Tag: business

Reliving the Hong Kong Handover syndrome

Scaring customers away is rarely a good idea

After Margaret Thatcher 1984 agreement to hand Hong Kong over the People’s Republic of China, the hoteliers of the British Colony sent out the message “book now, or pay dearly for rooms at the time of the handover.”

It became perceived wisdom that the territory would be booked out for years in advance and any rooms available would cost a fortune. So people made other plans.

As a result, Hong Kong’s hotel occupancy rate during the handover was only 45%. The “buy now or you’ll miss out” message backfired as people decided they’d rather miss out.

In the second week of the London 2012 Olympics the same thing is happening – the regular tourist trade has been scared away and even the locals who haven’t left town are staying home to avoid the transport and other hassles.

For London, the Olympics have backfired.

This is what is always missed when cities or governments make bids for big events, they displace existing trade and the benefits, if any, are short lived.

At least the Olympics do attract millions of visitors and the eyes of the world are on the host city for two weeks.

Far worst are the pointless heads of government meetings that pop up with monotonous regularity, for a few days of fleeting notoriety a city is locked down and its citizen corralled as Presidents and Prime Ministers meet to discuss something that will be forgotten in weeks.

The Sydney APEC meeting of 2007 was case in point, nothing was achieved for the weeks of disruption to normal business except for the spectacle of the so called leaders of the Asia Pacific region scuttling between hotels like frightened cockroaches in their armour plated motorcades.

Governments around the world keep falling for the myth that these major events generate some sort of economic benefits when it’s clear to the population who aren’t invited to the VIP cocktails parties that their money isn’t being well spent.

For businesses, the lesson is not to make too many “buy now or miss out” claims. If customers take you at your word then you may find your shop is half empty, just as Hong Kong did in 1997.

 

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So you think services are easy?

The differences between service, hardware and software businesses shouldn’t be understated.

ZDNet columnist Ed Bott is possibly one of Microsoft’s closest followers and among the few to defend Windows Vista, Ed though can’t be faulted for doing the hard yards including reading Microsoft’s stock market10-K  filings.

In their most recent filing, Ed finds Microsoft has used the word “service” 73 times as opposed to 44 appearances last year.

A key phrase in the filing is “a growing part of our strategy involves cloud-based services used with smart client devices.”

This is consistent with the hands on previews of Windows 8 which Microsoft have been giving journalists over the last few months. Something that leaps out is the integration with online services; something that both Google and Apple have also been pushing.

What should worry investors is that moving into services isn’t easy. Service businesses are far more labour intensive and, as a consequence, far less profitable.

Despite having relatively low labour costs, cloud computing services are problematic as many sectors have been commoditised, which is the genius of Salesforce in establishing a profitable niche.

The fat margins Microsoft are used to in their core software business can’t be replicated in the cloud based markets, which is one of the reasons why customers are switching to the cloud.

Microsoft’s problem is shared by telecommunications companies who are finding their cloud offering don’t generate the same ARPUs — Annual Revenue Per User — that they’ve become accustomed to in the mobile phone market. Which means pain for executives whose KPIs are tied to historical performance.

For Microsoft, the problem is compounded by their simultaneous move into hardware with the Surface tablets. Meaning the company’s has to deal with two significantly different business models to the ones they are used to.

Again Microsoft aren’t alone in this, Google is having similar problems adjusting to the hardware market though its acquisition of Motorola Mobility.

Integrating hardware with services and manufacturing isn’t impossible, we only have to look at Apple for how a company can succeed in that space although most managements struggle with the very different demands of each sector.

During the 1980s we saw the rise of the “all business is soap” philosophy where MBAs and management consultants preached that the challenges of running a business were the same regardless of whether you sold cleaning products, soft drinks, computers or automobiles.

Those folk were wrong. Most famously the Australian media company Fairfax hired as CEO a business school professor who preached this philosophy and managed to ignore the rise of the Internet, the echoes of the failed McKinsey ideas haunt Fairfax over a decade later.

While its possible for a software company to succeed at services or hardware, the magnitude and complexity of the management challenge shouldn’t be understated. Both Google and Microsoft will be defined by how well their leaders succeed.

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Redefining affluence

Are we at the end of the Western world’s era of great prosperity

Finance writer Scott Pape always has an interesting perspective in his regular columns.

This week he talks about Melissa a mother of three who lives in the US state of Georgia who also happens to be Scott’s virtual PA.

Scott hires Melissa because she’s cheap; far cheaper than her competitors in Australia.

For the $8 an hour she earns, she gets no sick pay, no health insurance and no retirement benefits. Unless Melissa has a well paid partner and her work for Scott is just a sideline to help pay the bills, she will work until she drops.

This is the new reality for those in America, Spain, the UK and most of the West. It’s slowly becoming the reality in Australia as well despite the current hubris about the Down Under Economic Miracle.

