Category: Innovation

Discovering an online media model

Who will be the David Sarnoff of the web?

Peter Kafka of the Wall Street Journal’s All Thing D blog has been closely following Google’s attempts to position YouTube as a successor to television.

Key to that success is getting advertisers on board to spend as much money with online channels as they do on broadcast TV.

To date that’s failed and most of the online ad spend has come at the expense of print media – the money advertisers spent on magazines and newspapers has moved onto the web, but TV’s share of the pie is barely changing and may even be increasing.

The challenges facing web advertising is discovering what works on the new mediums.

McDonalds Canada Behind The Scenes campaign is touted as one of the success stories of YouTube advertising, although Kafka isn’t fully convinced.

McDonald’s modest ad tells a story, flatters viewers by telling them they’re smart enough to go backstage, and still ends up pushing pretty images of hamburgers in front of them. That’s pretty clever advertising sort-of masquerading as something else but not really.

We’re trying to apply old ways of working to a new technology something we do every time a new technology appears.

Moving from silent movies

Probably the best example of this is the movie industry – if you look at the early silent movies they were staged like theatrical productions. It took the best part of two decades for movie directors to figure out the advantages of the silver screen.

Shortly after movie directors figured out what worked on the big screen, the talkies came along and changed the rules again. Then came colour, then television, then the net and now mobile. Each time the movie industry has had to adapt.

It isn’t just the movie and advertising industries facing this problem; publishers, writers and journalists are struggling with exactly the same issues.

Most of what you read online, including this blog, is just old style print writing or journalism being published on a digital platform. Few of us, including me, are pushing the boundaries of what the web can do.

Waiting for Sarnoff

David Sarnoff figured out how to make money from broadcast radio and television in the 1930s with a model that was very different from what the movie industry was doing at the time.

Sarnoff built Radio Corporation of America into the world’s leading broadcaster and the modern advertising industry grew out of RCA’s successful model.

Today both the broadcasting and advertising industries are applying Sarnoff’s innovations of the 1930s to the web with limited success. Just like movie producers struggled with theatrical techniques at the beginning of the Twentieth Century.

Figuring out what works online is today’s great challenge. Google are throwing billions at the problem through YouTube but there’s no guarantee they will be the RCA of the internet.

We may well find that a young coder in Suzhou or a video producer in Sao Paolo has the answer and becomes the Randolph Hearst or David Sarnoff of our time.

The future is open and it’s there for the taking.

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Disrupting the incumbents

Industry incumbents like Nokia and Microsoft are finding their market positions disrupted as Apple, Hauwei and Samsung reinvent the marketplaces.

One of the truisms of modern business is that no incumbent is safe, Microsoft, Nokia and Hauwei are good examples of just how businesses that five years ago dominated their industries are now struggling with changed marketplaces.

In the last two days there’s been a number of stories on how the smartphone and computer markets are changing.

According to the Wall Street Journal’s tech blog, PC manufacturers are hoping Microsoft’s changes to Windows 8 reinvigorates the computer market.

Those hopes are desperate and somewhat touching in the face of a structural shift in the marketplace. These big vendors can wait for the Big White Hope to arrive but really they have only themselves to blame for their constant mis-steps in the tablet and smartphone markets.

Now they are left behind as more nimble competitors like Apple, Samsung and the rising wave of Chinese manufacturers deliver the products consumers want.

All is not lost for Microsoft though as Chinese telecoms giant Hauwei launches a Windows Phone for the US markets which will be available through Walmart.

Hauwei’s launch in the United States is not good news though for another failing incumbent – Nokia.

Nokia’s relationship with Microsoft seems increasingly troubled and the Finnish company is struggling to retain leadership even in the emerging markets which until recently had been the only bright spot in the organisation’s global decline.

Yesterday in India, Nokia launched a $99 smartphone to shore up its failing market position on the subcontinent.

For the three months to March, Nokia had a 23 percent share of mobile phone sales in India, the world’s second-biggest cellular market by customers, Strategy Analytics estimates. Three years ago it controlled more than half the Indian market.

India isn’t the only market where Nokia is threatened – in February Hauwei launched their 4Afrika Windows Phone aimed at phone users in Egypt, Nigeria, Kenya, Ivory Coast, Angola, Morocco and South Africa.

