Category: Innovation

Is Facebook the new Microsoft?

Are the internet giants – Google, Facebook, Apple and Amazon following the same path as Microsoft did in the 1990s?

One of the problems with dominating your field is that to find new growth opportunities involves becoming distracted with your core business and damaging your reputation. This is what hurt Microsoft over the last decade and now threatens the internet’s big four.

App.net CEO Dalton Caldwell wrote an open letter to Facebook CEO Mark Zuckerberg describing how the social media giant is trying to wipe out competitors through bullying them into being acquired.

If a business doesn’t succumb to Facebook’s seduction, then they risk being wiped out by the social media giant setting up their own version of the product which they can push out to a billion subscribers.

Jason Calacanis explores this strategy with Facebook’s launch of Poke, designed to compete with the instant messaging service Snapchat.

In many ways this is the same model that Microsoft employed in the 1990s as it worked towards dominating the desktop computer market – bully innovators into selling to them and, if that fails, copy the product and crush the opposition.

It worked for Microsoft because they controlled the distribution channels through their tight relationships with computer manufacturers.

Microsoft created their own applications, or features in their products, which would be bundled onto Dell, Gateway or Compaq computers. Once users had functionality built into Windows or Microsoft Office then they didn’t have to buy a third party app.

Bundling network protocols destroyed the business models of LANtastic and Novell, in the browser wars Microsoft killed Netscape by putting Internet Explorer on the desktop and in the office suite predatory pricing killed WordPerfect and Lotus while resulting in acquisitions of companies like Visio.

This way of business cemented Microsoft’s domination of their desktop, office productivity and server markets at the turn of the century. It was a true river of gold that continues to flow today.

Unlike the personal computer software markets, bullying or buying your way into market dominance doesn’t work online as the barriers to entry that protected Microsoft from competitors are nonexistent on the web.

Both AOL and Yahoo! learned this the hard way as their acquisition sprees through the dot com boom didn’t prevent them from sliding into irrelevance.

A good example of how hard it is for the Internet giants to execute a plan for world domination is the rise and fall of Google’s Knol as described by Seth Godin, who thought his own Squidoo startup would be crushed by the Internet giant. It turned out not to be so.

For the web incumbents the fundamental problem are, as Jason says, that they are not focusing on their core businesses and they have plenty of Plan Bs as Seth Godin described.

The manager who fails with Knol or Poke moves onto another division with a pat on the back and a safe claim on their bonus. The startup founders on the other hand are fighting for survival.

All four of the Internet’s giants have similarities to Microsoft in the 1990s as every single one dominates its niche and wonders how to expand outside their core business – for Google, and possibly the other three, there’s the added problem of managerialism as a large cadre of managers worries more about maintaining privileges over competing in the marketplace.

Managerialism ended up crippling Microsoft and continues to do so today, whether Facebook and Google can avoid that fate remains to be seen.

A bigger problem for Facebook is losing trust – Microsoft’s conduct, particularly with WordPerfect and Netscape in the late 1990s made a generation of developers and entrepreneurs cautious about dealing with the company.

For many that suspicion remains and is one of the barriers the company now has to overcome in the smartphone and cloud computing markets where it is one of the crowd of scrappy challengers.

In the social and online worlds, collaboration is one of the keys to success. If Facebook, or any of the others, lose the trust of the community then they’ll become irrelevant a lot faster than WordPerfect or LANtastic did.

Becoming irrelevant is the real worry for Facebook’s tenured managers and their investors.

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Australia’s high cost quandary

Is property the answer to keeping Australia’s high cost economy afloat?

“Around the world our towncars are usually 30% more expensive than taxis, in Sydney it’s 20% as the cabs are pretty expensive,” said Travis Kalanick on launching the Sydney version of Uber’s hire care booking service.

It’s not just hire cars which are expensive in Sydney – the soaring cost of living in Australia is bourne out by Expatistan, a web site that crowdsources the cost of living in various cities.

Expatisan’s comparisons find Sydney up with Tokyo and London as the most expensive towns on earth.

That conclusion means Australian businesses, governments and policy makers have some important decisions ahead of them.

