Category: economy

Newcastle as a Smart and Innovative City

In today’s modern world, success is determined by our ability to come up with unique, smart and innovative ideas. It has become the key economic driver for cities and regions as they increasingly compete with other places for attention, investment, visitors and talent.

Newcastle City Council recently released their 2030 strategic plan to become a Smart and Innovation City to help Newcastle develop a healthy, diverse, creative and resilient economy.

But, how do you create a culture of new ideas? How do you attract smart people? How do you turn an Old World City into one the World’s Smartest Cities?

On June 29 2011, The Lunaticks Society of Newcastle will host some of the most creative minds in Newcastle from business leaders to content producers for an evening of thought provocative discussion, collaboration and lots of smart ideas on how to construct a Smart and Innovative City.

Speakers/Panelists

MC: Paul Wallbank – author, tech writer and radio presenter

Featured speakers include: Greg Hall – writer and movie producer, Simon McArthur & Jill Gaynor -Newcastle City Council and Carol Velduizen – Senior Research Fellow, Hunter Valley Research Foundation. More speakers to be announced…

Venue: Delany Hotel, 143 Darby Street, Newcastle

Date: Wednesday, June 29 2011

Time: Starts 6.30pm – Ends 10pm

Don’t miss this event! Book at the New Lunaticks website.

A tale of two conferences

How two very different events put their ideas across

Two conferences about ideas took place in Sydney last Saturday, TEDx Sydney and Social Innovation BarCamp. While both involved exploring concepts and thoughts they could not have been more different.

One was about exclusivity and elitism while the other was about a genuine exchange of ideas. Both the events tell us much about the new and old models of communication and learning.

Welcome sign to SIBSyd
The entrance to SIBSyd. Exit through the gift shop?

At the Paddington College Of Fine Arts, Social Innovation Bar Camp ­– SIBSyd – was open to anyone with an idea or who just wanted to show up a throw some thoughts around. Across town at the Everleigh Carriageworks, the TEDx Sydney offshoot of the prestigious US TED event featured high profile speakers before an invitation only audience.

Welcome sign to TEDx Sydney
Welcome to TEDx Sydney. May I see your invitation, sir?

Most TED events are exclusive and restricted you have to be qualified to attend, let alone speak and this showed in the way the audience were ushered into the auditorium and then asked to turn off their mobile phones unless they wanted to sit in the back two rows.

The speakers at TED were slick, rehearsed and had their presentations timed exactly to the minute – as you’d expect at an event where the content is carefully chosen – while at SIBSyd any of the audience could choose to speak.

Even with a speaker everybody at a SIBSyd is able to participate, with all the audience of giving their views. In the reforming education session I sat in on a quiet lady at the back of the room told her experiences of working with villagers in Chiapas, Mexico.

It’s unlikely that lady would get an invite to TEDx, let alone have the opportunity to tell her story and that illustrates the fundamental difference between the two conferences.

One is the formal, traditional one-to-many lecture from an expert imparting wisdom on an audience awed by the speaker’s knowledge while the other sees the speaker – who may be an expert – drawing out the collective wisdom of the room.

TEDx Sydney stage setup
TEDx stage ready for action

The “unconference” structure of meetings like SIBSyd probably does a better job of developing new ideas as the traditional conference TED is based upon that assumes the expert on the stage already has the answers.

Of the two types of conferences, it’s probably safe to say the collaborative “unconference” model works better in driving innovative solutions to problems. To work effectively though it needs the participants to be motivated by common issues.

The traditional TED style conferences do a better job of getting big ideas across to a broader audience and that’s probably one of the reasons why the event’s videos have been such an Internet success.

Some of the differences reminded me of British writer Paul Carr’s comments about the South By South West Conference in 2009 when he said “I really hope that next year one or two of those early adopters will organise – and I mean that in the loosest sense – a user-generated unofficial fringe conference to sit alongside the main event.” In many ways SIBSyd was the fringe festival to TEDx’s “establishment” status.

