Category: future

Building Innovative Cities

How do we create the communities of the future?

The New Lunatick’s Newcastle as a Smart and Innovative City forum raised an interesting question; “how do you build an innovative city?”

In putting together the Digital Sydney project, this was something we closely looked at – how does a city become a global hub of innovation in the creative, digital, financial industries?

What leaps out when studying successful industry hubs is that all have developed without government intervention; most have been an accident of history where resources have come together and have driven by a small group of like minded entrepreneurs.

Those entrepreneurs have been attracted to various regions by the area’s proximity to the natural resources, transport links and available land suited to their industry. While those requirements vary between industries, access to a skilled workforce is the common factor between all of them.

In many respects this is how the current mining boom has worked for Newcastle. Unlike the rest of Australia’s mineral fields, the Hunter Valley has a major city with a skilled workforce that understands mining and engineering.

The challenge for Newcastle – and indeed for Australia as a nation – is diversifying the economy from depending upon resource exports and domestic consumption into creating wealth from the newer, knowledge based industries.

For hubs to develop in these industries, regions need the factors identified by Richard Florida in his Rise of the Creative Classes where he found these cities offered the “three T’s” – Talent, tolerance and technology.

Australian cities like Newcastle score well on these measures but to create hubs you need a motivated group of entrepreneurs and while these exist there may not be the numbers to create a critical mass.

The main reason for this is the domestic investment structure; most Australians invest in housing and aren’t particularly inclined to invest in comparatively risky businesses, particularly those in industries they don’t understand.

Governments can help by opening their data and making procurement friendly to new and smaller businesses – on both scores Australian governments at both levels do poorly with data often being unnecessarily guarded and tendering processes tend to be skewed towards large, usually multinational, corporations.

Assistance programs can also help on the fringes however it’s important not to repeat the mistakes of the film industry where several decades of government grants and funding has resulted in a generation of film makers more skilled at navigating bureaucracies and filling in application forms than telling stories.

Where government assistance can do a good job is in bringing together the various industry groups which was the intention of Digital Sydney. Well targeted, low paperwork schemes like the Australian Technology Showcase and various trade programs can also help growing businesses.

Overall though, the development of innovative cities lies in the hands of the residents, it’s up to the inhabitants of the city, town or region to bring build the hub.

This is exactly what happened with the original Lunaticks society in 18th Century England that created the region that became known as Birmingham which was the heartland of the English economic powerhouse for over a hundred years.

While we can wait for governments or investors, building industries is about innovators, entrepreneurs and workers. It’s time to get to work.

Is there a need for digital literacy?

Are we teaching the wrong computer skills?

In preparing for tonight’s ABC Nightlife segment I was re-reading the Australian government’s National Digital Economy Strategy when I twigged what was bugging me in the first few pages; the talk of “digital literacy“.

As part of the plan, the Federal government intends to setup “digital hubs” in the each of the 40 communities that will first benefit from the NBN, these will “assist local residents to better understand how they can benefit from the NBN and to improve their digital literacy skills”.

The whole concept of digital literacy is worrying; it assumes there is something unique about using technology and that the concepts to use web services and devices are arcane and difficult to grasp.

Such a belief might have been true in the days of the command line interface where obscure commands and strange keystroke combinations controlled how you used a computer, but in the age of the touchscreen and intuitive systems the majority of people, regardless of age, can pick up the basic concepts with a few minute’s instructions.

A bigger issue is genuine literacy and numerical skills. Without these, we’re not able to understand or properly evaluate the data that is being presented to us.

Even more important are critical skills, the volume of information on the net demands we have the ability to filter fact from opinion and truth from misinformation if we don’t possess these talents we’re condemned to being unable to filter the gems from the dross that masquerades as fact on the net.

Clifford Stoll said “data is not information, information is not knowledge, knowledge is not understanding, understanding is not wisdom”. Without basic literacy we’re unable to process the data we see on the net, without the critical skills we cannot understand that information.

That’s the real challenge the connected society presents, how do we develop and nurture the critical skills that lets us identify the scammer, the knave and the ill-informed – all of whom thrive in an environment that gives their views equal weight with the wise, honest and knowledgeable.

Probably the best thing we can do for our children, and ourselves, is to work on developing those skills.

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.

The learning curve

We’re still on training wheels when it comes to using social media

When new technologies appear it’s interesting how people experiment and adapt to them, we’re seeing this right now as businesses grapple with social media tools like Facebook, LinkedIn and Twitter and discover where the benefits lie.

