Decoding the new economy

Is Groupon the small business saviour?

Does the deal of the day change the way we do business?

Since Google’s rejected offer of $6 billion dollars to buy deal of the day website Groupon, there’s been a lot of discussion of just what Groupon and the hundreds of similar services mean to online commerce and small business.

Groupon’s CEO, Andrew Mason, even went as far as to declare his organisation the “saviour of small business” on the Charlie Rose show.

John Battelle, founder of The Industry Standard and co-founding editor of Wired, examines Groupon’s business model on his Searchblog and concludes it will be the small business platform for the mobile Internet just as Google are to the web and Yellow Pages were to the telephone.

The problem with these ideas is scale. If every small business had the capacity and wanted to be on Groupon, the service simply couldn’t cope and the model breaks down.

In my area there are, according to the Yellow Pages, 115 hairdressers in my district. Even if Groupon were able to geographically target me to my neighbourhood, they’d need a third of the year just to cover hair stylists which is tough luck for the lawn mowing services, plumbers, patisseries and other small businesses that may also want to advertise on Groupon.

Which takes us to customer motivation, when I’m looking for a haircut, hedge clipping, cleared drain or chocolate gateaux I’m not particular driven by finding a bargain – if I do that’s great – but it’s not my motivation to buy.

Groupon, and the other deal of the day sites, are driven by customers looking for discounts, and the key to business survival – particularly in retail – is not to depend on discounts to drive your business. So business models that rely on discount hungry customers, or cashflow desperate merchants, are always going to be limited.

Groupon is a great business and it may well turn out to be worth $6 billion or even $36 billion. The barriers to entry are not so low as anyone who thinks executing an idea like this is “easy” doesn’t understand the work involved in building a local sales team like those of Groupon or Yellow Pages.

It could well be that Google wanted to buy Groupon simply for that sales team. The failure of Google to properly execute on their terrific local search product has baffled me for some time and the only explanation I can put down to it is what Silicon Alley Insider’s Ron Burk attributes to Cash Cow Disease, where companies like Google and Microsoft find themselves paralysed by the rivers of cash flowing into their businesses.

Deal of the day sites have an important role to play for businesses looking at demand management or clearing inventory and Groupon is a good business just like Clipper Magazine or Shop-A-Dockets, but to claim they are going to be the next great revolution for small business is giving too much importance to these channels.

There’s no doubt though that small businesses will be the big winner when we get local search on the web right. When we get it right we’ll probably see the hyperlocalisation model for the media start to take off as well. So it could save two industries.

Groupon though is not the small business messiah we’re looking for.

Deskilling a society

Is outsourcing destroying our supply of skilled workers?

The Economist looks at outsourcing in the legal profession and how various services are now being offered claiming to cut lawyers’ bills by up to 80%.

All of this is valid as legal costs have escalated to the point that governments and businesses are baulking at the sheer expense of lawyers’ services.

There is though another aspect to this issue; is this another step in de-skilling our society?

A key point in the article is “…plenty of legal jobs are routine. American law firms typically get fresh law graduates to do such grunt work…”. While that grunt was profitable – as The Economist points out law firms would “bill clients for it at steep rates” – it is also how young lawyers are trained.

The article observes that Thompson Reuters recently bought Pangea3, a legal outsourcing firm with most of its lawyers in Mumbai, while announcing it is looking to sell BarBri, a company that prepares US graduates for bar examinations, which leads to the conclusion that training young American lawyers is not a good business proposition as selling the services of cheaper Indian lawyers.

Neglecting the training of young workers has been a notable point of Western economies in the last 30 years and while we can argue that fewer lawyers may not be a bad thing for these societies, the problems of not training nurses, electricians, builders, computer programmers, call centre staff and Engineering workers is now becoming a problem as we’ve find the global competition for skilled workers is intensifying.

There’s no easy answer to this deskilling process as outsourcing and globalisation are a fact of life in the connected economy. But we need to be aware of this process so we can trim our national economic and education policies to suit the times.

It’s certainly clear that pumping out thousands of law students who’ve been promised lucrative careers checking commas in contracts for big corporations is a losing proposition, but what should we be training these folk for?

So you want to be an entrepreneur?