SIB Syd session in progress
SIB Syd session underway

Both have their role and probably the most worrying thing at the two events was the lack of Australia’s corporate and political leadership, with the exception of Penny Sharpe, MLC who appeared to be the sole member of Parliament attending TEDx, there was little representation from either group.

In a time of massive climate, technology and economic change that is challenging the assumptions and business models of previous generations, it’s a shame our business and political leaders aren’t engaging and listening to those outside their narrow circles.

But ideas are one thing and action is another. As journalist and enfant terrible Stilgherrian said during the day, “completely over events about ‘ideas’. We have plenty of ideas. What we need is a bit of effort put into execution.”

Hopefully out of both events we’ll see some of the ideas discussed turned into action

Building business communities

Setting up next door to your competitor could be a good idea

Last night the NSW Government launched Digital Sydney, an initiative to bring together the various groups that make up the digital media and IT industries while raising the city’s profile as a global digital centre.

This project was something close to me as I’d been involved in developing the concept through 2009 when working with the then NSW department of Industry and Investment.

Originally the idea had been to create a digital hub around the Australian Technology Park to the south of the city. Over the decade of its operation, the ATP had attracted some high profile tenants and various high tech business start ups but there was a feeling it could be a more dynamic centre of the Sydney tech sector.

Digital hub failures

The setting up of “digital hubs” around the world has not been a great success – in Ireland an attempt to set one up in central Dublin’s disused Guinness brewery cost the European Union well over 100 million euro and subsequently collapsed amid acrimony between the various governments and businesses involved.

Even if there was a track record of success it’s unlikely any Australian government, state or Federal, would be prepared to spend money on the European scale. So the idea of building a “hub” had to be kept within industry, particularly the IT and digital media sectors.

Existing industry hubs

In talking to the industry, it became apparent that Sydney already a digital hub spreading across the suburbs immediately to the south and west of the city centre and centred around Surry Hills with an vibrant community of developers, designers and entrepreneurs occupying the old factories and warehouses being vacated by the city’s rag trade.

The proximity of competitors, clients and suppliers was why the hub had developed; exactly the reason why the fashion industry had previously concentrated around that district.

This is consistent with history; the great industrial hubs such as the English midlands of the 18th Century, the US mid west of the 19th Century along with today’s Chinese coastal manufacturing centres and event Silicon Valley happened with little government forethought.

Like-minded businesses clustered together because they could find the essential resources for their industry such as raw materials, labour, transport, markets and capital.

A shortage of capital

The access to capital is a problem for all smaller and innovative businesses in Australia, not just those trying to build digital businesses or hubs. Start up enterprises have been starved for capital and a few late stage Venture Capital investments like the recent ones in Atlassian or 99Designs are not on their own enough to build vibrant businesses of the future.

In Australia, it’s difficult to see any government in the near future changing the tax and legal regimes which favour property and stock market speculation over investment in new businesses and technology so the best hope is initiatives like Digital Sydney, along with the profiles of similar industry hubs in Brisbane and Melbourne, can encourage investors to look at the start up and innovation sectors.

Why big cities?

The real question is though is why is this just the major cities? Why can’t we have hubs in Renmark, Esperance or Hobart?

Access to skills and talent are the driving forces behind the local hubs and in that respect some smaller towns and regions do have the skilled workforces and businesses capable of building industrial centres and we’ve seen some regional hubs develop like the wine industry in various places.

So it’s worthwhile considering where your business is located, maybe it would be better to set up next door to your competitor? For many organisations, being part of vibrant industry hub is part of their success.

postscript;

Joe Kelly, former Commercial Director of the Dublin Digital Hub Development Agency, takes me to task on the claim the Dublin Hub collapsed. His comment is as follows:

As the former Director of Commercial Operations at The Digital Hub Development Agency, I felt compelled to correct you on your assertion that the Digital Hub in Dublin collapsed. That is incorrect. Media Lab Europe, an entirely seperate entity collapsed at a cost of over 100 million euro. The Digital Hub continues to thrive with over 100 companies located there. Please refer to www.thedigitalhub.com for further information.

