Category: economy

What business can learn from Groupon

How can businesses use the web to grow like the group buying companies?

Groupon, pioneer of group buying and one the fastest growing companies in history, will have its launch on the stock markets today with an initial public offering (IPO) that’s values the business at thirteen billion dollars, more double the $6bn that Google offered for the three year old company last year.

A recent Business Insider profile of Groupon had some fascinating insights on this unique company and its growth, there’s a number of lessons that most business owners, entrepreneurs and managers can take from this company’s dramatic growth and market leadership regardless of the sector they operate in.

Apply tech to your business

Many people make the mistake that Groupon is tech startup when it’s actually a sales operation.

Groupon’s business model isn’t really new, what they have done is applied various web technologies to the directory and voucher shopping industries and come up with a 21st Century way of doing things.

Bringing together different modern tools like social media, cloud computing, local search and the mobile web makes businesses more flexible and quick to develop new market opportunities.

Prepare for quick changes

Groupon was born out of another business – The Point. As The Point steadily died, Andrew Mason and his mentor Eric Lefkofsky decided to try something different and Groupon was born.

This ability to change focus quickly – often called “pivoting” – is essential in changing markets. In volatile times like today where today’s business conditions can’t be taken for granted we have to be prepared for rapid changes.

Fortunately the cost and time to changes your business focus has dropped dramatically with digital and online tools, which is another reason to embrace tech.

Get a good business mentor

Eric Lefkofsky bought maturity and a perspective to Groupon’s young leadership, having a different and more experienced view of the business helped it develop and grab the opportunity.

An experienced business mentor can be worth their weight in gold.

Back a good idea

In Nicholas Carson’s Business Insider profile he describes Andrew Mason role at Eric Lefkofski’s business before The Point as “an intern, ‘kind of squatting in their offices'”. Lefkofski was prepared to back the geeky kid camping on his premises.

Putting your prejudices and judgements on the shelf to back good ideas, particularly those that don’t cost much to execute, is one way to find where the opportunities lie.

Tell your business story

Regardless of what you think of Groupon’s claims, they tell a very good story which has lead to their amazing growth and the development of the group buying industry.

Being able to tell your story, in your terms, is one of the great advantages the web, local search and social media deliver. There’s no reason why your business shouldn’t be dominating the local market in whatever field you work in.

Regardless of what your business does, it can benefit from applying the online tools that are available to all of us.

We may not be the next Groupon but the web gives us the opportunity to build our business to take advantage of the 21st Century. It’s worthwhile understanding the new tools at our fingertips.

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The IT industry’s damaged business models

Can the Information Technology industry deal with a radically changed business environment?

JT Wang, Chairman of personal computer manufacturer Acer believes the release of Windows 8, Microsoft’s next operating system, will see a resurgence of sales for Windows based computers. Market trends suggest those hopes are in vain.

Right now the Personal Computer market can be roughly split into two camps; those happily running Windows XP who have no need to upgrade and those who are delighted with Windows 7 who have no need to upgrade.

Short of their computers breaking down, neither group have any good reasons to change to the new operating system as, unlike Windows 3.1, 95 or XP, there is no new technology breakthrough or advance to warrant making the jump.

To make things worse for the PC manufacturers the rise of cloud computing services extends the life of older Windows XP systems and eliminates the biggest driver of new computer purchases in businesses – the software upgrade.

During the PC era one of the banes of business owners were enforced software upgrades where vendors would release a new version of a program every year or two and withdraw support for the older editions.

Frequently the newer software would require the latest hardware, forcing the business into an expensive and disruptive upgrade of all their IT systems.

Today, software companies following the forced upgrade model are finding customers have viable cloud alternatives which destroys the revenue stream behind those frequent releases.

When a customer moves to a cloud service, they also delay buying new desktop or server hardware which is partly driving the steady increase in the age of business computers.

For computer manufacturers the release of Windows 8 could actually be bad news as customers will probably postpone system upgrades until the first service pack of the new operating system is released.

Even if Windows 8 does deliver increased sales as JT Wang hopes, the trend of steadily falling PC prices as smartphones and tablet computers take market share is inevitable.

The PC industry in both laptops and desktops has been a commodity industry for some years and any hope of establishing premium pricing from tablet computers has been dashed by the iPad’s competitive price points.

Regardless of the hopes of the IT industry’s leaders, both the hardware and software sectors are under a lot of stress. It will be interesting to see who adapts to today’s market.

 

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Does revenue solve all problems?

Do profitable businesses have no problems?

According to Eric Schmit, Google’s Executive Chairman, “Revenue solves all problems.” Is that really so?

The truth is it doesn’t. Revenue can solve some problems, while creating others and having plenty of cash coming in may even cover over existing issues that can be ignored while times are good.

Plenty of governments have found themselves unsuck after rich revenues allowed them to ignore problems in their own society, the Dutch Disease – where a country’s income rises rapidly because one industry booms and crowds the others out – is one example of revenue causing problems. Local Chinese governments are currently dealing with problems bought around by their massive income from selling land.