The second edition of the Social Media Benchmarking Study, a joint release by Sydney online consultants Community Engine and the research company Nielson, illustrated how things have changed over the last two years.

One of the clear conclusions from the study is how businesses are developing the ways to determine benefits of their social media activity with near halving of the number of organisations citing lack of measurable return on investment as a reason for not engaging online.

A barrier that is increasing is the perception that businesses don’t have the time or resources required for which is probably business owners and managers realising that maintaining a Facebook Page, Twitter account or blog isn’t easy.

Time is the scarcest asset for any business that gets more precious with smaller organisation. Even large corporates and government departments struggle with finding the resources necessary to run effective online presences.

One of the tragedies of social media is how it’s been identified as a marketing tool and in this survey with over half the respondents stated they are going primarily use the tools as a marketing channel rather than in customer support, recruitment, research or product development.

This is probably why the perception that social media is a time sink comes from. As purely marketing tools social media is time consuming and difficult. A challenge made greater by the fact we’re all still figuring out how to effectively connect with customers in what is a hostile place to more traditional broadcast based marketing methods.

Given social media is being used primarily as a marketing tool by business, it’s no surprise that the survey found larger corporations are the biggest users as they have the marketing budgets to allocate.

An interesting aspect with big business’ social media investment is how much it’s focused on Facebook. On one level this is understandable as a Facebook “like” is easy to set up and becomes a very simple measurement to follow, although the challenge still lies in converting a low friction click on a Like button into a useful customer or advocate.

What is surprising with corporate Australia’s adoption of Facebook is the apparent lack of understanding of the platform’s terms and conditions and the business risks involved. Again this is probably part of the collective learning curve.

Possibly because of those risks, public sector use is static. We can expect this given as social media is being pushed as a marketing tool which isn’t a priority many government agencies, are you going to skip registering your car because the motor registry doesn’t have a “like” button on their web page?

This liberation from being obsessed with marketing and sales is probably why the public sector is using social media a more creatively as collaborative and research tools where many of these services do an extremely good job.

Many businesses, particularly smaller organizations, believe social media doesn’t fit their objectives. A terrific quote from an SME accountant is “I run a business, not a chat show”.

That attitude’s fine as social media – like pretty well everything else in the business world – is a tool to be used the best way you see fit, just because some businesses don’t need a hammer but that doesn’t mean hammers aren’t useful.

Although when that tool is fairly new, as social media is, it’s probably best to have a play with it and see where if can help your business.

The Social Media Benchmarking Study is a useful survey that shows where businesses are using these tools and how effective they are finding them. It’s going to be interesting to see the field evolves as we all get to understand social media as both consumers and business owners.

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.

 

Magazines 2020

Content Providers, curators or experience makers?

As hundreds queued around the world for the latest Apple iPad an Australian media tycoon told a business breakfast that newspapers were a sunset industry. Where does this leave magazines and other print media?

The last decade for magazines has been tough, as readers drifted to largely free websites with the advertisers following. The challenge for publishers is how do they follow their markets onto the web while still making money.

Magazines aren’t unique in this challenge – the media industries, like many others, have been affected by the rise of the web. Magazines themselves sit somewhere between the recording and newspaper industries with news stand sales and subscriptions being a bigger proportion of incom while not having the same newspaper classified income which has collapsed so dramatically in recent years.

The Shift Online

We’ve seen a massive shift to the web over the last decade and that movement is only accelerating as advertisers start to follow consumers and the public embraces social media and online gaming.

PriceWaterhouseCooper’s Entertainment and Media Outlook forecasts the magazine industry to lose 1% of advertising market share – from 5 to 4% of the overall spend – over the 2010 to 14 period with all the losses going online.

While the magazine industry looks at losing 20% of its advertising revenue to the Internet, figures are similar for newspapers, radio and free to air television with online advertising moving from 18% to 26% of the market. The advertisers are, quite rightly, following the customers.

Following readers online is the great challenge for the magazine industry, the question is how do they do it and continue to be profitable.

The Internet Challenge

The greatest problem on the Internet is making money, businesses have trained web surfers to expect online products – particularly news and entertainment – for free. Even physical goods have become increasingly commoditised as deal of the day and group buying sites have used “cheap” as the main hook for buyers.

Today’s reader and consumer expects goods they find online to be cheap and any content they discover to be free.

