Category: Uncategorized

Reinventing Moore’s Law

Has the pendulum swung against Moore’s law of computers steadily increasing their capabilities?

Google attracted the headlines yesterday with their prototype smart contact lens that helps diabetes sufferers.

The concept is an example of what’s possible with the next generation of tiny, low powered computers and illustrates how microchips can be slimmed down for a relatively dumb device.

Liz Gannes at Re/Code received a briefing from Google on the details of the device and quotes project lead Brian Otis as saying that the lens is “the flip side of Moore’s Law.”

Moore’s law

For most of the microchip era the focus has been on increasing the number of transistors we could fit in a square inch of silicon, this was the basis of Moore’s law — that the number of transistors on integrated circuits will double every year.

Co-founder of Intel, Gordon Moore, proposed this rule in 1965 and it has held fairly constant every since.

Now we may be seeing the trend heading the other way as developers focus on what can be achieved with the bare minimum of computing power.

Google’s smart contact lens shows how simplifying devices for specific tasks makes them more affordable and suitable for low power devices.

While the internet of things won’t kill Moore’s Law, it does change the basis of how we think about advances in microchip technology.

Google schmoogle – how one telco destroyed 9 billion dollars in shareholder funds

How one company blew nine billion dollars in shareholders’ equity is a lesson for every business on the value of timing and wise management.

How one company blew nine billion dollars in shareholders’ equity is a business lesson on the value of timing and wise management.

As a rule, telecommunications executives are an arrogant bunch and none are more so than Sol Trujillo – formerly of American West, French provider Orange and finally Telstra, Australia’s incumbent telecommunications operator.

History shows that Telstra’s board, largely made up of dim-witted political appointees, had little idea of what they were getting when they hired Trujillo in 2005 but they soon found out as the brash American’s less than diplomatic style quickly alienated politicians and industry commentators alike.

Trujillo though wasn’t particularly concerned about the sensibilities of passes for Australia’s business and political elites, he was happier to take on bigger players on the global stage and one of those was Google.

Google Schmoogle

Like telcos and media companies around the world in the mid-2000s, Telstra had a problem with its directories business as the World Wide Web was eroding the value of the Yellow and White Pages franchises.

At the time many analysts were agitating for Sensis, Telstra’s directory division, to be sold off as a separate business. In 2005 it was valued at ten billion dollars which was a tidy sum for the telco as it rolled out its Next G network.

Trujillo though had a better idea – Sensis would claw back the market by taking Google on with their own search engine.

Sensis Search was born in November 2005 and the Telstra CEO dismissed questions about the wisdom of taking on the search engine giant with the comment, “Google Schmoogle.”

Three years later, Telstra quietly accepted defeat with Sensis CEO Bruce Akhurst announcing a ‘commercial agreement’ with Google.

Nielsen NetRatings at the time showed Google search being used by 9.3 million Australians compared to just 184,000 users for Sensis Search.

In Telstra’s 2008 annual report, Sensis earned 2.1 billion dollars. On a 2.5x valuation, the division was worth five billion to Telstra’s shareholders at the time the search engine was closed down..

The Dying Yelp

Despite the setback, Sensis was able to struggle along for another decade on the back of its strong cashflow and legacy market position although income was steadily falling.

In a desperate attempt to shore up its declining revenues, the company picked up the failed digital ventures of Australia’s newspaper duopoly and licensed operations from overseas startups like Yelp!

Few of these acquisitions made sense and none of them were properly integrated into the declining directory media business.

Finally a year ago, Sensis admitted they live in a digital era with Managing Director John Allen admitting what most industry observers knew a decade earlier;

Until now we have been operating with an outdated print-based model – this is no longer sustainable for us. As we have made clear in the past, we will continue to produce Yellow and White Pages books to meet the needs of customers and advertisers who rely on the printed directories, but our future is online and mobile where the vast majority of search and directory business takes place.

But it was all too late, the market had been lost along with the bulk of shareholders’ equity.

