Category: Innovation

The battle between the old and the new

What side of history do we want to be on?

“We will build an America where ‘hope’ is a new job with a paycheck, not a faded word on an old bumper sticker” – Mitt Romney, US Republican Presidential candidate

“What immediate measures can be taken to protect jobs?” – French President Nicolas Sarkozy

“We want to be countries that made cars” – Kim Carr, Australian Minister for Manufacturing

Around the world the forces of protectionism are stirring to shield fading industries, businesses and fortunes from economic reality.

The most immediate target in this battle are the new industries that threaten the old.

It’s no coincidence US lawmakers want to introduce laws that will cripple the Internet in order to favour music distributors, that the US and New Zealand governments work together to shut down a cloud sharing service or that failing Australian retailers call on their government to change tax rules in order to prop up their fading sales.

The old industries appear to have the advantage; they are rich, they have political power and – most importantly for politicians – they employ lots of voters.

We shouldn’t under estimate just how far the managers and owners of the challenged industries will go to protect their failing business models, unwanted product lines and outdated work methods, which isn’t surprising as their wealth and status is built upon them.

Eventually they will lose, just as the luddites fighting the loom mills and the lords fighting the railway lines did.

The question for society and individuals is do we want to be part of yesterday’s fading industries or part of tomorrow’s economy.

We need to let our political leaders know where we’d our societies to go before they make the wrong choices.

Similar posts:

A blind faith in technology

Sometimes we still have to use our judgement

“How could this happen with all the technology these ships have?” is the first question many of us had when we saw pictures of the Costa Concordia lying on its side with a ripped hull.

In an era where we have Global Positioning Systems, sonar, radar and sophisticated mapping technology it seems almost impossible that a ship could find itself in such a terrible situation.

Every generation has its own blind faith in the technology of the day and almost a hundred years ago one of the greatest shipping disasters of all – the RMS Titanic – happened because of the same belief in that era’s technology.

While the Titanic’s builders claim they never said the ship was unsinkable, popular belief held the vessel was the safest of all ocean liners with sophisticated steam engines, modern safety designs and better communications tools like the radio and Morse Code.

Those technologies were part of the Titanic’s undoing; the improved performance of steam ships saw the shipping companies competing for the Blue Riband prize of the fastest crossing of the Atlantic, meaning captains took risks they wouldn’t have with less technically advanced vessels. This is why the Titanic found itself in an ice field.

Once the ship was struck another problem with our blind faith in technology arose – we never foresee all the consquences.

In the Titanic’s case there weren’t enough lifeboats – the safety rules of the day had fallen behind the capacity of the ships and, while the Titanic exceeded the minimum number required, there were barely enough lifeboats to take a third of the passengers.

The Titanic’s sinking has some similarities in that today cruise ship companies are in an ‘arms race’ to build bigger and more luxurious liners, marketing them as floating resorts raising concerns among maritime experts that the capacity of these ships is too great for them to be evacuated quickly.

Of course we have to be careful of drawing too many parallels between the Titanic and the Costa Concordia, the Titanic’s loss of life was several orders of magnitude greater than the Concordia’s and the Titanic happened towards the end of a period when technology looked like it would solve all the world’s problems.

The sinking of the Titanic was also the peak of the Edwardian standards of “women and children first” and “for King and country.” Only one in six of the third class male passengers and half of that in second class survived.

A few years later, the clash of Edwardian culture and modern technologies was starkly shown when millions died in the trenches of France, Belgium and Gallipoli as generals applied 18th Century cavalry tactics against 20th Century weapons. Another example of not understanding the effects of new technologies.

Whenever we adopt a new technology there’s a risk we’ll get it wrong and blind faith in tools we don’t understand can lead us to a disaster.

Even in a business we can’t just accept that because a computer says “yes”, the answer is yes. Sometimes we have to think.

Similar posts:

The end of the PC era

Why the personal computer is fading away

This morning a graph appeared on the web from analytics site Asymco showing the stalling of PC sales and the rapid catch up of Android and Apple iOS systems.

Such graphs starkly illustrate how the industry is changing as people start using tablet and smartphones instead of their PCs but there are some caveats with making blanket comments about the death of the Windows based computer.

Sales are still huge

One important thing about the chart shown is it has a logrithmic scale – a doubling in height indicates ten times the sales.

That point alone shows just how massive the lead Windows had over 15 years from the mid-1990s, something that is shown in a previous Asymco chart.

Despite Gartner’s reported 1.4% fall in PC sales – the basis of the Asymco graphs – there are still 92 million personal computers sold each quarter so it is still a massive market.