That isn’t fatal for a business as the broadcast television industry has shown us you can provide free content paid for by advertisers and make a good living while there’s no shortage of merchants who’ve built empires on the fast moving consumer good model of “stack ’em high, sell ’em cheap”.

Part of the online magazine industry’s response to the challenge of adapting to these models has been to use free labour. The rise of the Digital Sharecroppers, where writers provide content for free, has been the result.

People have been prepared to provide content for free for all manner of reasons. The problem for publishers, and readers, is quality writing is not sustainable under this model and we’re beginning to see the end result where writers are forced to drive buses and the free content is being increasingly sourced from PR agencies, their tame blogger bunny friends or from content farms more concerned about gaming Google through SEO keywords.

Free content also reduces the barriers to entry, which are already extremely low in online given a geek with a WordPress site or YouTube account can have a site up and running in a couple of hours for less than a hundred dollars. If content is low quality, there’s little reason for readers to have any loyalty or to stick to any one site.

There is the other type of free content though, User Generated Content (UCG) consisting of the comments, forum posts and free articles submitted by readers. Many of these followers are fans and this is perhaps where salvation for the magazine industry lies.

What formats can we expect

The old magazine format isn’t going to go away, it’s just going to decline as part of the overall distribution. We’re going to see more short and long format online content complimenting the magazines along with a lot of user content in the comments and forums sections.

We’ll also see more cross platform selling like we currently see with magazines like Better Homes and Gardens though with a much bigger online and interactive component than the present TV-magazine tie ups.

Content though will be more important than format. The SEO driven plays and content farms are a transition effect and as both search engines and readers become more savvy,  the influence of sites like eHow and The Huffington Post drop away.

Probably the biggest sleeper though are the electronic readers such as the iPad and Kindle, it is just possible these devices might resurrect the fortunes of the publishing industry in a similar way to the Compact Disk did for the music industry in the 1990s. Certainly Rupert Murdoch is hoping this.

How will magazines engage with consumers in 2020?

Successful magazines are going to find the niches where readers and advertisers will pay to be engaged and identified with key groups, demographics and markets. Adding value to readers is going to be the key to revenue on an Internet that is full of noise of movement but with increasingly fewer nuggets of wisdom.

It’s those nuggets of wisdom, useful analysis and unique worthy content that will be what time poor and somewhat information addled consumers are going to be looking for.

They are also going to be looking for a platform to get their views heard. So it’s going to be critical that magazines make that platform available through comments, forums, reader blogs and giving loyal and knowledgeable readers the opportunity to write for the publication.

Engagement is going to mean allowing site visitors some ownership of the content. The more you can build conversations and contributions around content, the more likely it is that readers will come back and the more likely they are to pay for add ons and read advertisements.

Where will the revenue come from?

The great challenge in the Internet era is making money online. We’ve trained the market to expect news and information to be free and that genie is now out of the bottle, and despite the paywalls we try to put up, we’re going to struggle to convince readers of our value.

As writers, journalists, editors and publishers, we’re going to have to demonstrate our worth to the people who are prepared to pay for content. Right now there aren’t many of who will pay for relevance and quality, but things may be changing as readers realise much of what they currently find on content farms is unsatisfactory.

Subscriptions and advertising are still going to be critical while events, merchandise and other revenue streams are going to be useful revenue centres but it’s hard to see how they will contribute to the bottom line any more than they currently do. It’s also important to remember that successful staging events is an expensive task involving skills many publishers simply don’t have.

Hyperlocal is a fascinating area for magazines. While much of the focus has been on adopting local search to the newspaper industry it could be that specialist magazines can deliver effective localised products through directories and mobile phone applications.

For instance let’s say we have an offal magazine for those who like to offal. A Brisbane businessman visiting Adelaide feels like a plate devilled kidneys for dinner. It could be that Offal Eaters Monthly magazine has a paid app or a subscriber site that allows him to find what he wants in a strange city.

What is the role of the publisher/editor?

More than ever the publisher and editor are going to have to know their market intimately. At a time when audiences are going to be widely fragmented it’s going to be essential to understand what the readers want.

User generated content provides an opportunity for publishers and their editors to understand the market and monitoring what is being said by the target audience is going to be a key role of the modern editor.

