Thursday, 31 May 2012

A night at the Opera won't do Zuck any good

As Facebook's shares continue to decline (they closed at $28 on Wednesday) rumours have begun to circulate about a takeover bid for browser software maker Opera. This, like Instagram, would be a puzzling move.

I definitely think that getting into mobile in a serious way is the only way for Facebook to generate the returns that investors hope it will. But Facebook's biggest issue is its lack of a compelling business model.

The same could be said of Opera, which, despite expanding market share in both desktop and mobile browsing, is hardly a cash generating machine. Despite a nearly $900Mn market cap, in a good year, its EBITDA from nearly 200mn users probably won't cross $20mn. Annual per-user revenue was about $0.6 in 2011, tiny even when compared to Facebook's $4.7 per user per year.

There's also the difficult issue of cannibalisation. 60mn Opera users are PC based and about 200mn use its Opera Mini mobile browser. I'm not sure that the former would become more valuable if sold together with the browser content.

I suspect the latter are almost entirely feature phone users and therefore represent a useful add on to Facebook in emerging markets.

But what happens when those users convert to smarter devices? Well, Symbian has traditionally licenced Opera as the browser on its devices and Nokia have ambitious plans in $40 smartphones for emerging markets. Even so, white label only makes up about 20% of Opera Mini's installed base. The rest should be considered at risk if the prices of Chinese branded Android devices continue to fall and their market share continues to increase. I'd expect Chrome to dominate on those devices. This is why Opera's market share has shrunk markedly over the last 2 years.
What Opera would bring is engineering expertise and relationships with operators and device manufacturers beyond what Facebook has today. But it isn't a credible operating system choice and it doesn't offer Facebook the ability to do what Apple can do and use a great core product to generate huge returns across an ecosystem of devices.

A lot has been made about Opera's ability to use HTML5 and CSS3 technologies to vertically integrate Facebook's offer across multiple platforms via web apps. I don't see how that's possible without an operating system. Opera is never going to be the default for the mass market operating systems - Apple, Google and Microsoft will see to that. Very few users know that Opera is a better browser than what's pre-loaded and infront of them on the home screen.

So my opinion remains that if Zuck wants to play in mobile, he needs to play in operating systems and hardware. And that means RIM or HTC. Best get them while the share price is still in double figures, Mark.

Tuesday, 29 May 2012

Social-squared... or, what Nike teaches us about gameification

I recently acquired a Nike Fuel Band. Once I've used it for a bit, I'll post a full review, but in the interim, I thought it worth writing down why I spent £150 on what's ostensibly a gimmick.

It's really all about gameification. Nike+ was the first truly mass market attempt at bringing elements of professional fitness monitoring to the mass market. Before Nike+, one had to shell out hundreds of pounds on a connected heart rate watch. This reduced the barrier to entry to a few pounds for a shoe sensor - all the processing is done in an iPod or iPhone.

I've been using Nike+ for years and I really like it. The trouble is that it is 'project' based fitness. When you go for a run, you can log it. When you stop, it stops. Although it's motivational to see your progress (slow, in my case), it's easy to forget about it or make excuses not to go today because it's too cold/ too hot/ I'm too hungover etc...

Hardly anyone has the commitment and stoicism of a a professional athlete.

What Fuel Band does is monitor your activity throughout the day. You wear it all the time and it syncs back either to an iPhone or computer. You set a goal for the day in terms of activity (abstracted into 'Fuel' points), which can be shared with other users.

Curiously, I already find myself obsessed with hitting my daily goal. We'll see if it continues, but I've started to make healthier choices about how to travel, how far to run and so on. It's a social game in the sense that by being fitter, I'm less of a strain on society, as well as by virtue of its social network integration. Social-squared, if you like.

This effect is similar to the 'growing tree' graphic in the Toyota Prius. The more efficiently you drive, the more leaves appear on the tree. And you can't cheat - you need to drive efficiently for long periods to build the tree. Indiscretions will kill it. Miles per gallon is an abstract concept. Everyone knows what a tree is.

Soon cars will be connected and we'll be able to compare ourselves to other users. Provided the games are set up sensibly, we could all benefit the environment and have fun at the same time.

Achievement is a core part of the human condition. We love that rush when we've done something well, particularly if we're going to be rewarded. Recognition is the best bit of achievement.

The latter makes me wonder there's a market for a social gaming points exchange. A sort of carbon trading for socially responsible behaviour with an exchange rate between activities and a universal social currency. There'd need to be incentive, of course, so the points would need to be exchangeable for something useful.

Treats are always popular. Or if we really wanted to get radical, tax credits from the government. We're always told that being healthier, smarter and greener is better for the country. Maybe legislators should put their money where their mouth is?

Friday, 25 May 2012

What I've been reading this week

I’m of the belief that participants in the TMT industry need to read widely in order to understand the present and future dynamics of the market. To that end, this post is a collection of the articles that have caught my eye.

This week: Yahoo banks $7.1Bn, having bought Instagram, Facebook launches new Instagram, Apple ups manufacturing capacity ahead of mystery launch and it’s Chickenball time for Big Data

Digital media

In a week of bad online tech’ news (thanks Facebook!), Yahoo have just made themselves a cool $7.1Bn by selling half of its stake in troublesome Chinese e-commerce platform Alibaba.

66% of national advertisers in the USA are also spending on local advertising. An interesting finding, but I suspect volumes are small – targeting and high ROI are even harder to achieve at the local level. Flip side is that I suspect a brilliant local campaign is very much more differentiated than a brilliant national one (because it’s much rarer!).

The Times will be read more online than in print by 2014... which says more about its decline in print than uptake of digital.

I really don’t understand Facebook. Having spent a billion bucks on Instagram, they’re now launched their own copycat service. Bizarre.

A very interesting little article about the nature of the Millennial Generation – narcissistic, socialist, spend thrift and broke. I’m really interested by what happens when they hit the management layer.

Emerging markets

Not TMT, but interesting – an article about why some countries are richer than others. Nicely crafted.

A mobile money success story in Rwanda, where 6% of MTNs customers are active users of its MobileMoney service. MPESA is much talked about in the developed world as a basis for demand for NFC-based mobile payment. In reality the success of these schemes is patchy and they are far from universally well-regarded. Telcos would be wise to remember this before committing 10’s of millions to these schemes.

More incredible, Africa’s first supercomputer is about to fire up in Nairobi. Facilities like this are fundamental if Kenya wants to build upon its early lead in digital and become a genuine technology innovator.

Google has made its mapping software available in Syria. Previously blocked, one hopes that it will be a boon to the resistance in that country.


To be honest, I’m surprised that only 80% of phones shipped are Android or iOS. Even so, I expect a gradual rally by Windows Phone as it’s still the best O/S on the market from a functionality and UI perspective. Nokia’s next launch will be crucial.

Some of these new phones will be running Nvidia’s Tegra smartphone architecture – the company says there’ll be 30 devices using it this year. Still a fraction of the market, though.

Judging by the frequency with which they’re adorning the faces of Google executives I suspect it won’t be too long before smartphones will be connected to heads-up displays built into eye glasses. This is the next interface revolution.

CDNs have found an interesting new niche as application accelerators. Although the glory days of the late ‘90’s are long gone, companies like Yottaa are still attracting decent slugs of investment, in this case for mobile experience improvement.

It’s little surprise that London has been selected for Intel’s smart city project. The tech sector is booming here and the population is one of the most digitally enabled in the world...

...and we’re not shooting ourselves in the feet, like rival hub, Berlin, whose restrictive taxes and screwed up airport expansion are set to suppress growth. Excellent.

I love this sort of thing – technologists are using massive data processing to analyse the sounds that chicken flocks make in order to optimise the conditions they’re living in dynamically. Chickenball. Smart.

Superpower politics

A lot of what happens in the TMT world is fallout from superpower decisions. Here, Apple’s decision to buy up Taiwanese memory supplies cost Samsung $10Bn in market capitalisation overnight.

More is going on with Apple though – this report is a little financial in nature, but in summary it says that Apple has really ramped up its ability to build electronics devices this quarter. Is another big launch coming?

Thursday, 24 May 2012

Android market shares

Since Google’s acquisition of Motorola Mobility finally went ahead this week, I thought this might be a timely moment to share some data that a colleague sent me regarding Android shipments. It throws into sharp relief the way in which a combination of Samsung at the mid and top end, and Chinese manufacturers at the low end, have reduced Motorola, LG and even formerly mighty HTC to also-rans.

Motorola’s market share has fallen from about 11% in the 1st quarter of 2011, to less than 6% in the same quarter this year. HTC is even worse. They were neck and neck with Samsung at the start of the period, selling 22.5% of all Android devices. Now they are only 8.9% of the market and falling fast.

Samsung, on the other hand, now represent 41.7% of Android shipments. This looks like a dominant position, but it should be remembered that one or two failed launches could easily lead to a rapid decline. What they need to do, in my opinion, is push much harder to create a credible ecosystem that spans their mobile, computing and AV products. Their current offering is not an obvious competitor to iTunes, Google Play or Amazon Market, even if it probably offers similar functionality (if not richness of content). Without that ecosystem they have no lock-in for customers and therefore limited ability to retain beyond their brand power and product design nous.

Second on the list of to-dos should be to make sure that ecosystem is seamless between their low-end Bada OS and higher end Android devices. 13.4Mn of the former shipped last year and they probably represent many people’s entry point into smart phones. It’s important to offer them a logical upgrade within the family.

Chinese manufacturers are now just over 17% of the market by volume, up from 10% in Q1 2011.

And just to remind us all that Android is not the only game in town. When asked what the best smartphone in the world was, Apple’s spookily oracle-like assistant Siri replied: Nokia Lumia 900. Best not write the Finns off just yet.

Tuesday, 22 May 2012

What I'd do if I were Zuck

So things aren't going very well for Facebook. As we all know, not only did the shares fail to pop, they then plummeted and more trouble seems afoot, since even the underwriting banks have slashed their revenue estimates for Facebook. Although Zuck has wedded bliss (and a couple of billion bucks) to fall back on, I suspect he's feeling a bit blue at the moment.

So I wondered, what would I do, if I were Zuck? Besides buying a yacht and an island...

1. Do something about mobile

Mobile experience and Facebook's inability to monetise it is destroying them. All this talk of emerging market consumers is meaningless if they can't be made to pay and in developed markets the iPhone/ iPad consumer is passing Facebook by.

The trouble is the Facebook isn't a platform or an ecosystem. Even Amazon - the smallest of the tech superpowers - has it's own platform (Kindle) and ecosystem (Prime). That allows it to create value through retail, lock-in through closed ecosystem and most importantly, ultimate control over the advertising experience on the platform.

Facebook is disintermediated and this is bad. Really bad. If I were Zuck, I'd buy up RIM or HTC and evolve them into Facebook Mobile, based on a social-spun Android. Friendroid, if you will. Closed, vertical integration of hardware, software and web services is the future of smart platforms and Facebook needs to be there.

Pesky problems like Zynga might go away too. They'd just be apps on a great Facebook machine.

Cost might be an issue though. $7-9Bn. Ouch.

2. Hire a designer

Facebook is a mess. There; I've said it. 5 years ago, they were sleek and cool, now they're an utter mess of design ideas that confuses and distracts. All of the other social media competitors have functional focus, like Facebook used to have.

Zuck desperately needs to restore the design identity around contacts and real world meeting that Facebook used to have. If not, then time spent on the platform is only going one way.

I'd be talking to Ideo or Frog pretty quickly, if I were him.

3. Work out what the hell a "like" really means

"Liking" has been devalued. It's too darn easy to do and it drives the wrong kind of engagement behaviour. Narcissistic supply means that people are driven to game the system to seek them out. And because it's so easy to give, others do it in the hope of mutual return.

For brands with Facebook presence it means that engagement is too hard to measure. No wonder lots of them are thinking about pulling out altogether. So Zuck needs to enforce some quality over what we like. Maybe we should have a quota... or we could scrap the whole thing and start again.

4. Re-engage with local

I've always thought one of the best things you can do with Facebook is create local social circles. Local in interest and psychology as well as geography. It kind of feels like Facebook could play on this more. Rather than "follow us on Facebook" it could get a bit Foursquare in terms of "checking in" and start to get more spontaneous around social marketing.

Wouldn't it be great if the "check in" had its own Facebook page and virtual environment? Wouldn't it be even better if Facebook threw its own events in the coolest hangouts?

If I were Zuck, I'd really want to make Facebook cool again...

But if I were a betting man...

...I'd say he won't do any of these. Enjoy the yacht, Zuck.

Sunday, 20 May 2012

What I've been reading this week

I’m of the belief that participants in the TMT industry need to read widely in order to understand the present and future dynamics of the market. To that end, this post is a collection of the articles that have caught my eye.

This week: social media ads are bunkum, most efficient computer makes (deliberate) mistakes, Thai schools get 400,000 tablets & how our fear of death affects our decision making

Digital media

An amazing 18% of smart phone users say they use a geo-social service to login to a location. Women use them more than men, and people on low incomes are more likely to use them than those earning over $75,000 a year. Sadly, the survey doesn’t seem to talk about frequency of use, which is a shame.

US social media advertising to increase at 21% CAGR to 2016, meaning it’ll be $9.6Bn in that year. That’ll be why Facebook’s IPO was such a bust.$9.8-Billion-by-2016.asp

A neat analysis of when the best time is to post a link on a social network. I need to adopt this...

36% of UK consumers say they contacted a brand using social media in 2011. 68% say it gives them more of voice. They’re wrong in that assumption – my experience is that social is generally managed by an external agency as a PR exercise. Big business hasn’t worked out what to do with social yet.

Great for all us Facebook bears – an agency chief confirms how badly Facebook advertising performs. Hope you didn’t invest.

Docomo’s acquisition of mobile media giant Buonjiorno looks a bit toppy on price, but should offer fabulous opportunities in emerging markets, where simpler mobile media is still in a huge growth phase.

Tablets count as mobile in this definition. The Financial Times will make more money from digital subscriptions than print subscriptions this year.

Traditional still has plenty of miles left in it. French TV group TF1 made $56.1Mn last year from syndicating The Voice to 12 countries. Wow.

Perhaps traditional companies are also learning that DRM won’t save them from the “scourge” of piracy. Here’s hoping for a softer approach (as suggested by this article).

Business models

A terrifying graph that shows how government spending has shifted towards propping up healthcare and social security. Transport and in particular research totally neglected. At least defence has decreased. Small mercies – we’re becoming societies dependent on handouts.

Fortunately, there are some people willing to work for a living. Here’s a really interesting set of anecdotes about the success of Stanford as an incubator for new technology businesses. It’s been profitable too: in 9 years, it’s taken $17Bn in endowments alone. Amazing.

Groupon is a disaster of a business. This article explains how their last quarter’s losses were 50% larger than they expected. I give them another year or so before it all goes massively pear shaped.

An interview with a group of Professors who’ve spent their careers working out how our fear of death affects our behaviours. Some interesting experiments in there – the fact that those reminded of their own mortality are much less sympathetic and more judgemental being one.

On a similar topic, I’m reminded of this research from 2008 that linked testosterone levels of traders in the morning to their profits in the evening. I’m very interested in the idea of monitoring the physical and mental well being and the output of high value employees in the same way as we do with star athletes. I wonder whether it would be effective.

One way or the other, if you have got great employees, don’t trap them in meaningless process. So many companies do...


Virtualising GPUs en-masse is a step towards cloud-based gaming for everyone... I’d love to be able to play my XBox games on my phone as part of my Xbox Live subscription, for example. Nvidia could make all this possible. I’m getting (a little) more bullish about them.

I love this. By creating chips that don’t have the add-ons that create perfect results, you can create a CPU that is 15x more efficient than today’s best in class. 80:20 rule in silicon format, if you like.

Thailand is buying 400,000 tablet computers to revolutionise its education system. If I were a publisher of academic text books, I would be very worried as digital channels + educated philanthropists means plenty of free education materials.

It actually didn’t make it to the space station (or off the pad) because of a fault, but even so, Space X is the future of space travel. Another amazing story this week.

Superpower politics

I can’t decide whether I believe that Apple will buy Loewe. I do love the latter company, but I’m not sure why Apple would want it when their Studio range of monitors are all you’d need to base a 4K TV around.

Confirming what we all thought: Google+ the social network is not engaging users... but that’s not a surprise – Google won’t really care whether people use the site, they just want us all to login to all of the services they provide – mail, maps and YouTube being just three of them. Plenty of us are doing just that.

Still, it’s not all bad news for Google – their acquisition of Motorola Mobility has finally been cleared by the Chinese government, provided they guarantee free access to Android for 5 years. Android is vital for Huawei, ZTE and other Chinese mobile manufacturers if they want to compete in global markets.

Apple’s customer service is a differentiator says tech blogger. Duh.

Thursday, 17 May 2012

In search of randomocracy

It’s a tough decade to lead a major corporation or government. Things are changing so fast and the macroeconomic situation is so complex that it’s no surprise the finger gets pointed at Managers whenever things go wrong. The travails of new leaders at Nokia and now RIM and Yahoo have also placed scrutiny on the selection criteria for Managers.

It’s possibly because of this that there’s been an upsurge in research around a-periodical systems as a way of selecting leaders at all levels of organisations. Typically, this research is aimed at governmental systems and since “a-periodicity” is really a fancy way of saying “random”, the governmental system has come to be known as a “randomocracy”. Partly because I love the name and partly because I’m really interested in the practice of leadership in a digital, millennial business environment, I’ve been thinking about some randomocracy ideas could be applied to business management.

Random acts of kindness – the pure randomocracy

A pure randomocracy is a simple construct. Anyone in a country can be picked at random to serve in a national congress of consistent size, where they act with all the authority gifted to elected representatives today. Typically tenure is a period of a year, since this was the basis of the classical Greek system of government. God might not roll dice, but perhaps the Queen should?

The thesis that underpins the randomocracy is that provided the congress is sufficiently representative (a few hundred people, rather than a few tens) then a random sample of the population will be on average as successful in making effective decisions on national policy as a group that is selected through a structured process.

This is not actually as crazy as it sounds. Since the actual operation of a nation is carried out by civil servants, decision making is only a case of analysing given information and coming to a conclusion based on life experience and personal bias. The group then votes based on that individual bias or makes deals internally to support a portfolio of policies. Statistically speaking, over a period of years the will of the people will be done because the vox populus is actively represented at the point of national decisions.

Just to remind you, most legal systems in the democratic world work exactly this way. Decisions on the fate of individuals are made by a jury of their peers, randomly selected from the population. In some ways the UK’s House of Lords is also randomly selected, in that there is no elected representation and Peers often only have loose alignment to parties.

Hybrid random/ structured systems

A fascinating conclusion drawn by the authors of a recent paper on the subject was that a pure randomocracy isn’t worth pursuing as it is just as inefficient as the current, pure-elected system. That it isn’t any worse is telling! What the authors then went on to do is use the same mathematical model to work out the optimum degree of randomness for a government of a given size. Neat.

Their conclusion is that the most efficient system of government is one where a mix of elected, party-aligned people work together with a randomly selected group of independents. To my mind, this is a similar idea to that of coalition government, without the inherent weakness of that system, which is caused by alignment of formally structured small groups of people. The groupthink in those parties leads to amplification of bias and need to defend the herd, which in turn collapses the coalition in short order.
 Randomness in the workplace - the Dilbert school of Management

The authors of a Catania University paper on randomocracy have previously shown that randomly deciding promotions in a bureaucracy is at worst equally effective as implicit or explicit promotion systems. In many cases it will produce better results than formal processes because by promoting an underperforming person in an operational role, they free that role for someone more effective to step into it and improve overall productivity. Best not reflect too hard on what that says about the typical value-add of Managers.

On a similar train of thought, the practice of Strategic Management naturally contains an element of intuition and dumb luck. Rarely in my experience is one course of action so compelling that it’s the only option to pursue. Instead, there are typically several options that are equally good when judged on achievability and attractiveness. Chances are that rolling a dice to decide which to prioritise is at least as effective as trying to scientifically justify something that’s success depends on a complex set of externalities. Psychologically, however, I fear that it would be tough to align a business around a roll of a dice and execution is 90% of the battle.

In short, although probably workable, I suspect that these types of statistically valid, but culturally difficult systems are unworkable in most business environments. The possible exception to that rule are those organisations that are naturally replete with staff, such as governmental organisations, large outsourcers and similar. Statistics only work when there are sufficient sample sizes. Even so there is clearly strength in randomness and it shouldn’t be dismissed out of hand because it’s not the done thing.

Strength through randomness

Recently I’ve been working with a number of teams that when judged through the traditional lenses of depth strategic technique and client management skills were rather inexperienced. Yet over a period of 9 months, in a wide range of different client situations they’ve produced some of the most astoundingly brilliant strategy work I’ve seen in my career.

In thinking about randomness and reading the leaked Valve employee handbook cover-to-cover several times, I’ve come to some conclusions about why this is happening. Unsurprisingly, the first factor is having the right people. The second thing is to organise them in the right way. Not rocket science. No, this is much, much harder.

The teams I refer to above consist of a mix drawn from about 8 people, all of them displaying the typical top tier consulting characteristics of extremely high mental capacity, natural diligence, intellectual inquisitiveness and an open, sharing attitude. Within the team the mix is effectively random as utilisation is high and projects are not of uniform length – I’m doing roughly two at a time. A key thing, I think, is that at 31 I’m the elder statesman by 3 or 4 years. The youngest is about 23.

Why is the latter important? Because Generation Y people have yet to be corrupted by the sense of hierarchy that pervades traditional business. We have a lot of debate in these teams and it can get pretty heated. Everyone speaks their mind. Many companies claim that this is commonplace, but I’m really not so sure. In traditional structure (and I include most projects I’ve been on) there are leaders and there are doers. The difference here is that by working together for an extended period and by all being of exceptional calibre this is a group of friends as well as colleagues. Not many groups of friends have formal hierarchies – informal, yes, but that herd or tribal behaviour is a subtle undertone rather than explicit command and control.

As Valve describe it: “hierarchy is great for maintaining predictability and repeatability. It simplifies planning and makes it easier to control a large group of people from the top down, which is why military organizations rely on it so heavily. But when you’re (a) company that’s spent the last decade going out of its way to recruit the most intelligent, innovative, talented people on Earth, telling them to sit at a desk and do what they’re told obliterates 99 percent of their value. We want innovators, and that means maintaining an environment where they’ll flourish.”

What I’ve been witnessing is that flourishing of creativity and strategic innovation when talented people have the freedom to express themselves. No wonder our clients are happy right now...

Welcome to Flatland

Valve rightly make a lot of their flat structure as they represent an extreme of the above: it is an entirely flat company with no hierarchy, no official job roles. Whereas Google employees famously get their 5% time to do what they want, Valvers get 100% time to do what they think will make the company successful. And they are successful, having produced massive hit titles like Half Life, Left 4 Dead and the Steam online gaming platform.

Doing projects at Valve means convincing people to work with you. Employees can literally wheel their desk to a new team and start working with them whenever they choose. For this reason, the structure Valve have built is actually much more sophisticated than a “flatocracy” – it is a self-organising system. There’s no such thing as a Manager, just someone who the team nominates to co-ordinate the multiple legs of a project. Usefully, this type of system is also self sustaining as success breeds success, drawing in more talent and creating more value in a virtuous cycle.

That all sounds like paradise. Sadly it all depends on one thing: talent. Valve again: “Hiring well is the most important thing in the universe. Nothing else comes close. It’s more important than breathing.” Then they go onto say something very prescient: “when unchecked, people have a tendency to hire others who are lower-powered than themselves. We should hire people more capable than ourselves, not less. In some ways, hiring lower-powered people is a natural response to having so much work to get done. In these conditions, hiring someone who is at least capable seems to be smarter than not hiring anyone at all. But that’s actually a huge mistake.”

Anyone competing in complex markets would do well to remember this.

Appropriately, by searching for randomness, I’ve concluded something else!

Valve has been designed from the ground-up to be flat. Converting another business to act the same way would be very hard. Likewise randomocracy is too radical a departure for anyone to realistically consider (although Iceland has actually set up a commission of 950 randomly selected citizens to decide how to move on from the financial crisis – some would say that they had nothing to lose). But by taking extreme situations they suggest a couple of broad principles for succeeding in hyper-competitive digital markets:
  1. Decisions made by systems with process, structure and hierarchy (even if they are “best practice”) are in aggregate, statistically no better than rolling dice. Appreciating this fundamental truth enables you to relax the need for control and thereby create an environment where people have to adapt and innovate
  2. Recruit people that absolutely fit your culture and ethos, even if it means taking only one person when you think you need ten. Seek out people broader and smarter than you are
  3. If you truly believe you’ve done #2, then you should have nothing to fear letting any of your team lose on any problem. If you do have fear, then go back to #2!
This has been a very long post and possibly a little rambling. I hope, however, it’s useful. I think I’ve now come to understand something about how to treat my teams in the future. Let’s hope it works!

Monday, 14 May 2012

Notes from my visit to the Arab Media Forum

I spent last week in Dubai attending the Arab Media Forum and visiting with a number of local media and telecoms companies. Development of a large media – particularly TV and movie - industry seems to feature on the strategic plans of almost all Arab states, so I was interested in getting an impression of how they compare as well as a sense for how the Arabic media industry in general is evolving.

A long (form) journey

To date, Arabic media’s greatest success is to create at least one global news brand – Al Jazeera – which has been instrumental in expressing the Arab voice in the region and worldwide. The overwhelming sense I got in the this visit (and in previous ones) was that the desired next step was to have the same clarity of voice in long form content as they do in short form. This is particularly for engagement of the Arabic diaspora worldwide, who are currently poorly catered for.

To achieve this, my view is that regional producers need to improve the overall quality of the output they produce, both technically but also – vitally – creatively. The former is clearly happening to some degree. The Arab Media Outlook, a weighty tome launched at the conference, states that average cost-per-hour has risen nearly 20% YoY since 2009 and is now around $80,000/ hour. Assuming an average level of wage inflation, an increase of this magnitude is almost certainly due to a combination of improved (more expensive) crew, increased shoot time, better quality equipment and increased post-production time. In a world where import content is high definition and high concept, this is definitely a good sign.

Creativity is, however, a worry for me. For a start, the market is dangerously fragmented. Uniquely because of shared language and national proximity, this fragmentation takes a geographic form – Dubai, Abu Dhabi, Qatar, Egypt and Tunisia were all shouting loudly about their ambitious investment plans in studios and film production. Although the game is not zero-sum, there is obviously insufficient audience and therefore advertising money (the vast majority of Arabic TV is free-to-air) to support the scale of growth being talked about without diluting spend excessively. Box offices are also low in the region. Even Egypt, with a population of 80Mn and the 3rd oldest film production industry in the world grossed less than $40Mn in box office takings in 2011. The market would have to show massive growth to fund sufficient hours of production to train an industry. TV is where it’s at... but perhaps a shift to pay models will be required to fund increased content spending.

The above situation will only worsen as the ongoing rebellion in Syria, which is one of the region’s key TV producers, leads to commissioners reverting to other locations. Geographic fragmentation is compounded by an excess of enthusiasm about the type of media industry that each location will support. Frankly, everyone seems to want to do everything and is willing to shout very loudly about said ambition.

My experience in setting up media and technology hubs strongly leads me to believe that it is much better to start small and focussed, dominate a particular competency and then both actively incent adjacent businesses to relocate there as well as creating the economic environment for new and existing adjacent businesses to want to move to the hub. Contrary to popular sentiment, the media industry is not really converged and that birds of a feather flock together. My perception is that each of these hubs should become clearer about their value proposition and stick to it for a while.

Similarly, content commissioners have a responsibility to develop the local independent producers by focusing their spending over a period of time. With the current content standards, even if there are a few creative flops, the improvement in production quality that will come from surety of revenues is alone worth the risk. Financial security also leads to willingness to take creative risk; ultimately the key to a sustainable creative industry.

Latent creativity exists, but the environment is hostile

Sadly, taking creative risk in the Middle East still often means taking personal risk. Sometimes that risk is physical. Although there have doubtless been some successful products from the Arabic language film industry and it is liberalising a little, there’s still an elephant in the room. The issue du jour at AMF was Arab Spring, with journalists and particularly film makers coming under vitriolic attack for exploiting and exaggerating the situation for personal advantage. What I’ve seen doesn’t lead me to suggest that in other markets this would have been a grounded accusation, but it is yet another example of a taboo subject in the region.

In my view, constraining free speech naturally constrains innovation as pushing the envelope can lead to vilification or worse. Furthermore, the Diaspora may be less receptive to staid creative concepts than local audiences as they are more exposed to content from other sources. Being creatively uncompetitive will therefore starve the market of vital export revenue.

Sadly, Arab countries such as Lebanon with more progressive laws have such severe security problems that they’re not a realistic location for content creation. It will be interesting to see how post-revolution Egypt develops as it remains the region’s content powerhouse. If it finds a balance between satisfying cultural and religious sensibilities and creative freedom, then there seems to be great opportunity for them in export markets.

Despite a proportionally large device base, digital Arabia is under-performing

Perhaps unsurprisingly in a region with such high levels of individual wealth, smart devices are booming. As a colleague pointed out to me, a large proportion of the technology products bound for Europe transit the region, so even if things aren’t officially available the grey market provides the latest technology almost before it hits the western markets. Furthermore, with most accommodation being new build, in-home connectivity is excellent and, theoretically at least, so is broadband connectivity. In terms of the latter, I found the wireless speeds to be excellent – comparable to central London – but the wired/ Wifi speeds to be disappointing, particularly for websites hosted outside Dubai. Needless to say, the large expat community that cycles through the country means that many of the consumer technology items have short replacement cycles. Curiously, they also seemed to be quite expensive, with plasma screens costing roughly twice what I’d expect to pay in the UK.

Some kind of national firewall is in use to police “inappropriate” content at the borders. It seemed remarkably unsophisticated, however, as I was easily able to find workarounds. I suspect it is an older system that works on keywords, rather than being DPI. I may be wrong and more techie than I think!

Probably because of the massive preponderance of smart devices, Arabs are avid application downloaders, with over 50% of smartphone users saying that they download at least one application every two months. This is despite 80% of them expressing a preference for Arabic applications and only 12% of those applications that are available being in Arabic. The average self-reported spending on applications is $25 a year, with an average of 32 applications per device. 88% of users say that they’ve paid for an application.

But despite this apparent demand and sophistication, digital Arabia is yet to hit the accelerator pedal (as an aside, hitting the accelerator pedal seems to be an activity much loved by drivers in Dubai, who are universally appalling!). To put the problem into context, e-commerce is a miniscule market. 99% of Saudis have never bought a product online and even in the UAE, 84% have never purchase and only 13% purchase something at least once a year. Stranger still is that only 3.3% of advertising spend in the region is online, compared to well over 20% in any other developed market. Perhaps this explains why newspapers remain a print-only proposition and subscription content services like Netflix and Spotify are non-existent despite the large volume of available local film and music titles.

My gut feeling is that this lack of progress in pure digital media is down to lack of competition, particularly in the carrier market. Telecoms companies are all state-owned and are effective monopolies. There’s also no cable TV or pay satellite industry to speak of, partially because sports rights are sold extremely cheaply to bring cultural benefit. There’s no shortage of investment money to provide these services and create great digital businesses, there just isn’t incentive. Right now it feels like it’s sufficient to stick to monetising traditional media through traditional channels.

That will be fine for a regional Arabic content economy, but I fear it will inhibit the growth of an export-led economy for the foreseeable future.

Closing thoughts

I was left pretty fascinated by what I saw in Dubai. On one hand, I had some wonderfully stimulating conversations with smart, switched on people, who were hungry for ideas on how to grow their businesses. On the other I sensed inertia caused, curiously enough, by too much capital availability and creative constraint in the media and not enough competition in telecoms.

Putting aside the creative issue, my view is that to be successful in digital media you need to monetise in lots of small ways as a value-generating complement to traditional. If you have billions in the bank, the few hundreds of thousands you can make in the first year of a digital content product don’t seem worthwhile, so people don’t focus sufficiently on it to make it a success.

But as we all know, the rate at which digital Acorns grow into digital Instagrams is quite tremendous. If it doesn’t find a way around this problem, then the Arabic content market will fall ever further behind its international competitors.

Friday, 11 May 2012

What I've been reading this week

I’m of the belief that participants in the TMT industry need to read widely in order to understand the present and future dynamics of the market. To that end, this post is a collection of the articles that have caught my eye.

This week: Moneybull transforms milk production, Kim jams GPS, Apple Targets Amazon and the World’s longest infographic charts the apocalypse

Digital media

Comscore report a sixth successive quarter of US e-commerce growth. The size of that market is now about $44Bn a quarter or roughly 3% of total consumer spending (versus 11% for the UK). What’s most interesting is that kiosk-based DVD and Blu-Ray rental and media streaming services are one of the prime drivers of this increase and of general consumer spending growth (which is c.0.3%). That’s despite falling spending average salaries (down 0.3%).

This article is about how Japanese legislators may ban “Kompu Gacha” games that require users to collect virtual items in a mobile game to be in with a chance of winning a large prize. I worry that the global gaming industry could fall foul of similar legal issues if they don’t self-regulate to some degree...

...Even so, the game’s publisher – Dena – just announced record profits.

Big data applied to dairy cows. Apparently it’s transforming the industry. Personally, this sounds rather more like Moneyball for cows... or should that be MoneyBull? Yes, I do requests...

Mobile will be the death of Facebook and it’s “appstore on an appstore” won’t help one jot. What it needs to do is create its own (Amazon-aping) take on Android fast. Or its dead. It think: dead...

...but not today and not in South East Asia, where it added about 20Mn users in the last 6 months. Most of them using mobile, I should imagine.

Traditional media doesn’t have Facebook’s problems. US TV advertising spending increased 4.4% in 2011, to nearly $72Bn. Impressive for a “dying medium”.

TV is bouncing back in the minds of agency buyers. This survey suggests that an increasing proportion are focusing on TV as their brand media.

Emerging markets

Netflix has a great opportunity in Latam, MEA and to a lesser extent India, provided it’s paying a sensible amount for content. What I’ve heard about these deals suggests that in their land grab phase they’re rather over-paying, which could be an albatross round their neck in future if content providers decide to pull the plug on lower terms.

Facebook is huge in some Latam markets, so now Twitter is getting in on the act with a new mobile version ready for low bandwidth users. Neat.


North Korea has begun blanket jamming of GPS, interference that has leaked over the border into South Korea. Whether this is simple paranoia or sabre rattling is open for debate. To be honest though, if the US really wants rid of North Korea’s almost certainly apocryphal nuclear “arsenal”, then it has other methods. B2 “Spirit” bombers with laser guided ordnance being one very obvious alternative. Military aside, it’s interesting how even airliners aren’t overly bothered by North Korean “tech”.

Anonymous strikes again. This time Virgin Media demonstrates how vulnerable even company’s whose role it is to provide secure access to the Internet are incapable of protecting themselves.

Partly because of the above attacks, we take another step towards a more policed, bordered Internet with the launch of .secure domain names, which the owners suggest will require much tighter security policies to operate.

New technology

Apple-esque touch technology can now be applied to all sorts of objects. Like door knobs. Useful.

Superpower politics

Rumour is that Apple exerted pressure on Target to force them to stop selling Kindle. The most interesting effect of this could be in gifting, which for the Kindle and Fire are possibly somewhat impulse based. If you go online to buy, you’ll probably find something the recipient actually wants. I’ll watch next quarter’s sales figures with interest.

Apple is going to be a terrifying competitor in business devices. Here’s a great article about the fastidious way in which they document how businesses are benefiting from iPad.

Some insider gossip on the specs of next year’s Playstation 4. This will be an important device in the evolution of TV as well as gaming as I expect it to offer 4K natively, providing a source for the TVs that will start to come to market towards the end of the year. The rest of the article is a bit unlikely – I’d expect the PS4 to ship with more horsepower than that described in the article.

Just for fun

This isn’t fun and it isn’t TMT and it is fascinating - an extra-long infographic charting the terrifying killing power of nuclear weapons. The largest ever detonated – the Soviet Union’s “Tsar Bomba” – produced a fireball 5-miles in diameter that reached over 6 miles into the sky. From 100km away, the heat could still give you third degree burns. Windows were broken 900km away. Although no more like it were made, the US and Russia still have nearly 5,000 active warheads between them, each of yield up to about 500kT, plus about 5,000 each in reserve, ready for a rainy day. There are six other nuclear armed states. I find it sobering to remember that even in an increasingly sophisticated world, we live minutes away from Armageddon.

Wednesday, 9 May 2012

How a big business can act like a small business

A common concern my clients express is how a large business with its engrained culture and rigorous risk processes can compete with fast-moving start ups. The latter are unimpeded by the organisational strata that come with scale and therefore can act fast to access market opportunities. They are also unimpeded by incumbency and therefore are free to disrupt your business with impunity.

In my experience, the reason behind the lack of organisational agility that is at the root of the problem is based on how personal risk and reward is calculated in a business. It is also rather soluble, provided that underlying psychology is understood.

Managers in a start-up actually have it rather hard. If they don’t hit their targets then after a very short time they won’t be able to pay the wages. Cash flow is a key challenge for most start-ups, even those that are comparatively well funded. What this challenge breeds is an institutional attitude that they must rapidly seek out the “low hanging fruit” commercially and an acute sense for when they’ve found them.

Most Managers in more established businesses are also incentivised to generate short term profits, but for different reasons. Their bonus, compensation and progression depends on it.

This is a good thing as an operational focus too far in the future leads to a lack of pressure to create value tactically in the market and hence to generate cash. But for the whole business it can lead to a lack of growth because investment in new product development, advertising or process improvement hit the bottom line before they create improvements in the top line.

This incentive model means that taking risks with new products or business models to achieve organic growth means taking personal risk. So a good idea is often dismissed early on because it’s too risky to expend resources that could be used for short term gain for strategic advantage.

That’s not to say that Managers don’t have ideas. They probably have lots. But they never make it past the personal risk/ reward test.

One way to get around this is to have a growth fund at CEO level that can be used to fund or part-fund an operating unit’s growth initiatives. Managers pitch ideas for this growth investment and the CEO chooses which to fund. Many inorganic growth initiatives start in this way, so why shouldn’t organic growth?

And this method should lead to more growth ideas of better quality. Since the CEO is investing personally in this exercise, Managers have large incentives to submit ideas as it brings exposure and the opportunity to progress, as well as the simpler incentive of growing the P&L.

For the record, a similar arrangement was used by at Gillette by Jim Kilts during his tenure as CEO. The company’s revenues grew from $8.3Bn to nearly $10Bn during this period and became the dominant force in several categories before it was acquired by Procter and Gamble in 2005.

Any other similar examples, let me know! I quite like the idea and would be interested to see if anyone else has tried it.

Tuesday, 8 May 2012

April 2012 African telecoms investment - Land of Confusion

$322 million of new investment in African telecoms infrastructure was announced in April 2012 and an additional $2 billion was spent by France Telecom to increase their stake in Egyptian mobile operator Mobinil to 95%. 
But the month’s news was dominated by continued intervention by African governments into their telecoms markets. In Algeria, the wrangle between the Government and Vimpelcom over ownership of local mobile operator Djezzy ground on. Unable to easily get its way through compulsory purchase, the former has imposed $1.3 billion of fines on the Telco to attempt to force Vimpelcom’s hand over an asset that it now values at $6.5 billion.

The south and east of the continent fared no better. Here’s a few more stories:
  • In Tanzania it transpired that the Government owns 40% of Airtel’s subsidiary in the country and has no intention of selling;
  • Malawian telecoms regulator MACRA was fined $67 million for breach of contract over cancelled spectrum licenses;
  • Telkom South Africa was forced to cut broadband rates 30% and had its network build suspended by the regulator;
  • The Management of struggling incumbent Telkom Kenya was accused of not understanding the market by Government ministers; and
  • Glo, a prospective new mobile entrant in Ghana was told that it’d lose its license if it didn’t launch by next month. In fairness, it has been saying its “about to launch” since summer 2008!

 As I blogged about last month, this kind of distracting argument weakens the case for external investment in African telecoms markets and I believe ultimately slows national growth by reducing the capability of vital ICT capabilities. I totally understand the social and political need to find short term funding for projects, however taking this from the ICT market is foolhardy in the extreme if these countries wish to have functioning 21st Century economies.
It is little surprise that capital expenditure on telecoms in Brazil alone was greater than that that reported in the entire African continent. Brazil is hardly a paragon of regulatory and legislative transparency, but at least it’s reasonably predictable. Most African governments aren’t. They need to correct this if they are to modernise their economies.

Friday, 4 May 2012

What I've been reading this week

I’m of the belief that participants in the TMT industry need to read widely in order to understand the present and future dynamics of the market. To that end, this post is a collection of the articles that have caught my eye.

This week: consumers worry about the future, physicists worry about Moore’s Law, Red lays down own law in camera shootout, Dubai plans underwater hotel; Australian Titanic hopes not to join it.

Digital economy

People who “like” brands on Facebook are more likely to purchase from those brands. A great headline, but it looks to me that reasons they do so are that they’re already loyal customers...

...something that might become ever more important if the findings of this survey on the attitudes of consumers to progress manifest in their actual behaviour. According to this, young consumers are going to reduce their consumption, think the world is heading in the wrong direction and are worried that we’re all getting dumber (thanks to the Internet). Personally, I’ve definitely reduced my consumption, but I don’t necessarily think we’re collectively going the wrong way, it’s just that the pace of change is scary and difficult to comprehend.

US advertising spend grew again in 2011, with network TV leading the way – 7.7% YoY growth plays 2.2% overall. So much for its demise.

On the subject of advertising, Simulmedia just look another $6Mn in funding. I’m not a great believer in targeted TV advertising, however Simulmedia at least have a lateral take on the topic – they use a sample of audience data to find targets for unused inventory. Neat idea...

...but not as neat as Boxfish, a company whose technology uses the information in closed captions to improve the search functions in programme guides. Effectively you can now search for things you’re interested in within content, not just based on their programme guide entry. Smart.

Anything would be a better bet than Brighcove, the now-floated online video platform for brands and (no) broadcasters. Ten years from their launch they still haven’t turned a meaningful profit and all of the content owners of scale have their own (non-Brightcove) solutions that will impede the company’s growth. I’m not a fan.

Business models

Red are really shaking up the professional video camera industry. I wonder if any of their competitors will turn up for the “camera shoot out” they’re proposing?

An article about Nokia’s issues in emerging markets. I have to admit to be a bit surprised that Nokia haven’t managed to shore up some of these go-to-market problems as they seem well known an addressable.

Fascinating. Home entertainment revenues in the US are on the rise again after years of decline. I need to think about that one! Initial thought is that it represents a retreat of customers back to high quality products on high quality formats.
 New technology

Moore’s Law was originally about transistor counts, although nowadays it gets used to illustrate the progression of all kinds of other technology. The linked video explains that it has only 10 years to run. What it doesn’t say is that there are other ways of increasing computing power on a chip – 3D arrangements, new materials and new architectures for a start. Computers will keep getting faster.

Samsung’s Galaxy S3 launch was a bit of a bust in my view. I have a Galaxy Nexus and to be honest it’s just too big for my hands – I personally can’t see the iPhone going up to that size in September, so I suspect Samsung might have shot itself in the foot on this one.

There was good mobile technology news this week though as the US broadcasters have finally been satisfied that white space radio technology won’t interfere with their broadcasts. This decision paves the way for a generation of super-fast, super-wide area networking. Very exciting!

Finally, someone’s building an underwater hotel. Stingray, here I come...


Text spam is a growing problem in the UK too as the cost of a message is effectively zero. Current means of interdicting it (read: legal action against the sender) only work against legitimate companies. This report is about the US, where 4.5Bn spam texts were sent last year.

Emerging markets

Self-evident, but advertising growth in BRIC will outpace the global average as more companies seek to get their share of growing consumer wallets.

A great article about how the US government preaches an open Internet, but simultaneously allows companies to sell DPI technology designed for closing it off to regimes that would rather like to do just that.

Superpower politics

Microsoft’s investment in Nook is a smart one, despite the obvious issues with the device itself running Android! MS are too late to the table to launch their own e-reader and content ecosystem so it makes sense to get into the only one that doesn’t belong to a competitor.

Just for fun

Some pretty cool images of New York from the 1980s. Interesting retro design on show.

Fools and their money... an Australian billionaire wants to build a replica Titanic. I’ll only go if Kate Winslet doesn’t...

Tuesday, 1 May 2012

A response to Jimmy Wales

If you listen to Jimmy Wales, then traditional media is dead. Consumers in 2012 want their media to be more interactive, more social. They want to choose what they consume and when they consume it. The safe, constrained world of the schedule and page layout is just so 20th Century. So long traditional media and thanks for the memories. If I get sentimental, I’ll access them anytime, anywhere I want them.

Yet traditional media endures. TV viewing hours are up 4% YoY in the UK. Print advertising not only has more impact on consumers than online, but its advantage is actually increasing.

Why? Because media is a social experience, something best enjoyed together. It gives us something to discuss, to debate and when things get too much, to escape with. Nearly two-thirds of us discuss TV shows with friends or colleagues at least once a week, nearly half of us will discuss what we’ve read in the news and a third chat about books.

On-demand services are uncompromising, individual experiences. They are like putting your headphones on and not talking to anyone.

I’m not down on social and on-demand. Thanks to Facebook, Twitter et al, I can have all the enjoyment of my water cooler conversation from the comfort of my sofa. Social networks are amazing content extenders in this regard. The fastest growing activity people do while they watch TV is updating social media. And on-demand, multiplatform content means that I’m never bored on the commute or missing an important football match.

But I’d rather be watching on the TV, or reading about it in print.

In short, the online and broadcast formats are symbiotic. Without traditional media as a means for discovery there’d be nothing to extend and nothing to talk about. If traditional is dead, then new media is going down with it.