Paul Wallbank – Brilliant Communications

Category: economy

  • The irrelevant operating system

    The irrelevant operating system

    Last decade, people queued around the block to buy the latest version of Windows, today no-one cares. What next for a market that has become commoditised?

    When you visit a website your browser reports, among other things, what type of system you’re using. Net Applications – a US based web monitoring company who analyse online browsing statistics – keep a regularly updated list of what people are using when surfing the net.

    On their latest statistics, Windows XP finally fell below 50% in September 2011, just on ten years after it was released. Windows 7 is taking over from XP while Apple steadily gain market share.

    These statistics show how the operating system has become irrelevant, only really dedicated geeks really care anymore about their version of Windows or whether a computer is running an Apple Mac or Microsoft product.

    As most computer users are drifting to cloud computing services and consumers are increasingly using their PCs to access online games and social media sites, it doesn’t really matter anymore what systems are used as long as they work.

    For many in the computer industry, this is a problem as they desperately want to sell a product in a market that has become commoditised. It’s another example of the PC industry’s broken business model.

    It’s not just the computer industry with this problem, the 3D TV hype of 2010 was a desperate attempt to sell new television sets in a market that had stalled; recession hit consumers had no desire to replace their perfectly good TVs that were less than a decade old, just like Windows XP users.

    This year’s Consumer Electronics Show that launches in Las Vegas this week will see similar desperation as the various PC and mobile phone manufacturers trying to generate excitement about their new products.

    For the journalists and PR folk at the CES the problem is customers largely don’t care anymore. As the failure of 3D TV illustrates, consumers aren’t buying the hype.

    Just as with operating systems, most customers want something that works, if you’re going to get them to replace older proven technology you’ll have to show where the new product adds value.

    The era of products flying off the shelves because they are new and shiny is over – just ask Microsoft about it’s operating systems.

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  • The death of the netbook

    The death of the netbook

    “You don’t want to buy one of those of things,” said the electronics store assistant, “they don’t have much memory and the CPUs in the notebooks and ultra books are better.”

    I was shopping for a cheap netbook for the kids, each of which had been saving up to buy one as they are sick of me yelling at them for playing Minecraft on my work system, and the consensus from the store staff was to do everything to steer folk away from the cheap systems.

    This is understandable as most electronic store staff are on commissions, and these are lean on cheap computers. It’s much better to sell a thousand dollar unit – with upgraded warranties and accessories – than a low margin, one off unit.

    For manufacturers, similar problems exists; these cheap unit cannibilised their higher priced products with better margins. Dell recently announced they are getting out the netbook market and others are following.

    Netbooks themselves are in trouble as the market they addressed for cheap, portable, Internet connected devices is now largely covered by smart phones and tablets which offer better battery life and usability.

    Interestingly, the battery life argument was even used by the computer store salesfolk who pointed out – correctly – that the newer laptops have better power management than their cheaper netbook cousins.

    While the netbook as a category is dead; the concept itself isn’t. As the uptake of tablet computers like the iPad show, Internet connected portable devices are becoming the computer of choice for many people and the advantages of a laptop form factor; a proper tactile keyboard, USB ports and other external connectors are still attractive.

    Probably the worse thing for the manufacturers and retailers is the price points are now established in customers’ minds – $400 is what people want to pay for laptops, which doesn’t bode well for those higher priced systems.

    Those manufacturers can’t even get into the tablet computer market as Apple now own that sector that the PC vendors and Microsoft squandered a decade’s lead with substandard equipment and badly designed software.

    Despite the best efforts of the electronic store’s salesfolk, my kids ended up buying cheap, low specced netbooks out of their savings and those systems run Minecraft quite nicely. Which is another problem for shops and manufacturers stuck with a 1990s business model.

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  • Why governments fail in building Silicon Valleys

    Why governments fail in building Silicon Valleys

    Don’t Give the Arnon Kohavis Your Money warns Sarah Lacy in her cautionary tale of what happens when an economic messiah comes to town promising to create the next Silicon Valley.

    “Hopefully this story finds a way to circulate out to the wider audience of government officials and old money elites who have good intentions of wanting to make their city a beacon for entrepreneurship.” Writes Sarah. “Hopefully it reaches them before they get bamboozled into giving the wrong people money to make it happen.”

    Bamboozled Bureaucrats

    For 19 months I was one of those government officials and saw those good intentions up close while developing what became the Digital Sydney project, that bamboozlement is real and a lot of money does go to the wrong people.

    Sarah’s points are well made, Silicon Valley wasn’t built quickly with its roots based in the 1930s electronic industry and the 1960s developments in semiconductors – all underpinned by massive US defence spending from World War II onwards.

    In many ways Silicon Valley was a happy and prosperous accident where various economic, political and technological forces came together without any planning. Neither the Californian or US Governments decreed they would make the region an entrepreneurial hotbed and sent out legions of public servants armed with subsidies and incentives to build a global business centre.

    This is the mistake governments – and a lot of entrepreneurs or business leaders – make when they talk about “building the next Silicon Valley”; they assume that tax free zones, incentive schemes and subsidies are going to attract the investors and inventors necessary to build the next entrepreneurial hotspot.

    For governments, the results are discouraging; usually ending in failed incubators and accelerator programs all conceived by public servants who, with the best will in the world, don’t have the skills, incentives or decades long timelines to make these schemes work.

    New England’s failure

    At worst, we end up with the corporate welfare model that sees governments and communities exploited like the tragic story of New London, Connecticut, where the local government spent $160 million and cleared an entire suburb for drug company Pfizer to establish their research headquarters, which they closed a few years later and left a waste dump behind.

