Paul Wallbank – Brilliant Communications

Category: Internet

  • Moving on from the gadget era

    Moving on from the gadget era

    Yesterday at the launch of the next generation of Kindle e-readers Amazon’s CEO Jeff Bezos observed why the various Google Android based tablets have failed.

    Why? Because they’re gadgets, and people don’t want gadgets anymore. They want services that improve over time. They want services that improve every day, every week, and every month.

    Throughout the industrial revolution progress and innovation was about creating products that improved people’s lives – whether it was Josiah Wedgwood making affordable crockery, Thomas Edison commercialising the light bulb or Henry Ford making cheap motor cars available to the masses – these innovations changed the way we lived or did business.

    In the late Twentieth Century business focused more on creating gadgets and our lives became a race to accumulate more useless tat to store in our big McMansions to store the junk in.

    We wore out our credit cards and home equity in “buying stuff we don’t need to impress people we don’t like” throughout the 1990s and early 2000s.

    Today that’s changed, consumers are now more cautious and, despite the efforts of governments to prop up the broken system, the great credit boom is over.

    Jeff Bezos is onto this, instead of Amazon offering me-too products that don’t add value,  “people don’t want gadgets anymore. They want services that improve over time.”

    The word ‘service’ is notable — one of the things Amazon have achieved is changing how customers use books and DVDs from outright purchases that they can trade and sell to licensed products where Amazon and publishers control distribution.

    Amazon are consolidating their position as one of the big four Internet empires. How Google, Apple and PayPal respond to Amazon’s suite of services will define much of the online economy.

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  • Signing off voicemail

    Signing off voicemail

    A survey by US phone company Vonage reports cellphone users are ditching voicemail and moving to alternatives.

    Messages left on user accounts in July fell 8% while retrievals fell 14% compared to last year.

    While those figures may have something to do with the billing practices of US carriers, it shows a much bigger trend in the telecommunications sector away from products which have been very profitable over the last two decades.

    Voicemail, like SMS text messaging, has been a lucrative earner for telcos since the arrival of mobile phones.

    Users get billed for calling a number then for leaving a message – often with a few delaying menu items to make sure callers get hit with a couple of billing units. In turn the receiver is charged for being notified they have a message, billed again for retrieving it and then pays a monthly fee for the privilege for all of this.

    Five bites of the cherry for one phone call – nice work if you can get it.

    This entire revenue stream is now dwindling as customers start using Internet based services to send messages. While the telcos charge extortionate rates for mobile data it is still far cheaper per message than the alternatives.

    In many ways the profits from voicemail and SMS were a classic transition effect – a profitable window of opportunity opened for a short period when a new technology was introduced. Now those windows are closing.

    For telcos, they have to find some profitable new channels. Even if they achieve their dreams of becoming media distributors or even content creators they’ll find both of those fields are far less lucrative than the mobile phone networks of a decade ago.

    While telephone companies aren’t going to grow broke soon, today’s data networks aren’t the golden goose many people expect from telcos.

    The smart telcos will adapt and survive, the ones who think the good times of a decade ago are coming back soon are in for a miserable future.

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  • How much server space do Internet companies need to run their sites?

    How much server space do Internet companies need to run their sites?

    “How much server space do companies like Google, Amazon, or YouTube, or for that matter Hotmail and Facebook need to run their sites?” is the question I’ve been asked to answer on ABC Radio National Drive this evening.

    This isn’t a simple question to answer as the details of data storage are kept secret by most online services.

    Figuring out how much data is saved in computer systems is a daunting task in itself and in 2011 scientists estimated there were 295 exabytes stored on the Internet, desktop hard drives, tape backup and other systems in 2007.

    An exabyte is the equivalent of 50,000 years worth of DVD video, a typical new computer comes with a terabyte hard drive so one exabyte is the equivalent of a million new computers.

    The numbers when looking at this topic are so great that petabytes are probably the best way of measuring data, a thousand of these make up an exabyte. A petabyte is the equivalent to filling up the hard drives of a thousand new computers.

    Given cloud computing and data centres have grown exponentially since 2007, it’s possible that number has doubled in the last five years.

    In 2009 it was reported Google was planning to have ten million servers and an exabyte of information. It’s almost certain that point has been passed, particularly given the volume of data being uploaded to YouTube which alone has 72 hours worth of video uploaded every minute.

    Facebook is struggling with similar growth and it’s reported that the social media service is having to rewrite its database. Last year it was reported Facebook users were uploading six billion photos a month and at the time of the float on the US stock market the company claimed to have over a 100 petabytes of photos and video.

    According to one of Microsoft’s blogs, Hotmail has over a billion mailboxes and “hundreds of petabytes of data”.

    For Amazon details are harder to find, in June 2012 Amazon’s founder Jeff Bezos announced their S3 cloud storage service was now hosting a billion ‘objects’. If we assume the ‘objects’ – which could be anything from a picture to a database running on Amazon’s service – have an average size of a megabyte then that’s a exabyte of storage.

    The amount of storage is only one part of the equation, we have to be able to do something with the data we’ve collected so we also have to look at processing power. This comes down to the number of computer chips or CPUs – Central Processing Units – being used to crunch the information.

    Probably the most impressive data cruncher of all is the Google search engine that processes phenomenal amounts of data every time somebody does a search on the web. Google have put together an infographic that illustrates how they manage to answer over a billion queries a day in an average time of less than quarter of a second.

    Google is reported to own 2% of the world’s servers and they are very secretive about the numbers, estimates based on power usage in 2011 put the number of servers the company uses at around 900,000. Given Google invests about 2.5 billion US dollars a year on new data centres, it’s safe to say they have probably passed the one million mark.

    How much electricity all of this equipment uses is a valid question. According to Jonathan Koomey of Stanford University, US data centres use around 2% of the nation’s power supply and globally these facilities use around 1.5%.

    The numbers involved in answering the question of how much data is stored by web services are mind boggling and they are growing exponentially. One of the problems with researching a topic like this is how quickly the source data becomes outdated.

    It’s easy to overlook the complexity and size of the technologies that run social media, cloud computing or web searches. Asking questions on how these services work is essential to understanding the things we now take for granted.

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  • Selling old rope

    Selling old rope

    “Big Data is a fad” announced a speaker at a technology conference. “We’ve had Big Data for years. We used to call it business analytics.”

    He’s right. The IT industry is very good at rebadging technology and the term ‘Big Data’ is just the latest of many examples — the best of which is how ‘cloud computing’ which is largely a rebadging of SaaS, Application Service Providers or client-server.

    While it’s easy to be cynical about this IT industry habit, there is a valid underlying point to this repainting old rope — that the refurbished old string is cheaper and more useful than what came before it.

    The problem for innovators creating accessible, cheaper and faster ways to do things is they risk that their product will be likened to the old, expensive and inaccessible methods. No cloud computing provider wants to be associated with IBM’s expensive client-server products or the flaky Application Service Provider of the dot com era.

    Most innovations aren’t revolutionary, they have evolved out of an older way of doing things. So saying “it’s being done before” when seeing an innovative product may be missing the point.

    In the case of Big Data the principles aren’t new but we’re collecting more data than ever before and the old tools — even if they could manage with the volume of information— are far more expensive than the new services.

    So repainting old rope isn’t always done for purely marketing purposes, sometimes there’s a real benefit to the customers.

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  • Stranded markets

    Stranded markets

    “Stranded assets” are an accounting term for property that’s worth more on the books than it is in the marketplace.

    Often the valuation problem has come about because of market, legislative or physical changes – what was a valuable and useful asset becomes isolated from the rest of a business.

    Customers are biggest asset we have in our business – so what happens if our customer base becomes a “stranded asset”?

    This situation isn’t far-fetched in a time when technology changes a marketplace – a blacksmith providing services to stagecoach companies would have been in this situation a hundred years ago.

    In response to Are Businesses Fleeing the Online Space?, Xero’s Australian CEO Chris Ridd made some points about the problems MYOB have in the accounting software marketplace.

    We see that going online to the cloud is finally allowing many small businesses the opportunity to avoid the “walk into Harvey Norman and fork out hundreds of up-front dollars on on-premise software” experience and instead go straight to the simplicity and cost efficacy of the cloud.

    This is evidenced in our numbers and the fact that 40% of new customers signing up to Xero are coming from no software. (I mentioned last week at the NBN Forum that it was 30%, but we doubled checked and were staggered to find it was actually a lot higher). So we are creating a new market and cloud is therefore increasing the addressable market for accounting software. The cloud changes the economics of doing IT and makes automation of the business accessible and attractive to  a whole new category of SMEs.

    Chris’ point is interesting – the new generation of businesses aren’t going to the computer superstore and buying box software. Which is a problem for those who sell box software such as MYOB and Harvey Norman.

    What’s more, customers have moved away from those same superstores along with things like phone directories and classified ads, which is the problem companies like Sensis and Fairfax have to deal with.

    A decade or so ago, MYOB, Sensis and Fairfax were dominant in their markets with a loyal band of customers. Today the remaining customers – many of whom have not changed their business plans for decades – are”stranded markets” made up of holdouts who won’t move to new technologies.

    Those holdouts aren’t particularly profitable and they are slowly leaving their industries through retirement or, increasingly for these slow adopters, going broke.

    Being dominant in a market that’s declining in both profits and sales is not the place to be for any business.

    It’s difficult for the managers of these enterprises to move as their existing products are their core business, which is the classic innovators dilemma, but the alternative is to end up like Kodak or Sony.

    One thing missed in the eulogies for Steve Jobs is how he overcame the innovator’s dilemma problem within Apple. When it became apparent the old Mac OS was a barrier to innovation, he killed it along with the floppy disk and Apple Device Bus.

    Apple’s customers hated it as most of them had a substantial investment in the hardware which Jobs had made obsolete overnight. But almost all of them came back and became greater fans.

    News Corporation are trying a different tack to Steve Jobs in splitting the operation into an “old” business and a “new’ business. That way the old business can find a way to make money or quietly fade away without affecting the newer, more dynamic entertainment and electronic arms of the organisation.

    The challenge for MYOB – along with Harvey Norman, Fairfax and Sensis – is to move their customers to the new technologies, those who won’t go are the past and those stranded customers will isolate the business from the mainstream.

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