Paul Wallbank, talking about media and comms

A consumerist utopia – where does Australia go in the 21st Century?

A raft of reports and media stories highlight the threats to Australia’s continued prosperity but the nation’s business leaders aren’t listening.

Today has been a big day for Australian navel-gazing with a range of reports released on the country’s prospects on in the Twenty-First Century.

One of the reports was the Joined Up Innovation survey commissioned by Microsoft and written by PwC, I wrote a story for Business Spectator on the results.

While the Microsoft report focused on the small business sector, Startup Aus released their Crossroads report that warns Australia is falling behind the rest of the world. Smart Company’s Rose Powell has a more detailed summary of the report.

Alan Noble, head of Google’s Australian Engineering operations warns, “we still lag behind many other nations, with one of the lowest rates of startup formation in the world, and one of the lowest rates of venture capital investment.”

“If we fail to address this, we risk forfeiting over $100 billion in economic benefits from emerging tech companies, and an irreversible decline in Australia’s competitiveness.”

Looking in from the outside

Particularly notable from the two surveys is that the discussion about Australia’s tech competitiveness is the debate is being led by two local employees of US Multinationals.

For a local perspective, the Macrobusiness blog joins the day’s chorus with a long examination of the risks to Australia’s living standards by being too far down the global value chain.

In the Business Spectator piece, I compared some of PwC’s recommendations with the efforts of the UK and Singapore to rebuild their manufacturing industries.

Australia’s collective decision

For Australia, it’s probably way too late to worry about most of the manufacturing industry as in the 1980s the country made a collective – and almost unanimous – decision to shift the economy to being resources and high value added services.

The high value added services haven’t eventuated; mainly because the internet has shifted the global dynamics towards lower cost centres and partly because Australian business leaders decided it was easier to exploit their domestic market power rather than compete globally.

Mining proved to be a better bet, more by the accident of China’s turn of the century boom rather than any deliberate policy, however the industry employs less than ten percent of the workforce and the vast majority of Australians living in the South East corner of the country have little contact with the resources industry.

A consumerist utopia

For most Australians, employment and prosperity relies upon a growing population driving city GDP growth with domestic wealth supported by buoyant property prices. Australia truly is the consumerist utopia.

As a result of a booming, seemingly unstoppable, housing market and an expending resources sector, Australia’s exchange rate has soared while the nation’s productivity has slumped.

Making matters worse is that outside of mining and a few agricultural markets most of Australia’s industry is grossly expensive by global standards and suffering from chronic under-investment.

An unsustainable economic model

That model is not sustainable, it will take one shock to Australia’s housing market to see the good burghers of Brisbane, Sydney and Melbourne impoverished so the nation’s continued prosperity requires something to drive the economy beyond low interest rates and Chinese commodity purchases.

Whether Australia’s business and political leadership are capable of hearing and reacting to these reports remains to be seen, but they will have no excuse to say they weren’t warned.

Fred Wilson on the future of Venture Capital

Business Insider has a wide ranging interview with prominent New York VC Fred Wilson on investment, tech and business succession planning.

I can’t help but think reading it though that Wilson’s career was a product of the times and his successors might find the economic environment very different.

The current Silicon Valley business model, which Wilson successful applied to the New York business scene, may be just another transition effect that made plenty of money for those involved at the the time but is just an historical oddity in the long run.

San Francisco’s stuggle with property prices

The current protests against tech workers in San Francisco are part of a wider economic problem

“You’re not wanted here” is the message from San Francisco residents protesting against tech workers and tycoon moving into the city.

Over the last year the protests against the ‘Google Buses’ that ferry tech company workers from San Francisco to Silicon Valley has steadily ratched up with protests against high profile individuals, people vomiting on the buses and Google Glass wearers getting their devices smashed.

Around the world, from London and Berlin to Auckland and Hong Kong, cities are worrying about the diversity of their cities as the global asset bubble inflates property prices beyond the reach of ordinary citizens.

In many respects San Francisco is probably unique in its relationship to Silicon Valley and its restricted geography, but it’s hard not to think if the current technology stock falls on the US stock markets became a Tech Wreck style bust then the city’s problems might solve themselves.

The challenge for all major cities around the world is to manage the current boom in property prices that threaten to drive out lower paid workers essential to vibrant economies – although ultimately anything that can’t be sustained won’t be sustained and it’s hard to see how housing can run too far ahead of wages before a reversal happens.