    While the New London story is one of the worst examples, this sort of corporate welfare is the standard role for most government economic agencies. The department I worked for gave subsidies to supermarket chains to open distribution centres and stores that they were going to build anyway.

    One of the notable things with development agencies and the provincial politicians who oversee them is how they are easy victims for the economic messiah – it could be a pharmaceutical giant like in New London, a property developer promising Sydney will become a financial hub or a US venture capital guru flying in and promising Santiago will be the next San Francisco.

    The truth is there are no short cuts; building a technology centre like Silicon Valley, a financial hub like London or a manufacturing cluster like Italy’s Leather Triangle take decades, some luck and little intervention by government agencies or outside messiahs.

    Silicon Valley and most other successful industry centres are the result of a happy intersection of economics and history. The best governments can do is create the stable financial, tax and legal frameworks that let inventors, innovators and entrepreneurs build new industries.

    All government support isn’t bad as well thought out, long term programs that help new businesses and technologies grow being the very effective – we should keep in mind though taht Silicon Valley couldn’t have happened without massive US military and space program spending.

    Like a parent with a baby, the best governments can do is create the right environment and hope for the best. Interfering rarely works well.

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  • Lords of the digital manor

    Lords of the digital manor

    There is something fundamentally wrong with AOL’s media business states a Business Insider headline.

    What is fundamentally wrong is quite basic to anyone who has owned or managed a business – money.

    The problems at AOL illustrate the deep flaws in the “digital sharecropper” business model of putting free or cheap content on the web to harvest online advertising.

    Lords of the digital manor

    Sites like Demand Media and Huffington Post can’t make money from content if too many staff expect to get paid. Chris Anderson illustrated this in a rebuttal to Malcolm Gladwell where he examined the economics of his GeekDad blog and the work of its manager, Ken;

    So here’s the calculus:

    • Wired.com makes good money selling ads on GeekDad (it’s very popular with advertisers)
    • Ken gets a nominal retainer, but has also managed to parlay GeekDad into a book deal and a lifelong dream of being a writer
    • The other contributors largely write for free, although if one of their posts becomes insanely popular they’ll get a few bucks. None of them are doing it for the money, but instead for the fun, audience and satisfaction of writing about something they love and getting read by a lot of people.

    It’s almost touching to picture the modern day digital serf touching his flat cap and murmuring “thank you m’lud” on receiving a ha’penny from the lord of the digital manor before scampering back to working on becoming a well read, but unpaid writer.

    We don’t pay writers

    The business model of the Geek Dad blog or the Huffington Post relies upon these unpaid writers donating their work and time –the digital sharecroppers as described by Jeff Attwood.

    Low paid or free labour is essential to the success of these site, when the bulk of advertising income goes straight to the proprietors the digital aristocrats – Lord Chris of Wired or Duchess Arianna – can live well.

    The business model falls apart when management starts taking a cut of the profits; install a highly paid CEO and management team with their squadrons of Executive Vice Presidents or Group General Managers with the Medici-esque perks and entitlements these folk demand and the profits disappear.

    AOL’s problem is it has too many highly paid managers extracting wealth from the company’s cashflow.

    This is exactly the same problem print and television media empires have, once the rich rivers of gold allowed them to build up well paid management castes that are now crippling the businesses as revenues can’t support their financial burden.

    Paying for digital media’s future

    Over time, online media revenues are improving. As Morgan Stanley analyst Mary Meeker pointed out in 2010 that U.S. consumers spend 28 percent of their media time online, yet in 2010 only 13 percent of ad spending goes to the Internet. As advertisers follow consumers, publishing on the web will become more profitable.

    The risk for big media organisations is their money will run out before the digital renaissance arrives and when it does, they may have squandered their natural advantages by shedding quality journalists, experienced sub-editors and good editors in an effort to prop up executive bonuses.

    AOL’s management problem is part of a much bigger problem across markets and industries, we can call it managerialism – there are too many highly paid managers getting in the way of the writers, engineers, scientists, artists and tradesman who add real value to their organisations.

    Strangely, it may be Chris Anderson’s “free” model that kills the managerial culture as enterprises that can’t afford to pay product creators certainly won’t pay an Executive Vice President’s entitlements.

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  • Business is fine

    Business is fine

    “I don’t need high speed broadband,” snarls the businessman in a country town, “business is fine as it is.”

    A hundred years ago this year the iconic Australian horse coach company Cobb & Co went into its first bankruptcy as it declined from being the dominant transport service of rural Australia.

    Cobb & Co was founded in 1854 by four young Americans in the Victorian gold rush and grew around the expansion of Australia’s rural farming and mining industries. By 1900 the company had 9,000 horses travelling 31,000km (20,000 miles) every week.

    By 1924 Cobb & Co was gone. Displaced by the motor car and restrictive state government rules designed to protect their railways.

    Many businesses, including the management of Cobb & Co, thought the motor car was a fad. No doubt many at the time also thought electricity was dangerous and unnecessary.

    Business worked fine as it was when stagecoaches carried the mail and bullock carts carted the crops, steam engines were fine to power the farms and businesses while the telegraph was just fine for those times when a three month letter to your customers or creditors in London or New York wasn’t quick enough.

    All those businesses went broke. They didn’t go broke fast, it was a slow process until one day owners realised it was all over and then the end came surprisingly quickly.

    That’s where many of us our today – cloud computing might be the latest buzzword, social media might be a distraction for coffee addled children of the TV generation and the global market might be just a way to dump cheap goods and services on gullible consumers – but markets and societies are changing, just as they did a hundred years ago.

    Sure, your business doesn’t need fast Internet. Business is fine.

    Stage coach image courtesy of Velda Christensen at http://www.novapages.com/

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