Category: Investment

Towards the post car society

Is the era of the automobile coming to an end as our society adapts to new technologies?

We don’t often think about it, but the design or our cities reflect the technologies of the day. Right now the way we live is built around the motor vehicle, but are we moving into a new era?

After a visit to Ford Australia’s Centre of Excellence For Design and Engineering, Neerav Bhatt has some thoughts on the role of the motor car in an era where people don’t have to travel to their workplaces.

One of Neerav’s points is that car use is falling among younger workers, a trend that’s happening across the western world.

Much of this is put down to the generations of Millennials and Gen-Ys being more interested in technology purchases rather than cars along with changing work patterns.

A more fundamental reason could be that we’re reaching the end of the motor car era.

If there is one technology that represents the Twentieth Century it is the motor car; the automobile has shaped our cities, our lifestyles and our culture.

However we are now in the Twenty-First Century.

The three eras of motoring

Roughly speaking, we could break the Twentieth Century’s love affair with the motor car into three phases; development, consolidation and dependency.

In the first period, the automotive industry was developing with thousands of manufacturers experimenting with the technology and production methods. At the same time governments were beginning to build road networks and communities were demanding improved links.

By the beginning of World War II, the motor car was an important part of life but ownership was largely restricted to affluent households and business.

Following World War II governments made huge investments in road networks and automobiles became cheaper to own.

This gave a generation a new taste of freedom as you could go anywhere with a tank of gas. It also changed the layout of our suburbs as people could now travel further to work, allowing them to move into bigger houses on the fringe of town.

As government investment was focused on road building, passenger train and tram networks were starved of capital with many cities abandoning their transit systems altogether.

Suburbs built in the early to mid Twentieth Century had evolved around trams and the legacy of that can still be seen today. However customers no longer wanted to fight for parking spots on crowded streets designed for horse drawn carriages and trams.

Responding to this developers started building supermarkets and shopping malls which became popular largely because they offered easier parking. Cheaper goods made available by improved logistics systems – another effect of the motor car – was the other main reason.

The beginning of dependency

With the advent of the 1970s oil shock, the role of the motor car turned from being a tool of liberation into one of dependency. The suburbs of the 1960s and 70s had been built around the assumption of universal car ownership and cheap fuel. When fuel ceased being cheap, then households budgets were affected.

Not coincidentally after the oil shock the reversal of ‘white flight’ – the movement of the middle classes to outer suburbs – started with the gentrification of inner suburbs that had been abandoned by the working class.

Through the 1970s and 80s the cost of owning a motor car became more expensive as governments stopped externalising the costs of maintaining roads and saw car use and petrol taxes as a revenue source.

At the same time the obvious effects of saturating society motor cars became obvious as roads increasingly became choked and planners began to realise that building more roads only attracted more traffic.

Times of decline

By the turn of the Twenty-first Century technology had also started to move away from centralised offices and factories. Today technologies like the internet and increasingly 3D printing mean that workers don’t have to commute vast distances. Automation also means many levels of management are no longer necessary.

Changing work patterns is also affecting incomes, with car ownership being expensive many employees – particularly young workers – don’t want to buy automobiles.

This all means that the era of the motor car is coming to an end, it’s not going to vanish quickly but the decline has started.

For business, this means the post World War II assumptions that saw the rise of the supermarket, shopping mall and big box discount store are no longer valid.

Some managers, most notably those of doomed department stores, won’t learn these lessons and will pass into history like the stagecoach companies.

Just as the end of the horse and carriage era saw the demise of buggy whip makers and blacksmiths, the rise of the motor car saw an unprecedented rise in wealth, employment and productivity. Not only were the lost jobs created elsewhere, but many more were created.

While the motor car isn’t going to disappear overnight, the decline has started and our society is adapting. For business and government leaders, the task is to understand those changes and adapt.

Image courtesy of a Norwegian motorway by Ayla87 through SXC

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On being evil

Microsoft learn what its like to be the weakest kid on the block while Google consider a future of being evil.

“Don’t be evil” are the opening words of Google’s corporate code.

When it was framed in the late 1990s there was one company in particular everyone in the tech industry thought of when the word ‘evil’ was being used.