Melissa’s job as a secretary or PA was safe and comfortable twenty years ago. Today – just like auto workers, shop assistants, accountants and even lawyers – secretaries are having to trade their secure jobs for precarious, and reduced, incomes in the globalised and casualised marketplace.

Scott makes perfectly valid points that individual drive and determination will be important in the globalised economy, but nothing changes the fact that Melissa and millions like her – including ourselves – will not have the living standards of her parents.

While we can talk about billions of Indians and Chinese improving their standard of living the new globalised world, we shouldn’t forget for a moment that living standards are declining for the most of developed world’s middle and working classes.

This decline isn’t totally due to globalisation and was probably going to happen regardless of the rise of China. The West’s prosperity was built upon the post World War II reconstruction and the credit booms of the 1980s and 2000s. Eventually the money – or the credit – had to run out.

How we as a society deal with this will define our nations and communities over the next fifty years. Our governments, business leaders and media commentators are ill prepared for the effects even if they recognise the problem.

Those most deeply affected are the businesses based on the twentieth century model of ever increasing prosperity. As our retailers are finding, this model is running out of steam.

While some expect the newly affluent Chinese and Indians to save their well padded hides, most will find Asian consumption patterns in the 21st Century will be different to US auto workers of the 1950s or English real estate agents of the 1980s.

Even financial planners like Scott are going to find things different – many financial planners thought they could get rich just skimming commissions off their clients’ portfolios which grew with the ever climbing stock and property markets. That model dropped dead in September 2008.

For those of us born and raised during the Western world’s era of great prosperity, we’re going to find we have to work a lot harder and not take affluence for granted.

Melissa and her eight dollar an hour secretarial service is the future and it’s probably Scott’s, yours and mine as well.

Some may say that’s a pessimistic view of the world, but a leaner, harder economy may be the best thing could happen for us as individuals and a society.

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Accounting for business change

Cloud computing is changing the accounting industry, how are the incumbents dealing with this?

Small businesses owe a lot to Craig Winkler – in 1991 he bought a obscure Mac based accounting package called Mind Your Own Business (MYOB) and built it into Australia’s leading small business accounting software.

Today Craig is a director and investor of Xero, a cloud computing service which is MYOB’s fastest growing competitor

At Xero’s Australian partner conference, Craig described how the development of business accounting software has evolved around technology opportunities.

MYOB’s massive growth happened as desktop computers became accessible to small businesses. Prior to 1990, it was rare to find a computer sitting on a business desk and they were largely confined to large financial, engineering and government organisations.

In the early 1990s computer prices dropped and as small businesses started using them, the need for desktop based office software exploded. This drove the growth of software like MYOB, Quickbooks and – most profitably of all – Microsoft Office.

Today a similar revolution is happening as computing moves onto the cloud, further reducing business costs and giving small organisations access to the same resources that only big corporations could access a decade ago.

Cloud based companies like Xero and Saasu are now threatening the incumbents like Quickbooks and MYOB who are responding with their own online products.

Tim Reed, the CEO of MYOB yesterday discussed how his business is moving to the cloud. With MYOB’s legacy of desktop based applications which they claim is used by 40% of Australia’s small to medium businesses it isn’t a straight forward process of dropping the old software and embracing the cloud.

Not that their customers are rushing to the cloud, Tim claims that a survey of their clients found that most want a ‘hybrid’ system where data is saved both on the cloud and on the desktop.

MYOB are catering for the hybrid cloud demand with a pilot program of their AccountRight Live product that adds online capabilities to their desktop software.

This is clear difference between MYOB and its cloud competitors. Xero’s founder Rod Drury maintains that those hybrid solutions are cumbersome and adds far more complexity into software. In Rod’s view, “cloud technologies are the right technologies.”

The difference between the philosophies of MYOB and Xero is reflected across the software industry – most notably this is the difference between Google and Microsoft or Apple.

Both Microsoft and Apple see cloud computing as an adjunct to their desktop, tablet and smartphone products. Data is synchronised between the cloud and the device while work is carried out on both.

Google on the other hand tries to do everything on the cloud.

Both approaches have their benefits, particularly in a world where Internet access cannot always be taken for granted which is the cloud’s biggest weakness. Although as mobile broadband becomes ubiquitous in the developed world, that disadvantage is quickly eroding.

Regardless of the differences in the philosophies, everybody agrees that cloud services are going to revolutionise small business. Both Tim Reed and Rod Drury see how the Big Data opportunities in the cloud are going to give business much more access to real time sales, banking and expense data while being able to benchmark their operations against industry performance.

As Craig Winkler described, we are on another big wave of change and there are great opportunities for the businesses that figure out how to use it.

Paul travelled to Melbourne attended the Xero Australian Partner conference courtesy of Xero. He received a private media briefing from MYOB.