Skilling for the future

We can’t rely on governments to deliver the skills our businesses need

Tonight we see the first budget of the Gillard government and one of its stated priorities to get the long term unemployed, disabled and single parents back into the workforce.

This is welcome in a society where we are facing skills shortages, the effects of an aging population and a developing global race for talent that is steadily making the old model of importing immigrants to cover workforce gaps no longer viable.

For those who’ve been out of the workforce for a long period the biggest challenge is acquiring the skills they need for the modern economy, to work in most industries today means using technologies that weren’t around five or ten years ago.

Like many ideas that come out of Canberra, the scale of this task seems to be underestimated by the public servants, politicians and the media reporting their plans. Training those currently excluded from the workforce is going to take more than a visit to Centrelink.

To give these folk marketable skills is going to require rebuilding our adult education and TAFE systems that have been systemically allowed to run down by governments over the last thirty years. That in itself is a major task that neither the states nor Canberra seem to have the appetite to address.

One of the big challenges with bringing disadvantaged groups back into education is transport, the colleges and teachers are often a long way from the students who usually face a convoluted and time consuming public transport journey to get the colleges and schools.

This is where technology comes in with access to the internet and online learning tools. Developed sensibly, broadband access can create relevant community learning centres along with individual in-home training.

We should be careful though treating technology as the only solution, one of the essentials for using computers and the Internet effectively is literacy and that’s a big challenge for many of these groups and something that is going to take a lot of investment in well trained and motivated teachers.

Those education investments, along with the spending we’re committing to the National Broadband Network, need to be co-ordinated and this seems to be where the Federal and state governments really drop the ball with poorly thought out, short term schemes.

For businesses, those last thirty years of government neglecting adult education have seen us neglect training as well. We’ve thrown much of the training burden onto reluctant governments or increasingly asked workers themselves to pay for training out of their pocket then moaning when new staff don’t have the skills we need.

That indulgence is running out as we begin to face the inevitable consequences of failing to train young workers coupled with the demographic certainty of an aging workforce.

We can hope our governments can deliver on their promises but we shouldn’t wait on them, even they get it right this is a project that will take years to bear fruit, we need to be starting right now with our own businesses and staff.

Training all workers, managers and business owners is a great opportunity to build new industries and use the web to give people the skills that will make them valuable members of their community.

Our days of complacently expecting workers to have the skills we need from the day we hire them are over, if they ever existed. We have the tools to fix the problems ourselves and we need to start now.

Trust is the currency of the web

To succeed online, we have to be a trustworthy voice in the noise of the Internet

“On the Internet, nobody knows you’re a dog” says Peter Steiner’s famous cartoon. All of us who want to be taken seriously on the web have to prove we’re not dogs – or trolls, shills or just those who regurgitate cheap, nasty and unreliable content.

This is particularly true when you want to be a trusted news source; your audience has to be assured an article’s facts are true and the conclusions can be relied upon. That assurance is found in references to source material, the writer’s identity and the basic facts for the reader to decide how accurate the story is.

An article in the Sydney Morning Herald on Voice over IP security illustrates just how even mainstream, established media can get things wrong. This article tells us nothing; we don’t know who the writer is, it doesn’t link to source material and, unforgivably, the story leaves it to the reader to guess what the security problem was.

Because of Fairfax’s silly and inconsistent rules on external links I normally don’t link to Fairfax news articles. A good example of this silliness is illustrated in the above article where the reader has to copy and paste into a web browser the bit.ly reference to MyNetFone’s security advice which the writer has managed to sneak into the copy.

It would be nice to congratulate the writer on this little bit of subterfuge but the article doesn’t have a byline, the credit at the bottom simply says “Livewire” which probably refers to the long defunct IT section of The Age, the Sydney Morning Herald’s sister publication.

