business | Paul Wallbank - Communications Professional

Entering an era of surpluses

Negative interest rates are part of a period of surplus resources that will test many businesses

With the global Zero Interest Rate Policy experiment failing, we’re now entering the era of negative interest rates with a quarter of the world’s central banks charging savers.

The world is flooded with money, but we also have surpluses in manufacturing, a surplus in most commodities, of energy and an increasing surplus of labor.

From Shanghai to Barcelona, the surplus of labor is beginning to be felt as industries become increasingly mechanised and the consequences of short sighted economic policies over the last thirty years begins to be felt.

That labor surplus is also driving the political shifts in Europe and North America as workforces are finding their living standards being pressured and their economic prospects dwindling. As a consequence, voters are looking for scapegoats – immigrants in Europe, the EU in Britain and Mexicans in the US.

Regardless of which scapegoat you choose to blame for the global economy’s uncertainty, the fact remains we are in a time where scarcity can’t be assumed.

This means business models that are based upon restricted supply are, in most sectors, under threat. The whole economics of scarcity becomes irrelevant when there are no shortage of suppliers around the globe.

In some fields, such as energy, technological change is seeing the dominant positions of oil companies, electricity generators and distributors being challenged in ways that wouldn’t have been thought possible a few years ago.

Even regulated industries where government licenses artificially controlled supply – like taxis, broadcasting and telecommunications – increasingly new distribution methods are changing the economics of those industries. No longer is buying a government license a sure fire way to big profits.

Right now, the imperative for businesses to find the areas where there is scarcity and supply constraints. For many industries that may be too difficult a transition.

Negative interest rates though take us into uncharted territory. How the global economy responds to virtually free and unlimited money is going to be an interesting experiment.

Don’t follow the normal route

It’s a good time to startup a business says Technology One’s Adrian DiMarco, just don’t follow the normal route.

Two years ago I interviewed Technology One founder and CEO Adrian DiMarco about his company’s pivot to the cloud and the gold rush among consultants and services providers looking at making money out of cloud computing services.

DiMarco’s founded Technology One in 1987 to compete in the enterprise software space with the likes of SAS and Oracle. At the peak of the dot com boom in 1999, DiMarco listed the company on the Australian stock exchange where it is one of the few genuine tech stocks on the nation’s finance and mining dominated bourse.

Given the focus on listed companies at the moment, DiMarco’s views are worth noting. “if I were to do it again, I’d don’t think I’d go that path,” he says about listing the business. “I have a real issue with how public companies run in Australia.”

DiMarco’s view is at odds with Netsuite’s Zach Nelson who told Decoding the New Economy last month how being on the stock exchange forces management to focus. “Managing a public company is a great discipline and in some ways gives us an advantage over non-public company who don’t have to have discipline and make good investments,” Nelson said.

In DiMarco’s opinion, the regulatory and ‘box ticketing’ requirements of a listed company don’t reflect the true performance of a corporation’s management. “There are mediocre CEOs walking away with millions,” he says.

While listing made sense for Technology One in 1999 those looking at starting a business today shouldn’t necessarily follow his path warns DiMarco, “tor startups these days, don’t follow up normal route.,” he says.

“I think the world’s your oyster to do want you want. Don’t let anyone talk you out of anything,” DiMarco says. “When we started out we were told ‘don’t build enterprise software’. We did and we succeeded.”

“Don’t be scared,” he advices. “It really is a great time to startup a business. The technology is redefining business. It’s a good time.”

The smell of social media defeat

While Microsoft’s acquisition of LinkedIn is a triumph for the Silicon Valley greater fool model, it shows social media is largely an investor’s graveyard.

“There’s a shared sense of alignment,” says LinkedIn CEO Jeff Weiner during his video with Microsoft’s Satya Nadella to announce Microsoft’s $26 billion dollar acquisition of LinkedIn.

Weiner has been trying to reinvent LinkedIn’s business model for three years and Microsoft’s acquisition is an admission of defeat with the company’s market capitalisation half of what it was a year ago and profits proving hard to find.

The fact revenues were slowing in the face of anemic returns is probably the reason why LinkedIn’s board was happy to accept Microsoft’s deal that’s 46% more than the social media site’s $17.5bn market capitalisation on Friday.

LinkedIn’s capitulation shows what a graveyard social media sites have been for investors. With the exception of Facebook, almost all have failed to deliver the profits or promise hoped for by those making big bets on the platforms.

Both LinkedIn’s and Twitter’s managements have been distracted by the search for revenue streams to justify their huge stockmarket valuations which in turn has alienated core users. LinkedIn’s surrender means Twitter’s acquisition is only a matter of time.

Microsoft now has to show how it is going to derive twenty-six billion dollars worth of value out of LinkedIn. The company’s track record of acquisitions is execrable as we’ve seen with Nokia, Yammer and Skype and there’s little to indicate this deal will fare any better.

Commentary that LinkedIn as a ‘cloud company’ will help Microsoft Azure against an already rampant AWS is downright silly, Nadella himself in a Bloomberg interview with LinkedIn’s Weiner was at pains to point out the networking service’s fit with the Dynamics product.

Plugging LinkedIn’s ‘social graph’ with Microsoft Dynamics might give the Nadella’s team better tools to compete with Salesforce in the CRM market, it seems a high price to pay and almost justifies Salesforce’s Marc Benioff rejecting Microsoft’s overtures last year.

LinkedIn’s capitulation marks the end of social media’s growth phase. Now, as Facebook becomes the platform that rules all, the others have to find their niches in a market dominated by one services. For Twitter the race is now on to find a buyer.

Fearlessness and starting a business

Fearlessness is a key trait for business founders in any industry. It’s a quality that shouldn’t be overlooked.

“Just do it!” Almost every startup founder I interviewed for The Australian’s series on expat entrepreneurs had the same advice for budding entrepreneurs wanting to go global – don’t wait, just do it.

Peter Grant of Brisbane founded Safesite did though inject a slightly different view when he pointed out that it may not make sense for a company with a good domestic business to make the move, “If it’s going to be too complex or you already have a profitable business in Australia you may not need to come to the US, you have to be realistic about it. It might make sense to find a local partner.”

In Peter’s case though that move made sense. “We have a year on our competitors,” he notes.

Not being scared of making the move was part of a discussion I had with TechnologyOne founder Adrian DiMarco today, I’d previously interviewed Adrian for Business Spectator a few years back and it was good to hear his views on the current startup mania and the Australian innovation push.

One of the points DiMarco made was about not being scared when launching a venture, whether it’s the competition, the marketplace or the overall daunting task of running a business, being fearless is a key attribute to making the first steps, not just success.

That fearlessness is something that should be acknowledged about business founders, whether it’s a tech startup, dog walking service or donut franchise. Every single proprietor is taking a great leap.

Pivoting the business of speakers

Changing the speaker industry requires collaboration and innovation but it doesn’t come without cost as Sonos finds

Today I had the opportunity to tour the Santa Barbara headquarters of smart speaker manufacturer Sonos. I’ll be writing up a some more detailed accounts of some of the interesting things this fascinating company does.

One thing particularly interesting thing about Sonos is how it was established by four veterans of the original dot com era who had no experience in audio hardware or technology but had a vision of how they would like the stereo system of the future to look like.

That vision hasn’t come without change for the company, the shift to streaming has meant Sonos itself has had to pivot away from its original business model which entailed layoffs for the fast growing company last year.

How Sonos is navigating that shift, along with fostering a culture of openness and innovation is an interesting story that I’ll be telling over the next few weeks. In the meantime, my head is spinning from information overload.

The benefits of being public

Both the public cloud and a publicly listed company are good things for a business says Netsuite’s Zac Nelson.

“Managing a public company is a great discipline and in some ways gives us an advantage over non-public company who don’t have to have discipline and make good investments,” says Zac Nelson, the CEO of Netsuite.

Nelson was talking to Decoding the New Economy yesterday at the annual Suiteworld conference, Netsuite’s annual gathering in San Jose.

The CEO’s comments are in contrast to a common view that being publicly listed company distracts a company’s management from focusing on long term objectives, a sentiment Nelson rejects.

“In terms of managing a public company I think it’s an important discipline, I think a lot of people are opposed to these SOX (Sarbanes-Oxley) rules but when I look at these rules I think they are just common sense. Are you managing your business right? You want to have control of your business so you aren’t blindsided.”

Probably the biggest advocate of taking companies private is Michael Dell who took his eponymous business off the markets three years ago and is now looking at doing the same thing with EMC in what will be the biggest IT merger in history.

Dell going private

Nelson doesn’t think Dell going private was a mistake though, “I saw Larry Ellison say it was one of the greatest business moves in the history of man, I’ll agree with Larry – he’s usually right on that stuff,” he laughed.

“The thing I see Dell doing that I understand is they are giving their smaller division more autonomy. Dell Boomi is going back to being just Boomi and Secureworks just went public. Certainly from a structural standpoint and business model innovation that makes sense and it’s what I understand.”

As a public company, Netsuite does come under scrutiny and one of the criticisms is that it continues to post losses, something that Nelson puts down to the treatment of stock options. In the last earnings report, the company claimed capitalising stock options added $30 million in costs and not including them would see the company reporting an eight million dollar profit last quarter.

“We’re cash flow positive, we generate over $140 million in cash,” Nelson says. “People are happy with it, we’re still investing. What we’re investing in this year is different to the past, we’re investing in services to enable our customers to invest in product.”

Integrating the stack

One of the advantages Nelson sees that cloud based companies like his have are integrated systems, “the client server world created this perspective that dis-integrated systems actually work – you have Windows, you have third-party apps – but what really works well are integrated systems.” he says. “Look at the most common system you guys use, called Apple, it’s an integrated end-to-end system. Same with Amazon, that’s what we’ve built.”

“The detour we took in the client-server world is still being taken in the software world, a lot of software people believe you can compile this stuff and it will magically work. No, it doesn’t. Integrated systems work better.”

Securing the cloud

One area he specifically sees where cloud services have an advantage in being integrated is with security, “a problem that large enterprises have that we to some degree don’t have is we have one system, we have five data centers. You look at some of these large enterprises and some of them don’t even know where some of their data centres are. How on earth do you secure that environment? It’s not a product problem, it’s a process and IT management problem.”

Nelson’s comments on security are a swipe at competitors like SAP and Oracle who are often criticised for having disparate systems.

With Suiteworld moving to Las Vegas next year, it will be interesting to see who’s taking bets against cloud services like Netsuite. Certainly with salesmen like Zac Nelson, they’re able to tell a good story. The key though is to show some profits in the longer run.

Paul travelled to Suiteworld in San Jose as a guest of Netsuite.

Equity crowdfunding arrives late to the party

Equity crowdsourcing comes late to the Silicon Valley party but could it help the capital starved small business sector?

As of today, equity crowdfunding is now legal in the United States.

The interesting thing is it appears Silicon Valley is shifting away from the VC model that this initiative was intended to promote among smaller investors.

Whether equity crowdfunding can be applied to ventures outside the tech startup industry remains to be seen, it may be in a world where banks have stepped away from their traditional role of providing capital to business that this is the way for proprietors to raise essential funds.

Rethinking economics in the face of demographics

As the western world’s workforce ages, we will have to rethink politics and economics

The Western World’s demographic chickens come home to roost. Investor John Mauldin shows nine charts that illustrate the low growth dilemma facing central banks.

For governments to stimulate economies, they are going to have to find a way to increase productivity and the spending power of populations. The current remedy of pumping cheap money into the economy isn’t enough to do this.

One concerning message for the tech sector in these figures is that simply boosting productivity will not be enough to boost the economy. In fact widespread automation of existing jobs may make the problem exponentially worse.

The statistic that indicates younger workers are dropping out of the workforce to look after older relatives should be particularly worrying for economists and a warning to politicians that thirty years of the neo-Liberal model espousing smaller governments and reduced public services now threatens to change the political dynamic – something that the rise of Donald Trump is also a symptom of.

For policymakers, the question is how to employ people in jobs that give them enough income to support their families without ringing up huge debts.

Interestingly, much of the current tech mania is based upon the same credit based consumerism that’s driven the last thirty years of western economic growth. Apps like Uber, AirBnB and the countless delivery apps are good examples of businesses based on happy consumers jamming more on their credit cards.

The era of 1980s thinking is over, we’re going to have to rethink what policies encourage employment and wealth creation along with seriously considering what capitalism is going to look like in the mid-21st Century.

Do it now

There’s one common piece of advice entrepreneurs have for others.

I’ve spent much of today, interviewing Australian tech company founders on why they moved to San Francisco for a project I’m doing.

One question I’m asking is what advice they would give others planning a similar move.

Every response so far has been, “do it now. Don’t wait.”

So what are you waiting to do?

Confidence and open communications

Open communications is essential in a time of change, tech giant EMC finds

One of the big technology industry stories currently is the merger of Dell and data storage giant EMC, which at seventy billion dollars will be the biggest merger in the tech industry’s history.

With fifty thousand employees managing such a change presents a challenge for EMC’s managers and something noticeable attending the company’s EMC World conference in Las Vegas this week is how upbeat almost all the staffers about the impending merger.

In an interview with David Goulden, the CEO of EMC’s Infrastructure division, which is the company’s core business, I asked him how they were keeping staff morale up in the face of changes that will almost certainly cost jobs.

“Change creates uncertainty,” says Goulden. “One thing I’ve learned from this is you cannot over-communicate and that’s true internally and it’s true with our customers. We’ve put an incredible amount of effort in communications so our teams are engaged to go and speak to their customers.”

As change is now a constant in all industries Goulden’s lesson should be noted by all managers and business leaders – clear, honest and open communications with employees and customers is essential in keeping the trust of the markets and workforce.

The old model of restricting information and hoping no-one finds out is increasingly harder to sustain and from a business point of view unprofitable in the medium term as well.

Paul travelled to Las Vegas as a guest of EMC and Netsuite.

Getting academics onto the cloud

Discount and free software programs are good for educational programs but they do risk industry wide vendor lock in.

Offering free products to students and academics has long been a tactic used by software companies to build their market presence. The current fight for dominance in the cloud is seeing the same tactics being used.

Last week I had the opportunity to talk to Amazon Web Services’ Glenn Gore about his company’s academic support program.

Part of that conversation ended up in a story for The Australian about how researchers are now using cloud computing services and it’s worthwhile looking at how AWS are using this program to cement their products’ market positions.

“We work with the majority of universities across Australia,” Gore said. “It’s part of an international focus around how we support the education sector in general.”

In some respects AWS’s behaviour isn’t new, for years Microsoft, Autodesk and Adobe have had programs offering free or deeply discounted products for academic or student use. The success of those schemes in becoming defacto industry standards is no small reason why these companies have dominated many sectors.

Microsoft themselves have the similar Bizspark program for tech startups and it’s easy to see how that initiative is helping push Azure’s adoption into a field that has been dominated by AWS.

One of the drawbacks though with cloud computing services is the risk of ‘sticker shock’ where customers end up with big bills. One of the universities I spoke to in researching the story recounted how 0ne of their faculties was presented with a huge AWS invoice because their engineers didn’t provision the services correctly.

This is where AWS’s team steps in with advice for researchers, “in the case of Koala Genome Project use the on-demand model, the standing pricing model for the cloud,” recounts Gore in pointing out the nature of their work could use spot-pricing to take advantage of cheaper prices in off-peak times. “As a result of making that one change they were able to do eighty percent more research.”

Getting more research time is always attractive for researchers and Dr Rebecca Johnson who leads the Australian Museum’s part of the koala consortium was particularly effusive about the support from AWS staff,

“What we have been able to access via this partnership with AWS is compute time and compute capacity that we just would not have had access too,” Dr Johnson said in a media release. “It would have cost us thousands and thousands of dollars to create and we just would not build such a computer system these days. You would not create your own computer infrastructure as we would only use a fraction of it anyway. So, it is great for us to piggy back off these already built systems.”

Being a relatively small institution, the Australian Museum is a good example of how cloud computing can work for those without the resources of big universities or corporations in the same way small businesses and startups can access resources formerly only available to enterprises.

Amazon’s programs though show the Microsoft model of getting students and startups onto their systems early pays dividends. It’s good for academic institutions but one wonders whether it’s also another form of vendor lock in.

Planning a Saudi pivot

Saudi Arabia plans to pivot its economy but cultural issues may prove hard to overcome

In the face of a volatile oil price and falling reserves, Saudi Arabia’s new Crown Prince is looking at pivoting the economy to knowledge based industries.

That is a hard task in the face of Saudi Arabia’s religious, cultural and work cultures. This is not a society easily dragged into the 21st Century.

Crown Prince Mohammed bin Salman’s plans seem even more daunting when Richard Florida’s 3Ts of the Creative Class are considered – Talent, Technology and Tolerance.

It may well be easy to buy in the technology, but attracting the right talent to Saudi Arabia is going to be hard particularly given it is one of the most intolerant societies on the planet.

Saudi Arabia though has plenty of challenges, so a few big bets may be in order. Tolerance though might be the deal breaker.