Cholesterol in the veins

High property prices have been the norm for two decades in Australia, the middle class welfare state that both political parties support gives tax and social security concessions to property owners while the banking system requires most business lending to be secured by property.

As a consequence, generations of Australians see property as the only path to financial success. If Bill Gates, or any of today’s entrepreneurial wizz-kids, had been born in Australia, they’d be encouraged to get a safe job and buy property than to take the risk of starting a new business.

The property obsession has another perverse effect in that it creates a short term outlook for Aussie business owners who have to consider getting,  and paying off, a mortgage quickly to secure their financial foundations.

A few weeks ago a business owner was profiled in the Sydney Morning Herald, which some call the Sydney Morning Property Spruiker, who paid 1.1 million Aussie dollars (a million US) for a property in Redfern – which is Sydney’s Bronx.

That poor guy not only has a fat mortgage to pay off, but he has to pass those costs onto his customers. Just to pay the bank is a fat chunk out of his business before he pays his staff, landlord and the various other expenses before he can take his profits.

Having to pay the bank for living costs is the main reason why Aussie businesses don’t invest in capital equipment, which in turn makes  them less competitive than overseas competitors.

One of the myths in Australian business is that competitiveness is solely due to labor costs, what the ideologues preaching this miss is that even if Aussie workers were paid a bowl of rice a day, Chinese and Mexican factories would still be more productive due to the investment in modern equipment.

For the sake the argument, we won’t even discuss German, Japanese or Swiss manufacturers who are still competitive despite Australian level cost structures.

This last point is what’s missed in much of the discussion about Australia’s economic future – apologists for Reserve Bank governor Glenn Stevens and the self congratulatory Canberra monoculture say that the high Aussie dollar is here to stay and mining will be driving the economy.

Should the mining sector stall, which currently seems to be the case, then housing development will pick up the slack according to the policy-makers’ groupthink.

That housing development is going to come at a high price, with Australian land and homes already among the world’s highest. Given Australia’s private sector debt is among the highest in the world already, it’s hard to see where the money will come from to fuel further property speculation.

Right now Australia has a serious problem in determining what the future will be for the country.

If the future is a high cost economy underpinned by massive property property prices, then the future has to lie in high value added sectors.

The question is ‘what sectors’? Australian business, governments and society in general seem to think that property speculation is the future.

Property speculation turned out not to be the future for Spain and it looks like China’s speculative boom is meeting its obvious end.

Australians are going to have to hope that it really is different down under and that young people and immigrants are prepared to spend huge amounts of money to keep the economy afloat.

If the policy makers are wrong, then the worry is that there is no Plan B.

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Connecting the household to the internet of everything

The Internet of things comes alive with Australian startup Moore’s Cloud

The development of intelligent household appliances like lights is changing our lives in subtle ways, Australian startup Moore’s Cloud is a good example of how cheap computing, accessible internet and open applications are coming together.

One of the frontiers of technology right now is the internet of things, where machines connect directly to each other, cutting out the requirement for people to monitor them.

Good examples of these devices is the internet connected fridge – which was the poster child for pointless connectivity during tech wreck in the early 2000s but is now standard equipment in hotels, restaurants and hospitals where monitoring stock levels has become wholly automated.

Cheap hardware has driven this trend, as processor prices have tumbled it’s become cost effective to incorporate intelligent systems into almost every household device. Everything from the kettle to the washing machine now has some sort of CPU in it.

Moore’s Cloud is a good example of how the internet of machines is coming together. A simple cube shaped device has the electronic smarts to connect with other lights and be controlled by software apps.

Being able to create is important as the software interfaces – the APIs – are open which people to write programs that take advantage of the light’s features. A video from the Moore’s Cloud builders showcases twelve of the apps which have been developed so far which include weather forecasting, night lights and changing moods.

Having an ‘ecosystem’ of apps is now driving innovation in consumer electronics. The iPhone started the app revolution and now everything from stereo systems to lights are being controlled by them. Devices that don’t have open APIs are at risk of being left behind.

With systems being open to interested designers, anybody can create their own way of controlling device which opens the way for some innovative, left of field ideas.