That the article also refers to Bleeding Edge, a long running Age technology column by Charles Wright which was discontinued some time in early 2006 and which Charles later tried to morph Bleeding Edge into an independent blog. It’s not good enough that we have to guess who the writer is.

Having a semi-anonymous writer, no byline and no links to supporting information might be all forgivable if the article actually told us what the problem had been with the phone account; did the evil Hong Based criminal mastermind hack the providers’ network, was it a security lapse on the writer’s network or had the user’s password been weak and compromised?

I suspect it’s the latter, but like most things about this article the reader is forced to guess. If the reader doesn’t have some level of computer expertise they’d be totally lost.

For organisations like Fairfax, the publishers of The Age and Sydney Morning Herald, the challenge in a society where the traditional newspaper model is rapidly dying is to build their online brand so they can bring advertisers across to it.

The only way they will succeed in this difficult task is to be trusted as a source of reliable information, and right now poor editing coupled with silly policies such as the one on linking out to other trusted sites are damaging readers’ trust in their brand.

Rather than sacking editors, publishers should be preserving them and making their online content more trustworthy than the bulk of the web with its dozens of content farms and millions of inconsistent blogs (like this one).

It’s only by having high standards that today’s media empires will survive the changes the Internet has bought, going cheap and losing the trust and respect of the audience is not an option.

Happy birthday, iPad

Last week’s anniversary of the iPad has some useful lessons all disruptive businesses

Last week the iPad’s first birthday quietly passed, lost among the hoopla of the release of the tablet computing leader’s second version. It’s a difficult to think of another product that’s changed an industry so radically and so quickly.

All of Apple’s successes in the last decade have been in areas with many already established players; the iMac entered a crowded PC market, the iPod was just another MP3 player and the iPhone plunged into a sector sated with hundreds of mobile devices.

With each product Apple redefined their segment of the market place and established a secure, and profitable, niche.

The iPad was somewhat different to the other products; with it Apple redefined the entire market and now leads the tablet computing sector. Yesterday industry analysts Gartner put out figures claiming Apple has over two-thirds of today’s market and will still hold half in 2015 despite the rise of the cheaper Google Android devices.

Notable in Gartner’s predictions is the absence of Microsoft Windows based systems and that’s the clue for the iPad’s success as industries like healthcare, retail and logistics had been begging for affordable and usable tablet computers for a decade which the clunky Windows based systems had consistently failed to deliver.

Another factor in Apple’s favour has been the rise of cloud computing, which has freed devices from relying on heavy and power hungry internal hard drives and made them more flexible. One of the most popular business iPad applications has been Evernote, a note taking program which has proved indispensable for business executives.

Most of those executives work for corporations where the IT departments had blocked the introduction of cloud services and Apple products on compatibility and security grounds.

Senior management’s adoption of Apple products and cloud services has broken down that enterprise barrier, which is one of the reasons why competing companies that made their fortunes selling desktop and server products are now desperately trying to find other selling points.

In many ways, the adoption of Apple and the cloud is similar to how personal computers entered business. In the 1980’s computing departments resisted the introduction of PCs for almost the same reasons as IT managers today object to social media, cloud computing and Mac desktops in the office.

The difference is the PC revolution was initially driven by the office accountants, sales teams and secretaries who found desktop applications like Lotus 1-2-3 and WordPerfect made their jobs more effective. This time, being different, it’s their managers driving the change.

For smaller businesses and entrepreneurs Apple’s successes open a whole range of opportunities in the applications and services markets to support these devices.

Those applications also help upstarts disrupt existing industries; the lower cost of entry is reducing barriers and speeding up lead times making slower incumbents more vulnerable to change.

Disruption is probably the greatest lesson that Apple and Steve Jobs have taught us with the iPad, you can enter an already crowded market with a product different from the existing players and own a substantial part of it.

All businesses, regardless of the sectors we work in, can learn from the iPad whether it’s how we can use tablets and the cloud in our operations or how we can apply Apple’s disruptive business model to secure a profitable industry niche. It’s a good time to be being open to new ideas.

