Month: January 2019

Many years ago, when I was an active private pilot, I decided to honor the 100th anniversary of the Wright brothers’ first flight at Kitty Hawk by taking my plane up for a quick morning flight before going to work. As I was turning in for the landing I remember looking over to the left a few miles away at the 3 runways and the massive infrastructure of Singapore’s Changi Airport (I was flying out of a little airport called Seletar) and wondering if the Wright brothers ever imagined all that aviation would become.

Sometimes, when I read about relatively new developments – like blockchain or AI, for instance – and pundits making predictions about how they will disrupt this, that or the other, I find myself thinking back to Kitty Hawk, December 17, 1903. Eleven years later we’d figured out how to use planes to drop bombs and fight with other people (yay, congratulations, humanity!). About 30 years later the first tiny hints of commercial aviation were in place, but it really took about 50 years for aviation to become a common global phenomenon. My father went to the US to do a PHD and his journey in both directions was on a steamer – 3 months on the way out and 1 on the way back, since in the interim the Suez canal had come into existence.

Undoubtedly, things move faster now than they did a century ago. I still think we’re a bit too eager to celebrate something as a successful disruption. Many of the things we make a big deal of go through many stages before settling down and becoming a truly new way of doing things (or a truly new thing to do).

Perhaps the best definition of a successful disruption is one that becomes such a way of life that we can’t imagine the time before it. Can you imagine a time before aviation? When it wasn’t possible to go wherever you liked and if you did go, you tended to stay there for the rest of your life? When you couldn’t sit in Shanghai and drink coffee made with beans from Colombia, eat salmon from Norway or beef from Kobe, Japan. The world was irrevocably changed by aviation and it’s really hard to even imagine what it was like before.

Can we imagine life before Uber? I can, I used to be able to stand on the street and hail a cab – no big deal. Can we imagine life before blockchain? Yep, we’re living it now. AI? Absolutely. Electric cars? Yeah… kinda – while China is an entire generation ahead of everyone else, most of the rest of the world is still on regular cars.

I’m not saying these innovations or technologies aren’t disruptive or important. They are, and they will potentially make the world a more productive and therefore, eventually, a better place. However, what worries me is too much hype too soon, because when we start believing the AI (or blockchain or what have you) revolution has already taken place, we stop thinking about how to really make use of it, what some of the barriers are, how to solve real problems with it.

I work at a consultancy called Ebiquity and a lot of the work we do begins with lots of people doing lots of data analysis. With AI driven analytics tools we could automate a huge amount of the analysis and discovery of findings to share with clients. We’d need perhaps only the top 10% of our people to then use that work in order to advice clients. (While we’re not planning to fire 90% of our people anytime soon we are looking at ways to drive efficiency and productivity).

I believe this will definitely happen in all industries that analyze data and build a consultative layer on top. However, what we’re seeing today is the initial experiments in this direction and what is imperative is that more and more companies do their own experimentation. If we sit on the sidelines and just produce handbooks on how something is going to revolutionize marketing (for instance) , but we haven’t figured out how to revolutionize the marketing consulting industry, then that’s laughable and sad at the same time. It’s not just marketing, let me hasten to add. I see post after post shared on social media by people who seem content to seek out buzzwords rather than do any real innovation or experimentation.

Is that what your organization is doing? Be careful, because when you’re all hype and no real action, that’s when you’re likely to be disrupted. Real change takes time and real effort – not just a powerpoint presentation to sell your clients or management on.

There’s been a lot of negative press about Apple’s revenue guidance and their future after their CEO connected their recent revenue shortfalls to the Chinese economy.

That prompted me to take a quick look at some of the tech giants of today – Amazon, Alphabet, Facebook and Apple to see which of them looked sturdy enough over the next few years. The only criterion going into this is examining their current sources of revenue and whether anything looks likely to threaten those key sources in the next few years.

(You could argue that Uber, Mobike and so on are also tech giants but given that none of them makes money yet or has gone public I’d argue that their success isn’t proven and they could be just a tech bubble, not a giant, so I’ve left them out. Also, to be honest, I don’t really see them as possessing any technological advantage so they’re not really tech companies, are they?)

Facebook

Facebook is an advertising business. The question that arises is, will clients stop advertising on Facebook, or at least reduce their dependence on it enough to significantly affect the business?

Two broad things could lead to such a situation:

1. A rapid change in Facebook (and associated social media) user statistics and losing a core audience to other media
2. Issues with data, measurement or effectiveness leading to advertisers abandoning Facebook

At this moment, Facebook’s broad user base with higher penetration in the younger age groups (18-29) makes it unlikely that they will become irrelevant to consumers in the next few years.

Also, despite the Cambridge Analytica scandal, neither consumers nor advertisers seem to be getting out of Facebook – although periodically problems around measurement crop up and create credibility issues for them. There are also some concerns with GDPR that a lot of Facebook targeting data will become unavailable, making it less valuable for advertisers, but at least at this moment this doesn’t seem to be happening. P&G’s much talked about exit from Facebook also doesn’t seem to have deterred their revenue growth, much of which comes from “performance marketing” campaigns where FB has some very strong metrics to win budgets with.

Overall, however, as a pure advertising business, FB competes with Alphabet and other media companies, so it is not exactly a blue ocean or greenfield venture any more.