In many respects, Moore’s Cloud is one of the early wave of smart features we’re going to see in the next generation of household appliances that will change how we use these tools.

The team behind Moore’s Cloud is still raising money for the project through Kickstarter, their campaign finishes this Friday. Hopefully they’ll meet their targets and take the project further.

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Twenty years of text messages

A BBC interview with the inventor of the SMS service illustrates how fast technology changes.

When the mobile phone arrived we thought that text, particularly those clumsy pagers people used, would be dead.

Little did we know that an overlooked part of the newer digital cellphone technology would see short messaging become a key part of the phone system and a major income generator for telephone companies.

Short Messaging Services – or SMS – was an add on to the digital Global System for Mobile communications (GSM) standard which became the second generation (2G) of mobile phones.

While intended as a control feature on the phone networks, SMS took off as a popular medium in the mid 1990s and soon became a major profit centre for mobile carriers.

The Twentieth anniversary of the first SMS being sent passed last week and the BBC has a great interview, conducted by text message, with Matti Makkonen who came up with idea.

One of the notable things in the interview is Matti’s humility – he doesn’t like being called the inventor or founder of text messaging as he explains,

I did not consider SMS as personal achievement but as result of joint effort to collect ideas and write the specifications of the services based on them.

We can only imagine what would happen if the idea of SMS messaging was invented today, there’d be an unseemly struggle over patents while hot young Silicon Valley entrepreneurs would pitch venture capital firms with plans for niche services that will make a billion dollars when sold to Yahoo! or HP.

As it was, SMS services were insanely profitable for the telcos. In the early days, text messages were being charged at over a dollar each – for a service that cost the carrier almost nothing.

Over time those handsome profits have been eroded as SMS became bundled into all-you-can-eat packages and then the internet introduced new mediums to send short messages.

While SMS isn’t going away while mobile phones are an important part of our business and personal lives; the service isn’t going to be as critical, or as profitable as it was over the last twenty years.

Short Messaging Services are a great example of how individual technologies rise, evolve and fade with time. They are also a good lesson on how quickly a premium, highly profitable service can become commodified.

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Bringing manufacturing home

How GE is reviving its American manufacturing operations

In the 1980s General Electric, like most US companies, sent most of its appliance manufacturing offshore.

Now its coming home.

The Atlantic Magazine looks at how General Electric is resuscitating manufacturing at Kentucky’s Appliance Park as management finds US workers are more skilled and productive than their equivalents in Mexico or China.

An important part of the article is how critcal supply chains are; manufacturing hubs rely upon having a community of skilled service providers and suppliers around the factories while being close to customers improves and simplifies logistics.

In the latter case, it now take hours or days to deliver products to customers’ stores or warehouses rather than the five weeks it takes from China.

The cost of those goods is lower too, the Kansas made GeoSpring heater sells for $1299 while the Chinese product sells for $1599.

What is most notable though is how designers and managers now have a better understanding of the manufacturing process; where under the oustourced model the difficulties in assembly were none of their business, now they are far more deeper and directly involved.

This really goes to the core of what an organisation does – in the 1980s it was fashionable to talk of the “virtual corportation” where everything the business did was outsourced except for the managers who were employed solely to pocket their bonuses.

In the 1990s and early 2000s that “virtual corporation” became a reality as manufacturing and customer support were offshored and logistics was outsourced.

One of the best examples was customer support where looking after the needs of those who buy the company’s products were secondary to the need to cut costs.

This focus on cost cutting over customer service hurt Dell badly in the 2000s and it continues to hurt many organisations – particularly telcos and banks – today.

The weakness in the “virtual corporation” model was the company ended up adding little more value than the brand name and eventually those offshored manufacturers and call centres took control of the business’ goodwill and intellectual property.

Eventually the hidden costs of offshoring became too obvious for even the most craven, KPI driven manager to ignore and suddenly manufacturing in the Western world became competitive again.

Sadly, the fixation on dirt cheap labour has damaged many industries beyond the point where they can be salvaged with too many skilled workers lost and the ecosystem of capable suppliers destroyed. These are costs where tomorrow’s managers will rue the short sighted actions of yesterday’s corporate leaders.