Planning for today

Business aren’t recognising the connected future has arrived. It’s not too late to recognise this

Last week the Communications Day Summit was told of the bizarre situation where owners corporations and building managers were actively preventing their properties from being connected to high speed Internet.

This short sightedness shouldn’t be surprising to anyone who’s had to argue with architects about allowing sufficient data raisers in commercial buildings or has despaired at stingy developers condemning their projects’ future occupants to years of living in powerboard infested firetraps by only installing one or two power outlets per room – something that’s common in even high priced complexes.

As well as being firetraps, these properties are limiting their potential future value as owners and tenants find it hard to connect the devices most businesses and family find are essential to modern living. This situation is going to get worse as we start to rely even more on the web and we find we our incomes and livelihoods are tied to the reliability and speed of our connections.

This failure to plan for the connected economy by Australian businesses is a familiar story, last year one of the state governments asked the tech industry what they were planning around the high speed Internet access the National Broadband Network planned to deliver. The overwhelming response was “dunno, I guess we’ll wait and see.”

Last week Geof Heydon of telecommunications company Alcatel Lucent told an almost identical story of cluelessness where one of the big four banks asked its suppliers how the NBN would affect the provision of their products.

The frightening thing is the availability of reliable and fast Internet is already here for most of the population and yet the majority of the business community, not just the retailer sector, seems to be ignoring these fundamental changes to our marketplaces.

Even if you don’t like the NBN, or last week’s news of cancelled tenders only confirms suspicions Canberra has their sums on the project hopelessly wrong, cancelling it is going to strand large chunks of regional and outer suburban Australia without access to the newer services.

We all have to ensure our business plans have provision for the changes that are happening as our customers, staff and suppliers adopt high speed and mobile Internet. Failing to do so is going to leave your business or investment stranded, just a community without roads or high speed broadband would be.

 

The rebirth of the middleman

Groupon, Google and Apple prove there’s still money in the middle

For many years, we believed the Internet would see the middleman’s demise. Just as it has with the newspaper and recording industries, we expected manufacturers, service providers and content creators would stop using intermediaries such as agents, brokers or retailers and move to set up their own online distribution channels.

The new middlemen

The rise of services like Groupon, along with booking platforms like Wotif and employment services like Seek, show just how wrong we were. What we’ve actually seen is a rise of new middlemen to replace those who have fallen away like telephone directories and record stores.

If anything, we’ve seen even more powerful intermediaries develop like Google, Facebook, Apple and Amazon develop to replace the old gatekeepers.

Why we need intermediaries

Part of the reason for this is that none of us, even the biggest corporations, have all the skills to bring a product to market; retail itself is a tough business, marketing is hard work and distribution is easiest when you have economies of scale. Middlemen bring these and other skills required to get products into the marketplace.

The danger with middlemen is they can dilute your brand. We see that with Groupon as businesses give their brand over to them with steep discounts on their products. As Esther Dyson points out at Salon, Groupon will eventually destroy many of their merchants.

None of this is new as many brands who’ve found themselves hostage to single outlets have found. This isn’t a just a small business problem either as we see hotels and airlines try to break their dependency on travel websites whose readers mainly shop on price.

The Internet’s price paradox

Price is one of the big paradoxes we have on the net, we’ve largely trained customers to buy on price – or look for free – yet for the middlemen to make money, it’s essential there’s a decent profit in the chain. If a $50 product only has $10 margin to share across the supply chain, there’s not a lot in it for the various intermediaries.

Right now, we’re seeing another paradox as the middlemen are keeping their profits while retailers and producers – such as the hairdresser, restaurants and personal trainers selling through group selling sites – are taking the pain and absorbing both cost increases and reduced income from retail price discounting.

That’s not sustainable and it’s probably a transition effect as the technology changes distribution and marketing at the same time that the Western economies are moving from being driven by consumer debt.

Are most of us really middlemen?