At the time Microsoft defined evil in the technology industry. The main reason was their crushing of real or potential competitors like Netscape, Java or the troubled IBM joint venture of OS/2.

Topping everything though was Microsoft’s tactic of fake error messages designed to scare customers away from the competing DR-DOS system in the early 1990s.

So it’s rather delicious that Microsoft seems to be getting a taste of its own medicine twenty years later as Google Maps returns an error message on Windows Phones.

This is particularly galling for Microsoft as Windows Phone is essential for the company’s resurgence and, as Apple have learned, maps are a critical feature for smart phone users.

It’s too early to accuse Google of having become evil as Microsoft did during their period of dominance as Tim Wu discusses in Why Does Everyone Think Google Beat The FTC but the search giant is flexing its muscles on many fronts.

For Microsoft, they are learning what life’s like when you’re not the toughest, meanest kid on the block.

Karma can be a real bitch.

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Big data, mobile apps and smarter logistics – why Avis is buying Zipcar

Smartphone apps are more than just a funky way of getting information. The combination of big data, social media and mobile insights offer businesses deep market intelligence.

With no bad press over New Year’s Eve it looks like hire car service Uber avoided the surge pricing traps of 2011 and the good news continues for the online booking industry with the news that Avis is buying car sharing service Zipcar.

Assuming the acquisition isn’t another example of the greater fool investment model, Avis’ purchase of Zipcar makes good sense in expanding the hire car giant’s footprint into the share car business.

Regrettably Avis use the 1980s term “synergies” four times in their media release but it does seem the businesses are a good fit both in fleet sharing and improving both company’s services.

Zipcar’s technology is another asset which Avis can use,  with the car sharing service’s ability to track vehicle locations meaning better fleet management for the hire car business.

Car sharing logistics

The logistics angle of car share services is something that’s been highlighted by Uber’s CEO Travis Kalanick at various times, most recently at the service’s Sydney launch last November.

Another aspect of the car sharing and hire car booking services is their Big Data advantages which the online startups bring.

Historically, car hire companies have been reasonably good at gathering data on their customers with loyalty schemes, direct mailing and plugging into airline frequent flier programs. However they have been left behind by the Big Data boom in recent years.

Companies like Zipcar, Uber and taxi hailing apps like GoCatch have big data in their DNA, having been founded in the era of cloud computing and social media they have access to more information and a better ability to use the knowledge they gather.

Predicting the price surges

At Uber’s Sydney launch Kalanick described how Uber’s traffic volumes increase in San Francisco when the Giants win a game, the interesting thing is that the surge happens three hours before the match starts.

Insights like the traffic patterns around football games and holidays are gold to a high inventory business like hire car services. They are also important to the entire logistics industry.

This latter point is probably the most overlooked part of all with the current rush into social and mobile based apps – the market intelligence that these services gather.

While it’s tempting to dismiss that market intelligence as just monitoring who likes cats or cheeseburgers, the application of that data is transforming supermarkets, airlines and even concert venues.

Avis seem to have understood that it will be fascinating to see how they will use Zipcar’s data and whether their competitors will figure out the importance of what these services offer.

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Is Facebook the new Microsoft?

Are the internet giants – Google, Facebook, Apple and Amazon following the same path as Microsoft did in the 1990s?

One of the problems with dominating your field is that to find new growth opportunities involves becoming distracted with your core business and damaging your reputation. This is what hurt Microsoft over the last decade and now threatens the internet’s big four.

App.net CEO Dalton Caldwell wrote an open letter to Facebook CEO Mark Zuckerberg describing how the social media giant is trying to wipe out competitors through bullying them into being acquired.

If a business doesn’t succumb to Facebook’s seduction, then they risk being wiped out by the social media giant setting up their own version of the product which they can push out to a billion subscribers.

Jason Calacanis explores this strategy with Facebook’s launch of Poke, designed to compete with the instant messaging service Snapchat.

In many ways this is the same model that Microsoft employed in the 1990s as it worked towards dominating the desktop computer market – bully innovators into selling to them and, if that fails, copy the product and crush the opposition.

It worked for Microsoft because they controlled the distribution channels through their tight relationships with computer manufacturers.

Microsoft created their own applications, or features in their products, which would be bundled onto Dell, Gateway or Compaq computers. Once users had functionality built into Windows or Microsoft Office then they didn’t have to buy a third party app.