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Reinventing the connected bank

Financial institutions are evolving as technology changes their business

Yesterday the National Australia Bank had a media briefing to show how they, like their competitors, are revamping their entire business around new technologies.

The investments are substantial and the re-organisation of the business is too as the old model of branch based banking only available from 9am to 4.30pm is superseded by the always on model of Internet banking delivered through tablets and smartphones.

One of the notable points the NAB executives made was their move to authenticating customers through voice recognition. A trial had found the system reduced fraud and social engineering attempts dramatically.

The use of voice recognition makes sense as it reduces the reliance on users remembering passwords or having to give over personal information that can often be gleaned off social media sites.

Again we’re seeing data security evolving away from passwords.

On the social media front, NAB are also offering their small business customers Facebook selling tools in collaboration with social media sales platform Tiger Pistol.

While it’s questionable that businesses will get that much from a Facebook store, it’s a good attempt from the bank to add some value and encourage their commercial customers to move online.

The move online is essential as the bank noted that online sales through their merchant platforms are up 23% as opposed to an anaemic 2.5% in general sales.

Along with passwords dying, the NAB also found that the cash register is dying and being replaced with smartphone and tablet apps. The bank itself is moving its online platforms to being ‘device agnostic’ so as not to be locked into any one technology.

What the NAB, and its competitor the Commonwealth Bank, are showing is the importance of having modern systems which are flexible enough to evolve with changes in the marketplace.

Smaller businesses could learn from the banks on just how important this investment is. The organisations who aren’t making these changes are steadily being left behind.

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What is an Internet company?

Does having a website make a company an internet business?

Deloitte’s 2012 fast 50 list of Australia’s fastest growing technology companies announced last week is an impressive list of diverse businesses ranging from online retailers to technology support firms, but it raises the question of what exactly is a ‘technology’ or ‘internet’ company.

A quick look at the top twenty illustrates how broad the “internet” category is, with eleven coming under the classification;

. 1 brandsExclusive (Australia) Pty Ltd 1335.1% Internet
. 2 Australian Renewable Fuels Ltd 1235.7% Life Sciences
. 3 SolveIT Software Pty Ltd 678.9% Software
. 4 Kogan Technologies Pty Ltd 515.6% Internet
. 5 Neon Stingray Pty Ltd 467.7% Internet
. 6 Infoready Pty Ltd 418.1% Software
. 7 SMS Central Australia Pty Ltd 371.6% Communications
. 8 Cohort Digital Pty Ltd 295.6% Internet
. 9 Redbubble Pty Ltd 275% Internet
. 10 astutepayroll.com 256.7% Software
. 11 SurfStitch Pty Ltd 252.7% Internet
. 12 BizCover Pty Ltd 249.9% Internet
. 13 Appen Holdings Pty Ltd 225.5% Communications
. 14 MyNetFone Pty Ltd 216.7% Communications
. 15 Appliances Online 206.2% Internet
. 16 Time Telecom Pty Ltd (Smart Business Telecom) 205.6% Communications
. 17 BigAir Group Ltd 202.2% Communications
. 18 Observatory Crest Australia Pty Ltd 198.1% Software
. 19 Tom Waterhouse Pty Ltd 196% Internet
. 20 Bulletproof Networks Pty Ltd 178.4% Internet

Included among those eleven ‘internet’ companies is the winner, Brands Direct, along with Redbubble, Appliances Online and Tom Waterhouse.

Tom Waterhouse is an online bookmaker, Appliances Online is a whitegoods retailer, Red Bubble is a design marketplace and Brands Direct is a fashion retailer.

While the internet is the core distribution channel for all of these companies, they are not ‘internet’ companies – they are retailers, marketplaces and bookmakers. The web is important, but it isn’t their business.

Calling them “internet companies” in many ways misses the point of just how ubiquitous the net has become to business operations. It also risks double counting as Appliances Online’s staff are counted both as retail and internet employees – something government agencies are notorious for.

We’d understand a lot more about the web’s reach if we didn’t label these fast growth businesses with the somewhat meaningless term of “internet companies”.

None of this detracts from the achievements of these businesses, their managers and proprietors. These companies are on track to being the leaders of the future.

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