Tethered devices

One of the weaknesses with smartphones and tablet computers is they are still tethered to the desktop. If you want to get the best experience from your phone or iPad you have to synch it with your home or office computer.

For the moment that’s going to continue for most users, but not forever and the extended life of PCs means customers are using older computers to connect.

Extended life cycles

A bigger problem for the PC manufacturers is the extended life cycle of personal computers.

Since the failure of Microsoft Vista, PC users have been weaned off the idea of replacing computers every three to five years and nearly half the market is using systems that are more than ten years old.

On its own that indicates fundamental problems with the Windows and PC markets for Microsoft and their manufacturing partners.

The irrelevant operating system

One of the effects of increased computer life cycles is that the operating system has become irrelevant. Customers no longer care about what they are using as long as it works.

This is one of Microsoft’s problems; the virus epidemic of last decade and various clunky versions of Windows Phones has left customers perceiving PC and Windows software as being clunky and buggy.

Not yet dead

While the PC market is now shrinking, it’s far from dead. There’s still a huge demand to cater for although the big growth days are over.

For manufacturers whose business model has been based on fighting for market share in a growing sector, they now have a problem. They have to identify profitable niches and generate innovative products.

Unfortunately for the PC industry, the market has moved on. Apple have captured the bulk of the high margin computer sector and the industry’s response of pushing “ultrabooks” to capture the MacBook Air customers isn’t going to resonate with consumers trained to buy cheap systems.

Watching the PC industry over the next five years will be fascinating. Some companies will adapt, others will reinvent themselves and many will fade away as they cling to a declining business model.

Despite the personal computer industry only being 30 years old, it’s already in decline which is something older industries should ponder upon.

Similar posts:

Why the Microsoft Faithful are wrong about Windows Phone

Is it too late for Microsoft beat Apple and Google in mobile phones?

Late last year an event organiser recounted how she’d been told to only approaching Microsoft for event sponsorship if the occasion was related to mobile telephony as “all of our marketing budgets are focused on Windows Phone.”

So it wasn’t a surprise to read at the beginning of this year that Microsoft were allocating $200 million for marketing Windows Phone in the US alone.*

The Consumer Electronics Show is the high temple of tech journalism with thousands flying in from around the world to breathlessly report on the latest wide screen gizmo or mobile device

At the 2010 show, 3D television was going to be the big consumer item while at the 2011 event it was going to be Android based tablets that were going to crush the Apple iPad.

Despite the millions of words written and spoken about these products, both flopped. So it was no surprise we were going to see plenty of coverage of Microsoft given the budgets available and it being the last time Microsoft’s CEO, Steve Ballmer, would give the CES keynote.

Microsoft’s CES publicity blitz kicked off with a rather strange profile of Microsoft’s CEO in BusinessWeek which if anything illustrated the isolation and other worldliness of the company’s senior management.

The PR blitz worked though with Microsoft tying for first place in online mentions during the show according to the analytics company Simply Measured.

After the show the PR love for Microsoft continues with Business Insider having a gorgeous piece about why Windows Phone will succeed and criticising tech blogger Robert Scoble’s view that the mobile market is all about the number of apps available.

Scoble replied on his Google+ page explaining why apps do matter and adding that most of the people he meets hate Windows Phones, the latter point not being the most compelling argument.

The most telling point of Scoble’s though is his quoting Skype’s CEO that they aren’t developing an app for Windows Phone as “the other platforms are more important, so he put his developers on those”.

Microsoft spent 8.5 billion dollars buying Skype and intends to lay out over $200 million promoting Windows Phone. Surely there’s a few bucks somewhere in those numbers to pay for a few developers to get Skype functionality on the new platform.

Since writing this, Robert Scoble has issued a correction from the Skype CEO stating a version is being built for the next version of Windows Phone

The fact Microsoft can’t organise this seems to indicate not all senior executives share the vision for Windows Phone. It’s difficult to image Google or Apple having this sort of public dissent on a key product.

Management issues aside, Microsoft’s real problem are they are late to the mobile party and don’t have anything to gain attention.

There’s nothing wrong about being late to the party – Apple were late to enter the MP3 player, smart phone and tablet markets – but in each case they bought something new that changed the sector and eventually gave them leadership of each sector.

With Windows Phone, there’s so far little evidence Microsoft are going to deliver anything radically new to the sector. With Apple’s iOS and Android dominating, it’s going to be a tough slog for Microsoft and they are going to have to have to carefully spend every cent of that big marketing budget.

At least Microsoft’s PR team is doing a great job, the challenge is for the rest of the organisation to sell it as well.