Do you really want to start your own business?

There’s a school of thought that starting your own business is the passport to independence from the rat race or liberation from the servitude of employment.

A lot of blogs, books and writers encourage this idea and there’s no shortage of multi level marketers telling you self employment is the pathway to wealth and status.

On his Planning Business Stories blog, Tim Berry looked at one of the other sides of self-employment, that you’ll become unemployable.

Tim’s observations are right, but there’s a few other downsides to consider before trashing your cubicle, cashing out your savings and establishing that radical startup or buying a doughnut franchise.

I don’t want to work for a boss anymore
If you think your boss is an unreasonable swine wait until you deal with customers, particularly those who don’t pay their bills. Then there’s shareholders, business partners, suppliers and the taxman.

You’re leaving the rat race
No you aren’t. As a business owner you’ll find there’s a lot more rats than you thought when you worked for The Man, as the man employs lawyers, debt collectors and HR staff to deal with the rats.

The sad thing is you’ll probably end up being even more in the rat race, it’s just that you may not realise you’re racing the other rats as you aren’t stuck in traffic with them anymore.

I want to be the boss
That’s a noble and fair aspiration. Just be aware that in your own business, you take the risks and responsibilities too.

The boss at BigCorp can often mess up and move onto bigger and better things as the organisation is usually big enough to hide the mistakes and it’s often in senior management’s interest to hide their subordinates’ mistakes from the shareholders or taxpayers. In your own enterprise, it’s your own assets at stake.

I’ll get a better share of my rate
A common gripe with skilled workers, like plumbers and lawyers, is they get ripped off by their employer who pockets 3/4 of their hourly rate.

When you start your own operation, you’ll learn the existence of overheads and soon realise why you were only paid a quarter of what you were charged out for.

The only way to get rich is to work for yourself
Kind of sort of true, except there’s a big survivor bias in that saying. The people who do really well out of building a business receive accolades and boasting rights, those who don’t get quietly on with their lives if they are lucky.

In a capitalist society we reward risk, and the biggest risk you can take is setting up your own business. If you’re successful you’ll be rewarded, but the risk of comparative failure is high which is why successful entrepreneurs get more money and accolades than successful managers or politicians.

You’ll work fewer hours
This is probably the greatest myth of all, usually perpetuated by someone selling a multi level marketing scheme. In truth, you’ll work longer hours and many of those will be unpaid as you chase up debts and fill in government paperwork.

On the rare occasions you do get to sit down and catch up on the news, you’ll learn to dread reports that the government is going to “simplify” or “reform” something. This will almost certainly mean more paperwork for you.

Keep in mind that no politician – be they Republican, Democrat, Conservative, Liberal, New Labor or Labor – is “business friendly”. At best they are sympathetic in the way a non-lethal host parasite is to a warm mammal.

You’ll never work in this town again
Tim’s article makes this point well, that if you spend any considerable time working in your own business – be it a startup, consultancy or small business – you’ll find it difficult to get a job in the corporate sector.

I personally found this after 12 years of running a moderately successful business, basically I was told all of that experience was irrelevant to a corporate management position. In big business terms, I’d have made a better career move if I had been driving a bus for those dozen years.

All of this isn’t to say you shouldn’t strike out and build your own business, for many of us it’s the course in life that suits us and what we work best at. But it isn’t the lifestyle for everyone.

We certainly shouldn’t be saying those who aren’t suited to this lifestyle are bad or inferior people; most folk simply don’t want to take the risks and demands on family, finances and nerves that running your own business entails and this is fair, sane attitude to take particularly in a time of uncertainty.

Successful entrepreneurs have certain skill sets and a focus which can be tough on families, friends and children. For many there’s an element timing and luck as well.

For the success of a capitalist society, we need to celebrate and reward the entrepreneurs and risk takers, but before anyone dives into a start up or small business it’s best to understand the risks and costs involved.

Good luck.

Password safety

Taking a layered approach to online security is the best policy

Online news and gossip publisher Gawker Media was hacked last weekend with nearly 200,000 usernames and passwords released to the world.

The Wall Street Journal’s Digits Column tabulated the results and listed the top 50 passwords used by Gawker’s subscribers.