Bundling network protocols destroyed the business models of LANtastic and Novell, in the browser wars Microsoft killed Netscape by putting Internet Explorer on the desktop and in the office suite predatory pricing killed WordPerfect and Lotus while resulting in acquisitions of companies like Visio.

This way of business cemented Microsoft’s domination of their desktop, office productivity and server markets at the turn of the century. It was a true river of gold that continues to flow today.

Unlike the personal computer software markets, bullying or buying your way into market dominance doesn’t work online as the barriers to entry that protected Microsoft from competitors are nonexistent on the web.

Both AOL and Yahoo! learned this the hard way as their acquisition sprees through the dot com boom didn’t prevent them from sliding into irrelevance.

A good example of how hard it is for the Internet giants to execute a plan for world domination is the rise and fall of Google’s Knol as described by Seth Godin, who thought his own Squidoo startup would be crushed by the Internet giant. It turned out not to be so.

For the web incumbents the fundamental problem are, as Jason says, that they are not focusing on their core businesses and they have plenty of Plan Bs as Seth Godin described.

The manager who fails with Knol or Poke moves onto another division with a pat on the back and a safe claim on their bonus. The startup founders on the other hand are fighting for survival.

All four of the Internet’s giants have similarities to Microsoft in the 1990s as every single one dominates its niche and wonders how to expand outside their core business – for Google, and possibly the other three, there’s the added problem of managerialism as a large cadre of managers worries more about maintaining privileges over competing in the marketplace.

Managerialism ended up crippling Microsoft and continues to do so today, whether Facebook and Google can avoid that fate remains to be seen.

A bigger problem for Facebook is losing trust – Microsoft’s conduct, particularly with WordPerfect and Netscape in the late 1990s made a generation of developers and entrepreneurs cautious about dealing with the company.

For many that suspicion remains and is one of the barriers the company now has to overcome in the smartphone and cloud computing markets where it is one of the crowd of scrappy challengers.

In the social and online worlds, collaboration is one of the keys to success. If Facebook, or any of the others, lose the trust of the community then they’ll become irrelevant a lot faster than WordPerfect or LANtastic did.

Becoming irrelevant is the real worry for Facebook’s tenured managers and their investors.

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Reskilling the workforce

The 1980s management aim of reducing training costs is now affecting business, the next generation of leaders will be finding opportunities in today’s skills shortages.

One of the core objectives 1980s management philosophy is to shift costs and risks onto others. Staff training is one area that caught the brunt of the drive to slash expenses for short term gain, as a consequence we have a skills crisis with offers opportunities for savvy entrerpreneurs.

In Why Good People Can’t Get Jobs: Chasing After the ‘Purple Squirrel Wharton management professor Peter Cappelli discusses his recent book that looks at this problem.

Cappelli’s argument is that companies aren’t offering enough for the skills they desire, they often ask too much of candidates and they won’t train staff.

In Cappelli’s book, he claims that staff training has plummeted;

One of your chapters in the book is called “A Training Gap, Not a Skills Gap.” You have some figures showing that in 1979, young workers received an average of two and a half weeks of training per year. By 1991, only 17% of young employees reported getting any training during the previous year, and by last year, only 21% said they received training during the previous five years.

The predictable consequence of neglecting training for the last thirty years is we now face skills shortages and those responsible – the managers and business owners who refuse to train workers – are now demanding governments do something about it.

In many ways today’s skills shortages epitomise the short termism of 1980s thinking and how we now find society, and business, is struggling with the long term effects and costs.

Wherever there’s a problem there is opportunity and there’s a breed of businesses, training companies and workers who will be taking advantage of the failures of the previous generation of managers.

For those stuck in the 1980s mindset that training, like most staff expenses, is a cost and not an investment they are going to struggle in a world where adding value is more profitable than being the lowest cost provider.

 

The photo THE BEAD MAKER — Apprentice Watches the Master — A Rosary Shop in Old Meiji-Era Japan was posted to Flickr by Okinawa Soba.

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Australia’s high cost quandary

Is property the answer to keeping Australia’s high cost economy afloat?

“Around the world our towncars are usually 30% more expensive than taxis, in Sydney it’s 20% as the cabs are pretty expensive,” said Travis Kalanick on launching the Sydney version of Uber’s hire care booking service.