Today Telstra announced a 70% sale of Sensis to US based Platinum Equity for $A454 million. The value of the entire business being $650 million – 7% of the division’s value nine years ago.With over nine billion Aussie dollars squandered on hubris and a failure to recognise a changed market place, Sensis stands as a good example of how valuable timing and good management are in business.Sol Trujillo though did very nicely, and the dim witted men who sat on Telstra’s board in 2005 will never be called to account for wasting so much of their shareholders’ money.

A tale of three cities and three different government programs

The stories of how governments have helped Chobani yoghurt, ESPN and Pfizer are an interesting contrast on how government support can help business.

Three different business; Chobani yoghurt, ESPN and Phizer are an interesting contrast on how government support can help business and get a real return for taxpayers.

When Kraft Foods decided to shut down its South Edmeston yoghurt plant losing the 55 remaining jobs was a blow to the hamlet of 2,000 in upstate New York.

Eight years later the plant is in new hands, employs 600 people and is the centre of  the United States’ thriving Greek yoghurt industry.

In 2006, Hamdi Ulukaya bought the dilapidated factory from Kraft to produce yoghurt similar to what he was used to in his native Turkey and today Chobani is one of the fastest growing food brands in the United States.

Ulukaya tells the story of Chobani in the Harvard Business Review and how the company has grown without any external investment, instead relying on bank finance and government supported guarantees.

Key to Chobani’s founding were the US Small Business Administration loan guarantee program that enable the entrepreneur to buy the mothballed Kraft plant.

While Chobani is a success of the Federal government’s program, just over a hundred miles away the Connecticut state government is pouring money into the maw of ESPN to keep the company’s head office in the town of Bristol, the New York Times reports the company has received nearly quarter of a billion dollars in subsidies in just over a decade.

ESPN has received about $260 million in state tax breaks and credits over the past 12 years, according to a New York Times analysis of public records. That includes $84.7 million in development tax credits because of a film and digital media program, as well as savings of about $15 million a year since the network successfully lobbied the state for a tax code change in 2000.

Notable amongst ESPN’s benefits are the credits under the state’s film and digital media program. As we’ve discussed on this blog in the past, the movie industry plays a cynical game or playing off governments and its no surprise that cable networks would do the same thing.

Connecticut has a bad track record in industry incentives, the destruction of much of the town of New London is a poster child of what governments shouldn’t do when trying to build new industries or attract large corporation.

New London’s demolition of an entire suburban district for the never built head office of pharmaceutical Pfizer is testament to what can go wrong when government officials are dazzled by big promises from large corporations.

Unless support is appliedstrategically and sensibly, competing against other communities to attract big corporations, sporting events or major projects is a zero-sum game that ultimately sees the taxpayer a lose.

While Chobani created 600 jobs in South Edmeston at no net cost to the taxpayer it’s likely Kraft would have demanded tens of millions of dollars in NY State taxpayer support for retain fraction of the jobs that the new business created.

Invariably modest small business programs prove to be a better bet for taxpayers than dumb corporate welfare, unfortunately governments around the world prefer to throw money at big business as they are the ones that write the campaign cheques and employ retired politicians.

Sadly in an era where corporate welfare is the norm rather than the exception, we can expect to see more ESPN type deals and fewer Chobanis with the taxpayer being the poorer for it.

When a politician proudly announces the number of jobs being created through their subsidies to a large corporation, it’s worthwhile for local taxpayers to take the spending of their money with a large grain of salt as history is not on their side.

Image courtesy of jprole through sxc.hu

Big Data, retail and the 80/20 rule

Retailers are using big data to apply the 80/20 rule – or Pareto’s Law – to reduce returns and shrinkage

Sorting out troublesome customers is one of the major benefits that big data offers businesses, a profitable example lies in reducing returns to online stores.

One of the banes of online retail is dealing with returns, the industry pioneers overcame objections to shopping over the web through no-questions-asked returns policies that’s trained customers into expecting they can send items back regardless of the reason.

