Woolworths’ announcement earlier this week they are exiting the Dick Smith Electronics business ends an interesting study in how a business can evolve as their industry changes.

In the thirty years since Dick Smith sold a stake in his business to Woolworths – a few years later they bought out the rest of Dick’s equity – the electronics retail business has changed immensely.

At the beginning of the 1980s, the CB radio boom that had fuelled the growth of stores like Dick Smith Electronics was coming to an end, as was the hobbyist industry which supplied those building their own computers and other electronic devices.

In the US, the hobbyist industry included people like Paul Allen and Bill Gates – who founded Microsoft – along with Steve Wozniak and Steve Jobs, the founders of Apple Computers. Both of these companies had a lot to do with the growth of the DSE business later.

While those two industries were fading at the time Woolies bought the chain, the availability of consumer electronics was taking off as Video Cassette Recorders, car hi-fi and, later, CD players started entering the market.

At the time these were high margin items so the transition from a hobbyist store to consumer electronics chain was a lucrative move for Woolworths – something helped by Dick Smith’s penchant for publicity even though he was no longer with the store.

Eventually the steam ran out of the early wave of consumer electronics but in the mid 1990s the PC revolution took off which allowed Dick Smith Electronics to diversify again.

As personal computers were taking off, so too did the next wave of consumer technology, particularly in mobile phones, games and big screen TVs which initially had big, fat margins.

Over time, these margins began to fade as prices dropped but for Woolworths this wasn’t a problem as the beginning of the 2000s saw an explosion of easy consumer credit, allowing stores to move more products to willing consumers.

Very quickly, the consumer electronics industry became more like the low margin, high volume FMCG – Fast Moving Consumer Goods – sector that is Woolworths’ core business.

The global financial crisis heralded the end of the credit boom and now cautious, credit shy householders meant consumer electronics were no longer fast moving.

Dick Smith Electronics aren’t the only chain affected by this, Harvey Norman are suffering the same way and in the United States Best Buy and Radio Shack are in desperate straits for the same reasons.

Making things tougher for Australian retailers are store rents that are among the highest in the world. Woolworths’ decision to shut down a third of the Dick Smith outlets is a wise move as many of those stores probably have lease renewals pending.

Woolworths has done well from Dick Smith Electronics over a quarter century as the consumer electronics industry has evolved. Their story is a great example of how a business can adapt in a changing sector.

Hopefully Woolies will find a motivated buyer – one hopes not one of the clueless private equity asset strippers that have destroyed so many other retail icons in recent years.

Perhaps we’ll see a buyer who can steer the business well into the phase of consumer electronics retailing with some innovative and fresh thinking that the Australian retail sector needs right now.

Sports broadcasting rights were invented.

In the 1970s, sports administrators resisted live TV coverage of games because it would affect their revenue.

Sports broadcasting rights became lucrative.

In the 1980s, sports administrators claimed TV viewers using video recorders would affect their revenue.

Sports broadcasting rights became more lucrative.

In the 1990s, sports administrators worried cable and satellite TV would affect their revenue.

Sports broadcasting rights soared.

In the 2000s, sports administrators warned the Internet would affect their revenue.

Sports broadcasting rights soared further.

In 2012, sports administrators shout that cloud computing services will affect their revenue…….

Photo courtesy of mzacha on SXC.hu

The financial details that we’ve speculated over are now public and we can now make more than informed guesses about what Facebook is worth.

What jumps out when first looking at Facebook’s financial figures is the exponential growth in their revenue from 153 million dollars in 2007 to $3,700 million last year. A twenty-fold increase over four years.

Expenses though haven’t grown at the same rate going from 277 million to 1.95 billion over the same period. Like all bigger social media and web 2.0 companies, sales and marketing is the biggest expense.

The Google Experience

The closest comparison to Facebook is Google’s float in 2004. Google floated at a market capitalisation of 23 billion dollars on a reported revenue in their SEC statement of 389 million.

At the time, Google’s profit margins were substantially lower with costs coming in at 234 million. These figures alone indicate Facebook today is a better prospect that Google was at the time of being floated.

Google today is valued at $190 billion on a revenue of $38 billion and a profit of $25 billion. On those measures, Facebook investors will be expecting that exponential growth to continue.

Growing Income

How Facebook continues to grow their revenue is the big question. Currently over half of their revenue comes from advertising in the United States and the bulk of the rest from Canada, Australia and Western Europe.

If online advertising continues to grow spectacularly, as a  2010 Morgan Stanley research paper illustrated then  Facebook, as the biggest social medial platform, will get a large slice of that $50 billion global market opportunity. This in itself would justify their valuation.

One of Facebook’s biggest growth opportunities comes from games. Already Zynga, the developers of Farmville and Mafia Wars, contribute 12% of Facebook’s revenues.

The global games business is valued at 60 billion dollars and much of this market is moving to web based, online platforms. Facebook’s 30% cut of income from games on their service is another lucrative revenue stream with few operating costs.

While advertising remains Facebook’s main income stream, other payments from games and online payments went from almost 0 in 2010 to nearly 17% of income at the end of 2011.

The threats

This isn’t to say Facebook doesn’t face any threats in their businesses. The concentration of income from North America, Europe and Australia exposes how the service is a first world phenomenon, although they have high penetration rates in some countries like Chile and hope to achieve similar in India.

Social media though is a fast moving field and there are plenty of opportunities for upstart businesses to displace Facebook just as MySpace faded away.

In their established markets there’s the question of how sustainable social media as an advertising platform is; until recently social media was a novelty to most households and still is to businesses and advertisers.