In business, owners and managers sometimes find themselves in trouble because they can’t manage the demand that comes with the revenue a growing enterprise attracts.

Sometimes, the revenue’s fine but there’s no profit. I can earn a lot of money selling bottles of beer for ten cents when everyone else is charging two dollars, but the fact the wholesale price is one dollar means I’m going to grow broke quickly unless I can impress a dumb corporation with my massive customer growth and get them to buy me out.

The group buying model tends to combine two of the above problems – participating businesses struggle with the demand they generate while the discounts they are giving almost certainly guarantees they are not making a profit on the deal.

So revenue doesn’t solve all problems, even the most profitable business – legal or not – has its own unique set of problems.

Life’s easier when your business is profitable, but problems will never go away. Even the good life has problems; deal with it.

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The agents of change

It’s tempting to think social media and other web tools are driving change, but much deeper things are changing.

It’s understandable technologists see technology as driving change. Often it’s true – technologies do build or destroy businesses, alter economies and collapse empires.

Sometimes though there’s more to change than a new technology changing the economy and while it’s tempting to credit innovations like the web, social media and cloud computing with many of the changes we’re seeing in the world, we have to consider some other factors at work.

The end of the 40 year credit boom

In the 1960s, the United States started creating credit to pay for the Vietnam war; they never stopped and after the 2001 recession and terrorist attacks the money supply was kept particularly loose.

The worldwide credit boom allowed all of us –Greek hairdressers, Irish home borrowers, Australian electronics salesmen, US bankers and pretty well everyone else in the Western world – to live beyond our means.

In 2008, the start of the Great Recession saw the end of that period and now the economy is deleveraging. Consumers are reluctant to borrow and businesses struggle to find funds to borrow even if they want to.

Any business plans built on the idea of almost unlimited spending growth are doomed. The era of massive consumer spending growth driven by easy credit is over and the days of expecting a plasma TV in every room are gone.

The aging population

An even bigger challenge is that our societies are getting older, the assumption we have an endless supply of cheap labour is being challenged as a global race for talent develops.

The lazy assumption that economic growth can be driven by building houses and infrastructure to meet increased demands will be found wanting as the Western world’s populations fail to grow at the rates required to power the construction industries.

Our societies are maturing and increased economic growth and wealth is going to have to come from clever use of our resources.

Innovations in computers and the Internet – along with other technologies like biotech, clean energy and materials engineering – will help us meet those challenges but they are tools to cope with our transforming societies, not the agents of change themselves.

Had  tools like social media come along in the 1970s or 80s they probably would have been massive drivers for change, just like the motor car and television were earlier in the 20th Century. In the early 21st Century they have been overtaken by history.

Smart businesses, along with clever governments and communities, will use tools like social media, local search and cloud computing with the demographic and economic changes, but we shouldn’t think for a minute the underlying challenges will be business as usual.

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A clear, guiding vision

In a bland corporate world, knowing what you stand for is a competitive advantage

Two weeks ago the Melbourne fashion store Gasp caused outrage over their attitude to customers and the business’ owners might have been relieved the story was finally pushed off the news pages by Steve Jobs’ passing.

In a strange way, there’s a similarity between the Gasp stores and Steve Job’s Apple – a vision for their product and low tolerance for those who don’t share their ideals.

Steve Jobs was notorious for dismissing those who didn’t ‘get’ Apple, famously saying “they have no taste” when asked about his biggest competitor Microsoft and stating “we don’t ship junk” when questioned by a journalist about Apple’s perceived premium status.

Regardless of your opinion of Apple’s products, philosophy, labour practices or community relations, there was no doubt where they stood in the marketplace.

A similar thing can be said of the Gasp store, while there’s no question the Gasp folk could have handled their customer relations better, they certainly can’t be accused of not having a clear vision of where their brand sits in the marketplace.

In a world of bland mission statements where corporations and governments seem intent to paint the world a mediocre beige, having a strong statement on what your business stands for is a genuine competitive advantage.

What do you stand for?

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Digital art is more than iPod wielding basket weavers

What is the future for the arts in the digital economy?

This is a transcript of the digital arts opening keynote for the Digital Culture Public Sphere conference discussing the Australian government’s cultural strategy.

Thank you Senator Lundy. A little bit more about me, as well as being a writer and broadcaster on change I spent 18 months with the NSW Department of Trade & Investment setting up the Digital Sydney project.

Digital Sydneyis a program designed to raise the profile of Sydney as an international centre of the digital media industry.

One of the problems with Digital Sydney was that it was very inner Sydney centric and this is a perennial question we face as to where does Australian culture, and art, spring from? The first idea I’d like to throw to the room is that ‘digital’ frees us from many narrow geographic boundaries.

