Decoding the new economy

The global online sales battle

The fight between governments, retailers and online traders has some big stakes.

Gerry Harvey’s and Bernie Brooke’s Fair Go for Retailers campaign drawing attention to the GST treatment of online overseas purchases is part of broader battle being fought around the world between multinational corporations, governments and small business. How it is resolved is going to affect all of us.

Last week, while Australians were focused on their major retailers campaigning for changes to GST rules, Internet retailer Amazon wrote to its Illinois affiliates warning that should the state legislature pass a law imposing sales tax on Internet purchases, the company would cut off their partners in that state, just as they already have in Colorado.

The actions of the Colorado state government, the Illinois proposal and Amazon’s ruthless response are just the latest phase in a longer term struggle between borderless online retailers and those governments, and businesses, limited by their physical locations.

What’s making this particularly acute in the United States is state governments are struggling to balance their budgets and sales tax is the one of the few avenues they have to raise revenues in an economy where incomes and property markets continue to stagnate, if not fall outright.

That balancing act isn’t just confined to the US, the UK government has increased VAT rates from the beginning of the year for the same reason and is facing discontent over increasing tax burdens, particularly on fuel prices.

For the moment the UK government and customs authorities seem to be fairly relaxed about the leakage of VAT income that has seen some British supermarket chains shipping online orders from their Channel Islands branches to avoid local taxes in the way Gerry Harvey and Bernie Brookes proposed last December when the floated the proposal to move their online stores offshore.

The British public hasn’t shared their government’s sanguine response with organisations like UK Uncut blockading stores accused of dodging taxes or owned by alleged tax avoiders.

Governments aren’t the only ones affected, while in Australian it’s the retailers who are publicly worried about their loss of sales at present, other sectors, particularly those providing business to business services, are even more at risk.

Last month The Economist described how US law firms are seeing high margin but relatively low skilled work moving offshore to India and it’s likely those contractors are offering similar services to Australian law firms and corporate clients.

Online bidding sites such as Freelancer.com, O-desk and 99 Designs are offering almost every business support service imaginable, from virtual offices to logo design. Anyone competing locally against foreign contractors on those sites starts from exactly the same GST disadvantage as Harvey Norman, Myer and the local shoeshop.

The power of international retailers and service providers like Google and Amazon to avoid taxes and deliver lowest cost products to customers are challenges to both businesses and governments.

Julia Gillard’s and Bill Shorten’s almost condescending responses to the retailers shows the politicians are somewhat more in tune with the public mood than the retailers. But we can be sure that should the porridge in Australia’s Goldilocks economy start going cold, then Treasury will start looking for those lost GST dollars.

While we can criticise Gerry Harvey, Bernie Brookes and the others behind the “Fair Go for Retailers” campaign for being out of touch and failing to respond to obvious threats to their markets, most businesspeople – and politicians – shouldn’t think for a moment they are immune from the same forces the retailers are complaining about.

Few of us, whether we run businesses or not, will be untouched by these forces realigning the global economy. We all need to understand what these changes mean to our livelihoods and investments, lest we get caught out like Australia’s big retailers.

Trusting the web

How the Wikileaks scandal has damaged the cloud computing industry

The US court orders demanding Twitter and others hand over Wikileaks related information may have killed the cloud computing trend.

Paul Carr in Techcrunch raised his concerns about how this has affected his views on storing his personal life and details online. He’s not alone.

Cloud computing relies on trust and confidence; for us to use it we have to trust our data is safe, secure and confidential. That many of us are even suspicious that Google and Amazon have quietly handed over the Wikileaks details shows how that trust has been eroded.

The behaviour of the US cloud providers shows most will buckle under the slightest political and government pressure, let alone a letter from the FBI of which the New York Times claims over 50,000 are sent each year.

That tens of thousands of these orders are made each year in the US alone – and we should have no doubt that governments in other countries are just as eager to seize online details – shows how insecure our information is in the hands of third party providers.

This is more than just activists who have upset the US government; in the event of a trade dispute, spurious copyright claim or a simple case of political malice or opportunism a businesses’ service could be shut down, often without any warning, due process or appeal.

Which is exactly what Amazon and various other cloud service providers did to Wikileaks.

