re starting to see are some of the transition effects working their way through the system. The rise and fall of the social media and SEO specialists being one of those.

The full Freelancer list is below;

Digg and perserverence

Is persevering with a failing business worthwhile?

A couple of years ago news sharing site Digg was one of the hot properties of the Internet. On the weekend Digg’s remaining online assets were sold for $500,000. So what happened to a service that promised so much?

The short answer is the business was overtaken by other services like Reddit, Facebook and Twitter. Coupled with that, the founders moved onto other projects. Running a business is tough and it’s understandable that founders would move away from an enterprise that doesn’t seem to have an exit.

In many ways this ties into the presentation by Ian Gardiner, Viocorp’s Co-founder and CEO, at Microsoft’s Bizspark APAC conference about perseverance. Where does a business owner draw a line with their startup baby? Should you pivot into another model or just move on from the idea altogether?

None of this is straightforward and the decisions will be different in every business. A local computer guy is going to have different factors to consider to failing doughnut franchise. Equally a fading media company is going to be very different to those confronting a declining department store – despite what the MBAs and management gurus steeped in the 1980s view that “all business is like soap” ideology.

For some like Ian, ‘pivoting’ to a new business model is the answer. At the Microsoft event last week, Sebastien Eskersley-Maslin of Blue Chilli described a participant of his Club Kid Entrepreneur who decided to sell paper airplanes and was so successful they started running out of paper to make new ones.

Faced with a shortage, the young entrepreneur decided to use the remaining planes as a target game – so rather than selling them, he charged a few cents to throw them at targets.

That’s the classic pivot, which the founders of Digg couldn’t execute with their web service.

All isn’t lost for Kevin Rose and the other founders of Digg though, while the headlines read about the $500,000 sale of the remaining assets they overlook that Digg’s other assets sold for sixteen million.

Choosing to persevere with a struggling business is a matter of faith – faith in yourself, the vision and the product you’re selling. It can be tough to let go of something you have so much faith in.

The Death of the IT Guy

The IT support sector is being disrupted as cloud computing service shake up what was a settled industry.

Until recently the cottage industry of computer repairers was thriving, having been born with the massive take up of computers by homes and businesses in the 1990s.

Over the years, things got better for the local IT guy as businesses and then homes became networked. Some of the smarter technicians started selling and supporting servers and things got better.

The arrival of the Internet, the approach of Y2K bug and, in Australia, the introduction of the GST made even more business for the local computer tech and the Windows virus epidemic of the early 2000s guaranteed plenty of work for anybody who knew how to wield a screw driver and a boot disk.

As the industry matured, maintaining office servers and looking after the regular glitches in desktop computers was a steady, reliable source of income for most support companies.

Every few years businesses or homes would upgrade their computers and that would trigger a cascade of costs as data was migrated and older peripherals like printers, serial mice and ADB accessories had to be replaced.

Then all came to a stop with the arrival of cloud computing services where many of older computers could access online applications just as well as newer computers.

For IT organisations with a business plan based up customers upgrading systems every three to five years this was a disaster.

These businesses were already feeling the pinch with the late arrival and market rejection of Microsoft Vista and now their customers could sit on older XP machines and happily use the latest online applications.

Sensible IT folk have understood the change and the good support companies now have an armoury of cloud based services for their customers. These businesses know the IT hardware and support spend of most businesses is shrinking and taking the market with it.

Unfortunately there are a few holdouts trying to keep the old business model alive who have a hundred reasons why cloud services are no good for their customers.

To be far to those fixed on the old IT model, this attitude is probably even more prevalent in corporate IT departments and among CIOs with cloud services seen – probably rightly – as a threat to their power and income.

One of the biggest risks to those support folk who aren’t at least evaluating cloud services for their clients is that shrinking IT spend and eventually there won’t be much money, or customers, left for the old model.

A similar thing is happening to bookkeepers and accountants as newer businesses and those with younger owners or managers are moving to cloud based software while the older ones are wedded to their legacy systems.

The older accountants who won’t move to the newer systems are finding their businesses growth stagnant while their younger colleagues are picking up the work from new businesses.

Computer support was always a business based upon the transition to a digital workplaces, similar to the men employed to walk in front of early motor cars with red flags.

Now workplace technology has matured, there’s less work for the IT guy. Hopefully most of them will make the change and not get run over like the guys clutching red flags.

On being a Luddite

Being skeptical about technology isn’t the same as being a Luddite.

“I’m a Luddite”, magazine editor James Tuckerman proclaimed as Master of Ceremonies for Microsoft’s Asia Pacific Bizspark Summit this week.

James was referring to an article in Australian Anthill in the 1990s where he predicted businesses would never use the Internet for research.