In the meantime though we can expect to see many cities struggle with the same issues that face San Francisco.

Burying capitalism with the Internet of Things

A strange piece by author Jeremy Rivkin in The Guardian argues the internet of things will facilitate an economic shift from markets to collaborative commons which threatens capitalism as marginal costs fall to zero.

Rivkin argues that the rise of the ‘prosumer’, who contributes content and adds economic value for free, is undermining the basic tenants of capitalism.

A telling blow to capitalism in Rivkin’s eyes is the abundant data generated by the Internet of Things;

Siemens, IBM, Cisco and General Electric are among the firms erecting an internet-of-things infrastructure, connecting the world in a global neural network.

There are now 11 billion sensors connecting devices to the internet of things. By 2030, 100 trillion sensors will be attached to natural resources, production lines, warehouses, transportation networks, the electricity grid and recycling flows, and be implanted in homes, offices, stores, and vehicles – continually sending big data to the communications, energy and logistics internets.

Anyone will be able to access the internet of things and use big data and analytics to develop predictive algorithms that can speed efficiency, dramatically increase productivity and lower the marginal cost of producing and distributing physical things, including energy, products and services, to near zero, just as we now do with information goods.

That Rivkin mentions large corporations like Cisco, Siemens, IBM and General Electric illustrates the flaw in his idea — these companies are profiting from the Internet of Things and the data it’s generating.

Rather than being killed, capitalism is evolving to the new marketplaces.

Nowhere is this truer than in the sharing economy where the new lords of the digital manor are profiting from the work and free content generated by unpaid ‘prosumers’.

How long the free business models can survive is open to question, in many respects the age of the digital sharecropper is a transition phase that isn’t sustainable and it’s more likely we’re seeing a move to an economy where information is far more abundant than it was previously.

Such a change is not unprecedented, far more basic human needs are food and energy. In Western economies, we have been living in a time of unimagined abundance of both for the last century.

In subsistence economies, food and the energy to grow or hunt it is scarce and its why living standards are low and life expectancies are short. Agricultural society start to solve the food scarcity problem and industrial societies automate farming and increase living standards through abundant energy.

During the pre-industrial era, the basic unit of energy was the horse – hence the term horsepower – and it was rare to have more than four horses driving a coach or piece of machinery.

Today, we have locomotive engines that provide 6,000 horsepower, a basic farm tractor delivers around 100 HP and a typical family car around 200. We live in an age of abundant energy and our living standards reflect it.

We’re moving into an era of abundant information that will change our societies in a similar way to the age of abundant power has changed economies over the past 300 years.

Open source, the sharing economy and the internet of things will all change aspects of our economies and society but people will still be making a living one way or another so they can buy a meal and pay their rent.

The age of abundant information means massive change to the way we work, but it no more means the end of capitalism than the steam engine did.

Bleeding hearts and internet security

No technological revolution is simply or without problems, securing information is one of the great challenges of today’s revolution and Heartbleed is a reminder of that.

The big tech news story of the last two days has been the Heartbleed security flaw, that might have compromised users’ passwords and other details.

Given the nature of the bug where a server can tricked into giving away bits of what’s stored in its memory, it’s hard to say exactly what has been compromised – on most sites you’d be very unlucky to have your password on banking details in the system at the precise millisecond a malicious attacker exploited the bug – but the risks are still real.

While webmasters and system admins around the world are frantically patching their systems, for the average user the best advice is to wait before changing your passwords as if the bad guys already have your details you’d have probably used them by now and changing your logins on a vulnerable server might actually increase the risk of crooks stealing your information.

The Internet of Things

The longer term risks with Heartbleed are actually in embedded systems and the Internet of Things; many systems will have hard coded implementations of the buggy software which may never be patched and these devices may be give up much richer data than a web server would.

It’s another illustration of how difficult the task of keeping embedded technologies up to date and how to secure the Internet of Things.

Open source blues

While there’s no shortage of similar security lapses in commercial software, the Heartbleed saga is going to concentrate the minds of open source community on how to tighten peer review and audit version updates.

Most open source projects are staffed by small groups of time poor volunteers, making auditing and quality control harder. That key parts of the internet and computer industries rely on these underfunded, and often unappreciated groups is a weakness for the entire sector.