Cloud services offers great business advantages, particularly to small and startup enterprises. But the Wikileaks shutdown scandal shows the managements of many cloud computing providers are untrustworthy cowards.

For many businesses it will still be worthwhile sticking with cloud services for the convenience, cost and scale however it’s also important to keep in mind these providers cannot be trusted and a backup plan has to be available should they fail.

The data we keep online has to be considered as well, it appears we cannot trust cloud services with our critical business and personal information so we need to be discriminating about exactly what we put online, this includes social media services like Facebook and Twitter.

Cloud service providers have to prove they deserve our trust, right now it’s difficult to see how they can regain it.

The entrepreneur’s biological clock

At what age do you stop being an entrepreneur?

In backpacker circles, when you turn thirty people ask “what’s wrong this guy? What you can get away with in your twenties, you can’t get away once you’ve passed the big “three-oh”. It’s not dissimilar to the “biological clock” many women in their thirties confront as they perceive their days of easily having children are coming to an end.

A similar phenomenon exists in the business world, both for employees and business owners, that there are age limits on what someone can easily do. Like the backpackers, it’s more a perception than a reality.

Once upon a time you were past it at fifty years old. Through the 1980s, 90s and the early part of this century that “past it” age contracted, along with the deskilling of the workforce, to 45, then 40 then 35.

In the eyes of many in the corporate world today should you not have an established corporate career path by your mid-thirties then you are well “past it” and destined for a middling career and income.

With entrepreneurs a similar quandary exists, once over forty there’s a feeling that the aspiring business owner should just stick to buying the local doughnut or lawn mowing franchise. Startup land is no country for old men.

The underlying cause of this view is the belief every successful business founder is rich beyond their dreams by thirty – Bill Gates and Mark Zuckerberg come to mind – that’s clearly silly given most businesses never come close to the successes of Microsoft or Facebook but it’s a persistent one nevertheless.

When the entrepreneur turns thirty, things begin to get tricky; sleeping on a friends sofa, working eighteen hour days and living on instant noodles isn’t an option when you have kids, partners and mortgages. At the same time, family, friends and potential employers start to ask “if this guy’s so good, how come he isn’t a millionaire?”

To make things more difficult, risk adverse peers start bragging about how their safe, well paid job is allowing them to buy second homes or go on holidays most business owners can’t contemplate.

Probably the hardest thing though is that the doors of the corporate world start slamming shut; for a 40 year old entrepreneur who has been running their own businesses for 15 years, it’s difficult to get a job in the business world and any position available won’t recognise the skills developed in running your own enterprise.

Similarly, the warning to anyone with a decent corporate career who chooses to leave their safe office job to run their own business is usually “how can you risk throwing all of this away?”

Risk is the difference between the ages; once you’re over 40 with there being little prospect of a plan B involving returning to a nice corporate position, then the cost of failure is a lot higher.

In some ways this can be better; an individual staring down the prospect of a long, poverty stricken retirement has a very good incentive to get their business right and doesn’t have time to waste on speculative or “me-too” projects.

The idea there’s an age limit to launching new, innovative businesses and products is silly, but it’s a persistent one nevertheless. The great thing though with being your own boss is you don’t have to pay attention to other people’s dumb ideas and this one is a dumb as it gets.

Choosing the business battlefield

Working from a strong position is a great help to success.

Across the world industries are in turmoil as the Internet and globalisation allow new competitors into once safe markets. How do the incumbents deal with the upstarts and how do innovators challenge the establishment?

One way is to redefine the market, instead of taking on the incumbent or challenger on their own terms, aim the product at a segment that hasn’t been properly developed. The best example of this is Apple’s iPod.

When the iPod was released there were hundreds of MP3 players on the market including those from Sony who were expected to continue their dominance in the personal entertainment device market which they had developed around the Sony Walkman in the early 1980s.

Apple took that market and redefined it on their terms, they then repeated the strategy with both the iPhone and the iPad.

While not every business will have Apple’s design talent, or the market opportunities that allowed Apple to time their entry with those products, their experience shows how choosing where you fight your market battles matters.

