Decoding the new economy

Reinventing Moore’s Law

Has the pendulum swung against Moore’s law of computers steadily increasing their capabilities?

Google attracted the headlines yesterday with their prototype smart contact lens that helps diabetes sufferers.

The concept is an example of what’s possible with the next generation of tiny, low powered computers and illustrates how microchips can be slimmed down for a relatively dumb device.

Liz Gannes at Re/Code received a briefing from Google on the details of the device and quotes project lead Brian Otis as saying that the lens is “the flip side of Moore’s Law.”

Moore’s law

For most of the microchip era the focus has been on increasing the number of transistors we could fit in a square inch of silicon, this was the basis of Moore’s law — that the number of transistors on integrated circuits will double every year.

Co-founder of Intel, Gordon Moore, proposed this rule in 1965 and it has held fairly constant every since.

Now we may be seeing the trend heading the other way as developers focus on what can be achieved with the bare minimum of computing power.

Google’s smart contact lens shows how simplifying devices for specific tasks makes them more affordable and suitable for low power devices.

While the internet of things won’t kill Moore’s Law, it does change the basis of how we think about advances in microchip technology.

The Roadrunner Effect

Your business can keep running even when it’s gone over the edge of a cliff.

Fans of the roadrunner cartoon will remember how in almost every episode one of the characters, usually the coyote, would run over a cliff.

A few seconds after running off the cliff they’d keep going and then, just as they realise their mistake, they’d plummet into the deep canyon.

It’s similar for businesses – you can be a long way over the cliff’s edge before you realise you’re about to take a big fall.

Yesterday’s post about Sensis and the squandering of ten billion dollars is a good example of the Roadrunner Effect in business.

Sensis annual revenue and profit 1999-2013 (millions of dollars)

While it was obvious from the early 2000s onwards that the Yellow Pages model of expensive small business advertising listing was doomed, Sensis boss Bruce Akhurst did an admirable job of keeping revenue flowing.

Even more impressive is that the division managed to book close to a 50% gross profit most years during that period even when the revenues started to decline.

A large part of Sensis’ success was in screwing more money out of its client base with enhanced ads, new categories and a better digital offering that tied into Google’s Adwords program.

Unfortunately for Akhurst and his management team, economic gravity eventually claims even the luckiest or best run enterprise and Sensis was no different as small business started realising Yellow Pages advertising had become largely ineffective.

In many respects Sensis is a good example of a once profitable business that fails in the face of technological change – the new technologies help it become more profitable at first, but eventually a changed marketplace kill the business.

The question for those enterprises and industries is how long can the owners, managers and employees keep running before they realise the ground has dropped out from beneath them?

It could even be entire countries that suffer from the Roadrunner Effect, it certainly appears that the game was up for the European PIIGS long before it became obvious to the governments and citizens. This may prove true for Australia as well.

Either way, it’s worthwhile for business owners and managers to consider whether there’s a cliff face ahead even when revenues are accelerating.

Google schmoogle – how one telco destroyed 9 billion dollars in shareholder funds

How one company blew nine billion dollars in shareholders’ equity is a lesson for every business on the value of timing and wise management.

How one company blew nine billion dollars in shareholders’ equity is a business lesson on the value of timing and wise management.

As a rule, telecommunications executives are an arrogant bunch and none are more so than Sol Trujillo – formerly of American West, French provider Orange and finally Telstra, Australia’s incumbent telecommunications operator.

History shows that Telstra’s board, largely made up of dim-witted political appointees, had little idea of what they were getting when they hired Trujillo in 2005 but they soon found out as the brash American’s less than diplomatic style quickly alienated politicians and industry commentators alike.

Trujillo though wasn’t particularly concerned about the sensibilities of passes for Australia’s business and political elites, he was happier to take on bigger players on the global stage and one of those was Google.

Google Schmoogle

Like telcos and media companies around the world in the mid-2000s, Telstra had a problem with its directories business as the World Wide Web was eroding the value of the Yellow and White Pages franchises.

