Tag: investment

Pulling up the drawbridge

Is the unpaid content model of unpaid journalism not only unsustainable, but hypocritical?

“Online bloggers and tweters are not subject to the financial incentives which affect the print media.”

While there’s much to disagree with in Lord Justice Leveson’s Australian speeches last week, particularly the bizarre suggestion that bloggers and social media are driving the decline in journalistic standards, he is correct about the economics of online publishing. It’s tough to make a buck on the web.

It’s so tough, many of the new media startups are founded on not paying for the articles they publish. This model has become so entrenched, that some venture capital investors will only invest in media start ups if they don’t have any reporters or editors.

Pure platforms

New media startup Buzzfeed‘s founder, Jonah Peretti, mentioned Silicon Valley’s reluctant to pay writers in a staff email republished by Chris Dixon;

Tech investors prefer pure platform companies because you can just focus on the tech, have the users produce the content for free, and scale the business globally without having to hire many people.

This antithesis to paying creatives and content creators is one of the notable aspects of the current Silicon Valley model, who needs editors and writers when a billion people will post to Facebook, Twitter or Instagram?

Arianna Huffington has been the most successful with this model in the media industry, parlaying a largely unpaid for content business into a fat pay-off.  Chris Anderson described this model best in a description of his website Geek Dad’s economics.

Reading the comments

For readers, much of the value in sites like the Huffington Post and Geek Dad lie in the comments stream where readers give their views and experiences and build the communities so many investors and advertisers are looking for.

This is a point made by Rachel Hills when commenting about Australian website Mamamia’s payment policies;

When I visit Mamamia. I don’t go to Mamamia for the articles, which usually don’t tell me anything I haven’t already read somewhere else. I go for the comments.

Rachel concludes with the thought that Mia Freedman’s Mamamia is providing a platform for discussion. This is true, but that’s no different from newspapers, the six o’clock news, current affairs shows or even the weekend’s football match.

Those football players, newsreaders and journalists are all paid for their work, just like Chris Anderson and Mia Freedman were as magazine editors.

The hypocrisy of unpaid content

Which leads us to the core hypocrisy of the unpaid content model; its promoters – people like Mia Freedman, Chris Anderson and Arianna Huffington – have all been well paid in their careers yet now choose to deny the next generation of writers and journalist an income.

A business adviser once remarked to me that the management of a corporation that were locking in their entitlements while cutting middle management were “pulling up the drawbridge”, that line seems apt as older, affluent journalists demand younger ones work as unpaid contributors or interns.

The bleat from online publishers is “we can’t afford to pay contributors”, in most other industries being able to pay your workers is a measure of whether your business is solvent. That many new media outlets can’t may mean that the entire industry is insolvent.

Writers get exposure

Were the local cafe to say it couldn’t afford to pay its waitstaff, but it was giving them valuable work experience they’d be rightly scorned for exploiting workers. There’s little difference with online publishers.

It may well be because there is no shortage of manipulative, attention grabbing garbage designed to provoke reactions and increase pageviews, which is the flaw in the “writers get exposure” excuse used by many of these sites.

As middlemen, publishers have to add value in order to have a role, ‘offering exposure’ to unpaid writers isn’t a reason in itself. This is an industry with shaky foundations and it’s not surprising founders are desperately trying to find greater fools to fund their exits.

Image of Michael Arrington from Kevin Krejci on Flickr.

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Disrupting the disrupters

Silicon Valley’s investment models are changing as attention moves from the consumer to the enterprise.

Two days ago, iconic venture capital investor Fred Wilson, wrote about the changing nature of the tech industry’s VC investments.

Fred puts the changes down to three factors; maturing markets where big players increasingly dominate, the move to mobile which Cristina Cordova examines in more detail and the shift in focus from the consumer market to the enterprise sector.

The last factor bears more examination as consumer and enterprise are very different and there’s no guarantee that businesses built around thousands of people downloading apps or accessing websites can pivot into selling into corporations and government agencies.

Probably the biggest problem is the consumer or small business freemium model doesn’t cut it in the enterprises who are prepared to pay big sums for highly reliable and secure services.

Similarly the enterprise model of fat sales commissions paid for by big implementation costs and expensive support contracts doesn’t quite fly either for these start up business. There’s also a good argument that high margin enterprise model is doomed anyway as cloud services displace costly in-house installations.

In the transition from consumer to enterprise is difficult and most companies have struggled to make the jump, even Google Docs has been a hard sell into the corporate sector.

At the enterprise end, cloud services are cutting margins as IBM and Oracle are finding. Both companies are moving across to cloud products and now a lot of salespeople and consultants in those organisations are looking at a substantial drop in their standards of living.

More importantly for the startup and VC communities, the “greater fool” model doesn’t work in the enterprise space. Hyping a business which has barely made a cent in revenue but does have a million users is very different to building a stable corporate platform.

It may well be the move to the enterprise by Silicon Valley is because the consumer model has run out of “greater fools” who’ll buy overhyped photo sharing apps or social media platforms of dubious value.

This change in investment behaviour also has lessons for governments trying to copy Silicon Valley. The puck moves fast in the investment community while governments, by definition, are slow.

By the time governments have setup their programs, the markets have moved on and many of the hot technologies of two years prior are now old hat. This is exactly what we’re seeing in the apps world.

We often hear about technology causing disruption, often though we forget that those disruptive technologies can be ephemeral as they are disrupted themselves.

As these industries evolve, we’ll see how well the disrupters deal with being disrupted.

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Digital maturity and the profitable business

How digitally mature is your business?

“The advantages of Digital Maturity”‘ a paper recently released by researchers at the MIT Sloan school of management looked at how different businesses adopted technology and the effect this had on the companies’ profits.

The authors of the paper, George Westerman, Didier Bonnet and Andrew McAfee, defined ‘digital maturity as a combination of a company’s level of technology investment and the management skills to implement that technology. From this they classify businesses into four categories – the beginners, conservatives, fashionistas and digirati.

Wallowing in the bottom right are the beginners, who have little idea of how to use technology and as a consequence don’t apply tech to their business. While they’ll use computers and will almost certainly use tools like ERPs and accounting software, they won’t implement them beyond their immediate needs.

This could describe thousands of big and small businesses who have learned just enough to do what they need but don’t really understand, or care, about what their IT systems can do for the way they work.

Above the beginners sit the fashionistas, the businesses who like shiny tech things but don’t really have a strategic understanding of technology or how to apply it effectively. As a consequence the digital tools are underused and fashionistas don’t use them much more effectively than the beginners.

More effective users of technology are the conservatives and digerati, the latter are like the fashionistas except their managements understand how to integrate technology into their business.

The conservatives are probably the most typical business, slow to adopt new technology but when they do, the management ensures it is used effectively.

Of the four groups, MIT’s researchers found that the digerati and conservative categories earned between 9 and 26% more profit than their peers.

The use of technology makes a difference as well with the fashionistas getting a 16% better return on assets than the conservatives which is something worth noting about the adoption of tech in a business.

What the researchers concluded was that businesses who aren’t adopting technology are falling further behind in skills as well as profit noting that attaining ‘digital maturity’ takes several years.

It’s worthwhile reflecting on how digitally mature your business is and reviewing exactly how you’re using technology in your organisation. With the tools available for today’s business, there’s no reason to be playing with the beginners.

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Silicon lemmings

How many investors blindly following Silicon Valley’s manias will lose their money?

Despite their self proclaimed belief in thinking different, many of today’s internet entrepreneurs tend to travel in flocks and follow the whichever business model is currently being hyped by Silicon Valley’s insiders.

From the original dot com boom in the late 1990s to today, web entrepreneurs and their investors jump onto the bandwagon of the day – it could be online shopping, photography applications, group buying services and taxi apps which are the flavour of the moment.

The latest taxi app is Click-a-Taxi, a European venture which has raised a stingy $1.5 million in second-round funding, which joins a legion of taxi and hire car apps following in the wake of market leader Uber.

Unfortunately for the investors in these taxi and hire car apps, these services are making some pretty powerful enemies.

Around the world gatekeepers such as taxi companies and booking services do their best to keep drivers in poverty while over charging passengers for a poor service.

The new apps disrupt that business model by offering a better service for customers and a better deal for drivers – most importantly it deprives the gatekeepers of their cut.

Predictably, the backlash is fierce with 15 US and Canadian cities proposing to tighten the rules on the use of GPS and smartphone apps.

These backlashes are going to prove expensive to the investors as Silicon Valley entrepreneurs have a habit of under-estimating the power of regulatory barriers. How the current crop of taxi apps deal with this will determine which lemmings go over the cliff* and which ones survive.

One group of Silicon Valley lemmings lying dazed at the bottom of a cliff face are those who invested in the group buying hype of the last two years.

Market leader Groupon is now reportedly moving away from daily deals to ‘always on’ deals, which kills the whole point of group buying sites. Most of the copycats are already dead.

Former Cudo CEO Billy Tucker predicts that in the Australian market – which was flooded by a wave of Groupon imitators in 2010 and 11 – will only have a dozen survivors out of the top 50 listed earlier this year.

Investors in these look-a-like services had a gamble that a greater fool would buy the operation, usually a big corporation run by executives with a fear of missing out. The ones who missed out quietly swallowed their losses and moved on to the next mania – which appears to be taxi apps.

For the taxi applications, the buyers of the apps will probably be the incumbent gatekeepers, who aren’t really fools at all.

It wouldn’t be surprising to find the smarter look-a-like operators are already talking to the taxi companies about an app which will, miraculously, comply with all the requirements of the local regulators.

As for the rest, they’ll do their dough.

What is going to be interesting though is the battle between Uber and the various taxi regulators around the world, particularly in countries where politicians jump to the whims of their business cronies.

*lemmings don’t really throw themselves off cliffs, that myth was invented by the Walt Disney Corporation. Sadly Australian, particularly NSW, politicians favouring ticket clippers and rent seekers is no myth.

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Incurious George and the cult of managerialism

The BBC’s scandals illustrate how management layers diffuse responsibility in modern organisations

“Do you not read papers?” Thundered the BBC’s John Humphrys to the corporation’s Director General during an interview over the broadcaster’s latest scandal.

That exchange was one of the final straws for the hapless George Entwhistle’s 54 day leadership of the British Broadcasting Corporation where the Jimmy Savile scandal had seen him labelled as ‘Incurious George’ for his failure to ask basic questions of his subordinates.

Humphry’s emphasised this when discussing the Newsnight program’s advance notice of the allegations they were going make;

You have a staff, but you have an enormous staff of people who are reporting into you on all sorts of things – they didn’t see this tweet that was going to set the world on fire?

A lack of staff certainly isn’t the BBC’s problem, the organisation’s chairman Chris Patten quipped after Entwhistle’s resignation that the broadcaster has more managers than the Chinese Communist Party.

George Entwhistle’s failure to ask his legion of managers and their failure to keep the boss informed is symptomatic of modern management where layers of bureaucracy are used to diffuse responsibility.

In every corporate scandal over the last two decades we find the people who were paid well to hold ‘responsible’ positions claimed they weren’t told about the nefarious deeds or negligence of their underlings.

Shareholders suffer massive losses, taxpayers bail out floundering businesses and yet senior executives and board members happily waddle along blissfully content as long as the money keeps rolling in.

If it were just private enterprise affected by this managerialism then it could be argued that the free market will fix the problem. Unfortunately the public sector is equally affected.

Managerialism infects the public service as we see with the BBC and it’s political masters  and the results are hospital patients die, wards of the state abused, known swindlers rob old ladies and agencies continually fail to deliver the services they are charged to deliver.

Again the layers of management diffuse responsibility; the Minister, the Director-General and the ranks of Directors with claims to the executive toilet suite’s keys are insulated from the inconvenience of actually being responsible for doing the job they are paid to do.

Managerialism and incuriousity are fine bedfellows, in many ways Incurious George Entwhistle is the management icon of our times.

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Running out of luck

Is Australia’s luck running out in the digital and Asian economy.

Last week I was lucky to get along to Digital Australia and Emergent Asia panel held at PwC’s Sydney office where the panel looked at how Australia’s industries are adapting to the digital economy and evolving Australian markets.

The outlook from the panel was generally downbeat about the ability of Australia’s business leaders and politicians to adapt to the changes in the global economy although there were some optimistic points about the resilience and flexibility of the nation.

I did a write up for it on Technology Spectator which is online at It’s Not Good Enough To Be Clever

The challenge is on for Australia’s business leaders – let’s see if they are up to it.

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Building new technological Jerusalems

Britain’s hopes of building a new technology hub are similar to those of Harold Wilson – how much do they owe the ideology of our times?

A Telegraph profile of Joanna Shields, the incoming Chief Executive of London’s Tech City Investment Organisation, is an interesting view of how we see economic development and the route to building the industrial centres of the future. Much of that view is distorted by the ideologies of our times.

London’s Tech City is a brave project and somewhat reminiscent of future British Prime Minister Harold Wilson’s 1963 proclamation about the UK’s future lying in harnessing the “white heat of technology.” From Dictionary.com;

“We are redefining and we are restating our socialism in terms of the scientific revolution…. The Britain that is going to be forged in the white heat of this revolution will be no place for restrictive practices or outdated methods on either side of industry.”

Fifty years later a notable part of Wilson’s speech is the use of the word “socialism” – the very thought of a mainstream politician using the “s-word” today and being elected shortly afterwards is unthinkable.

Today the ideology is somewhat different – much of Tech City’s objectives are around aping the models of Ireland and Silicon Valley – which in itself is accepting the failed beliefs of our times.

Based around London’s “Silicon Roundabout” – a term reminding those of us of a certain age of a childhood TV series – the heart of the Tech City strategy lies the tax incentives used by the Irish to build the “Celtic Tiger” of the 1990s and government investment funds to create an entrepreneurial hub similar to Silicon Valley, something also done in Dublin with the Digital Hub.

It’s hard not to think that copying these models is a flawed strategy – Silicon Valley is the result of four generations of technology investment by the United States military which is beyond the resources of the British government, and probably beyond today’s cash strapped US government, while the Celtic Tiger today lies wounded in the rubble of Ireland’s over leveraged economy.

At the core of both Silicon Valley’s startup culture and Ireland’s corporate incentives are the ideologies of the 1980s which celebrates a hairy-chested Ayn Rand type individualism while at the same time perversely relying upon government spending. Ultimately failure is not an option as governments will step in to guarantee investment returns and management bonuses.

Just up the M1 and M6 from London’s Silicon Roundabout are the remains of what were the Silicon Valleys of the eighteenth and nineteenth centuries.

The manufacturing industries of the English Midlands or the woollen mills of Yorkshire revolutionised the global societies of their times. These were built by individuals and investors who knew they could be ruined by a poor investment and managers who retired to the parlour with a pistol if the enterprise they were trusted to run failed.

Today’s investment attraction ideologies – tax discounts to big corporations and grants to entrepreneurs – are in a touching way not dissimilar to Harold Wilson’s 1960s belief in socialism.

At the time of Wilson’s 1963 speech China and much of the communist world were showing that socialism, with its failed Five Year Plans and Great Leaps Forward of the 1950s, was not the answer for countries wanting to harness the “white heat of technology.”

Similarly today’s Corporatist model of massive government support of ‘too big to fail’ corporations is just as much a failed ideology, like the socialists of the mid 1960s had their world views had been framed in the depression of the 193os, today’s leaders are blinded by their beliefs that were shaped by the freewheeling 1980s.

Whether the next Silicon Valley will be in London, or somewhere like Nairobi or Tashkent, it probably won’t be born out of a centrally planned government initiative born out of the certainties of Margaret Thatcher or Ronald Reagan anymore than the 1960s technological revolution was born out of Karl Marx or Josef Engels.

Silicon Valley itself was the happy unintended consequence of the Cold War and the Space Race, which we reap the benefits of today.

Every ideology creates its own set of unintended consequences, those created by today’s beliefs will be just as surprising to us as punk rockers were to the aging Harold Wilson.

Maybe Tech City will help Britain will do better at this attempt to regain its position as global economic powerhouse, but you can’t help thinking that economic salvation might come from some West Indian or Sikh kid working out of a storage unit in Warrington than a bunch of white middle class guys celebrating a government grant over a glass of Bolly in Shoreditch.

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