We were wrong to predict the death of the middleman, they provide too many benefits and many of us are middlemen ourselves whether or not we’re prepared to admit. What does happen is the middleman’s role evolves as markets, technology and industries change.

Regardless of whether we use, or are, middlemen it’s necessary to keep an eye on that evolution and make sure we aren’t caught out when the market tips and moves against us.

The saddest sign you’ll ever see

When a landlord takes possession of a business, there’s a lot of pain behind the signs.

The sign on an abandoned business announcing “Landlord taken possession” usually hides a pile of pain and distress.

It’s not cheap or easy for a landlord to take possession of a business premises and for most to do so it’s usually the end of long period of unpaid bills and broken promises.

Behind that sign is usually months, if not years, of stress and despair as a business owner has held onto a failing enterprise, bluffing their landlord, their suppliers, their staff, their own families and often themselves.

Almost every one of those signs has a story of failed relationships, destroyed friendships and ruined marriages.

Often they didn’t understand the cost of doing business and in many cases because they hadn’t consulted a bookkeeper or accountant earlier they didn’t understand their venture was always loss making despite what appeared to be a healthy cashflow.

When the truth about the businesses becomes obvious, life for the honest owner of a failing enterprise tries to bluff themselves and those around them that things will be okay, that the dream is still alive.

This is what worries me about many of the businesses that participate in group buying deals, they are desperate to keep their business afloat and believe the cashflow or publicity will save their failing venture. Even worse, many don’t understand how that “50% off” deal will affect their ability to pay staff and the landlord.

Even where the failed proprietor has been one the “two percenters” – the 2% of our society that runs their affairs with no regard for the pain and suffering of those they hurt – many people, particularly the smaller suppliers and low paid workers, have taken a hit as bills went unpaid and promises were not kept.

Most business owners though believe in their idea or vision and work long and hard in an attempt to achieve it. The majority of those who end up with the landlord taking possession are often those who ignored the signs and believed things would come good next season, next month or next week.

I’m always saddened when I see a “landlord taken possession” sign like the one near me in the window of what was an Italian restaurant until recently. What’s the saddest business sign you see?

Group buying sites explained

Are big Internet discounts right for you or your business?

Fancy half price seafood dinners, deeply discounted electrical goods or 80% off personal fitness training? Thousands of people who’ve signed up for group buying websites certainly do and hundreds of businesses are prepared to make big discounts to attract those customers.

What are these services? Are they worthwhile and how do the businesses make money from them? Should customers be wary of advertised big savings and are merchants cutting their throats when they enter the world of deep discounting?

What are group buying websites?

The idea behind group buying sites is that merchants will offer cheap deals to take advantage of bulk sales, clear inventory or as loss leaders to attract new business. The products offered can be anything from a cheap haircut through to discounted whitegoods or a cheap meal.

Customers subscribe to the group buying websites and receive a daily email detailing the deals in their areas. If they like an offer, they can choose to be part of it and if it goes ahead, their credit will be debited and they’ll receive a voucher for the deal.

The group buying websites usually approach businesses to take part. For the privilege of having their businesses featured, the website takes between 20 and 100% of the offer price as commission.

What are the consumer benefits?

Naturally the main attraction for consumers are the cheap deals on offer. Some businesses are offering 80% off their list prices for products, so there can be substantial savings to be made.

There’s also the opportunity to try out products or outlets you wouldn’t normally try for instance you might not usually be interested in Zumba classes, canoe hire or replacing your TV at normal prices but an 50% discount could tweak your attention.

Are there risks for the consumer?

There’s no such thing as a free lunch so there are a number of risks when using a group buying site.

Impulse buying is probably the biggest risk, if you’re a sucker for a deal then these sites will love you. It’s an opportunity to sign up for a lot of things you don’t really need, probably will never have used and maybe can’t even afford, but fact you saved 80% makes you feel good.

There’s also the risk you’re not really getting the full discount. A lot of canny merchants inflate the list price to make the amount off look greater. Many also reduce the size or quality of the discounted product to recover their margins.