The smartphone market is instructive on how many industries are changing, almost overnight the iPhone changed the cell phone sector and three years later Apple repeated the trick with the iPad, in both cases incumbents like Motorola, Nokia and Microsoft found themselves flat footed.

As barriers are falling with cheaper manufacturing, faster prototyping and more accessible design tools, many other industries are facing the same disruption.

The question for every incumbent should be where the next disruption is coming from.

In fact, we all need to ask that question as those disruptions are changing our own jobs and communities.

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Sunset on the laptop market

Does Toshiba’s release of their Kira laptop mark the beginning of the end for portable computing?

Yesterday Toshiba released their Kira laptop computer – a premium device aimed at the ‘aspirational’ market.

The Kira is a fine device with good specs, little weight and an ambitious $2,000 price point. It probably also marks the laptop computer’s decline.

As tablet computers and smartphones become most people’s preferred computer devices, the laptop computer is becoming a niche device and increasingly less relevant to most technology users. The Kira is fighting for the share of a marketplace that has moved on.

Losing the Aspirationals

Unfortunately for Toshiba, those aspirational customers are locked into their Apple iPads and Sumsung smartphones. Laptops are seen as work devices more valued for their portability and cost.

“We have to give our customers a reason to upgrade their computers,” said Mark Whittard, the Managing director of Toshiba Australia.

The problem is computer users have little reason to upgrade, as nice as the Kira is the price point is just too high for customers who’ve been groomed to expect sub – thousand dollar systems and there are few compelling reasons to buy such a device.

Caught in a pricing pincer

Price points are probably the biggest problem for computer manufacturers – one of the reasons for the tablet computer’s success is they delivered an easy to use, portable computer for half the price of a portable computer.

At the same time the rise of netbooks and the rush to dump unwanted Microsoft Vista and Windows 7 stock onto the market groomed customers to expect cheap computers – few computer buyers are interested in spending more than a thousand dollars on a device.

These factors have squeezed the margins of the major manufacturers like Dell, HP and Asus.

Those pressures are going to increase as volumes fall. For much of the 2000s, laptop computers were fast moving consumer goods – pricing and profits were based on moving large numbers of the devices.

As manufacturing volumes fall, those devices are going to lose their economies of scale which will put further pressures on vendors’ margins.

Laptops aren’t going away, they still have a role for power users ­– particularly for those, like this writer, who need a tactile keyboard and media editing capabilities.

However those feature rich devices with their nice keyboards are going to cost more as parts become more expensive.

For laptop vendors the challenge is to find the profitable market niches and exploit them. In some ways Toshiba probably has a better opportunity than most with its range of premium and gaming portable computers.

Those in the market hoping the happy days of big volumes and good profits will return to the laptop PC market are in for a painful future. It’s something retailers, resellers and vendors need to understand.

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Building tech cities

What does London’s attempt to build a tech city teach others that want to create a Silicon Valley in their own town?

With the apparent success of the Silicon Valley business model, every city seems to want to emulate it. One region that’s probably gone further than most is supporting their local tech sector is London with its Tech City program.

But is it succeeding? The Guardian did an audit on the Tech City project and came away with some findings that aren’t particularly different from other cities.

What I personally find interesting is how the Digital Sydney project which I was involved in setting up during 2009-10 shares the flaws The Guardian has identified in the London initiative.

Identifying tech

One key criticism The Guardian has is that too many businesses are identified as being in the technology sector;

of the 1,340 companies, 137 are tech companies, 700 are PR or design agencies and 482 are “miscellaneous” – which includes charities, pubs, cafes and fashion boutiques. The remaining 21 companies were either entered more than once or entries with no information or link to an external site. So just 10% of companies in Tech City actually do technology, 53% are PR or design agencies, and 37% are “miscellaneous”.

This was true of identifying Sydney’s ‘digital hub’ – the vast majority of business surveyed were not actually tech businesses but movie post production, graphic designers and publishers. The technology sector was only a small group and the bulk of employment and investment came from large multinational corporations like IBM and Google.

Now it is possible to argue that businesses like post-production, publishing and broadcast media are ‘tech’, but then almost every industry could be thought of as ‘tech’ if you cast the net wide enough.

The problem is counting those businesses as being tech just on the basis they are heavy users of IT skews the numbers and gives an inflated view of how big the sector really is.