In the United States, major airlines are deciding not to compete with cut price carriers on travel websites, the reasoning being that these online comparison services only compare products on price which is not the legacy carriers’ advantage. Instead airlines like American and Delta are pushing their own websites that emphasise their advantages such as free baggage allowances, lounges, inflight meals or downtown check-in facilities that their low cost competitors don’t offer.

Qantas in Australia carried out a similar strategy when faced with low cost carriers entering their market. They set up Jetstar as a low cost carrier which started flying the price sensitive routes, mainly the leisure and holiday services, leaving the expensive full service legacy operations to focus on the business dominated routes that weren’t so concerned about price.

In doing this, Qantas chose where they were going to fight and on what terms, which has helped them remain profitable at a time when many other legacy airlines have struggled.

Traditional retailers are facing a similar problem to the airline industry as online stores are taking growing share of the shopping market. Some commentators are suggesting they need to compete with online services, but for many entering a field where someone else has the advantage would be a mistake.

Instead it may be better to choose where a business’s existing strengths lie and build upon those. For a bricks and mortar retail store, this may mean service and convenience.

A good example of this is the cornerstore of our grandparents days. With the rise of supermarkets, most of these smaller shops went out of business as they tried to compete with the better range, prices and convenience of the self service stores. We saw a similar process happen with speciality shops like butchers and greengrocers.

In recent times we’ve seen the corner store being reborn as retailers have discovered that consumers are prepared to pay more than supermarket prices in return for convenience. The modern convenience store is different to the corner shop of our grandparents’ days, but it is a recognisable descendant which caters to the changed society and customer needs.

This changing society and evolving customer demands is what today’s retailers, and every other industry, needs to consider as they look at the future of their business. The economy is going through a period of massive change and disruption.

Building on strengths and recognising other’s advantages and weaknesses is the key to survival in such an environment. For a traditional, bricks-and-mortar appliance store, an e-commerce solution might be the answer as could a social media strategy or offering bid discounts to Internet shoppers.

The key is to choose the marketplace where your business have the strengths, either by redefining markets as Apple often do or by focusing on key advantages like Qantas and the US airlines are trying to do.

A similar rule applies when challenging the incumbents in the marketplace, in fields where barriers are low and it’s difficult to simply undercut the established players, you have choose the areas in which they are weak and the demand is strong.

This isn’t to say incumbents shouldn’t adopt new technologies, they should and they can use them to build on areas they are strong while looking at how new methods can fix their weaknesses. Similarly upstarts can compete in an incumbent’s core market if the existing players are weak or aren’t adapting to changing conditions.

Choosing the battlefield is the key, whether you’re an incumbent protecting your market position or an upstart looking at building a new market, working from a position of strength makes success far more likely.

The customer is always right

Australia’s new business laws have a sting in the tail

From the beginning of 2011 a new consolidated set of national consumer laws took effect across Australia. These change a number of definitions and rules on business matters like sales, refunds and contractual arrangements that businesses need to be aware of.

While most of the regulations are revisions of existing Federal and state laws – the main changes seemingly aimed at tying down definitions of things like unconscionable conduct – there are few gotchas which even the most well intentioned business owner or manager needs to be aware of.

For most businesses the most difficult aspect will be the ACCC’s definition of “unsolicited supplies”. It appears the main thrust of the changes is to tighten up on invoice scams and dodgy door-to-door sales people, but the Commission’s interpretation of what is unwanted work may be a bit too restrictive in the real business world.

“If the client didn’t ask for it, they don’t have to pay” is the ACCC’s interpretation of the new laws. On the face of it, this black-and-white view seems fair enough but often what the client and supplier agreed isn’t so easily determined.

In fields where quoted work is the norm, the “unsolicited supplies” definition means the ACCC will now advise your clients not to pay any part of a bill they believe wasn’t authorised.

Most scrupulous service providers already check with customers before going ahead with additional work. The example in the ACCC’s handbook of a car repairer is a good case, as most mechanics already call up customers should they find unforeseen problems which will add to the bill.

One interesting aspect of the ACCC’s interpretations is how they will fit in with the duty of care that mechanic, just to choose one example, has to the customer should they find the car unroadworthy; do they repair the dangerous items and risk wearing the bill or do they let the customer drive off should they be unable to agree on the cost of making the vehicle legal and safe?