At the time many analysts were agitating for Sensis, Telstra’s directory division, to be sold off as a separate business. In 2005 it was valued at ten billion dollars which was a tidy sum for the telco as it rolled out its Next G network.

Trujillo though had a better idea – Sensis would claw back the market by taking Google on with their own search engine.

Sensis Search was born in November 2005 and the Telstra CEO dismissed questions about the wisdom of taking on the search engine giant with the comment, “Google Schmoogle.”

Three years later, Telstra quietly accepted defeat with Sensis CEO Bruce Akhurst announcing a ‘commercial agreement’ with Google.

Nielsen NetRatings at the time showed Google search being used by 9.3 million Australians compared to just 184,000 users for Sensis Search.

In Telstra’s 2008 annual report, Sensis earned 2.1 billion dollars. On a 2.5x valuation, the division was worth five billion to Telstra’s shareholders at the time the search engine was closed down..

The Dying Yelp

Despite the setback, Sensis was able to struggle along for another decade on the back of its strong cashflow and legacy market position although income was steadily falling.

In a desperate attempt to shore up its declining revenues, the company picked up the failed digital ventures of Australia’s newspaper duopoly and licensed operations from overseas startups like Yelp!

Few of these acquisitions made sense and none of them were properly integrated into the declining directory media business.

Finally a year ago, Sensis admitted they live in a digital era with Managing Director John Allen admitting what most industry observers knew a decade earlier;

Until now we have been operating with an outdated print-based model – this is no longer sustainable for us. As we have made clear in the past, we will continue to produce Yellow and White Pages books to meet the needs of customers and advertisers who rely on the printed directories, but our future is online and mobile where the vast majority of search and directory business takes place.

But it was all too late, the market had been lost along with the bulk of shareholders’ equity.

Today Telstra announced a 70% sale of Sensis to US based Platinum Equity for $A454 million. The value of the entire business being $650 million – 7% of the division’s value nine years ago.With over nine billion Aussie dollars squandered on hubris and a failure to recognise a changed market place, Sensis stands as a good example of how valuable timing and good management are in business.Sol Trujillo though did very nicely, and the dim witted men who sat on Telstra’s board in 2005 will never be called to account for wasting so much of their shareholders’ money.

Falling out of love with Google Glass

How the pundits turned against Google glass is a lesson in tech media management

Media hype is normal in the tech industry, it’s common for a new product to receive swooning coverage in its early days but when the press falls out of love with a device, it can be a harsh breakup.

Google Glass is suffering one of those harsh breakups with with writers and bloggers who were formerly gushing over the product now being publicly unimpressed with the product.

First out the blocks was Wired’s Matt Honan who described his year as a ‘glasshole’.

Honan is enthusiastic about the future of wearable devices but doesn’t see Google Glass as being ready for prime time.

Which is to say, I’m really, really excited about where Glass is going. I’m less excited about where it is.

Adding to the anti Google vibe was tech maven Robert Scoble who after his year of using the device decided it was too expensive and clumsy.

Scoble’s point is the current generation of wearable tech is too clunky and user unfriendly to solve the problems it hopes to address.

Daring Fireball’s John Gruber — who wasn’t one of those gushing over Google Glass — points out this is the exactly why Windows XP tablets were such a failure in the marketplace.

Gruber also points out another similarity between Google Glass and Microsoft’s attempts at a tablet computer. Each company’s staff were reluctant to use them.

When your own employees don’t use or support your product, the problem is with the product, not the employees.

The eating your own dog food mantra cuts both ways; if your own staff find your products unattractive, then you can’t expect customers to warm to them.

In some ways it’s ironic that Google are receiving press scorn as the company plays the tech media like a violin with privileged insiders getting early access to products create an aura of exclusivity.

Glass was a classic example of this with a small group of tech journalists getting access to the product, unfortunately those insiders are turning out to be less than impressed.