A capital city focus

One of the biggest criticisms of the Tech City initiative is that it is too London centric and The Guardian makes a good case about this, looking at cities like Brighton, Cambridge, Newcastle and Manchester.

A similar criticism could quite rightly be made about Sydney’s project, which focuses on the inner city enclaves of Surry Hills and Ultimo while ignoring most of the city or any of the state’s regional centres.

When I started at the New South Wales government I was warned by one old hand that “to these jokers NSW stands for North Sydney to Woolloomooloo.”

And so it proved to be.

Focusing on London’s Silicon Roundabout or Sydney’s Surry Hills also smacks of a ‘people like us’ syndrome where the support goes to nice middle class white folk – just like the politicians, public servants and captains of industry who run these programs.

Overemphasising tech

Another problem, not mentioned in The Guardian story, is the over emphasis on technology startups.

Projects like Tech City and Digital Sydney focus on last decade’s opportunities which Silicon Valley dominated. Governments look at California’s success and think we need to copy that when what we’re seeing is actually the fruits of the previous wave of opportunity.

It may well be that we’re repeating the mistakes of the 1950s and 60s where countries around the world imitated Detroit hoping to replicate the US’ success with the motor industry.

The costs of that error are still a millstone around taxpayers’ necks two generations later.

To be fair to those setting up projects like Tech City or Digital Sydney, they are attempts to harness the energy in their own cities but it may just be that government programs aren’t the best ways to bring entrepreneurs and inventors together.

Hopefully though their efforts will succeed although it’s more likely the next Silicon Valley will be just as much the result of a series of coincidences as today’s is.

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3D printing comes of age

3D printing technologies are becoming available to home and business users.

It may well be that a technology has reached mainstream acceptance when the media starts writing scare stories and politicians demand that something must be done.

Should that be the case, then 3D printing has come of age with the story of the first gun being fabricated and demands that legislation be passed preventing people manufacturing their own firearms.

The story does raise a range of issues about community safety that 3D printing is going to present. When anybody can design and manufacture a piece of equipment, how can we be sure it is safe – or legal – to use?

We’re going to be facing these issues very soon as retail 3D printers have started appearing.

At $1299, the Cube 3D printer isn’t quite affordable for most households or offices but we can expect prices to fall as more devices come onto the market.

At the more advanced end of the 3D printing market, The University of Wollongong’s Centre for Electromaterials Science has opened a research unit at Melbourne’s St Vincent’s Hospital to create tissue material with biological 3D printers  with the scientists beginning animal trials to reproduce skin, cartilage, arteries and heart valves.

So at one end of the spectrum we have hackers making plastic guns that freak politicians and scaremongering journalists out, while at the other there are scientists pushing the barriers of medical science.

We live in interesting times – and 3D printing is making things even more exciting.

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Starbucks Coffee as a digital innovator

Starbucks and IBM represent two very different ways that big companies are responding to the changing digital economy.

USA Today has an interesting interview with Starbucks CEO and founder Howard Schultz.

It’s worth watching as he maps out where the coffee chain is heading and the importance of innovation and relevancy to his business.

Schultz’s view about the coffee store of the future is intriguing – he knows it will be different but he doesn’t know in what way and that’s why his business is experimenting with different ways of doing things.

“Sure, we’re doing work now on the store of the future,” says Schultz. “It is not only linked to the physical but the digital experience.”

It’s not only the use of digital tools, social media and mobile payments that Schultz is exploring, it’s how does such a huge chain remain relevant to its customers.

“We have to answer the question in the affirmative about how to maintain relevancy. Relevancy can’t only be in the four walls of our stores, we have to be as relevant with our customers where they work, play and even on their phones.”

Relevancy is something that can’t be taken for granted by any business – becoming irrelevant to customers is a death-knell for most enterprises. This is something that challenging the media industry as its struggles to find its role in changed society.

On the same day that story was posted, IBM’s CEO Virginia Rometty made a pointed address to her 434,000 employees on where the company has fallen behind.

“Where we haven’t transformed rapidly enough, we struggled,” The Wall Street Journal reports. “We have to step up with that and deal with that, and that is on all levels.”

“Our performance reminds us that there are profound shifts under way in our industry.”

That the world’s biggest coffee chain is dealing with those profound shifts better than one of the biggest technology companies is a notable point about the times we live in.