A big risk is that you may never get to use your voucher. Either you’ll forget about the voucher you received or the merchant is so overwhelmed by the offer’s response that they can never get around to catering for all their people who took them up.

Finally there’s the spam factor. Many merchants see a group buying offer as an opportunity to build their mailing lists, so you may find yourself being spammed for fitness classes and restaurant offers for a long time after you take up a deal.

Business Benefits

These sites wouldn’t have taken off if there weren’t businesses to advertise on them and hundreds of merchants have taken up the opportunity. So there are clear benefits for the outlets that use these services.

The most obvious one is they get to promote their businesses. All of these sites claim to have subscribers numbering in the hundreds of thousands, so it’s an opportunity to get your products in front of a large audience.

Clearing excess capacity has been one of the main drivers for these sites in the United States where many businesses have found themselves with too much inventory or staff sitting around. These sites are a great way of clearing inventory or smoothing demand cycles.

Business downsides

The first problem is that excess stock. A business can’t afford to be carrying stock that requires big discounts to clear, if these offers become a regular feature then your business is in trouble.

Even if your business isn’t in trouble, these offers risk devaluing your brand. As the major retailers have found, offering frequent discounts trains your customers to expect lower prices.

Offering these bargains may alienate existing clients. Those customers who are prepared to pay full price aren’t only going to be irritated to find they could have got your products cheaper, but may also be unhappy with your business being overwhelmed by cheaper, price conscious clients.

Those price sensitive shoppers aren’t really your customers either; they are loyal to the buying platform and cheap deals, so if your competitors have an offer later on another platform, those customers will go there. There’s a lot of work to be done converting these bargain hunters into repeat clients.

One of the most misunderstood parts of group buying sites is the commission structure, most of the services charge a commission of between 20 and 50% – with some going up to 100% – on the advertised price, so that 50% discount to the customer is actually 60 to 75% off the merchant’s selling price. This can be a massive hit to a business’ profit.

Is group buying for you?

For businesses group buying sites can be a good idea if they are used as a part of a well thought out marketing strategy or to clear occasional excess stock. But they shouldn’t be seen as a quick way to attract new customers.

Customers are the big winners from group buying sites, as it’s the opportunity to pick up some great deals. But users have to use a bit of judgement instead of just jumping for the best looking deals.

It’s an old saying, but if anything looks to be too good to be true then it probably is. In the Internet age, that saying is probably truer than ever. Group buying sites can be good for both businesses and customers, but watch the wallet.

The tipping point

An important change has happened on the net which is changing the way we do business

Late last year the Internet quietly entered a new stage in its development as smart phone sales surpassed those of personal computers. This represents a fundamental shift on how society uses the web and how it will affect markets and our businesses.

The mobile workforce

Our staff and suppliers are going to be increasingly mobile and available. Logistic programs similar to Red Laser – which we discussed last year – coupled with recognition systems, virtual reality and always on wireless broadband are going to enable business, whether it’s a multinational trucking company or a local plumber, to have shorter supply chains and faster response times than ever before.

Going on the cloud

For ourselves it means increasingly we are going to be using mobile platforms like iPads and smartphones. It means we’re going into the cloud as the cost of maintaining the back end of these services are too prohibitive for many businesses.

As we discussed a few weeks ago there are a number of risks in the cloud that we need to understand and be aware of, but as the commenters to the Smart Company column pointed out, we can’t ignore the cloud.

The pervasive customers

Our customers are using the cloud on their smartphones as well, A presentation by silicon valley stock analyst Mary Meeker late last week emphasised the process that’s underway. Mary’s colleague, John Doerr calls this evolution of the mobile Internet SoLoMo – Social, Local, Mobile. People are using their mobile phones to quiz social networks to find local businesses.

