Tag: business

You can’t wait for government to lead digital change

If you want digital leadership you’re going to have to provide it yourself, waiting for the government is no answer.

Last week’s events in Canberra shows business can’t wait for the government to lead industry change. If you want to keep up with technology, you’re going to have to do it yourself.

In the wake of the Global Financial Crisis many of my business clients were in trouble as banks tightened their lines of credit and consumers slammed their wallets shut. After a decade of running businesses, it was time to get a job.

The job I found was with the small business division of the New South Wales Government’s then Department of State and Regional Development where I quickly discovered how many companies and ‘entrepreneurs’ came looking to the government for money and leadership.

While there were some state government support programs available for exporting, high-tech and biotech businesses almost all of those approaching the Department were hopelessly unqualified for the assistance that was at best only involved marginal amounts of money.

The toughest part of my job was gently turning those people away without upsetting them too much. Often I failed and part of the reason for that was that many of those believed the government would take leadership in a changing digital world and fund ideas that would help the state’s and nation’s competitiveness.

I was reminded of my brief period as a public servant and the futile attempt for  with last week’s disasters for the Australian tech sector; the Prime Minister’s claim that social media is little more than digital graffiti and the still born announcement of a Chief Transformation Officer.

Last week’s announcement of Chief Transformation Officer who happens to have no budget – the UK office the local initiative is based upon received more than a hundred million dollars in the Brits’ last budget –  is probably the best indication of how far behind the ball Australian governments, particularly the Federal level, are in dealing with a changing economy.

A Chief Transformation, or Digital, Officer can be an important catalyst for change but to achieve that they have to have the support of the organisation’s leadership; if the CEO or minister isn’t on board then the CTO or CDO is doomed to irrelevance.

The Prime Minister’s blithe dismissal of social media as being digital graffiti over the weekend shows just how little support an office charged with managing the Australian government’s transition to digital services will get from the executive. The sad thing is none of the likely alternatives – on either side of politics – to the current Prime Minister seem to be any more across the changes facing governments in a connected century.

One good example of the profound changes we’re seeing is in agriculture; this feature on farming robots shows just how technology and automation is changing life on the land. These applications of robotics are going to affect every industry, including government.

As we’ve discussed before, if you want digital leadership then you’re going to have to provide it yourself . If you’re going to wait for the government, then times are going to overtake you. How are you facing the changes to your business and marketplace?

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Microsoft’s cloudy future

Microsoft is making the shift to the cloud and devices, but those markets are turning out not to be profitable.

This morning Microsoft announced its quarterly results and, once again, they confirmed the company’s move into the cloud, a transition that means the company has to deal with reduced margins in once immensely profitable markets.

While Microsoft’s earnings beat analyst estimates, the stock still dropped on out of hours trading on the US markets. The reason being margins showed a slight decline and the impending release of Windows 10, which will be free for customers upgrading, portends a further fall in income.

The fading of Windows is best shown in the results for the company’s Devices and Consumer licensing division which covers licensing of the operating system and is the second biggest contributor to Microsoft’s revenues and profits. The segment’s takings are slowly declining although surprisingly the division’s margins are standing up.

Microsoft division performance 2014-15
Microsoft division performance 2014-15

Windows’ decline shows the post XP recovery Microsoft was hoping for the division has failed to materialise beyond a bump last quarter, as the company explained in its media release;

Windows OEM Pro revenue declined 13%; revenue was impacted by the business PC market and Pro mix returning to pre-Windows XP end of support levels and by new lower-priced licenses for devices sold to academic customers

With company making various versions of Windows 8 and 10 free, it’s hard to see the division doing anything but accelerating its decline as fewer people actually pay for the operating system.

Fading margins

Also illustrating Windows’ falling fortunes is how the Computer and Gaming Hardware division’s revenue threatens to overtake the Devices and Consumer Licensing group’s contribution. The problem for Microsoft with this that the manufacture of Xboxes and Surface tablets only boasts a profit margin of 12% against consumer licensing’s 93%.

Last week at its preview of Windows 10 Microsoft showcased its HoloLens virtual reality technology, while impressive it’s unlikely to boast margins any better than Xbox consoles or Surface tablets. At best it will be a trivial contribution to the company’s bottom line.