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Breaking out of the gilded cage – Microsoft’s challenge with Windows

How can Microsoft adapt to a market that’s shifting away from the products which have delivered spectacular profits over the last thirty years?

Update: With the announcement that Steve Ballmer will be stepping down as Microsoft CEO, the future direction of the company now becomes the biggest challenge for his replacement.

Over the last three weeks the news for the personal computer industry has not been good. How does Microsoft, the business that leads the sector, move on from the product which has been its mainstay?

Three stories in the last three weeks have shown how dire the situation is for personal computers, Windows and Microsoft.

Consulting firm IDC’s report that global PC sales had dropped a stunning 14% was a clear signal the PC era is ending.

A Gartner report two weeks ago warned that Microsoft faces a slide into irrelevance as Android device sales dwarf Windows’ numbers and Apple sales catch up with PCs.

Industry commentators Asymco made similar observations about the state of the PC industry noting that Apple takes 45% of all profits from an industry that is in decline.

In the past Microsoft has responded quickly to industry threats, one of the great management feats of the 20th Century was Bill Gates’ turning the company around to meet the challenges of Netscape and the newly popular internet.

So how can Microsoft meet the challenges of today’s much more competitive world, while protecting their impressive revenues and profits?

Replace the management

Steve Ballmer was employee number 30 at Microsoft having been hired in 1980. Since his appointment as CEO in 2000 the company’s stock price has wallowed.

Regardless of Ballmer’s performance, 13 years is a long tenure for a CEO in an industry that has radically changed in the last decade. A new perspective in the executive suite may well help the company leverage its strengths and weaknesses.

Microsoft’s management problems shouldn’t just be blamed on Ballmer however, a stunning Vanity Fair profile of the company last year blamed human resources policies, specifically ‘stack ranking’ employees, for poor performance.

Overhauling the company’s notoriously siloed management would give Microsoft much more flexibility in meeting the cloud and mobile challenges to its business.

Ditch Windows

At the core of Microsoft’s success is the Windows operating system which in 2012 delivered a quarter of the company’s revenue but has reported no growth for two years in a stagnating PC market.

It is still a cash rich business though and as a stand alone entity, the operating system division could still be an attractive private equity investment.

The story of Michael Dell’s attempt to take his company private is instructive as investment companies fight for a stake in a business with a turnover is less than Microsoft’s Windows division and far less profits.

Double down on Windows

The counter view to floating the Windows division is to double down and concentrate on the company’s core business. While the PC industry is fading, the need for embedded systems in machines is growing.

Microsoft though hasn’t executed well with non-PC operating systems – the continued failure of tablet versions of Windows XP is a good example – so it may mean a new management team to guide the company down this path.

Claim the cloud

The biggest cash generator for Microsoft is their business division that includes their Office and Dynamics products. These are most at risk by the market’s move to cloud services.

Paradoxically, Microsoft has a track record on the cloud products having acquired Hotmail in 1997, developed the Azure platform and taking steps to move its business products across to Office 365.

Microsoft’s experience with Hotmail is instructive of the company’s uncertainty with cloud services having renamed the product constantly. Currently its incarnation as Outlook.com indicates further integration with Office 365.

With a focused management, Microsoft may well be able to compete against both Google and Amazon on the cloud by leveraging its traditional market strengths and its army of evangelists, developers and support partners.

Buy Nokia

So far the alliance with Nokia has been underwhelming with Windows Phones being met with market indifference.  A purchase of the struggling mobile phone giant would give Microsoft more depth in understanding the mobile marketplace.

A more interesting aspect of Microsoft buying the mobile vendor would be the acquisition of Nokia’s mapping technology. This would give Microsoft an advantage over Apple and give them an opportunity to compete with Google in the still developing mobile and local markets.

For Microsoft, sticking with the status quo is tempting – a business with seventy-three billion dollars income and $17 billion in profits still makes it one of the world’s most impressive businesses.

The risk though is all of the company’s major revenue streams are being challenged by mobile and cloud service and Microsoft have to adapt to a world very different to the one they grew in.

As Gartner have pointed out, the company risks becoming irrelevant in an era of mobile devices accessing cloud services.

The Challenge for Microsoft’s management and board is to find the spark that keeps the company relevant in a marketplace where the company is no longer the dominant player.

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