*As an aside, it’s interesting the author of that article about Microsoft’s marketing budgets boasts how he “been sitting on this information for weeks so that Microsoft can make its big announcement at CES this coming week”. It’s good to know where Paul Thurrott thinks his responsibilities lie – certainly not with his readers.

Similar posts:

Has Google peaked?

Does altering a business’ core product destroy trust in a business?

This article originally appeared in Technology Spectator as Google’s Wavering Trust Presumption.

Google revolutionised the Internet when the service appeared just over a decade ago, the search engine’s clean and reliable results saw it quickly capture two thirds of the market from then competitors like Altavista and Yahoo!.

One of the keys to that success was trust – Google’s users had a fair degree of confidence that the service’s results would be an accurate representation of whatever they were looking for on the web.

With the continuing integration of social media services, local search, paid advertising and travel services into those search results, it’s time to ask whether we can continue to trust what Google delivers us.

Google’s attempt to become a social media service is seeing results being skewed with by Google Plus profiles. Search Engine Land’s Danny Sullivan yesterday illustrated how Google+ profiles are changing Google’s search results.

One thing that notable in these searches – and Google’s behaviour in enforcing “real names” on its Plus social media service – is the importance of brands and celebrities.

It’s no coincidence in the example Danny Sullivan shows above that typing “Brit” into a Google search comes up with the instant suggestions of Brittany Spears and British Airways.

More troubling is Google’s foray into travel with the purchase of  travel software company ITA. The travel industry site Tnooz recently looked at how searches for flights is now returning results from Google’s own service before the airlines or other travel websites.

Another of Google’s search strengths was the clean interface. When advertising was introduced, most users accepted this was the cost of a free service. Today a search result on Google is cluttered with Google+ suggestions, local business locations, travel results along with the ubiquitious advertising.

Suddenly Google’s search results aren’t looking so good and when you do find them, you can’t be sure they haven’t been skewed by the search engine’s determination to kill Google, Facebook or the online travel industry.

If it were only search and online advertising that Google was tinkering with, we could excuse this as being an innovative company experimenting with new business models in a developing industry, but a bigger problem lies outside its core business.

The purchase of Motorola Mobility – which is still subject to US government approval – changes the game for Google. Motorola Mobility employs 19,000 staff, increasing Google’s headcount by 60%.

Even if Google has only bought Motorola for the patents, closing down or divesting the operations and laying off nearly twenty thousand staff would be a big enough management distraction but there is real possibility though that Google want to make phones.

Google as a phone manufacturer, their previous attempt with the Nexus One wasn’t a great success, creates the problem of channel conflict with its partners who sell mobile phones with the Android operating system installed.

Right now those partners are having great success selling phones through mobile telcommunications companies who desperately want an alternative to the iPhone given they perceive, quite correctly, that Apple is taking their customers and the associated profits.

Apart from Apple the incumbents of the mobile phone industry are failing as Motorola have given up and are selling themselves to Google while Nokia are desperately seeking salvation in the arms of Microsoft.

Microsoft’s failure to take advantage of Google’s missteps is also instructive. Microsoft seem to be unable to capitalise on the conflicts in the mobile handset industry with Windows Phone while their competing search engine, Bing, seems to following Google’s cluttered inferface and anti-competitive practices.

With Microsoft largely out of the way with as an innovative competitor, it has fallen on newer business to challenge Google.

In social media we clearly have Facebook and Twitter while in phones Apple is by far the biggest and most profitable opponent, something emphasised by Google giving Android away for free.

The biggest question though is who can replace Google in web search, while there are worthy attempts like DuckDuckGo, Blekko and even Microsoft Bing, it’s difficult to see one of these displacing the dominant player right now.

Which isn’t to say it can’t happen; as we see with the examples of Nokia, Motorola and possibly Microsoft, the speed of change in modern business means empires fall quickly.

For Google, the lack of management focus on their core businesses may well cost them dearly in the next few years if web users stop trusting the company’s search results.

Similar posts:

The pros and cons of bootstrapping

Should a business fund itself from cashflow?

There are plenty of ways of raising money for a business; venture capital, bank loans, private equity and – by the far the most common – bootstrapping, where a company finances it’s growth through its own cashflow.

An article in Tech Crunch by Ashkan Karbasfrooshan looked at the reasons why bootstrapping doesn’t work, his views are understandable Ashkan given his own business has raised $1.5 million in venture capital (VC) funding over the past four years.

Outside the Silicon Valley bubble, it’s worthwhile considering the real benefits and disadvantages to bootstrapping your business. As with any business tool there’s real pros and cons with all financing methods.

Benefits

There are a number of benefits with bootstrapping, in that it forces the business’ management to focus on the product and customers while giving founders full control of the business.