Microsoft Margins by operating segment

Percentage margins Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15
Devices and Consumer Licensing 87% 90% 87% 92% 93% 93%
Computing and Gaming Hardware 15% 9% 14% 1% 20% 12%
Phone Hardware n/a n/a n/a 3% 18% 14%
Devices and Consumer Other 21% 21% 21% 17% 17% 23%
Commercial Licensing 92% 92% 91% 92% 92% 93%
Commercial Other 17% 23% 25% 31% 33% 35%

Dwarfing both divisions in both revenue and profit is the Commercial Licensing segment which also boasts fat margins of 93% and accounts for nearly half the money coming into the organisation. Commercial Licensing remains static and provides the bedrock for the company’s cashflow.

The big growth area remains the cloud with the Other Commercial division, which includes most of the online and professional services growing steadily. While showing growth, this part of the business boasts a relatively low margin of 33% so any market moves from Enterprise licensing to the cloud will have a sharp effect on the company’s bottom line.

Mobile black holes

Of all Microsoft’s divisions, the problem remains the Phone Hardware segment with low margins, declining sales and a shrinking market share. Reports released overnight indicate that over a third of Lumia devices sold are not being activated which may indicate distribution channels are having to deal with unsold stock.

Compounding Microsoft’s poor position in the phone marketplace is the resurgence of Apple’s iPhone, particularly in the Chinese market where Microsoft is failing dismally. Global market share figures are indicating Apple may soon overtake Samsung as the world’s largest smartphone vendor while Android systems are coming to dominate the global marketplace.

Tomorrow Apple will announce their results and we’ll see how the two companies are travelling, the contrasts will almost certainly be striking. For Microsoft, even if they do manage a shift to mobility and the cloud, they are unlikely to repeat Apple’s success in reinventing themselves.

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Can the tech industry’s unicorns escape extinction?

How will Silicon Valley’s billion dollar startups survive their valuations?

“Today we have herds of unicorns,” Fortune Magazine quotes Jason Green, a partner at venture capital firm Emergence Capital Partners, in its story about startups that have achieved billion dollar capitalisations.

When the ‘unicorn’ label was coined by Aileen Lee in November 2013 it was to highlight the rarity of the beasts – on 39 existed at the time.

Today, just on a year later, there are eighty unicorns and the growth doesn’t seem to be slowing as more companies are raising funds or looking at trade sales or IPOs that will value their business at over a billion dollars.

Betting on the unicorns

Some of the business on the Fortune 80 unicorns list – like Elon Musk’s SpaceX and medical testing venture Theranos – are big, brave bets on future technologies which could prove incredibly profitable if successful. These are to today’s market was Google was at the turn of the Century.

Others, such as Xiaomi, Meituan and Flipkart, are betting on massive growth in emerging markets which China’s AliBaba has shown to be huge opportunity.

Some are already profitable and showing great potential to deliver the multibillion dollar valuations; companies like data analytics firm Palantir, developer tools vendor Atlassian and Uber are in this camp.

Many though are platform based, transaction plays that hope to clip the tickets on fields such as rental accommodation, payment systems and e-commerce. Some will be insanely successful but most have a distinct whiff of irrational exuberance about them.

Frothy exuberance

Driving that irrational exuberance is the money tsunami which has overwhelmed the financial sector since the Global Financial Crisis. As Quantitive Easing has fattened the banks’ and corporate America’s coffers, managers have sought to get their lazy dollars doing some work and the startup sector is an attractive, and sexy, place.

That influx of money has in turn has driven a spiral; as companies like Facebook have found themselves cashed up, they’ve bought more companies – Instagram and WhatsApp are the best examples of this – which in turn has increased valuations and expectations across the board.

Some of the risks in this current mania are obvious, but the question of survival when your business is valued so high becomes a pressing issue as Twitter have found with the company flailing around looking for a revenue stream to justify its fifty billion dollar valuation.

Probably the best, or worst example, of struggling to justify massive valuations is found in one of the original unicorns; Google and its YouTube division.

Monetizing YouTube

Right now YouTube is trying to screw musicians with onerous terms in return for, in the case of most artists, will be a pittance. It’s necessary for YouTube to do this so the service can capture as much value as possible to justify the rates of return demanded from its management, particularly as it’s appearing the online display advertising market is beginning to plateau.