The Frankfurt School of Finance and Management’s Christian Schulze surveyed nearly six million internet transactions and found returns are effectively costing online retailers half their profits, as The Economist reports.

Leaving that sort of money on the table is painful for any business and online retailers are trying to find ways to reduce those return costs by sacking their customers;

But this risks a backlash: rejected shoppers are likely to rush to the newspapers or social media to complain—and their gripes may turn other, more profitable customers against the firm.

Much of this comes down to Pareto’s Law, that 80% of your problems will come from just 20% of customers, and a key imperative in business is to get the troublesome, high maintenance customers buying from your competitors without being too obvious.

Identifying those troublesome customers is where Big Data comes into play, coupled with intelligent analytic tools businesses are able to identify who is more likely to return a product or dispute a bill before the sale is made.

As the Wall Street Journal reports many online retailers are exploring ways they can reduce the return rates using Big Data and analytics.

By giving buyers access to their purchasing history stores are able to suggest when a customer is buying something that isn’t appropriate or the wrong size.

The WSJ cites fashion retailer Rue La La, which lost $5 million in returns last year, as an example.

For instance, a customer who has continuously bought the same brand of dress shirts in both a small and a medium might see a note pop up saying: “Are you sure you want to order the small? The last five times you ordered both sizes, you only kept the medium,” Chief Executive Steve Davis said.

Another tactic for retailers is to discourage frequent returners from buying high margin goods through targeted vouchers and offers. One point the WSJ article makes is how differential pricing is going to be applied – if you regularly return goods then expect not to be offered the best discounts when you visit the retailer’s website.

Many returns though are the result of genuinely dissatisfied clients and this is where improving customer service kicks in, the WSJ describes how some retailers are now providing video tutorials for their products and increasingly smarter customer service can be used to avoid returns.

With the increased sophistication of customer analytics and support tools, we’ll see online retailers squeeze more profit out of their businesses as well as look after their most profitable clients.

The problem for ‘bricks and mortar’ retailers not deploying new technologies is they won’t have the tools to compete with their savvier online rivals.

A good example of legacy managers struggling in the face of chronic under investment are Australian retailers and this week the Myer department store chain had to shut down its online outlet after the system collapsed.

There is no timeline on when Myer’s website will be back up. It’s a tough time for those retailers that haven’t invested in modern system and an even tougher time for companies with legacy managers like those at Myers.

The use of big data in analysing shopping behaviours is one area where well managed retailers will out perform their poorer rivals, it’s hard to see how companies like Myer will survive in the modern era of business.

LG and the smart vacuum cleaner

The LG Home-Bot Square is the first in a wave of connected smarthome devices we will see in 2014

The theme for this year’s Consumer Electronics Show in Las Vegas appears to be the internet of things as vendors start peppering journalists with media releases showcasing the of the smart devices they’ll be showing off at the event.

One of the early starter is appliance manufacturer LG showing off their range of smart appliances that are controlled though the Line messaging app that’s best known for its manga like emoticons.

LG are particularly proud of their robot vacuum cleaner, the somewhat clunkily named Home-Bot Square that has a form factor similar to the Chinese made Win-Bot window washer.

LG_SMARTHOME1

Through the Line app, the Home Bot Square and other LG smart devices can be programmed with natural language, initially Korean and English, commands.

Ahead of the CES show on January 7, the next few weeks will see more announcements like LG’s. There’s going to be no shortage of smart home devices to write about over the next few months.

Demand Media’s closed window of opportunity

Demand media’s downfall offers some hopeful lessons for those who want to see better quality content on the web.

A few years ago content farm Demand Media was being hailed in some quarters as the future of the media industry.

Today its stock is languishing, revenues are falling and any thought that the cheap, low quality writing that Demand Media delivered will be the future of media is laughable.

Variety magazine recently published a feature describing the of the fall of Demand Media  with a focus on how Google’s changes to its search engine algorithm undermined the content farm’s busines model. Variety’s story is an interesting case study on not relying on another company for your business plan and extends the hope that low quality writing is not the future of online media.