Even if it turns out the Google Glass is a failure, it will have been one of the company’s brave moon shots and no doubt what they’ve learned in usablity and mobile data will be very useful to other parts of the business.

Demand Media’s closed window of opportunity

Demand media’s downfall offers some hopeful lessons for those who want to see better quality content on the web.

A few years ago content farm Demand Media was being hailed in some quarters as the future of the media industry.

Today its stock is languishing, revenues are falling and any thought that the cheap, low quality writing that Demand Media delivered will be the future of media is laughable.

Variety magazine recently published a feature describing the of the fall of Demand Media with a focus on how Google’s changes to its search engine algorithm undermined the content farm’s busines model. Variety’s story is an interesting case study on not relying on another company for your business plan and extends the hope that low quality writing is not the future of online media.

Dodgy business

Demand media evolved from the eHow and eNom businesses, both of which relied on dubious – if not downright dishonest – online practices.

eNom was particularly irritating, basically just registering domain names around popular search terms that led to pages full of advertising that delivered nothing of value to someone searching the web for information on a topic.

It was very profitable for a while though, as Variety reports;

Early on, Demand used eNom’s 1 million generic domain names (such as “3dblurayplayers.com”) to serve up relevant ads to people searching for specific topics. These “domain parking” pages were immensely profitable, generating north of $100,000 per day, according to a former Demand exec who requested anonymity. “That’s $35 million-$40 million per year without doing any work,” the exec said.

The eHow business wasn’t any better, relying on low quality, cheap articles that only worked because they were stuffed full of the keywords that Google would base their search results on.

On January 26 2011 Demand Media went public and the criticism of both the newly listed company and Google became intense.

This story from Business Insider – which ha featured some gushing and dreadful analysis of Demand Media previously – illustrated the problem the company had of being overwhelming dependent on Google, although the writer believed Google were making too much money from content farms to really act against them.

Google’s problem with the content farms was real, the quality of search results was falling and users were finding their pages were full of low value rubbish rather than authoritative sources which opened the search giant’s core business to disruption from Microsoft’s Bing and other search engines. Something had to be done.

Jason Calacanis, whose Mahalo was a competitor to Demand Media, flagged the risks to content farms in a presentation early in February 2011, “the one rule of working with Google is don’t make them look stupid. If you make ‘The Google’ look stupid, they’ll f- you up.” He said. “eHow makes Google look stupid.”

Eventually Google decided they were sick of looking stupid and changed their algorithms and the rules for getting a page one search result suddenly changed.

Demand Media’s business was doomed from the moment Google made that change, as Variety reports;

By April 2011, third-party measurement services were reporting that the Google changes had reduced traffic to Demand sites by as much as 40%. Demand issued a statement that the reports “significantly overstated the negative impact” of the change, but the stock took a dive — plummeting 38% over two weeks — from which it has not recovered.

As Demand Media was affected, so too was the entire Search Engine Optimisation (SEO) industry where thousands of consultants found their strategies of placing low quality pages and link rich website comments now damaged their clients’ businesses.

For web surfers, Google’s change was good news as suddenly search results were relevant again.

Demand Media was, in essence, a transition business that prospered during a brief windows of opportunity that quickly closed along with the company’s prospects.

That window of opportunity was also dependent on someone else’s business strategy, which is always a dangerous position to be in.

Demand Media’s lesson is that while there are opportunities to be had in markets that are being disrupted by new technologies, there’s no guarantees those opportunities will last. What works in SEO, digital media or social marketing today may not work tomorrow.

It’s also a hopeful lesson that websites regurgitating low quality content is only a transition phase in the development of online media and that providing good, original writing and video is the best long term strategy for survival on the net.

Should that lesson be true, then it’s good news for both writers and readers.

It’s tough in YouTube land

The problems for YouTube channel owners illustrates the business risks of relying on one social media service.

For owners of YouTube channels life has been tough in the last few months as Google plays with the service and its features.