Moderating and controlling what’s being said on the platform will also be a key role for an editor. We all know the Internet is God’s gift to opinionated idiots and the risks of defamation, piracy and other brand damaging activity on websites are very real. The editor’s job will increasingly be to filter out the lunatics while encouraging interesting discussion.

Most people though don’t want to create content, beyond having a quick comment on a post or sometimes joining a discussion. Another important role of the editor is to balance the higher quality, paid content with user generated material to ensure the publication’s site doesn’t dissolve into just another web forum.

Publishers too are going to be challenged by this and their task is to find the deep niches where these models can succeed then convince advertisers and subscribers that their sites are worth signing up to.

Given the ease of launching new sites, the key to success is being the trusted leader in your segment. If your content can be easily replicated or bought from another source then the survival odds are firmly against you.

The next nine years

We should also keep in mind change isn’t new, broadcast television gave a death sentence to news magazines like Life or the Bulletin a generation ago, and these publications only survived because of indulgent owners.  The magazine industry met those challenges, evolved and survived albeit with great change and a few casualties.

The same is happening now, the industry is evolving and adapting to the new mediums and the changed behaviour of advertisers and readers. It’s not pretty or easy but the rewards are going to be there for those who figure it out.

Had we been around when Gutenberg invented the printing press we would have wondered what will happen to all the monks who up until then had spent their lives manually copying religious texts and important documents. Change came to the monks, but not in the ways they expected.

The web only recently turned 20 and in 2020 it will still be less than thirty years since its invention.  All of us will still be learning, making mistakes and discovering where the opportunities are.

It’s a time of challenge and the rewards for those who get it right are great. The key for magazines, like all of us, lies in understanding our markets and audiences.

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.

Tipping points

What happens when industries are hit by massive change.

We often assume change is immediate – for instance, the moment the motor car was invented, all the horse cart makers went out of business – what usually happens though is the two technologies or industries sit side by side for some time and the old industry may even continue to prosper for sometime and the new methods struggle.

Eventually though the newer technology takes over and the older one falls away quickly, leaving slow to change incumbents with an irrelevant business model.

Illustrating this, two fascinating posts by Michael DeGusta on his blog The Understatement tracks two major trends in the US newspaper and record industries, noting how the sectors are now at 1960 and below 1973 levels respectively.

The record industry

Michael’s tracking of per capita recording sales is striking both for how technology, trends and musical tastes have shaped the record industry along with the predicament it now finds itself in.

The 1970s show how the recording industry adapted, we see sales start the decade in decline until a sharp uptick in vinyl sales happens in the late 1970s, probably driven by the heavily hyped “rock opera” and concept albums foisted on us by the likes of Pink Floyd and the Electric Light Orchestra.

It’s interesting that during this period cassette sales largely flat lined, as digital revenues have today. As a child of that late 1970s era, we used cassette recorders – mine won in competition at a jeans shop in outer suburban Melbourne – to tape stuff off the radio and jerryrig with record players so we could create mashups of Alice Cooper and Skyhooks.

Cassette revenues eventually grew, but the the Compact Disk quickly took the growth off the cassette tape and drove the record industry to new highs, probably as people replaced their vinyl collections with CDs that weren’t easily copied through the 1980s and much of the 90s.

The peak of CD sales was hit in the late 1990s, which is almost certainly due to the arrival of personal computers equipped with recordable CD units. All of a sudden, we could go back to copying the music we’d already bought.

To make things worse, the rise of the World Wide Web meant we suddenly didn’t have to go through the gatekeepers – the record stores, radio stations and magazines – to find the music we wanted.

For a while the record industry fought back, even seeing a minor resurgence in 1999 and 2000, but then the rot sets in. The tipping point was clearly in 2001 and can probably be traced to the online streaming services, including YouTube, and the rapidly maturing peer-to-peer services.

The only solace the record industry in its current form can hope for is to see a surge in digital sales like they saw with cassettes in the mid-1980s. It’s difficult to see how that can happen unless they can quickly strike some very favourable deals with Apple and other online distributors.

Newspaper advertising

Print media’s performance over the last fifty years has been one of success until 5 years ago. Despite most of us turning from newspapers to broadcast television for our news through the 1960s and 70s, revenues stood up.

From the 1980’s there was a slow decline and in a few years early in the new millennium it even looked like the Internet wasn’t affecting revenues and the new streams from online advertising were actually increasing overall income.

Then in 2005, the tipping point was reached as classified advertisers, particularly employment and real estate, fled to online competitors with the display buyers not far behind.