No technological change is simple or without problems and securing information is one of the great challenges of today’s tech revolution and Heartbleed is a strong reminder of that, hopefully we’ll learn some lessons about building robust systems.

No country for small business

Online advertising for small business is wide open again as the Internet empires focus on big business.

Facebook’s latest changes to its layout creates more problems for small business using social media as the real estate available on its site for eyeballs gets smaller.

The social media giant has been catching criticism recently for changes to its algorithm that make it harder for businesses to be seen online.

In the hospitality industry, discontent was articulated by the Eat 24 website which closed its Facebook Page down after finding the problems too hard.

With the changes to the online advertising feed, it makes it even harder for small business to be seen on the platform as reduced space means higher prices for the space that remains available.

It’s hard to see small businesses getting much traction with the changes when they’re up against big brands with large budgets.

On the other hand for the big brands, the importance of proper targeting becomes even greater as wasting

A challenge for small business

The big problem now for small business is where do you advertise where the customers are?

A decade or so ago, this was a no-brainer – the local service or retail business advertised in the local newspaper or Yellow Pages. Customers went there and, despite their chronic inefficiencies, they worked.

Now with Facebook’s changes, it’s harder for customers to follow small business and this is a particular problem for hospitality where updates are hard.

The failure of Google

Google should have owned this market with Google Places however the service has been neglected as the company folded the business listing service into the Plus social media platform.

Today it’s hard to see where small business is going to achieve organic reach – unpaid appearances in social media and search – or paid reach as the competition with deep pocketed big brands is fierce.

Services like Yelp! were for a while a possible alternative but increasingly the deals they are stitching up deals with companies like Yahoo! and Australia’s Sensis are marginalising small business.

So the online world is getting harder for small business to get their message out onto online channels.

For the moment that’s a problem although it’s an interesting opportunity for an entrepreneur – possibly even a media company – to exploit.

Windows XP and patches

The Heartbleed security certificate bug is an illustration of how tough life is going to become for Windows XP users in the near future.

It’s notable that the long flagged end of Microsoft’s support for Windows XP happened the day before the Heartbleed bug, one of the most worrying security flaws we’ve seen was publicly revealed.

One of the questions that has bugged many of us in the industry – pardon the pun – is whether Microsoft would back down on its insistence they would not issue security patches for Windows XP when a major exploit became public.

With between 15 and 30% of the world’s desktop computers still running XP and 6,000 websites reportedly running on the superseded system, it’s hard not to see how Microsoft could justify not sending out an update should an exploit the size of the Heartbleed bug become apparent.

As it is, there may be some argument for updating some of the security certificates in the Windows XP and the older versions of Internet Explorer in the light of the Heartbleed bug, we’ll wait to see on that.

While Heartbleed doesn’t directly affect Windows XP computers, it’s still a reminder that life is going to get tough for those running an unpatchable operating system.

Counting the cost of investors

Israeli startup Waze illustrates some harsh truths for business owners who lose control of their company.

Israeli tech startup Waze was always an interesting business; the idea of combining crowdsourcing and social media to provide traffic reports was fascinating concept that seemed to work well.

When Google bought the company two years ago, it was seen as one of the success stories for Israel’s vibrant tech startup scene, but a LinkedIn post by Waze’s founder Noam Bardin suggests the acquisition was not what the founders wanted.

One of Waze’s mistakes was the valuation of its A round which significantly diluted the founders. Perhaps, had we held control of the company, as the Founders of Facebook, Google, Oracle or Microsoft had, Waze might still be an independent company today.

Not being an independent company is also a weakness for Waze, as Google have shown in the past they are ruthless in shutting down businesses they’ve acquired and there’s no guarantee that Bardin’s creation won’t meet the same fate.

Google though are not alone in this, Yahoo! is notorious for neglecting companies they’ve acquired and today Microsoft announced it’s closing the Farecast travel price prediction service it bought for $115 million six years ago.

Oren Etzioni who founded Farecast in 2004 isn’t happy about this according to Geekwire, however that’s the downside of selling your baby to another business – its destiny is now in the buyer’s hands and their vision may not be the same as the founders’.