At first view, the reaction is to think what sort of idiot would use a password like 12345678 and would only confirm most IT and security professionals’ view that most computer users don’t protect their online details very well.

But on reflection, is using a weak password on a site like Gawker so bad? Most of the users listed have only created accounts to make a comment on one of Gawker’s websites, they aren’t using their Gawker account for anything vital and should their Gawker account be accessed the only thing the bad guys can do is post under the account name.

So if we assume that most of the 3,000 odd people that used the password 12345678 only do so for “disposable” accounts like the Gawker comments stream, then they probably haven’t risked anything at all.

In fact it makes sense to do so rather than to use a strong password which also happens to be your banking login or work account.

On my IT Queries site we suggest using a layered approach to passwords where services like Gawker, where it doesn’t really matter if the password is compromised, get a simple and easy password while sites where there are serious consequences like your online banking get strong and secure passwords.

We should always keep in mind that accidents do happen and that there are a lot of clever bad guys out there who are keen to exploit weaknesses when they see them. So security mistakes like Gawker’s will occur from time to time. The best we can do is to arrange our security so that when bad luck strikes us, the effects can be contained.

The real moral for all of us from the Gawker password hack is to take security seriously and not to use the same password on every site we visit.

What businesses should learn from Wikileaks

Cablegate forces us to question computer security and the stability of the Internet

The Wikileaks Cablegate affair has been entertaining us now for two weeks as we see diplomats and politicians around the world squirming with embarrassment as we learn what US diplomats really think about the foreign powers they deal with.

Both the leak of the cables and the treatment of Wikileaks and its founder, Julian Assange, by various Internet companies raises some important questions about the Internet, cloud computing and office security in the digital era.

Security

It’s believed the source of the leaked cables is Private First Class Bradley Manning, who is alleged to be responsible for leaking the Iraq tapes released by Wikileaks earlier this year.

The lesson is don’t give junior staff unrestricted access to your data, access to important information such as bank account details, staff salaries and other matters best kept confidential needs to be protected.

You can stop data leaving the building by locking USB ports, CDs and DVDs through either software or hardware settings on your computers and you should ask your IT support about this, keep in mind that locking down systems may affect some of your staff’s productivity.

Locking the physical means though doesn’t stop the possibility of data being sent across the Internet and access logs may only tell you this has happened after the fact. So it’s important to review your organisation’s acceptable use policy. Check with your lawyers and HR specialists that your staff are aware of the consequences of accessing company data without permission.

Incidentally, the idea that Pfc Manning was just one US Army staffer of thousands who were able to access these cables raises the suspicion that the information Wikileaks is now releasing was long ago delivered to the desks of interested parties in London, Moscow, Tel Aviv, Beijing and cave hideouts in remote mountain ranges.

Don’t rely on one platform

Wikileaks found itself hounded from various web hosting and payment providers. As we’ve discussed previously, relying on other people’s services to deliver your product raises a number of risks. Make sure you have alternatives should one of your service providers fail and never allow an external supplier to become your single point of failure.

Concerns about the cloud

This column has been an unabashed fan of cloud computing, but the Wikileaks saga shows the cloud is not necessarily secure or trustworthy. Not only is there the risk of a PFC Manning working at the data center compromising your passwords or data, but the arbitrary shutdown of Wikileaks’ services is a stark lesson of relying on another company’s Terms of Service.

Within most terms of service are clauses that allow the provider to shut down your service if you are accused of breaking the law or straying outside of the providers’ definition of acceptable use. As we saw with Amazon’s treatment of Wikileaks, you can be cut off at any time and without notice.

Amazon’s shutting down of Wikileaks is a pivotal point in the development of cloud services. Trust is essential to moving your operations to the cloud, and Amazon’s actions shown much of that trust may be misplaced.

Should you be considering moving to the cloud, you’ll need to ensure your data and services are being backed up locally and not held hostage to the arbitrary actions of your business partner.

Don’t put your misgivings in writing

So your business partner is a control freak? Great but don’t put it in writing.

Be careful of gossip and big noting

One interesting aspect of Wikileaks to date is how senior politicians like gossip and showing how worldly they are to US diplomats.