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Distribution is not the problem

If your business relies upon distribution problems, then you may be in trouble.

The web is too efficient at information distribution, which is the problem for newspapers whose business model was built out of the difficulty the working man and woman had in finding out what was happening in the world around them.

In today’s society, there’s no excuse for not knowing what is going on. If you only choose to keep up to date with what the Kardashians are wearing, the weight of Olympic swimmers or who won last night’s reality TV extravaganza then you only have yourself to blame.

The web’s efficiency means there’s no shortage of ‘stuff’ pouring into our lives – music writer Bob Lefetz puts it well when he says “Kids don’t have a short attention span, anybody who says that is completely ignorant. They’ve got an incredible shit detector”.

Distribution is not the challenge, that bit is insanely easy. It’s delivering quality and getting the message about our products heard above the Internet’s constant buzz.

As consumers, and more importantly as citizens, it’s up to us to filter that noise and not accept dross any more.

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Outsourcing’s changing face

Freelancer’s 50 fastest movers job list shows some interesting trends

Outsourcing company freelancer.com regularly releases the fifty fastest moving job descriptions requested by their customers.

This year’s list shows how the online industry is changing – content creation, social media and SEO job requests are all down substantially as users and gatekeepers like Google adapt to the information flood we all have to deal with.

Keeping in mind the market that Freelancer.com caters to small businesses and many of the jobs posted are for fairly small – some would say laughingly tiny and insulting – amounts, it’s probably safe to say we’re looking at the low value end of the market.

Article writing (down 15%), proofreading (5%), blogging (13%) and submission (4%) jobs are probably the cheap and nasty “Demand Media” style of low quality content designed for SEO purposes.

SEO itself is in trouble with jobs in that sector down 7% indicating Google’s Panda and Penguin search engine changes have achieved their objectives of improving search results and knocking out those gaming the system with low quality content.

A similar thing has happened with social media. Facebook is too hard for many businesses and they’re not seeing a return on their substantial time investment.

“Companies in industries from consumer electronics to financial services tell us they’re no longer sure Facebook is the best place to dedicate their social marketing budget—a shocking fact given the site’s dominance among users,” Freelancer quotes Nate Elliott, an analyst at market research firm Forrester.

A bright part in Freelancer’s list is the rise is in open standards as HTML5 starts moving up the list with 20% growth.

“The Internet is becoming more interactive, and the technologies that are winning and will continue to win are open standards like HTML5 and jQuery- to the detriment of the incumbents proprietary technology providers like Adobe and Microsoft,” says Freelancer’s CEO Matt Barrie.

Open standards aren’t winning everywhere though as Apple’s iOS is clearly winning the developer war as iPhone grows by 30% and iPad by 26% compared to Android’s 20%.

Freelancer’s list is an interesting snapshot at where industry demand is right now, what’s we’re starting to see are some of the transition effects working their way through the system. The rise and fall of the social media and SEO specialists being one of those.

The full Freelancer list is below;

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Digg and perserverence

Is persevering with a failing business worthwhile?

A couple of years ago news sharing site Digg was one of the hot properties of the Internet. On the weekend Digg’s remaining online assets were sold for $500,000. So what happened to a service that promised so much?

The short answer is the business was overtaken by other services like Reddit, Facebook and Twitter. Coupled with that, the founders moved onto other projects. Running a business is tough and it’s understandable that founders would move away from an enterprise that doesn’t seem to have an exit.

In many ways this ties into the presentation by Ian Gardiner, Viocorp’s Co-founder and CEO, at Microsoft’s Bizspark APAC conference about perseverance. Where does a business owner draw a line with their startup baby? Should you pivot into another model or just move on from the idea altogether?

None of this is straightforward and the decisions will be different in every business. A local computer guy is going to have different factors to consider to failing doughnut franchise. Equally a fading media company is going to be very different to those confronting a declining department store – despite what the MBAs and management gurus steeped in the 1980s view that “all business is like soap” ideology.

For some like Ian, ‘pivoting’ to a new business model is the answer. At the Microsoft event last week, Sebastien Eskersley-Maslin of Blue Chilli described a participant of his  Club Kid Entrepreneur who decided to sell paper airplanes and was so successful they started running out of paper to make new ones.

Faced with a shortage, the young entrepreneur decided to use the remaining planes as a target game – so rather than selling them, he charged a few cents to throw them at targets.

That’s the classic pivot, which the founders of Digg couldn’t execute with their web service.

All isn’t lost for Kevin Rose and the other founders of Digg though, while the headlines read about the $500,000 sale of the remaining assets they overlook that Digg’s other assets sold for sixteen million.

Choosing to persevere with a struggling business is a matter of faith – faith in yourself, the vision and the product you’re selling. It can be tough to let go of something you have so much faith in.

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