A good example of a company controlling its destiny is Atlassian, the Australian founded collaboration tool service, which the Wall Street Journal describes as being “one of the world’s most valuable venture-backed companies.”

In many respects Atlassian is the opposite of the Silicon Valley business model with an emphasis on engineering and product development over sales and marketing. Atlassian’s founders aren’t focused on hyping the business with the aim of selling to a deep pocketed greater fool.

For founders, the tricky balance in raising enough money to achieve their objectives while not giving away a controlling interest. Get it wrong and a founder ends up being forced into a course of action they didn’t want to do, as Noam Bardin found.

Bardin’s post on the Israeli business community and startup scene is an interesting perspective into the strengths and weaknesses of the country’s entrepreneurial culture, much of which would be familiar to many outside of Silicon Valley.

One big lesson though for founders, Israeli or otherwise, is don’t give away too much equity too early, or the investors make take you to places you didn’t want to got to.

Building modern manufacturing

Western economies are looking at how to rebuild their manufacturing industries, Singapore and the UK are exploring disruptive technologies

Around the world manufacturers are wondering how they adapt to the rise of 3D printing nod the continued challenge of China’s low costs of production.

In Singapore, Reuters reports, the government is putting its hopes on new technology boosting the country’s manufacturing industry in one of the world’s highest cost centers.

“The future of manufacturing for us is about disruptive technologies, areas like 3D printing, automation and robotics,” EDB Managing Director Yeoh Keat Chuan told Reuters.

Britain too is experimenting with modern technologies as the BBC’s World of Business reports about how the country is reinventing its manufacturing industry.

Tim Chapman of the University of Sheffield’s Advanced Manufacturing Research Centre describes how the economics of manufacturing changes in a high cost economy with an simple advance in machining rotor disks for Rolls-Royce Trent jet engines.

“These quite complex shaped grooves were taking 54 minutes of machining to make each of these slots. Rolls-Royce came to us and said can ‘can you improve the efficiency of this? Can you cut these slots faster.”

“We reduced the cutting time from 54 minutes to 90 seconds.”

“That’s the kind of process improvement that companies need to achieve to manufacture in the UK.”

Interestingly many of those British engineers interviewed by Peter Day in the BBC report focus on China’s cheap labor as being the driver for moving up the value chain and automating

Dismissing China as purely a low cost producer a risk as Chinese manufacturers are working hard to move up the value chain as their aging populating erodes their labor advantage.

The last word though for Britain’s engineering sector has to go to Hugh Facey, founder of wire tool company, Gripple.

“Are you a rich man?”

“No”

“Do you mind?”

“I’m from Yorkshire.”

Both Singapore and the UK are working on establishing their positions in the 21st Century economy; both business owners and individuals have to give some thought on where they want to be.

For manufacturing, the rollout of new technologies means the industry is going to look very different in the next decade. It won’t be the only industry radically changed.

Holy wars and internet empires

Steve Jobs declared Apple would wage Holy War on Google in 2011 in an effort to secure an online empire

A regular topic of this blog has been the rise of the internet empires that want to lock users into their kingdoms.

On the edges of these empires things can get ugly as the competing groups fight for supremacy and to capture users.

In these wars, no-one was capable of getting uglier that Steve Jobs.

Which makes Steve Jobs’ declaration that 2011 would be a year of Holy War with Google unsurprising.

The statement typical Jobsian hyperbole, but we should under estimate just how serious Apple’s staff would take such a statement.

Apple’s intention to wage ‘holy war’ illustrates just how high the stakes as the online empires try to capture users.

Those Holy Wars and the reason they are being fought is something all of us should keep in mind when we’re asked to choose between Apple, Google or Microsoft.

Digital natives and iPads

Is tech necessary for attracting younger workers or volunteers?

I’m writing up a review of the Emergency Services Integrated Communications Vehicle that was showcased at the Melbourne Cisco Live event a few weeks back.

An comment by one of the National Safety Agency people during the tour was notable; “we need to have modern technology if we want to attract young people.”

The spokesperson was talking about offering iPad and Android apps for the emergency services workers, particularly in the context of firefighting volunteers having an average age approaching 50.

Needing the latest technology to attract younger volunteers or workers is an interesting view which I’m not wholly convinced about.

Do we really need the latest technology do attract younger workers and volunteers or are is this another example of trying to apply tech to a more fundamental problem?