It’s not just hire cars which are expensive in Sydney – the soaring cost of living in Australia is bourne out by Expatistan, a web site that crowdsources the cost of living in various cities.

Expatisan’s comparisons find Sydney up with Tokyo and London as the most expensive towns on earth.

That conclusion means Australian businesses, governments and policy makers have some important decisions ahead of them.

Cholesterol in the veins

High property prices have been the norm for two decades in Australia, the middle class welfare state that both political parties support gives tax and social security concessions to property owners while the banking system requires most business lending to be secured by property.

As a consequence, generations of Australians see property as the only path to financial success. If Bill Gates, or any of today’s entrepreneurial wizz-kids, had been born in Australia, they’d be encouraged to get a safe job and buy property than to take the risk of starting a new business.

The property obsession has another perverse effect in that it creates a short term outlook for Aussie business owners who have to consider getting,  and paying off, a mortgage quickly to secure their financial foundations.

A few weeks ago a business owner was profiled in the Sydney Morning Herald, which some call the Sydney Morning Property Spruiker, who paid 1.1 million Aussie dollars (a million US) for a property in Redfern – which is Sydney’s Bronx.

That poor guy not only has a fat mortgage to pay off, but he has to pass those costs onto his customers. Just to pay the bank is a fat chunk out of his business before he pays his staff, landlord and the various other expenses before he can take his profits.

Having to pay the bank for living costs is the main reason why Aussie businesses don’t invest in capital equipment, which in turn makes  them less competitive than overseas competitors.

One of the myths in Australian business is that competitiveness is solely due to labor costs, what the ideologues preaching this miss is that even if Aussie workers were paid a bowl of rice a day, Chinese and Mexican factories would still be more productive due to the investment in modern equipment.

For the sake the argument, we won’t even discuss German, Japanese or Swiss manufacturers who are still competitive despite Australian level cost structures.

This last point is what’s missed in much of the discussion about Australia’s economic future – apologists for Reserve Bank governor Glenn Stevens and the self congratulatory Canberra monoculture say that the high Aussie dollar is here to stay and mining will be driving the economy.

Should the mining sector stall, which currently seems to be the case, then housing development will pick up the slack according to the policy-makers’ groupthink.

That housing development is going to come at a high price, with Australian land and homes already among the world’s highest. Given Australia’s private sector debt is among the highest in the world already, it’s hard to see where the money will come from to fuel further property speculation.

Right now Australia has a serious problem in determining what the future will be for the country.

If the future is a high cost economy underpinned by massive property property prices, then the future has to lie in high value added sectors.

The question is ‘what sectors’? Australian business, governments and society in general seem to think that property speculation is the future.

Property speculation turned out not to be the future for Spain and it looks like China’s speculative boom is meeting its obvious end.

Australians are going to have to hope that it really is different down under and that young people and immigrants are prepared to spend huge amounts of money to keep the economy afloat.

If the policy makers are wrong, then the worry is that there is no Plan B.

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Instagram’s blues and the question of trust

Instagram’s new terms of use show how Facebook is trying to get a return on its substantial investment. But will social media users accept these changes?

“I’m opting out” is one of the milder reactions to Instagram’s changes to their terms and conditions.

Since the photo app was bought by Facebook for a billion dollars – and marking the high water point for Silicon Valley’s greater fool model of investment – observers have been waiting to see how Mark Zuckerberg’s team would integrate the service and get a return on their substantial investment.

Now we know. Under the new terms, Instagram will inject sponsored posts and advertising into users’ information feeds.

There’s nothing really unusual in this, almost every ‘free’ online service has something like this in order to make money. The Atlantic’s Alex Madigral makes the point that companies will continue to sell and use our information for as long as we won’t pay for software.

What’s really interesting about this is the angry reaction to the changes, showing how people are losing trust in Facebook and, more worryingly for all social media services, how people are beginning to value their private information.

Once people understand the value of their personal data, and the time they spend creating content for these services, the economics of social media services starts to change which in turns hurts the business models of Facebook and others social media sites.

We’re still in the early days of social media and the business models that underpin them are evolving quickly. Instagram’s current problems are another lesson for users, advertisers and entrepreneurs.

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