That dash to generate revenue may become more common when investor finance starts to dry up; faced with the need to generate cashflow and satisfy the needs of impatient investors who’ve been denied a profitable exit, many of today’s unicorns could find themselves in a difficult position in a tighter VC climate.

Unicorns were once mythical creatures; now they’re real, at least in Silicon Valley, they’re going to have to learn how to fight for survival.

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We’re crazy, not stupid

Alibaba’s Jack Ma has a fascinating snapshot of how global trade is going through a radical period of change

“We’re crazy, not stupid” is how Jack Ma describes his Alibaba team in an interview at the World Economic Forum in Davos, Switzerland, yesterday.

Much has been written about Jack Ma and the spectacular success of Alibaba and the WEF session with Charlie Rose is an opportunity for Ma to flesh out the story and destroy some of the myths.

One of the fascinating anecdotes Ma tells is how US cherry growers are preselling their harvests to Chinese customers through Alibaba and cites various other primary producers doing similar campaigns as how American small businesses can sell into the PRC market.

Ma’s interview is a fascinating snapshot of how global trade is going through a radical period of change, the shifting of China’s economy and where the future lies for many industries.

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Daily links: The IoT goes to sea, building the innovation state and Boko Haram

The IoT goes to sea, building the innovation state and Boko Haram’s murderous rampage

The scale of the carnage Boko Haram has inflicted on remote parts of Nigeria is becoming more apparent every day and satellite imagery shows just how much damage the insurgent group is doing to communities in its territories.

Closer to home, Google’s Project ARA gets another outing, we look at how economies can deal with the jobless future, what a terrible aunt Ayn Rand was and how the IoT is going to sea.

The IoT goes to sea

At the CES show two weeks ago Ericsson launched their new maritime cloud service that promises to connect ocean going ships to the same services available on land

Google unveils more about Project Ara

Project Ara is Google’s attempt to reinvent the smartphone, the project came a little closer to completion with the company showing off some of its progress

Creating the innovation state

What do we do in a world where most people’s jobs have gone? Create an innovation state rather than a welfare state could be an answer suggests one economist.

The extent of Boko Haram’s massacres

Words fail to describe the horrors being visited on the people of Nigeria.

Ayn Rand was a terrible Aunty

What happened when one of Ayn Rand’s nieces asked aunty for a $25 loan?

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Stack ranking claims another victim in Marissa Mayer’s Yahoo

Stack ranking claims another corporate victim with Merissa Mayer at Yahoo!

One of the clumsiest management tools deployed by modern executives is stack ranking, the practice of putting staff members on a scale where the bottom 20% miss out on bonuses and, in bad times, are the first to be fired.

The process has terrible effects upon the morale of workplaces as it rewards political manoeuvring over effective performance; the worker who focuses on their task and the business tends to be overlooked compared to those who curry favour with the boss.

Another debilitating effect is it destroys teams as it has the perverse effect of discouraging people joining teams with high flying colleagues as it increases one’s chances of receiving a poor rating.

Stack ranking has previously damaged Microsoft and HP and now it appears Marissa Mayer has made the same mistake at Yahoo!.

That Mayer has made the same mistakes at Yahoo! is a disappointment; there were so many high hopes for her in reinvigorating the troubled company. Indeed carrying out the stack ranking process every quarter seems particularly debilitating and management intensive, it’s hard to think of a more effective way of destroying morale and distracting management.

In some situations Stack Ranking can be effective but the way companies like Yahoo!, HP and Microsoft have implemented the method, it’s proven to be the wrong tool for the job of managing high skilled workforces.

When implementing clumsy management tools like stack ranking, it’s worthwhile considering whether it’s the right tool for the job.

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Where will the next Silicon Valley come from?

As US research and development spending declines, where will the next Silicon Valley be?

In the development of any global industrial hub, there’s always a series of factors that attracted talent, capital and resources to that location. It’s true whether we’re talking about fifteen century Venice or the English Midlands of the eighteen century.

Silicon Valley is today’s equivalent of those historical powerhouses and what drove California’s Bay Area to be the technological centre of the world was the massive government research spending of World War II, the Cold War and the Space Race.

Which means declining research and development spending by the United States is going to hurt the region’s position in the medium to long term, a warning made by Fareed Zakaria in The Washington Post.

So the question is ‘if Silicon Valley and the US are in decline, which will be hub of the next business and technology revolutions?’

 

 

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