Alphabet

Despite all their various experiments in other fields, Alphabet is, basically, Google. Google is, basically, all about advertising revenue. While the bulk of this revenue is attached to Google owned properties, the Google Network properties are also a noticeable proportion of the total.

What’s likely to happen in the future? Will advertisers walk away from Google? Or will enough consumers stop using it that it will become less attractive to advertisers?

Google has built an entire ecosystem consisting of their own killer apps – search, map, acquisitions like Youtube and a small thing called the Android OS that dominates mobile and creates an opportunity for them to be a dominant ad network around the world. On the one hand, it’s unlikely that any one development or trend could weaken all of that. However, there are always competitive OS’s coming up. There are murmurs of “better” search engines like Duck Duck Go. Unlike Facebook, Google has less of a hold on users since most people don’t store their historical data with them – yes, perhaps on Mail and Drive but that’s different than having generated several years worth of personal photos and posts on Facebook.

It is conceivable that over the years, individual players will compete with and pull ahead of Google, which would weaken it’s hold. Android OS is it’s strongest asset at the moment but we have seen that operating systems can be overtaken in time and there is no shortage of competitors in this arena.

Apple

Apple has a huge dependence on iPhones, followed to a smaller extent by other device sales.

Will consumers stop buying iPhones? We’re seeing in China that this is already happening. There are lots of reports around how Apple hasn’t had product innovation in a while now and are starting to imitate other phone makers instead.

All of which suggests that if they don’t find a way to innovate product or the business model soon, Apple could be in deep trouble in a very short time.

Amazon

Amazon’s business is built mainly on online retail revenue – both their own as well as 3rd party seller services. However, it’s interesting to see them constantly trying new things and growing them – physical retail and AWS being prime examples.

Will there come a time when being an online retailer and running Black Friday promotions doesn’t do the trick? Entirely possible, but it’s clear that Amazon is constantly thinking ahead and looking beyond just the world of online retail for the future. This is clearly a company that will be around and successful for a long time to come as they build revenue in new areas.

What’s the conclusion from all that? If you’ve succeeded by doing one thing and you’re still pretty untouchable at it, that’s great. If you’ve succeeded by doing one thing and are using, that success to fund more things that you’re good at, that’s great too. If you’ve succeeded by doing one thing but other people are catching up and you’re struggling to maintain your lead, then there may not be a lot of time left in which to reinvent yourself for the future.

(* I did consider Microsoft as one of the companies in the mix but the way they report their revenue by “Productivity and Business Processes, Intelligent Cloud and More Personal Computing” makes it hard to separate B2B, B2C, advertising revenue, hardware, software and service revenue streams.)

(** All the numbers quoted here are from company financial reports to be found online in the investor relations sections of their websites)

Remember the fable of the hare and the tortoise? Well, it doesn’t seem like VC’s or investors do any more.

Many years ago, when I worked at a cloud-based ad-delivery startup called eBUS, we were trying to raise money to fund an expansion into China – a relatively small sum, under a million dollars. The company was already several years old at the time, we’d proven the business model and had a business in ANZ and India that was making a small profit which would clearly grow over time.

We met with all the big name VC funds and their feedback, pretty consistently, was that they wanted to invest in something that had the possibility of being a billion dollar company, not in a B2B with a high probability of success but perhaps a ceiling of 50 million a year in revenue. What became clear to me was that a business that had even a 1% probability of the billion dollar revenue (and hence multibillion dollar valuation) was a far more attractive proposition than our mid-sized, highly likely to succeed business.

Eventually, we did raise more money from existing investors, make the foray into China, build a business across Asia and sell it to IMD, so it all worked out. However, those interactions with VC’s left me puzzling about why they follow the model they do – of making several investments in low probability bets, most of which fail, in the hope that one will come good and make up for all the rest. I’ve tended to be involved with B2B startups, mostly, and I’ve always found raising money from the regular VC crowd quite difficult, whereas every day in the news you hear about some startup somewhere raising huge sums in the tens or hundreds of millions of dollars, but in the same breath look at them making massive losses that will clearly burn through the investment in a relatively short time.

Here’s the problem with that model – throwing huge sums of money at unproven businesses delays learning about the flaws in the model. If Fail Fast is an important element of building startups, giving them the money to not realize they’re failing is a huge mistake. Take all the bike-share companies or ride-hail app companies, for instance – I don’t think any of them has worked out the economics of making a profit in the real world. If they realized that in the first 6 months and were forced to tweak and modify their pricing and model, they’d eventually get to a place where, instead of trying to provide hundreds of millions of consumers with an unrealistically cheap solution, they’d price for profit, serve a smaller market more viably and actually have a business that made sense. Giving them huge sums of money takes away the incentive to arrive at a model that works, often for several years, during which these startups buy consumers with investor money. At the end of that time, the business still doesn’t make sense and implodes, taking all the investor money with it.

The investors were the one who exarcerbated the problem in the first place, so I don’t really care about them. However, that money could have done so much good if it was spent elsewhere. Failed over-funded startups cost a lot, it’s just not immediately apparent who’s paying the price.

This is why it makes sense to pursue disruption from within, somewhat slower and steadier, but with the intent always being to explore new, sensible, viable business models and then scale up, not the other way around.