Dodgy business

Demand media evolved from the eHow and eNom businesses, both of which relied on dubious – if not downright dishonest – online practices.

eNom was particularly irritating, basically just registering domain names around popular search terms that led to   pages full of advertising that delivered nothing of value to someone searching the web for information on a topic.

It was very profitable for a while though, as Variety reports;

Early on, Demand used eNom’s 1 million generic domain names (such as “3dblurayplayers.com”) to serve up relevant ads to people searching for specific topics. These “domain parking” pages were immensely profitable, generating north of $100,000 per day, according to a former Demand exec who requested anonymity. “That’s $35 million-$40 million per year without doing any work,” the exec said.

The eHow business wasn’t any better, relying on low quality, cheap articles that only worked because they were stuffed full of the keywords that Google would base their search results on.

On January 26 2011 Demand Media went public and the criticism of both the newly listed company and Google became intense.

This story from Business Insider – which ha featured some gushing and dreadful analysis of Demand Media previously – illustrated the problem the company had of being overwhelming dependent on Google, although the writer believed Google were making too much money from content farms to really act against them.

Google’s problem with the content farms was real, the quality of search results was falling and users were finding their pages were full of low value rubbish rather than authoritative sources which opened the search giant’s core business  to disruption from Microsoft’s Bing and other search engines. Something had to be done.

Jason Calacanis, whose Mahalo was a competitor to Demand Media, flagged the risks to content farms in a presentation early in February 2011, “the one rule of working with Google is don’t make them look stupid. If you make ‘The Google’ look stupid, they’ll f- you up.” He said. “eHow makes Google look stupid.”

Eventually Google decided they were sick of looking stupid and changed their algorithms and the rules for getting a page one search result suddenly changed.

Demand Media’s business was doomed from the moment Google made that change, as Variety reports;

By April 2011, third-party measurement services were reporting that the Google changes had reduced traffic to Demand sites by as much as 40%. Demand issued a statement that the reports “significantly overstated the negative impact” of the change, but the stock took a dive — plummeting 38% over two weeks — from which it has not recovered.

As Demand Media was affected, so too was the entire Search Engine Optimisation (SEO) industry where thousands of consultants found their strategies of placing low quality pages and link rich website comments now damaged their clients’ businesses.

For web surfers, Google’s change was good news as suddenly search results were relevant again.

Demand Media was, in essence, a transition business that prospered during a brief windows of opportunity that quickly closed along with the company’s prospects.

That window of opportunity was also dependent on someone else’s business strategy, which is always a dangerous position to be in.

Demand Media’s lesson is that while there are opportunities to be had in markets that are being disrupted by new technologies, there’s no guarantees those opportunities will last. What works in SEO, digital media or social marketing today may not work tomorrow.

It’s also a hopeful lesson that websites regurgitating low quality content is only a transition phase in the development of online media and that providing good, original writing and video is the best long term strategy for survival on the net.

Should that lesson be true, then it’s good news for both writers and readers.

Microsoft and the zero day Tiff

The Windows TIFF exploit is a good reason for being careful with your email attachments.

One of the most dangerous things in computer malware is the Zero Day Exploit where an error in a program is used by the bad guys before it can the hole in software can be fixed.

A particularly irritating zero day exploit is the TIFF bug in Windows systems where users using Microsoft products can be fooled into opening what appears to be an image file but what turns out to be something more malicious.

Even more irritating with this bug is that Microsoft aren’t going to fix the problem in Windows XP systems until January’s patch Tuesday which means many people will be susceptible to this problem for nearly two months.

Zero day exploits are a good reason why every computer user needs to have an up to date virus checker and to take basic precautions before surfing the web or downloading email.

For Windows users it might be worthwhile taking extra care with email attachments for the next few weeks.

Measuring an industrial hub’s success

What should measure the success of technology incubators and hubs? London’s Google Campus gives us some clues.What should measure the success of technology incubators and hubs?

A short article appeared on London’s City AM website yesterday discussing the successes of Google’s Campus and the government’s Tech City initiative.