This is going to challenge all businesses, particularly those who’ve resisted going onto the web until now, as we have to make sure our presence on the web is more than just a pretty web site with a token Facebook Page and Twitter account

Fancy a bowl of noodles, need your lawn mowed or toilet repaired? Increasingly we’re going to be using the mobile web and making note of what our friends say about these services. Even those business like the trades that have got away without going online are going to find it increasingly necessary to sign up to services like Google Places.

Change has arrived

The time for procrastinating about how our businesses are changing is over; the changes are happening now. Our customers are looking for us online and our competitors are reaping benefits from the various mobile and cloud technologies.

You need to be across these changes, just as telephones, cars and computers revolutionized most of our industries through the 20th Century, the mobile web is the first big change of the 21st. If you want your business to be part of the next decade, you have to start thinking about how you can use these tools.

Is Facebook worth $50 billon?

Investment bubble or a wise bet?

Goldman Sachs’ recent $500 million investment in Facebook that values the entire business at fifty billion dollars raises the question, can a business that was founded in college dormitory seven years ago really be worth that sort of money?

It is possible Facebook is worth that sort of money, but to figure out if it really is, we have to crunch some numbers. So here is a back of an envelope calculation.

Learning from others

The first thing we need to look at is similar examples, the closest comparison is Google who were launched on the stockmarket shortly after Facebook were founded and today have a market worth of $195  billion.

So Facebook’s investors are valuing the business at about ¼ of Google’s size. Yahoo’s stock analysis of Google allows us to look at the rough numbers.

Income

Currently, Google is earning 29.3 Billion and making a profit of 8.5billion for a Price to Equity (P/E) of 23.26.

To justify a 50 billion dollar valuation on similar rations, Facebook would have to make around 2 billions dollars profit on revenues of $8 billion .

Facebook is reported to have made $1.2 billion in sales with $355 millon profit in the first nine months of 2010. If we extrapolate that, crudely assuming no revenue growth in the last 3 months, we come to 2020 earnings of $1.6 billion and roughly $450 million profit.

So Facebook has to grow revenues and profit by a factor of five, based on the same ratios as Google, to achieve the $50bn valuation. Where could this come from?

Advertising revenue

The bulk of Facebook’s current revenue comes from advertising, according to Inside Facebook in 2009 all but $10million of their $660 million earnings came from one form of advertising or another.

Online advertising is going to continue to grow spectacularly, a 2010 Morgan Stanley research paper illustrated (on slide 25 of the previous link) how advertisers will have to increase spending onling by $50 billion to match the Internet’s share of media consumption.

It’s a fair assumption that Facebook, as the biggest social medial platform, will get a large slice of that $50 billion. If Facebook were to capture 10% of the market’s growth, they’d achieve their valuation easily.

We should also consider that most of Facebook’s revenue is coming from the United States and they barely touched international markets, so there’s even more potential growth in their advertising revenue.

Games revenue

One of Facebook’s biggest growth opportunities comes from the games. Games like Farmville and Mafia Wars are proving popular with the user base; Zynga, the developer of Farmville, itself has a projected market capitalisation of $5.8 billion.

The global games business is valued at $105 billion dollars and much of this market is moving to web based, online platforms. Should Facebook based games grab 10% of that market, the platform’s 30% cut would see another 3 billion go into Facebook’s revenue, most of which would be profit.

The credits market

Related to the games market is the sale of credits for purchases of games and other features like virtual, and real, gifts and products.

It’s almost impossible to quantify what that market would be but already credits have gone on sale in US stores like WalMart and Best Buy and the virtual world site Habbo Hotel reports 2010 credit revenues of 4.5 million Euros on a user base that is a fraction of Facebook’s size.

So is Facebook worth $50 Billion?

Facebook’s fifty billion dollar valuation is feasible. That’s not to say there aren’t risks, it’s possible Facebook could turn out to be another fad like Myspace or that users might decide to value their privacy over Facebook’s benefits.

While it’s not an investment you’d like to see your grandmother in as a safe source of retirement income, for risk tolerant Russian fund managers and high income clients of Goldman Sachs, it’s a punt worth taking.