Being a Luddite isn’t a bad thing, James contends. In his view being skeptical about technology enables business owners to better evaluate technology as Luddites “think like a layman, don’t know the limits and think commercially”.

None of this is true though – being a skeptic is not the same as being a Luddite.

The original Luddites in the English Midlands weren’t anti-technology, they were opposed to the technology that would put them out of work.

At the beginning of the 19th Century, mill workers were a highly skilled and extremely well paid trade but the new automated loom technology meant those skills were no longer needed.

To protect their livelihoods, the loom workers started smashing the new machines and burning down factories. Eventually they were viciously suppressed by the British government with some being executed while others were transported to Australia.

What drove the Luddites was the loss of their income and who is to say we would have behaved any differently if we were faced with being unemployed and destitute in the harsh conditions of 19th Century England.

However we shouldn’t equate being skeptical about technology with being protecting one’s turf.

Today’s Luddites are those businesses who don’t want to move with the times – those who have grown fat on easy credit or lazily clipping the tickets on state sanctioned monopolies.

Some of those Luddites are going broke as consumers stop buying electrical goods or cars, while others lobby their friends in government to protect their privileged and profitable positions.

In the early 1800s the Luddites eventually lost, we can only hope that when history repeats itself two hundred years later today’s Luddites haven’t damaged the economy too much.

James Tuckerman isn’t a Luddite and that’s why he’s part of the future. I just wish he wouldn’t call himself one.

Using your customers to build a world beating business

Our customers are the foundation of our business.

Listening to your customers is a business truism, it’s so obvious that it really shouldn’t have to be said. Unfortunately all of us have to be reminded of this sometimes.

The amazing thing is today’s business has the tools not just to listen to our customers, but also to react quickly.

At Microsoft’s Asia Pacific Entrepreneur summit this week, we had the opportunity to hear from some of leading voices of the Australian startup and investment community.

One of the things that really leapt out from the array of founders, investors and entrepreneurs is how successful businesses thrive from listening to their customers.

Michelle Deaker spoke of her experience in founding giftcards.com in 1997. At that time there was no experience in running an online gift card business and the only way to figure out what worked was to listen to customers. Eventually Michelle sold out of the business and today talks from the investment side of building enterprises as the CEO of OneVentures.

Viocorp founder Ian Gardiner described how their video streaming business not only has to adapt to customers’ needs but also to a market that has dramatically changed over the last decade.

Moving quickly to respond to those market changes is something Sebastien Eskersley-Maslin of Blue Chilli touched upon in his presentation where startups in their Venture Technology program are encouraged to get a built product out of the door in three months.

“You can’t build quickly enough” says Sebastien.

Sebastian also has a three customer view – there’s the customer that you build the product for, the bulk customer such as a corporation and the “strategic customer” who is the potential buyer for your business.

Considering the business buyer as being the ultimate customer fits into the Silicon Valley model of “flipping” business which isn’t applicable for many ventures although it illustrates that we need to consider customers through the prism of our own business objectives.

That we often don’t listen to customers is unforgivable in an always on, connected world. We have the communications tools like social media and the business intelligence tools to monitor visits to our websites and sales through our stores.

In a world where we’re lionizing technology startups on the basis of the number of users – note “users” are not the same as “customers” – or the amount of money a large corporate will pay for a small development team, it’s important we don’t lose touch with the basis of all businesses.

Ultimately it’s the customers who matter – if we don’t solve a problem, fill a need or provide value then our businesses are ultimately worthless.

Little disruptions

A hotel’s change to iPhones is symptomatic of a change in technology.

Seasoned travellers learned long ago to treat the phone in their hotel room with caution as massive mark ups on call charges were a nice profit centre for most establishments.

With the arrival of the mobile phone, that revenue stream started to shrink and now one hotel in Vancouver has decided to replace their room phones with iPhones.

The Vancouver Opus hotel already supplies iPads in their rooms and the phones seem a natural extension to that, particularly given the chain has a “virtual concierge” app to guide guests.

Increasingly it’s only the older hotel chains that rely on excessive charges for things like telephone calls and Internet access. Those establishments rely on the more senior business traveller who are locked into a 1970s way of travelling.

When you stay at cheaper accommodation or newer boutique establishments, you find many of the expensive extras in the major chains are available cheaply or free. It’s a quandary of travel that a backpackers’ hostel will offer free Wi-Fi while the Sheraton up the road will charge $60 for an often inferior service.

The opportunity for the Sheratons, or the Hiltons, or the Four Seasons to charge those sort of rates is dying at the same rate their older clientele is retiring. Its a dead model.

Fortunately for those hotel chains, slamming guests with fat phone charges was just icing on a very rich cake, the loss of those revenues over the last two decades has been unfortunate but not fatal.

Other businesses though might not be so lucky – if your business relies on big, unreasonable markups then right now you are in a sector very ripe for disruption.