When we add the term ‘digital’ we hit another problem, that almost every aspect of our lives – be it in art, business or our personal lives – is being affected in some way by the Internet and digitalisation. In reality all art is becoming ‘digital’ in one way or another.

As broadband becomes more pervasive, particularly as the National Broadband Network is rolled out, we’ll see art and the creative industries become even more digitised.

In many ways we are today at the point in history not too dissimilar to that our great grandparents found themselves a hundred years ago. In 1911, our forebears couldn’t imagine the massive changes the century ahead would bring and we’re in a similar position in the first decades of the digital century.

The first half of the Twentieth Century saw radio start a cultural shift which was accelerated in the second half as television radically changed and redefined our culture. Today the Internet is doing exactly the same in ways none of us quite understand.

Given the massive disruption and technical advances we’re going through we need to be cautious about being too prescriptive as we can’t foresee many of the new technologies that will become normal to us over the next decade.

This provides a challenge for government agencies supporting the arts as the established gatekeepers such as galleries, production studios and regional organisations become less relevant as the means of distribution evolve and become easier to access.

We’re already seeing the traditional model of government support to big producers; be they factories, movie producers or games studios suffering as economic adjustment undermines many of their business model. The old economic development models are becoming irrelevant as history overtakes them.

It may well be that the role of governments over the next decade is to create a framework that allows new mediums, creation tools and distribution channels to develop.

One area we should be careful of when looking at the digital future of the arts is not to follow the UK’s Digital Economy Act where the protection of existing rights holders took precedence over the creative process.

It is important that governments create legislative frameworks that balance the rights of all stakeholders, consumers and new content creators with the objective of encouraging new works and innovations to evolve.

In an Australian context we need to acknowledge and develop our diverse population and the opportunities this presents. Our indigenous and immigrant communities with their artistic and cultural traditions give our national economy advantages that many other countries lack, this is one thing I regret I wasn’t able to push more in my role with the NSW government.

Education is another critical area, this isn’t just in the arts but right across Australian society and industry as new entrants into the workplace are expected to spring forth with the skills making them as productive as experienced workers, this is clearly a flawed idea, particularly when many of the tools business expects students to be skilled in weren’t invented when the students started their studies.

Over the next decade we’ll also have to confront one of the great Twentieth Century conceits; that artists are a separate breed from scientists, Engineers and business people.

Prior to the beginning of the last Century it was accepted a tradesman or inventor could also be an artist and this damaging idea of silos between creative and so called ‘real’ industries, suited only to a brief period of our mass industrial development, will have to forgotten. This will be a challenge to our governments, educators and training providers.

The digital arts are not about iPad wielding basket weavers, they about giving today’s workforce the creative tools and flexible, imaginative thinking to meet the challenges our mature, high cost workforce faces in a world where the economic rules are changing as fast as our technology.

We have a great opportunity at events like today to determine how we as a nation will benefit from the next decade’s new technologies that will change our arts communities and society in general.

The great challenge to policy makers will be dealing with the rapidly changing and evolving world that the digital economy has bought in the arts, in business and in society in general.

Today I’m sure we can bring together ideas on how we, and our governments, can meet these challenges.

Thank you very much Senator Lundy, Minister Crean and Pia Waugh for giving the community an opportunity to contribute to the development of this valuable policy.

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Price points

Amazon’s new range of Kindle e-book readers illustrate how important price points are to winning consumer confidence.

It’s no coincidence Amazon’s media release announcing the new range of Kindle e-book readers was headlined introducing the All-New Kindle Family: Four New Kindles, Four Amazing Price Points.

The $79 price for the base model has authors excited, and quite rightly too as this will guarantee sales of the e-readers and spur sales of e-books.

Once a product’s perceived as being affordable by the market, sales take off. The classic is Josiah Wedgwood selling bone china at prices affordable to the 18th Century English working classes. The basic product was similar in all but the decoration to the ornate wares Wedgwood sold to Europe’s royal families and the then new methods of mass production guaranteed a quality product to all customers.

Just over a century later, Henry Ford did a similar thing with the motor car, meeting the price points that made the horseless carriage accessible to the middle classes in early 20th Century United States.

In more recent times we’ve seen similar trends happen; the under $2,000 personal computer in the 1990s, the sub $500 netbook in 2008 and the affordable smart phones of recent years.

We can add broadband Internet and budget airlines as other examples of how demand has exploded when the cost has dropped below a certain price point.

As technology becomes affordable, we use more of it. A point that’s often lost monopolists and established players in industries.

This is the real opportunity Amazon are now offering with the cheap Kindles and we’ll see e-books boom as people are prepared to make a small investment in the devices.

Almost certainly this will open new markets and unforeseen opportunities for entrepreneurs and writers. The resulting pressures on competitors like the Apple iPad and the various Windows or Android tablet devices should increase innovation as well.

In our own businesses we need to ask what those price points are and what is stopping us from meeting them. As other price busters have shown, if you can meet these price points, the riches are there for the taking.

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