The first irritant for YouTube administrators was the integration of Google Plus into the comments that now requires commenters to have an account on Google’s social platform.

Google’s reasoning for this is some transparency in YouTube’s comments will improve the services standards of conversation and there’s no doubt that YouTube comments truly are the sewer of the internet with offensive and downright deranged posters adding their obnoxious views to many clips.

Unfortunately the objective of improving YouTube’s comment stream doesn’t seem to have worked which casts the effectiveness of Google’s identity obsession into doubt, but it has had the happy – and no doubt totally unintended – effect of boosting user numbers for the struggling Google Plus service.

The latest blow for YouTubers has been Google’s copyright crackdown where the service is removing posts it claims are in breach of owners rights. Many channels, particularly game review services, are being badly hit.

Of course the Soviet attitude to customer service that Google shares with many other Silicon Valley giants doesn’t give these folk many options of getting their problems resolved.

All of which illustrates the risks of being dependent on one social media service which the poor YouTubers are finding this the hard way.

Watching this play out, it’s hard not wonder how vulnerable services like YouTube are to disruption, while they have the network effect of being the leader it’s not hard to see how alienating the people who create the platform’s content opens up opportunities for new players.

A tour of Google’s London Campus workspace

Google’s London Campus offers a free coworking space in the basement that’s open to small businesses, startups and entrepreneurs.

Google’s London campus is credited by many in the City’s Silicon Roundabout district as being one of the catalysts for the explosion in the local tech centre.

One of the features of the London facility is the free co-working space the company offers which has become an important landmark for the city’s startup and small business community.

Getting into the basement co-working space requires pre-registration and, in theory, you’ll be able to pick up an access card when you first arrive.

In practice the cards are long out of stock, so just showing your registration confirmation with it’s code to the rather rude and brusque receptionists will get you buzzed in.

The coworking space takes up the entire basement with four distinct coworking spaces – a courtyard, an array of tables, a lounge area and a shared bench.

Immediately inside the door is the communal bench that seats around twenty people. These are probably the best if you’re happy to socialise while you work. Even if you don’t it’s worthwhile grabbing a spot here if you see one available during busy times.

Directly beside the workbench area is the Android demonstration station. This is a clever initiative by Google to showcase their mobile platform and encourage their developer community.

Across from the Android test bench is the lounge area, this will be your best bet to find a place should you arrive when the coworking space is busy. It isn’t the most comfortable and quiet place in the room though as it gets lots of foot traffic and is across from the café.

The café serves a standard range of sandwiches, coffees and drinks with specials on certain days. Prices aren’t dissimilar from most of the coffee shops in the neighbourhood although you might find better range and a quieter spot eating elsewhere.

One of the missed opportunities in the cafes is the opportunity to sell computer accessories like chargers and cables, during each visit this reviewer noticed how there was always someone asking to borrow other users’ accessories to charge their phones or synch their devices.

Alongside the coffee shop is the courtyard; on nice day this would be a good place to work or to enjoy a beer and a chat with fellow geeks in the afternoon. During this visit in November, the weather was dark and dank with the outdoor area only being used by people making phone calls.

Beside the courtyard is the desk area where the serious workers hunker down. These spaces tend to get taken early and some people seem to arrive shortly after opening at 9am and don’t leave until the room closes at 6pm. Get there before ten if you want a spot.

One of the problems in the room is the fight for power sockets. By mid-morning it’s almost impossible to find a spare plug so if you’re looking to recharge a device you may want to consider a local café.

Another problem with the coworking space is it gets very crowded and some of the regulars have a habit of spreading out or hogging power sockets. It may be necessary to be quite pushy to get a seat or power socket when someone is taking up too much space.

Overall, Google’s London Campus is a good facility that many other cities could use. However with its congestion mobile workers may find it easier to set up in one of the many geek friendly cafes in the neighbourhood like the nearby Ozone or Shoreditch Grind right on the Silicon Roundabout itself.

Tag: google

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