What jumped out of that story is the quote from Benjamin Southworth, the former deputy chief of the Tech City Investment Organistion, that London’s first tech IPO is “probably 18 to 24 months away”

Southworth’s comments raise the question of how do you measure the success of initiatives like Tech City, does a stockmarket float indicate success of business or tech cluster?

The debacle of Australia’s Freelancer float which saw the shares soar over 400% on the first day of trading certainly doesn’t indicate anything promising about the startup scene down under apart from the opportunities for those well connected with insiders on Australian Security Exchange traded stocks.

In London’s case, Google’s Campus gives a far better indicator of what tech hubs and industrial clusters can add to an economy – £34m raised from investors in the 12 months to October 2013, 576 jobs created and 22,000 members of its coworking space.

Google’s statistics raise an interesting point about the different objectives for the stakeholders in incubators and hubs; entrepreneurs want money or glory, investors want returns, corporate backers want intellectual property or marketing kudos, governments want jobs and politicians want photo opportunities with happy constituents.

These different objectives means there are different measures for success and one group’s success might mean bitter disappointment for some of the others.

What the various partners define as success is something anyone involved in an incubator or hub should consider before becoming involved, in that respect it’s like a business or a marriage.

Where will the jobs come from in the internet of things?

The internet of things promises to make industry more efficient, but what will happen to employment?

One of the common worries about the internet of things and the automation of business processes is that many jobs are going to be lost as a consequence.

This is a fair concern however we need to keep in perspective just how radically employment has changed in the last century.

Concerns about technology displacing occupations is nothing new; in the eighteenth century the Luddite movement was a reaction to skilled workers being displaced by new innovations.

In an interview with GE’s Chief Economist Marco Annunziata, published in Business Spectator, we covered this topic and Marco had a valid point that the bulk of the Western world’s workforce was employed in agriculture a hundred years ago.

Today it’s less than two percent in most developed country as agriculture became heavily automated, yet most of those workers who would once have worked in the fields have productive jobs. “As an economist I look at this over a long term perspective and I’ve heard this concern about technology displacing jobs over and over again.”

Annunziata sees new roles being created, among them what he calls ‘mechanical-digital engineers’ who understand both how the actual machines work as well as the data and the software used to run and monitor them.

This isn’t to say there won’t be massive disruption – John Steinbeck’s Grapes of Wrath described the massive dislocation that happened in the United States with the first wave of agricultural mechanisation in the 1920s and the decline in rural communities is due directly to modern farms not needing the large workforces that sustained many country towns.

We can’t see where the jobs of the future will be and just roles like as Search Engine Optimisation and ecommerce experts where unheard of twenty years ago, our kids will be working in occupations we haven’t contemplated.

It’s up to us to give our kids the skills and flexibility of thinking that will let them find opportunities in a very different workplace.

Tuxedos and cocktail dresses — the real cost of being an entrepreneur

Correcting the myths about startups is the mission of venture capital investor Mark Suster

venture capital investor and blogger Mark Suster said at the Dreamforce 2013 conference yesterday.

Suster’s mission is based upon having seen the process of building business up close having been involved in two successful startups and trade sales before joining Salesforce as head of product development then branching out to the investor side of the business.

There’s also a personal reason for Suster wanting to tell the truth about starting your own venture, “the reason I’m on a personal mission to explain this is because a friend committed suicide.”

“His company had raised four million dollars but, by his standards, it wasn’t succeeding.”

Suster’s story resonates with anyone who has founded a business — it’s not something everyone is suited to and it’s a tough, demanding lifestyle.

Tuxedos and cocktail dresses

Part of the problem is public perceptions, Suster describes a conflict between “public persona and cognitive dissonance”; while an individual startup is struggling with their own flaws and failings, it appears that everyone else is doing well from their carefully crafted and placed publicity stories.

“Everyone else’s PR is their tuxedos and cocktail dresses,” Suster points out. “You on the other hand are seeing yourself naked in the mirror every morning.”

