Paul Wallbank – Brilliant Communications

Tag: investment

  • Legislating for innovation

    Legislating for innovation

    Can bureaucrats define innovation? It seems Australia is about to find out as the country’s regulators struggle to decide what businesses will be eligible for taxation concessions under the government’s Innovation Statement.

    That bureaucrats are tasked to identify what businesses are worthy ‘innovators’ is worrying for those of us who hoped the new Australian Prime Minister would end two decades of managerial complacency.

    Adding to the ‘business as usual’ under the revamped government was a speech by the Minister for Mineral Resources yesterday describing the glowing future of the nation’s resource industry in face of continuing Chinese demand.

    While Josh Frydenberg was delivering that speech to Canberra’s National Press Club, the world’s biggest shipping line, Maersk, reported an 83% drop in profits in the face of slowing global trade and collapsing Chinese commodity demand.

    Australia’s long term economic policy of riding on the back of a never ending Chinese resources boom is looking shaky, and the luxury of a tax system that favours property speculation over productive investment is increasingly looking unsustainable.

    Rather than looking at ways to define ‘innovative’ companies, Australian governments would be better served levelling the playing field to attract investment into new businesses, inventions and productive infrastructure.

    Just as a narrow group of tech startups are important so is investment into new plant and equipment for agriculture, manufacturing and tourism. Encouraging workers to attain new skills should also be an objective of the tax system, instead of disallowing school fees and book costs.

    The treatment of taxpayers’ education costs versus that of property speculation expenses speaks volumes about the current priorities of the Australian tax system.

    For a government wanting to encourage productive, employment generating investment and building a first world economy that’s competitive in the 21st Century, the first priority should be to put all forms of investments on the same footing.

    Asking a committee of well meaning bureaucrats to create an artificial group of ‘innovative businesses’ seems unlikely to help Australian workers and businesses meet the challenges of a digital century.

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  • Rescoping Twitter

    Rescoping Twitter

    Poor Twitter. Today’s earnings report showed what everyone knew, its user growth has stalled with the number of active participants – Monthly Active Users as the company calls them – didn’t grow in the last quarter and are only up nine percent on the previous year.

    The good news for shareholders is advertising revenue grew 48% with both US and international markets showing strong increases. Despite user growth flatlining the company still remains on track to becoming profitable.

    As Farhad Manjoo argues at the New York Times, maybe the service needs to focus on more modest ambitions. The company’s dreams of competing with Facebook or growing like Google are never going to be achieved.

    We’ve argued at this blog for a year that Twitter’s management and investors should accept the market’s expectations of the business were too lofty and while there’s no reason the company can’t be profitable, it’s not going to be a massive river of gold like Google.

    There’s nothing wrong with being a healthy billion dollar business. The risk for Twitter is the greed and ego of investors, founders and shareholders could condemn the company in trying to meet impossible expectations.

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  • The opaque Alphabet

    The opaque Alphabet

    Late last year Google announced it was restructuring and creating a new holding company called Alphabet, at the time I hoped it would bring more accountability into a business that’s becoming notable for easily distracted management and sprawling bureaucracy.

    Yesterday the company released its latest quarterly reports and it appears far from improving transparency, the restructure has resulted in the operation of ‘moonshots’ – termed ‘Other Bets’ in the reports – becoming even more shrouded in mystery.

    Other Bets, which includes Google Fiber, Ventures and Google X,  made a stonking $3.1 billion loss while 90% of revenues still comes from the advertising business.

    Even within the advertising arm there’s little transparency as the division includes Apps, Android and YouTube along with the lucrative Search and Ads business. There’s little information of how these divisions are travelling on their own.

    As Dennis Howlett at Diginomica points out, there will come a time when shareholders demand some accountability as the losses in the Other Bets are not trivial but it seems that time is some way off.

    For Google, the biggest risk is being disrupted themselves. Their ‘river of gold’ is not dissimilar to that the newspaper industry floated along prior to the web – and Google – arriving.

    Another aspect is that of culture where most parts of the business are free of accountability as the lucrative Ad division’s revenues allow disinterested management and needless bureaucracy to thrive.

    While Alphabet’s revenues are impressive, this is a company dangerously reliant on one line of business. History has not treated such ventures well.

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  • Does venture capital really matter?

    Does venture capital really matter?

    Around the world governments are trying to replicate the Silicon Valley startup model. But does that model really matter?

    On the Citylab website, Richard Florida looks at which cities are the leading centres for startup investment.

    Unsurprisingly eight of the top ten cities are in the United States with San Francisco and San Jose leading the pack. While London and Beijing make up the other two, the gap between the regions are striking with the Bay Area being home to over quarter of the world Venture Capital investment while the Chinese and London capitals com in at around two percent.

    global-startup-cities

    While these proportions are impressive, the numbers are not. The total VC investment identified by Florida in 2012 is $45 billion, according to the Boston Consulting Group there was $74 Trillion of funds under management in 2014.

    That makes the tech venture capital sector .06% of the global funds management industry.

    In the US alone over 2013 small businesses raised $518 billion in bank loans, more than ten times the global VC industry.

    What this scale shows is how small the tech startup sector really is compared to the broader economy and, more importantly, how the Venture Capital model perfected in the suburbs of Silicon Valley is only one of many ways to fund new businesses.

    Even in the current centre of the startup world, it’s estimated less than eight percent of San Francisco’s workforce are employed by the tech industry although that goes up to nearly a quarter in San Jose.

    None of this is to say the startups are not a good investment – Thomas Edison’s first company raised $300,000 in 1878, $12 million in today’s dollars, from New York investors including JP Morgan. The Edison Electric Light Company, while relatively modest went on to being one of the best investments of the 19th Century.

    That twelve million dollar investment looks like a bargain today and it’s highly likely we’ll see some of today’s startups having a similar impact on society to what Edison did 140 years ago.

    Edison’s success created jobs and wealth for New Jersey and New York which helped make the region one of the richest parts of the planet during the Twentieth Century and that opportunity today is what focuses governments when looking at encouraging today’s startups.

    So it’s understandable governments would want to encourage today’s Thomas Edisons (and Nikola Teslas) to set up in their cities. The trick is to find the funding models that work for tomorrow’s businesses, not what works for one select group today.

    While the Silicon Valley venture capital model receives the publicity today, it isn’t the model for funding most businesses. Founders, investors and governments have plenty of other options to explore.

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  • Splitting two former internet giants

    Splitting two former internet giants

    Just how mismatched PayPal and eBay were is now becoming apparent since the two companies separated last year.

    Yesterday, PayPal beat the street with 23 percent growth in its payment figures along with an additional six million new users. The company’s stocks rose 17% following the news.

    For eBay’s investors the news wasn’t so good with the company reporting no increase in US sales over the key Christmas buying quarter despite the National Retail Federation reporting a nine percent gain for the entire industry.

    One of the main criticisms of eBay being part of PayPal was that there were no reasons for the two companies to be joined and so it is proving now they have gone back to separate entities.

    For eBay, it’s hard not think that the opportunity has passed with the market moving on from the days of households selling their unwanted items to e-commerce now being a major industry dominated by traditional chains and, most menacingly, Amazon.

    While PayPal is travelling better its business is still under great threat from other payment platforms, particularly while much of its revenue is still locked into desktop software. Shifting to more API and mobile based streams is going to be essential for the company wanting to compete in a very changed marketplace.

    The failed PayPal-eBay venture will go down as one of the great missed opportunities of the first Dot Com wave as both companies were distracted from growing while the industry evolved over the last decade. No doubt some of today’s unicorns will suffer the same fate as they respond to a changing marketplace.

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