A more common example is the tradesman who finds midway through the quoted job that there’s a serious problem that prevents them completing the agreed work.

Does this mean the plumber who finds a tree root blocking a pipe, a carpenter who uncovers an extensive termite infestations or a computer technician who discovers a dying hard drive simply down tools until an agreement on the cost of the extra works has been agreed?

These are the sort of issues where the ACCC’s black and white interpretation of the law may come unstuck.

Another area where the narrow definition of the ACCC will fall down is where customers say “just fix it” with an ensuing argument over what was fixed. Advising the customer not to pay the bits they believe are excessive puts an unfair burden on the merchant and may not stand up to review by the courts.

It’s safe to predict the ACCC will find their interpretations being challenged in the courts sooner rather than later, though for the moment businesses will have to live with these definitions.

As a consequence businesses have to be precise in defining what work is covered in a quotation and scrupulously note every conversation and instruction from your clients, particularly ensuring you have clear approval for any works that might fall outside your initial agreement.

For businesses operating in areas where it’s difficult to give a fixed quote with a defined scope of works such as emergency plumbing or computer repairs, it’s probably going to be best to accept the uncertainty and just build an extra overhead allowing for these disputes into your cost structure.

Apart from the “unsolicited supplies” aspect most of the guidelines around these rules are general commonsense and there’s little that’s really changed for ethically run businesses.

The full guide to the new regulations is available for download from the ACCC website. You and your staff – particularly your sales team – need to read and understand how these rules affect your business.

The age of the whistleblower

Wikileaks shows how anonymous online channels undermine old media models.

“I would have done it anonymously” when the girl in the middle of the Australian football “dickileaks” scandal was asked what she would have done differently after being ordered by a court not to post any more nude photos of star players she had obtained through a relationship with one of their team mates.

Having unsuccessfully tried to pass them over the local Melbourne press, who instead tipped off the governing Australian Football League, the girl posted them on Facebook and was quickly shut down by lawyers and a hostile local media more concerned about their access to star footballers than the ethics or behaviour of their beloved sports teams.

The lesson has been learned with events like this and the systemic corporate shut down of Wikileaks; that the media, big business, governments and the media cannot be trusted.

For anybody with sensitive information that upsets people in power – be it Julian Assange, a girl with nude footballer photos or a US pilot posting inconsistencies in the Transport Security Administration’s policies – it is essential to get your message out, you don’t have to wait for a producer or editor to decide to publish the story based upon whatever news values they think have priority.

The next wave of Wikileakers won’t be waiting for Julian Assange to do deals with The Guardian, New York Times or Der Spiegel, they’ll be setting up anonymous websites on services like Blogger or WordPress and hiding their IP address to publish the details directly.

Sure most of them will get caught, but instead of finding the leaker in ten minutes, as would happen should they post on Facebook or contact a journalist more loyal to powerbrokers than their readers, it may take the authorities weeks or months to find them and shut them down.

For the media – who have largely sat on the girl’s story since it first broke in May last year, kept silent on the TSA’s flaws and ignored much of the obvious that is stated in the Wikileaks cables – they are no longer the trusted brokers. Too many journalists and media proprietors have cosy, safe relationships with the organisations they should be reporting upon.

For those journalists, their cosy world is over. No longer are they the trusted gate keepers with the privileges that come with the position.

The next generation of media proprietors and journalists understand this and are figuring out the ways to regain trust as sources of factual, useful information.

Digital technology means there will be many Deep Throats and Daniel Ellsbergs in the future, while they won’t need a newspaper editor to get the message out, a channel to vouch for their veracity will be needed and that’s where trusted journalists will matter.

Wikileaks and similar direct publishing channels won’t kill media, but it’s going to be a very different world from that of the 20th Century.

The invisible hand

Sometimes a quiet market is trying to give you a message

It’s great to be passionate and believe in your business, without them it’s difficult to see how an enterprise can succeed.

But if you simply can’t make money out of your passion then it’s the market telling you there is no demand for what you believe in.

Sometimes a slap from Adam Smith’s invisible hand of the market is the best wake up call we can have in business.

Author: Paul Wallbank

The global online sales battle

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