For newspaper publishers, that their online revenues have barely grown in the last five years most be the most worrying aspect of the collapse in their income. Their online strategies simply aren’t working.

What this means for other industries

This “tipping point” pattern is typical when we see technological shifts. For various reasons – customer inertia, government regulations, uneven distribution of the new tools – a game changing technology usually takes time to be adopted and usually goes through a process best described by the Gartner Hype Cycle.

New technologies and ideas rarely change industries or societies overnight, but once a technology reaches maturity and mass acceptance, the barrier eventually gives gives and people quickly move across to the new way of doing things.

We see this in the record industry – particularly in the switch to cassettes, CDs and then collapse as the net takes over – then again in the newspaper industry.

These two industries though are just examples, the same process is happening to many others. One good example is the phone directory business where the tipping point is happening right now as consumers and businesses move online and away from printed directories.

That many businesses still haven’t figured out this change in consumer behaviour indicates they too are being blind sided by tipping points that could leave their ventures stranded by history.

All of us have to understand how these changes will affect our livelihoods and trades. Are you looking at how your business is affected by the rise of the net and the end of the cheap credit?

The rise of the connected consumer

Forget the technology, it’s all about customer service.

Last week in Sydney the Federal government’s Online Retail Forum, set up after the first round of big-retailer complaints about Internet shopping, was held to discuss the threats and opportunities that lie in the connected economy.

The event’s location and timing, being held at the old Sydney Post Office the day after the Angus & Robertson book chain went into administration, was somewhat symbolic of the changes facing the retail industry.

Australia Post itself is a good example of a business dealing with change, their traditional mail business is shrinking while the move to online commerce is driving and growing their parcels business. As traditional post offices selling stamps become less important, new opportunities open in the logistics of getting physical goods to Internet shoppers.

The old post office itself is an example of that, as technology changed how mail is sorted and delivered the need for a big downtown building disappeared and today the mail service occupies a tiny corner of the massive building which is now a hotel and office complex.

How post offices changed is a big lesson for commercial landlords, and our super funds that invest in them. COSBOA’s Peter Strong pointed out on the opening panel how the business model of ever increasing rents forcing out smaller retailers and replacing them with cookie cutter national chains and franchises is one that is already struggling to cater for the online consumer.

Customer service is the opportunity missed by the big ‘bricks and mortar’ retailers, a physical store has the advantage of being able to deliver a personalised, friendly experience yet what we find when we visit a big department store or electronics ‘category killer’ superstore is service that often leaves much to be desired.

The participants of the online retail forum’s panels covered how the online retail industry is filling the customer service void; Mike Knapp, the co-founder of Sdyney’s Shoes of Prey, explained how their consumer friendly return policies encourage sales while logistics companies like DHL, Temando and Australia Post described how tracking the delivery of Internet purchases was essential for customer confidence.

Most importantly, much of the morning emphasised that e-commerce was only a small part of what the Internet has to offer the retail industry. The web has become a monitoring tool for both buyers and sellers as well as improving the supply chain and radically changing the marketing industry.

Google’s Jason Pellegrino explained how many of the US electronics chain Best Buy stores now keeps floor stock for consumers to feel and touch but then places orders through the net for delivery to the buyer’s premises. Not keeping anything more than display stock dramatically improved the efficiency of Best Buy’s stores.

Interestingly Dick Smith Electronics employs the opposite model, with their “click and collect” service customers can order online and nominate the store they want to pick up the product which gives the retailer an opportunity to cross or up sell.

Both models illustrate how retail can adapt and take advantage of shoppers using the Internet and with some creative thinking can open up new opportunities which enhance their traditional sales models.

The message from all the industry panellists at the retail forum was consistent; the net is giving power back to the consumer who is using it. For retailers to compete, they have to be dirt cheap or offer excellent customer service.

What the event showed is the customer is more important than the technology – the point of going online is about improving the offer to customers be it by cheaper prices, faster delivery or better service. If the technology happens to improve our margins then that’s a pleasant benefit as well.

Customer service is something our bigger corporations like the retail giants, banks and telcos have forgotten, it’s now turning around to bite them and that’s probably the biggest opportunity for the rest of us – to adapt technology to our business in ways that deliver a better product.

It’s more than just having a website and online shopping cart, these changes are affecting almost every business. It’s important we all think about how our ventures are going to adapt to markets where our customers have more power than ever.

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.