Paul Wallbank – Brilliant Communications

Tag: economy

  • Revisiting the Lipstick effect

    Revisiting the Lipstick effect

    During the recession much was made about the ‘lipstick effect’ – the idea some businesses and products would survive because they’re little luxuries that cash strapped consumers will spend on while scrimping and saving in other areas.

    Some of those areas are ladies’ cosmetics (lipstick), chocolate, movies and coffee shops. All of them offering small pleasures for a few dollars.

    It’s a theory I’ve always been sceptical of and an episode of the BBC’s World Of Business where Peter Day travels to Cork to see how Ireland’s second city is recovering from the great recession illustrates the reality is a lot more complex than the theory suggests.

    “We really struggled to keep alive,” Claire Nash of Nash 19 restaurant says in her interview with Day on her business experience during the recession.

    “My turnover just absolutely took a spiralling tumble and it wasn’t that the customer weren’t coming in – those that had lost their jobs weren’t coming in – but those that hadn’t lost their jobs were really hurting and they were very careful with their spend.

    “So they started using us as a treat, which was a model I never wanted to enter into but we weathered the storm.”

    It can be argued that Claire survived because of the lipstick effect – she kept enough customers to survive – but it was tough and had she taken out the loans offered to her during the boom it’s unlikely her restaurant would have survived.

    The key point though is the lipstick effect turned out to be a very different, and much less lucrative business, for Claire and other businesses in Cork.

    So assuming a business will remained unscathed because of the assumption the lipstick effect is a big risk, if that’s the plan then Sequoia Capital’s infamous Powerpoint of Doom comes to mind.

    While the presentation was aimed at tech companies and investors, it’s a good overview of how the Global Financial Crisis happened and Slide 49 – Survival of the Quickest – is probably the best lesson for any business: Act fast to adapt.

    The lipstick theory is a nice way to justify unsustainable business models, particularly those that rely on consumer spending, in the face of a recession but the assumption spending will remain the same as customers will seek little luxuries is deeply flawed.

    A business that doesn’t respond quickly to changed circumstances and reduced spending is one that might not survive a downturn.

    Peter Day’s Cork story is a good listen on how Ireland and Cork have weathered the global financial crisis, the main question from the piece is how much have the Irish and the rest of the world learned from the mistakes of the boom years at the start of the 21st Century.

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  • Digital vagrancy

    Digital vagrancy

    One of the joys of writing on and analysing trends IT industry trends is the never ending source of buzzwords and phrases that vendors invent.

    Today is a good day with a release from security software vendor AVG coining the term ‘Digital Vagrant’.

    Underlying the idea of digital vagrancy is an abandoned underclass who, overwhelmed by technology, are ignored and neglected in a connected society. As the AVG media release describes;

    Users who are left behind to wander around in an online world that largely ignores them are nothing more than the digital equivalent of vagrants – people who are left to cope in a world that has become too overwhelming.

    ‘Digital Vagrant’ joins other wonderful ‘digital’ labels; digital immigrant, digital native and digital sharecropper come to mind.

    It’s tempting to think that digital vagrancy is what eventually happens to poor exploited digital sharecroppers – those who’ve donated their free labour to help the likes of Mia Freedman, Chris Anderson and Ariana Huffington to build their media empires.

    Should that be the case, there’s going to be many digital vagrants.

    On more serious note, AVG does have a point in that both individuals and businesses that scorn technology risk being left behind in society that’s becoming increasingly connected.

    Society and business are going through a change similar to that of a century ago where the motor car, trucks and tractors radically changed industries and the economy.

    Those farmers and businesspeople who stuck with horse drawn equipment slowly became irrelevant and went broke.

    A similar process is happening now as a new wave of technology is changing business and society.

    The question for all of us is do we want to be left behind in a connected society?

    Beggar image courtesy of apujol through sxc.hu

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  • Peak employment and the political challenge

    Peak employment and the political challenge

    This week’s edition of The Economist asks about the Future of Employment and where the jobs are in a society where work is increasingly done by machines.

    For the Economist the conclusion is that the future of employment is ‘complex’ and observes economists and politicians haven’t given enough thought to the effects of the changing workplace and the dislocation of many workers.

    Much of the Economist’s story is based around the ideas of professors at MIT Erik Brynjolfsson and Andrew McAfee in their upcoming book “The Second Machine Age”.

    The race with the machines

    Professor Brynjolfsson gives his view at TED 2013 in the key to growth? Race with the machines, a presentation countered by Robert Gordon in the ‘death of innovation, the end of growth’ and followed by an excellent debate between the two.