User fatigue is possible in the mature markets and Facebook – along with other social media services – not achieve the advertising revenue they hope.

Privacy issues are also another concern; as users realise the value of their private information it may be that they demand more for it than seeing where their friends are drinking or playing an online game for free.

Overall though, Facebook does appear to be worth the 50 billion dollar valuation when compared to other similar businesses like Google and is probably more sensibly priced than recent other IPOs like Groupon and Zynga.

Whether the service will deliver on its promise remains to be seen, but those are the risks when investing in new industries.

“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.

Most of this criticism of Twitter revolves around the belief that every message should only edited or deleted by the person who posted the tweet.

Anything else a breach of free speech and a threat to the underlying principles of the internet.

That utopian view of the Internet doesn’t translate into real life; the online world is as subject to laws as any other part of life and social media companies have to comply with the same laws as newspaper organisations or fast food chains.

Regardless of what you think of those laws – and in many countries they certainly are unreasonable and oppressive – they do matter.

Were Twitter not to comply then the entire service would be at least blocked in those countries and, should an action be enforced in a US court, then the tweet removed anyway for every user around the world.

By introducing country specific blocking, the service can let the rest of the world see a tweet that would otherwise be lost and in countries with restrictive or authoritarian laws, local people can still use the service.

A particularly clever way of dealing with removal requests is to note that the specific message has been blocked in a country. This adds a level of transparency and accountability to the actions of courts and governments that want to close the service.

We can see that being particularly effective in jurisdictions like the UK where British judges have been quick to apply “superinjunctions” preventing the merest mention of something by anybody.

Should Britain’s overeager judges start demanding Twitter block tweets, those in the UK will quickly realise something is amiss. The effect will probably be to increase the interest in the blocked tweets that can be seen anywhere around the world.

Despite the utopian view that transparency and openess will solve the world’s problems, we don’t live in that world right now and people can – rightly or wrongly – ask that false, defamatory and damaging posts on the Internet can be removed.

Interestingly Google this morning announced they will be introducing a similar system to deal with country specific problems on their blogger platform.

Twitter’s handled this in the best way possible, in many ways this could be a step forward for social media and the Internet in general.

Having dwelt on this for a while, I went to write something about how this company had blown wonderful opportunities competing against a stodgy incumbent which had been given the opportunity to re-invent itself partly because of a new generation of smart, dynamic managers.

Then a little voice said “no, they’ll never invite you back; the mark of epically incompetent management is holding permanent grudges for pointing out their failures.”

So I didn’t write it.

In one way it doesn’t matter; much of what ails the Western world’s business communities is how a culture of managerial incompetence has been allowed to develop.

Almost everyone knows individuals who waddle from corporate disaster to debacle yet, despite causing the destruction of great slabs of shareholder value, move onto to higher positions and better paid jobs.

Some even get invited back to companies they’ve previously trashed.

We know who those people are; boards and big shareholders know who they are, yet they’ll still get hired.

Which is why its best not to upset them too much. For the moment, history is on their side.

Some of the topics we’ll be looking at include;

• What are the minimum ages for using Facebook
• How should parents monitor usage
• Setting up privacy settings
• Being careful about sharing
• Deciding what applications should you allow
• How do other social networks affect your family

We love to hear from listeners so feel free call in with your questions or comments on 1300 222 702 or text on 19922702. If you’re on Twitter you can tweet 702 Sydney on @702sydney and Paul at @paulwallbank.

In many ways we’re no better than we were twenty years ago with some business – particularly big corporations like banks or telcos – plugging the same information into four or five different databases or software packages with all the subsequent mistakes, lost data and double handling.

The old business model for software companies was to lock customers into a proprietary format and and make it as difficult as possible to move the information to a competitor. Those days are now over.

Business – and increasingly consumers – expect their data to open, accessible and easily moved between different programs, if somebody wants to connect their customer database to their accounting package, or project management software to their word processor they don’t see why they shouldn’t be able to.

Confidence is also the greatest key to success in cloud computing; customers need to know that if a service fails or they decide to take their business elsewhere then their data will be able to move with them. The prospect of losing years of customer records or accounting records is untenable.

A few years back the early cloud based accounting programs tried to tie people onto their platforms by making data almost impossible to retrieve, those businesses failed badly.

One of the promises of business technology is that it will increase productivity and reduce errors; sharing one set of data across the organisation goes a long way towards delivering on that promise.

Today software has to compete on features, not vendor lock-in. Trying to trap customers into using your products is an old business model that no longer works.

One of the suggestions is, quite reasonably, to eschew networking events and join organisations you have a real interests in, like a sporting club.

Alina quotes Keith Ferrazzi, author of Never Eat Alone, who says he has never been to an official networking event.

“I have a friend who is the executive vice president of a large bank in Charlotte,” he writes in his book. “His networking hotspot is, of all places, the YMCA. He tells me that at 5 and 6 in the morning, the place is buzzing with exercise fanatics like himself getting in a workout before they go to the office. He scouts the place for entrepreneurs, current customers and prospects.”

Prowl gym locker rooms for business prospects? Sounds a bit creepy and you may end up with not quite the connections you expected.

I guess we could call it the Village People model of business development.

Many of the people contributing for free have given up their day jobs to do so. If you asked them why, I’m sure many would say they were sick of restrictive rules, anal retentive bosses and generally feeling suffocated by a big organisation.

Yet now they are subject to a bunch of rules arbitrarily enforced by anonymous and unaccountable bureaucrats running social media or cloud computing services.

So why on Earth are you doing the same thing for free? At least when you’re in a cubicle you’re getting paid for dealing with idiots.