On being a marriage councilor

It’s often said that a business partnership is like a marriage and Suster finds much of his work as a venture capital investor involves counseling founders over their relationship.

“Sometimes one has to go,” Suster says. “It doesn’t matter what your preference is — and we all have our favourites — but the business cannot survive with the two of them.”

When two founders split, there is also the problem of equity, should both have equal shares then it becomes difficult to split the business; “should one partner leaves, it’s often easier to shut down the company and start again.”

Buy in your skills

A similar problem happens when there’s more than one partner and Suster cautions it’s better to employ people with the skills you need rather than offer equity in a new business.

“Having too many founders is the greatest dilution you’ll ever face,” Suster warns and his advice is to hire the skills required by the business rather than give away equity in your business.

Another benefit of hiring people is having a good team on the payroll is the validation good investors are looking for. “Having a good team proves you’re able to hire good people which is the most important skill an entrepreneur needs,” Suster explains.

Ultimately, Mark Suster sees the journey of building a business as a decade long process, the billion dollar startups are the exception rather than the rule.

The biggest advice Suster has is to understand your goals, “if you don’t define what success is, you’ll never achieve it.”

Building a business is tough, and not everybody is suited to doing it. Mark Suster’s advice isn’t just appropriate for technology startups, it’s also valid for anyone starting any type of business.

The end of HTML 5?

Does Salesforce’s move to native smartphone apps mean the end of mobile application standards?

One of the big debates in web design since the rise of smartphone apps has been the question of ‘going native’ or following web standards.

In an ideal world, all apps would follow the HTML web standards so designers would only have to create one app that would run on any device — a smartphone, tablet or PC — regardless of what type of software it was running.

However the HTML 5 standard has proved problematic as developers have found applications written in the language are slow with limited features, so the attraction of writing ‘native’ apps that are designed for each system remains strong as users get a faster, better experience.

The problem with that approach is that it results in having to design for different operating systems and various devices which is costly and adds complexity.

For the last two years at Dreamforce, Salesforce CEO Marc Benioff has trumpeted the advantages of the company’s HTML5 Touch product.

This year Benioff unveiled the company’s Salesforce One product — a suite of Application Program Interfaces (APIs) that simplifies building smartphone and web apps. At the media conference after the launch, Benioff even went as far to describe the once lauded Touch product as a “mistake”.

So Salesforce has abandoned HTML5, which is a blow for standard applications.

If others follow Salesforce, and it appears that is the trend, then we’ll increasingly see the smartphone industry dominated by iOS and Android as most companies lack the resources or commitment to develop for more than two platforms and their form factors.

Open standards have been one of the driving factors of the web’s success, it would be a shame if we saw the mobile market split into two warring camps reminiscent of the VHS and Beta video tape days.

Will the internet’s insecurities damage economic growth?

Online security problems are chronic and costing our economies billions claim researchers.

“No country is cyber-ready” warns Melissa Hathaway, author the Cyber-Readiness Report.

Hathaway’s warning is that the economic benefits of the internet are being lost to the various vulnerabilities in our information infrastructure.

Dutch research company TNO claims that the Netherlands lost up to 2% of their GDP to cybercrime in 2010 and Hathaway claims similar losses are being incurred in other developed countries.

Supporting Hathaway’s views at a function in Sydney today, Cisco System’s Senior Vice President and Chief Security Officer, John Stewart, made a frightening observation about corporate networks.

“Every single customer we have checked with, and these are the Fortune 2000, has high threat malware operating in their environment – every single one of them.”

So the bad guys are in our networks and causing real economic damage. The question for businesses and governments is how do we manage this threat and mitigate any losses?

On our more intimate level, how do we manage our own systems and online behaviour to limit our personal or business losses?

Hathaway makes the point that the internet was never intended to do the job we now expect it to do and as consequence security was never built into the net’s design.

Today, we rely upon the internet regardless of its lack of inbuilt security. With everyone from governments through to organised crime and petty scammers wanting to peek at our data, we have to start taking security far more seriously.