    Brynjolfsson cites the dilemma of bookkeepers being displaced by software applications such as Intuit Turbotax as an example of where service sector staff are being displaced.

    “How can a skilled worker compete with a $39 piece of software?” Brynjolfsson asks.

    “She can’t. Today millions of Americans do have cheaper, faster, more accurate tax preparations and the founders of Intuit have done very well for themselves. But 17% of tax preparers no longer have jobs.

    “That is a microcosm of what’s happening not just in software and services, but in media and music, in finance, manufacturing, in retailing and trade. In short, in every industry.”

    The great decoupling

    Brynjolfsson’s key point is that workers’ wages have been decoupled from productivity and that the workforce isn’t sharing the rewards of improved practices and increased wealth.

    That is certainly true over the last forty years, however that may not be a technological effect, but the business consequences of liberalising the financial sector which has seen massive pay increases to the banking industry and managerial classes that has been way out of kilter with the rest of the workforce.

    It may well be the current golden era of high executive salaries is a transition effect of an evolving economy, albeit one where our grandchildren will puzzle over an era where a failed executive can receive a $100 million payout on being fired.

    As The Economist points out technological change itself tends to create new jobs that make up for those displaced in old industries, this is a view supported by GE’s Chief Economist Marco Annunziata.

    The main problem that Brynjolfsson identifies is the medium term issue of dislocated workers finding themselves out of work with superseded skills and, as The Economist point out, it’s clear the developed world’s political leaders haven’t though through the consequences of that transition.

    In almost every sense, the current crisis of confidence about employment prospects is more a political and social problem rather than technological.

    Helping displaced workers is going to be the greatest challenge for today’s generation of business and political leaders, the real question is are they up to that task?

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  • Who pays for the internet of things?

    Who pays for the internet of things?

    “If there’s one number I’d like you to remember, it’s 19 trillion.” Cisco CEO John Chambers told the 2014 International CES during his keynote speech earlier this week.

    Chambers was referring to the economic value of the Internet of Things or machine to machine technologies as they get rolled out across society, but who pays for the connectivity?

    In the case of the smart home, office, factory or farm the data costs go onto the existing internet bill, but once you get out of the office or on the road then the bills start mounting up as systems start connecting to a cellular or satellite network.

    Certainly the telcos see the opportunity with Ovum Research predicting telco’s M2M revenues will grow to reach US$44.8bn over the next five years.

    While for logistics companies and similar businesses this will be just another cost of doing business, for many consumers being stuck with an expensive mobile data plan with their smart car might not be attractive.

    As car manufacturers start to push their vehicles as being more like smartphones, suddenly the choice of network provider, compatibility with apps and operating systems starts to become a valid concern.

    In that world, choosing a car on the basis of which telco it connects to is a sensible idea.

    Of course it may be that consumers may not own cars by the end of the decade. The vision of companies like Zip Car and Uber is that we just call for a towncar or pick up a share car when we need one.

    Certainly that vision makes sense from an economic perspective and the trends right now show that millennials are nowhere near as interested in cars as their parents and grandparents were.

    As with every technological change, it’s not always obvious in the early days how things will pan out. In 1977 the founder of Digital Equipment Corporation Ken Olsen said, “there is no reason anyone would want a computer in their home.” Within 15 years he was proved very wrong.

    The motor car drove western society during the Twentieth Century and to assume we’ll continue to use it the same way in the 21st is as flawed as believing a hundred years ago that we’d continue to use horse carriages the same way as previously.

    So the assumptions about where money is to be made with the Internet of Things may turn out to surprise us all.

     

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  • Chinese earthmovers move up the value chain

    Chinese earthmovers move up the value chain

    After yesterday’s post on the motor industry’s relevance in the 21st Century, a related article about Chinese construction equipment appeared in The Economist.

    According to CLSA – formerly Credit Lyonnais Securities Asia and itself now fully owned by Chinese investment house CITIC – the quality of Chinese construction plant is rapidly approaching that of the Japanese and US industry leaders.

    The Chinese have achieved this in a short period through a combination of joint ventures and strategic takeovers and that should worry its more established competitors.

    How the Chinese have moved up the value chain in construction plant is a small, but important example, of how the country is positioning itself as a higher level producer as its economy and workforce matures.

    For trading partners and competitors it’s worthwhile thinking how a more affluent and higher tech China is going to affect their businesses, thinking of China as just a cheap source of low quality labour isn’t going to cut it for much longer.

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