Total control

A bootstrapping business has total control over its destiny – the business owners answer to no VC, bank or outside imposed board of directors.

Those outside investors may also have different business objectives to the founders. Often a venture capital or private equity investor has a three to five year time frame while a founder may be looking further.

Also a mis-match between the founders’ and investors’ exit strategies will almost certainly be a problem should the opportunity to sell the business arise.

One of the biggest risks for a smaller business is banks can call in loans or ask for additional security – something that crippled many smaller businesses during 2009.

For those who’ve raised equity funding, founders can find their shareholdings diluted or even be fired from the business they created.

Customer focus

The business that is focused on funding itself pays close attention to the needs of its customers. The distraction of raising, and then managing, investors or lenders can distract from building the business.

Validating the business model

A successful business that has grown through funding itself is has, by definition, a valid and profitable business model. This is not necessarily true of VC or debt funded enterprises.

Overcapitalisition

In his Tech Crunch article,  Ashkan quotes Marc Andreessen and Jason Calacanis as saying “raise as much money as you can.”

This may well be conventional wisdom in Silicon Valley though the reality is a business can have too much money, as we saw in the original dot com boom with businesses such as Boo.com lavishing money on founders and expensive frills.

A business can be crippled by having too much investment money that distorts the founders’ objectives and allows the company to lose focus on helping customers and getting the product right.

Generally with bootstrapping this isn’t a problem unless the founders have an insanely profitable business, which renders the need for outside investors largely irrelevant.

Disadvantages

For all of bootstrapping’s advantages there are real downsides as well including the risk of being undercapitalised and the difficulty in attracting diverse management.

Undercapitalisation

One of the main reasons for business failures is under capitalisation; simply not enough money to grow the enterprise or to put it on a sustainable footing. This is a constant risk for bootstrapped businesses.

Inability to focus

Many owners or managers of bootstrapped businessese focused on making sales so they can pay the rent and make payroll; this distracts management from executing the longer term aims of the business.

Expertise

In taking an equity partner – either in private equity, venture capital or angel investor – the founders get the benefit of the investors’ expertise.

A good investor who has similar objectives to the founders can add real value and complement the original team’s strengths and weaknesses.

No one size fits all businesses

Overall there’s no black and white to bootstrapping versus borrowing money or finding an equity partner; all of them have their risks and benefits.

As entrepreneur Steve Blank points out, there are six types of startup and only two of them; the scalable and buyable (born to flip) are suited to the Silicon Valley venture capital model.

The real risk in business is assuming one way or another is the only way to fund an enterprise, for many it’s a combination of some or all of the methods to raise funds.

It’s quite possible to see a business first bootstrap to get established, then get a bank loan to finance growth, followed by a VC or seed investment that finally sells out to a private equity fund.

For many business owners though, funding the business out of cashflow is the most sustainable way to grow and profit. If you’re happy with what you’re doing, there’s no reason to be hassling for equity or begging at the bank.

Similar posts:

Booking a disruption

The ticket agency business is undergoing disruption. Have the incumbents noticed?

Last night, US based booking service Eventbrite launched their Australian service, which promises to disrupt some cozy local incumbents.

The Australian ticket booking industry – like most of the nation’s business sectors – is dominated by two large players; Ticketmaster and Ticketek, with the latter dominating most ticket sales for big events.

Like most Australian duopolies, both Ticketmaster and Ticketek have a comfortable existence. With almost every ticket for major sporting, entertainment and cultural fixtures sold through their services, they’ve been allowed to neglect investing in new platforms while reaping monopoly profits from both attendees and organisers.

The development of online ticketing platforms like Eventbrite and Australian equivalents like Sticky Tickets are part of the disruption coming to this sector.

All of a sudden, event organisers don’t have to rely upon the grace and favours of major incumbents and ticket buyers aren’t getting slugged with outrageous “administrative fees” by the agencies.

The ticketing sector is one of these areas where decades of business practices have allowed middle men to develop, now a whole breed of new intermediaries are using technology to challenge the incumbents.

Integrating other technologies like reporting services, mailing lists and social media platforms along with hardware like iPad, iPhone and Android based management platforms for those on the door makes these services even more compelling to event organisers.

Right now the big incumbents probably aren’t taking these services too seriously as their cashflows, and management bonuses, seem safe and unassailable. Like all challenged industries, it might take them some time to figure out there is a real threat to their positions.

It will be interesting when a big events organiser or sports venue decides to move across to one of the newer ticketing companies, then we’ll see how the big incumbents deal with the threat to their businesses.

Similar posts: