Paul Wallbank – Brilliant Communications

Category: Investment

  • The web’s big weakness

    The web’s big weakness

    There’s a fundamental flaw in the way the tech industry does business, that weakness could be what ultimately kills many of today’s new media, web and social media services.

    AirBnB, an online home share service, is one of the darlings of the booming Silicon Valley start up sector, having recently being valued at $1.2 billion after a successful capital raising.

    Like most Web 2.0 and social media businesses, AirBnB’s advantage is in the low operating costs where customer support is left to the service’s peer review and social media communities while AirBnB pockets a commission for simply making the connection between the landlord and tenant.

    The flaws in this “all care, no responsibility” model became apparent last month when a lady posted a description of her house being ransacked by an errant housesitter she found through AirBnB.

    AirBnB’s management responded to the article with assurances they were helping and working with their affected customer, claims which were promptly contradicted by the original victim.

    To make matters worse, certain prominent members of the Silicon Valley investment and blogging communities alluded she was lying or was “batshit crazy.” Now that other stories of bad AirBnB tenants are appearing, the view this is simply the untrustworthy word of a deranged customer affected by their first such incident is looking hollow.

    Failing to deal with customer problems is not unique to AirBnB, hiding behind impenetrable layers of “support” backed up by user hostile terms and conditions is familiar to anyone who has had to deal with an online service gone wrong.

    Last month Thomas Monopoly found he was locked out of his Google account and had it not been for the intervention of a senior Google employee, Thomas’ problem would probably still be stuck in an endless feedback loop.

    Exactly the same problem has been encountered thousands of times by other users of web mail, social media, online auction and matchmaking sites.

    Many of the people running these services retort their products are free so users get the support the support they pay for – an argument conveniently overlooking that most “free” web services are based around selling customer data – but even this does not justify delivering the basic services users have been lead to expect, regardless of what a 5,000 word user agreement states.

    Today’s tech startups, and many of their big established cousins in the IT industry, have the idea that customer support is an optional extra and an expense to minimised or outsourced.

    In this respect they are not too far removed from dinosaur car manufacturers or some of today’s less dynamic retailers offering little in the way of customer service or after sales support.

    That way of working has died as consumers have been able to go online to vent their dissatisfaction, strangely today’s hot tech start ups seem to have missed this aspect of the revolution they have helped start.

    Ignoring consumer problems is exactly what’s bringing traditional businesses unstuck in the online world. The funny thing is it might bring many of the online business undone as well.

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  • Tipping points

    Tipping points

    We often assume change is immediate – for instance, the moment the motor car was invented, all the horse cart makers went out of business – what usually happens though is the two technologies or industries sit side by side for some time and the old industry may even continue to prosper for sometime and the new methods struggle.

    Eventually though the newer technology takes over and the older one falls away quickly, leaving slow to change incumbents with an irrelevant business model.

    Illustrating this, two fascinating posts by Michael DeGusta on his blog The Understatement tracks two major trends in the US newspaper and record industries, noting how the sectors are now at 1960 and below 1973 levels respectively.

    The record industry

    Michael’s tracking of per capita recording sales is striking both for how technology, trends and musical tastes have shaped the record industry along with the predicament it now finds itself in.

    The 1970s show how the recording industry adapted, we see sales start the decade in decline until a sharp uptick in vinyl sales happens in the late 1970s, probably driven by the heavily hyped “rock opera” and concept albums foisted on us by the likes of Pink Floyd and the Electric Light Orchestra.

    It’s interesting that during this period cassette sales largely flat lined, as digital revenues have today. As a child of that late 1970s era, we used cassette recorders – mine won in competition at a jeans shop in outer suburban Melbourne – to tape stuff off the radio and jerryrig with record players so we could create mashups of Alice Cooper and Skyhooks.

    Cassette revenues eventually grew, but the the Compact Disk quickly took the growth off the cassette tape and drove the record industry to new highs, probably as people replaced their vinyl collections with CDs that weren’t easily copied through the 1980s and much of the 90s.

    The peak of CD sales was hit in the late 1990s, which is almost certainly due to the arrival of personal computers equipped with recordable CD units. All of a sudden, we could go back to copying the music we’d already bought.

    To make things worse, the rise of the World Wide Web meant we suddenly didn’t have to go through the gatekeepers – the record stores, radio stations and magazines – to find the music we wanted.

    For a while the record industry fought back, even seeing a minor resurgence in 1999 and 2000, but then the rot sets in. The tipping point was clearly in 2001 and can probably be traced to the online streaming services, including YouTube, and the rapidly maturing peer-to-peer services.

    The only solace the record industry in its current form can hope for is to see a surge in digital sales like they saw with cassettes in the mid-1980s. It’s difficult to see how that can happen unless they can quickly strike some very favourable deals with Apple and other online distributors.

    Newspaper advertising

    Print media’s performance over the last fifty years has been one of success until 5 years ago. Despite most of us turning from newspapers to broadcast television for our news through the 1960s and 70s, revenues stood up.

    From the 1980’s there was a slow decline and in a few years early in the new millennium it even looked like the Internet wasn’t affecting revenues and the new streams from online advertising were actually increasing overall income.

    Then in 2005, the tipping point was reached as classified advertisers, particularly employment and real estate, fled to online competitors with the display buyers not far behind.

    For newspaper publishers, that their online revenues have barely grown in the last five years most be the most worrying aspect of the collapse in their income. Their online strategies simply aren’t working.

    What this means for other industries

    This “tipping point” pattern is typical when we see technological shifts. For various reasons – customer inertia, government regulations, uneven distribution of the new tools – a game changing technology usually takes time to be adopted and usually goes through a process best described by the Gartner Hype Cycle.

    New technologies and ideas rarely change industries or societies overnight, but once a technology reaches maturity and mass acceptance, the barrier eventually gives gives and people quickly move across to the new way of doing things.

    We see this in the record industry – particularly in the switch to cassettes, CDs and then collapse as the net takes over – then again in the newspaper industry.

    These two industries though are just examples, the same process is happening to many others. One good example is the phone directory business where the tipping point is happening right now as consumers and businesses move online and away from printed directories.

    That many businesses still haven’t figured out this change in consumer behaviour indicates they too are being blind sided by tipping points that could leave their ventures stranded by history.

    All of us have to understand how these changes will affect our livelihoods and trades. Are you looking at how your business is affected by the rise of the net and the end of the cheap credit?

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  • Tell ’em they’re dreaming!

    Tell ’em they’re dreaming!

    Yahoo!7’s purchase of Australian group buying service Spreets last week is great news for the Sydney startup’s founders and investors, but these deals aren’t so great for our economy, businesses and innovation.

    The mark of the late 1990s tech bubble was the “renovation rescue” model of building start up businesses. Just like keen property speculators, this model involves an angel or venture capital investor putting in enough money for the founders to do enough – either by growing the business or embarking on a PR campaign – to attract the attention of potential buyers.

    For the business founders that can be a lucrative result, but it often distorts the priorities of a new endeavour as the investors are focused on a quick exit instead of building a durable, long term enterprise.

    This has a bigger effect on markets as incumbents buy out young, smart and innovative new entrants. Good examples of this were the buyouts of successful online shopping services by the major retailers in the early 2000s.

    Once purchased, the large corporations let innovation and fresh thinking in the start up business wither and die as the larger business’ bureaucracy and management hubris subsumes the acquisition. Few acquired businesses avoid this fate.

    Which brings us to the buyer in the Spreets transaction. At the press conference announcing the deal Yahoo!7’s CEO Rohan Lund said “we’re seeing social, mobility e-commerce completely changing the way we use the web at the moment.”

    Rohan’s absolutely right on this – location based services are changing advertising and retail – the problem is Yahoo!7 has no local business capacity and relies on News Limited’s True Local directories.

    Perversely if Yahoo!7 are successful in building up their mobile, location based services it’s actually News Limited that will get most of the benefit.

    A similar situation exists with Cudo, the competing joint venture between PBL and Microsoft, which relies on Sensis’ Yellow Pages.

    That Rupert Murdoch and Telstra stand to gain as much, if not more, from the efforts of Yahoo!7, Microsoft and PBL is an indicator of just how fuzzy the thinking is behind many big business acquisitions.

    A bigger threat to these ventures is Google who last week announced their intention to start up their own group buying service. Given Google already have a local business platform that supports coupons, it’s going to make them a tough competitor.

    Assuming big corporations will dominate this space may be flawed as the group buying business relies on hands on, aggressive sales people feeding a pipeline of interesting and compelling offers to the subscribers. Short the daily deals start becoming boring or perceived poor value, subscribers will ignore the emails and take their shopping elsewhere.

    Strangely of all the Australian big businesses in this space Sensis, with their Yellow Pages sales network, and News Limited, through their media selling and classifieds networks, should have the capacity to launch successful competitors.

    Despite Sensis launching their own group buying service it’s hard to think that either Yellow Pages or True Local can succeed in this space. Similarly with Google, the “hands-off” web 2.0 way of doing business simply won’t work in a market that requires a motivated sales team to drive the product.

    Recognising that lack of selling expertise probably drove Google to offer 6 billion dollars to buy the group buying innovator Groupon last year. An offer which Groupon rejected.

    Google’s track record on successfully integrating acquisitions outside of online advertising has been poor and is probably one of the reasons Groupon CEO and founder Andrew Mason rejected the offer.

    Andrew Mason, like Mark Zuckerberg at Facebook and Geoff Bezos at Amazon, rejected the VC ‘renovation rescue’ model and while it’s early days yet for Groupon, there’s many indications they’ll be able to build a game changing, innovative business just like Amazon and Facebook.

    While we should congratulate those like Spreets who do manage a big buyout, we should keep in mind those stories are the exceptions and don’t represent the experience of most business founders.

    New businesses really change our society is when they challenge the incumbents and build new industries. We should keep that in mind.

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  • So you want to be an entrepreneur?

    So you want to be an entrepreneur?

    There’s a school of thought that starting your own business is the passport to independence from the rat race or liberation from the servitude of employment.

    A lot of blogs, books and writers encourage this idea and there’s no shortage of multi level marketers telling you self employment is the pathway to wealth and status.

    On his Planning Business Stories blog, Tim Berry looked at one of the other sides of self-employment, that you’ll become unemployable.

    Tim’s observations are right, but there’s a few other downsides to consider before trashing your cubicle, cashing out your savings and establishing that radical startup or buying a doughnut franchise.

    I don’t want to work for a boss anymore
    If you think your boss is an unreasonable swine wait until you deal with customers, particularly those who don’t pay their bills. Then there’s shareholders, business partners, suppliers and the taxman.

    You’re leaving the rat race
    No you aren’t. As a business owner you’ll find there’s a lot more rats than you thought when you worked for The Man, as the man employs lawyers, debt collectors and HR staff to deal with the rats.

    The sad thing is you’ll probably end up being even more in the rat race, it’s just that you may not realise you’re racing the other rats as you aren’t stuck in traffic with them anymore.

    I want to be the boss
    That’s a noble and fair aspiration. Just be aware that in your own business, you take the risks and responsibilities too.

    The boss at BigCorp can often mess up and move onto bigger and better things as the organisation is usually big enough to hide the mistakes and it’s often in senior management’s interest to hide their subordinates’ mistakes from the shareholders or taxpayers. In your own enterprise, it’s your own assets at stake.

    I’ll get a better share of my rate
    A common gripe with skilled workers, like plumbers and lawyers, is they get ripped off by their employer who pockets 3/4 of their hourly rate.

    When you start your own operation, you’ll learn the existence of overheads and soon realise why you were only paid a quarter of what you were charged out for.

    The only way to get rich is to work for yourself
    Kind of sort of true, except there’s a big survivor bias in that saying. The people who do really well out of building a business receive accolades and boasting rights, those who don’t get quietly on with their lives if they are lucky.

    In a capitalist society we reward risk, and the biggest risk you can take is setting up your own business. If you’re successful you’ll be rewarded, but the risk of comparative failure is high which is why successful entrepreneurs get more money and accolades than successful managers or politicians.

    You’ll work fewer hours
    This is probably the greatest myth of all, usually perpetuated by someone selling a multi level marketing scheme. In truth, you’ll work longer hours and many of those will be unpaid as you chase up debts and fill in government paperwork.

    On the rare occasions you do get to sit down and catch up on the news, you’ll learn to dread reports that the government is going to “simplify” or “reform” something. This will almost certainly mean more paperwork for you.

    Keep in mind that no politician – be they Republican, Democrat, Conservative, Liberal, New Labor or Labor – is “business friendly”. At best they are sympathetic in the way a non-lethal host parasite is to a warm mammal.

    You’ll never work in this town again
    Tim’s article makes this point well, that if you spend any considerable time working in your own business – be it a startup, consultancy or small business – you’ll find it difficult to get a job in the corporate sector.

    I personally found this after 12 years of running a moderately successful business, basically I was told all of that experience was irrelevant to a corporate management position. In big business terms, I’d have made a better career move if I had been driving a bus for those dozen years.

    All of this isn’t to say you shouldn’t strike out and build your own business, for many of us it’s the course in life that suits us and what we work best at. But it isn’t the lifestyle for everyone.

    We certainly shouldn’t be saying those who aren’t suited to this lifestyle are bad or inferior people; most folk simply don’t want to take the risks and demands on family, finances and nerves that running your own business entails and this is fair, sane attitude to take particularly in a time of uncertainty.

    Successful entrepreneurs have certain skill sets and a focus which can be tough on families, friends and children. For many there’s an element timing and luck as well.

    For the success of a capitalist society, we need to celebrate and reward the entrepreneurs and risk takers, but before anyone dives into a start up or small business it’s best to understand the risks and costs involved.

    Good luck.

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  • How broadband won the Australian election

    How broadband won the Australian election

    In a dour and negative Australian election campaign, the National Broadband Network was the one issue separated the look alike policies of the two major parties. In the end, it decided the election.

    Privately developed communications networks are rare in the nation’s history for a combination of factors including Australia’s population distribution and commercial appetites for investment risk.

    Australian governments have always been critical to the development of regional communications, from the establishment of state operated railway networks, through the post office owned telegraph and telephone networks and eventually the road system.

    So the National Broadband Network is typical of Australian communications development where the government provides the infrastructure framework and the private sector grows around it.

    There’s no doubt regional communities understood the importance of being connected to the global economy, successive Federal governments have struggled with a patchwork of government programs such as the Universal Service Obligation and Broadband Connect in an effort to guarantee some level of service for all Australian communities.

    The NBN itself was conceived in the realisation that any solution that relied wholly on private funding was not going to deliver a national solution. This was view that regional organisations such as Digital Tasmania had held all along when agitating for their communities not being left behind.

    And Tasmania was were the vote mattered, the coalition failed to win any Tasmanian seats where three would have been won had the state followed the rest of the nation. Those three seats; Bass, Franklin and Braddon would have been enough to give the Liberal and National Parties power.

    Had the coalition focussed on the legitimate criticisms of the NBN such as the government’s failure to quantify the $43 billion price tag or NBNCo’s failure to produce a business plan then they may well have won the election.

    As the country Independents stated, the NBN was one of the key considerations in their decision to support the Labor government, so not getting their NBN policy right cost the coalition government in two ways.

    Now the NBN is going ahead we need to focus on what it can deliver, along with a sensible discussion on the right mix of fibre and wireless infrastructure, the proportion of private and public investment and exactly how much the project is going to cost.

    Now is the time to get on with building what will be the 21st Century equivalent of the roads and railways of the 20th and 19th Centuries.

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