That’s great, but it probably isn’t a good idea to tell your best friend they should consider beating up your most important customer. As mentioned earlier, this little gem was probably on polished desks of the Chinese Politburo long before the cables found their way to Wikileaks.

Resist the temptation to gossip, remember your grandmother’s line about not saying anything if you can’t say something nice.

Ultimately what Wikileaks shows us is all digital communications are capable of being copied and endlessly distributed. In a digital economy, the assumption has to be that everything you do is likely to become public and you should carry out your business conduct as if you will be exposed on Wikileaks or the six o’clock news.

Wikileaks is a lesson on transparency, we are entering an era of accountability and the easiest way to deal with this is to be more honest and open. That’s the big lesson for us in our business and home lives.

ABC Nightlife, 15 December 2010

The lessons from Wikileaks, online scams and rights management

Join Rod Quinn and Paul Wallbank for a look at what the Wikileaks Cablegate affair means to Internet users, including some serious questions for businesses moving onto the cloud.

The recording from the show in now online through the Nightlife website. It will be available until at least 22 December.

Aspects we discuss include;

How secure is our business information in a digital world?

Can we trust Internet providers to do the right thing

How reliable is cloud computing when Amazon can shut Wikileaks down?

Why writing unflattering things about your friends and business colleagues is rarely a good idea

Dealing with unethical telcos and Internet providers

Listeners’ questions
As usual we had plenty of listeners calls, these included the following who we said we’d get back to;

iTunes not recognising an iPod

Removing Installshield

The Paypal “horse float” scam

Your views are welcome and if you’d like to join the conversation in future shows with your questions or comments phone 1300 800 222 within Australia or +61 2 8333 1000 from outside Australia.

You can SMS Nightlife’s talkback on 19922702 or twitter @paulwallbank using the #abcnightlife hashtag

What the Internet doesn’t know about us

Can the web know all about us? Should we care?

In October 2010 Newsweek’s Jessica Bennett asked the the team behind the Internet service Reputation Defender to find all they could about her.

The results were startling, within half an hour they had found her US social security number and a few more hours digging revealed her address, hometown as well as many other private details.

But ultimately the picture of Jessica’s life was wrong. The team made mistakes about her personal habits, sexual orientation and the time she spends online.

The fact the profile was incorrect shows how difficult it is for computers, or people, to understand an individual based on a series of data points.

Most of us understand that making a generalisation based on single data point – say race, gender, appearance or sexual orientation – is usually incorrect, but when we add more data points things become even more difficult.

Once we get more than one data point, we have to start weighting them. Would Jessica eating at McDonalds twice a week outweigh her exercising every morning in the eyes of an insurance company assessing her risk?

That problem could be called the Google effect where a formula, known as an algorithm, becomes so complex that it becomes bogged down under the weight of its own assumptions as we saw with Tony Russo’s gaming of the search engine’s ranking system.

All of us as are steadily revealing more about ourselves onto the web, whether we know it or not. Every time we like something on Facebook, subscribe to a newsletter or make a comment on a blog post, we are giving a little something about us away on the publicly accessible Internet.

Over time, anyone can build a picture of us. However it may turn out that nobody will want to know about the detailed, complex and multi dimensional portrait each of our lives would be.

As information about all of us becomes more available, we may enter a modern version of the Mutually Assured Destruction doctrine of the Cold War as each of us find that everyone around us has enough information to bring our careers, relationships and status crashing down.

But equally we hold equally damaging data about all our peers as well and to bring anybody down based on this information we have would be to invite the wrath of many others who know about our intimate details.

We may even find that because all of us, being human, have some damaging traits and history that employers, insurers and governments only care when you start hiding them. Today we see this with security vetting procedures which are more concerned about what we hide rather than the specifics of our foibles and indiscretions.

The assumption of those security agencies is that a self admitted gambler, alcoholic or philanderer is a manageable risk while those hiding such secrets from their families and employers are the genuine threat to an organisation.

So we come back to a society where a tacit agreement exists between us all that this dangerous power is only used when someone has acted illegally or hypocritically.

Perhaps that is the future we are heading for, where the Internet knows all but we simply choose not to access it. Which assumes it’s all correct anyway.

Author: Paul Wallbank

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