Category Archives: 经济 | economics | 경제학

Barbarians in the valley

Over the space of one life time the below San Francisco around the Santa Clara valley went from apricot farms and orchards to urban development based around hardware (the silicon in silicon valley) and then on to campus design sites preferred by software companies.

At the time of the PC revolution was kicking in, which gave use the consumer side of consumer technology we live with today like iPhones and the MacBook Pro this post is written on.

Over the space of this time, it wasn’t only the landscape that changed but the way we work and entrepreneurship was rewarded. There were decades of unparalleled economic growth driven by companies firstly in hardware, then software and finally in networking and communications – the internet.
Reagan_et_Thatcher
During the early 1980s, America had Ronald Reagan as president. The manufacturing industry that had driven post-war prosperity in the country was suffering from global competition and businesses were under attack. This was the golden age of the corporate raider who destroyed businesses in the name of shareholder value. Carl Icahn was considered responsible for the bankruptcy of Trans-World Airlines (TWA).

By comparison Silicon Valley was in a spate of explosive growth. Computers and software were changing the way business operated. Spreadsheet software enabled the kind of models required for corporate raids on main street. Apple, Adobe and Aldus came up with the different components required for desktop publishing revolutionising design in the process.
The fall of the Berlin Wall - November 1989
The cold war ended and the Berlin Wall came down, corporate raiding ran out of steam as corporate lawyers began to construct effective barriers on behalf of besieged companies. Silicon Valley started a move away from ‘hard’ innovation to the soft innovation of gadgets, software and services. But that was fine, there where other places in the world who wanted to make the hardware components because of the jobs and wealth it created. The modern internet started to be built on Sun and Silicon Graphics servers connected with Cisco routers. The web was designed on the same Apple Macs that designed brochures.  Technology companies became media companies, retailers and super-fast courier companies. Wired magazine talked about the ‘new economy’.

The industry was also riding on a one-time offer. Older computers that now ran the modern world had a ‘millennium’ or Y2K bug, which was a bonanza for business IT companies. A dot com bust dampened enthusiasm, cleared out some of the more egregious business models.  Out of the fire sales of Aeron chairs and Cisco Catalyst series routers paired with cheaper broadband came web 2.0 – where the web became a platform rather than just a catalogue.

For many of the previous businesses in Silicon Valley growth slowed. Most business software looked like a solution looking for a problem. High-performance hardware could be cheaply replaced with more commodity priced boxes. Eventually for many people’s needs, hardware became a service that could be rented according to need. Business models were disrupted, sales dried up, licences weren’t renewed and advertising sales dried up.

Enterprise software companies were hoovered up by private equity firms eager to leverage their steady cashflows to service debt from further transactions.

Businesses like IBM and Nokia look like the TWA or Goodyear Tire and Rubber Company in the 1980s. The story of Yahoo! over the past six years looks like one corporate raider greenmail scam after another. Jerry Yang who has recently started to see his reputation rehabilitated was turned out of the company he founded by shareholders influenced by Microsoft and Carl Icahn. The subsequent replacement Carol Bartz supervised over a spectacular desstruction in value at the company. Current CEO Marissa Mayer, like her peers at Apple and IBM faces constant corporate raideresque behaviour to leverage up and return money to shareholders as part of a share buyback.

Microsoft who seemed to have used corporate raiders against its foes like Yahoo! now has activist shareholders on its board and is being forced to rejig its own business.

Just what is going on?

I think it it down to a confluence of different factors:

  • Technology has had a spectacular growth spurt in Silicon Valley but the growth has spread beyond the valley. Huawei is arguably one of the most important companies in telecommunications and internet infrastructure now. Just over two decades ago it was a small business selling secondhand company switchboards to the new businesses springing up in Shenzhen. Zhengfei Ren moved from selling equipment he sourced in Hong Kong to manufacturing it himself. Now the company makes everything from core network switches and submarine cables to smartphones, tablets and wearables. Shenzhen is full of companies like Huawei – some more successful than others. The most powerful names in silicon are also Asian companies TSMC and Samsung Electronics play a key role in the manufacture of non-PC style computers: phones, tablets and even televisions. It is often easier to name products that aren’t becoming ‘smart’ in some way
  • There isn’t the same willingness in the US to fund start-ups looking at smart innovation, instead the focus is on areas like social applications. Technology industry veteran Judy Estrin identified this as a key problem in her 2008 book Closing the Innovation Gap: Reigniting the Spark of Creativity in a Global Economy. There are serious technology challenges available that need to be addressed: the break down of Moore’s Law in semiconductor manufacture, commercially viable nuclear power and quantum computing to name but three
  • The technology has been demystified and is yet another industry. There isn’t that much difference between LVMH and Apple or Caterpillar and Oracle. Software as a service moved the buying decision on a number of products from the IT manager to the marketing manager or department head. Cheaper smartphones saw the rise of bring your own device (BYOD) policies. I sat in an old warehouse turned conference centre last week when Will.i.am announced off the stage that ‘Designing hardware isn’t hard, filling Wembley stadium, that’s hard’. Eco-systems from OEMs to Kickstarter have democratised and demystified technology businesses. And with this familiarity has come at least some contempt

More information
Closing the Innovation Gap: Reigniting the Spark of Creativity in a Global Economy
Finding Alibaba: How Jerry Yang Made The Most Lucrative Bet In Silicon Valley History | Forbes
Yahoo Stock Crashes As Alibaba IPOs – Business Insider
Marissa Mayer’s day of reckoning at Yahoo is rapidly approaching | Quartz
BlockBuster: Lyme Regis Sues Icahn, Accuses Sabotage – Barrons.com
Carl Icahn 2.0: an icon of ’80s greed is back to shake up Silicon Valley | The Verge – 2 words: TWA, Yahoo!

America looks to 2024 – research

Consumers in general aren’t the greatest predictors of the future but this research by pollsters PSB makes for interesting reading. An America that sees itself declining in economic and infrastructure terms over the next ten years, but sees the country taking a more progressive stance on moral issues.

The country poses opportunities for lobbyists with a disenfranchised electorate that has no expectations of their politicians achieving anything – leaving them free to pursue the agendas they are lobbied about.

It is an America resigned to low-or-no growth and children who expect to do worse than their parents – something unheralded in modern American history.

Eight trends for the future: Prosumption realised

The idea of consumers being the producers, or at least being part of the process within a modern industrial context was envisioned back in 1970 with Alvin Toffler’s book Future Shock. Toffler was influence by technological  as consumers started to be more involved in the delivery of their own services and products.

The first ATM machine appeared at the beginning of the 1960s and  started to be rolled out seriously in the late 1960s, this revolutionised access to money which previously relied on counter service to access their money.

The ability to make phone calls without operator intervention was technically possible since the early 1900s but it was a leap forward in electronics that saw a surge in the widespread adoption of automatic telephone switches by the likes of Western Electric, Northern Telecom and Ericsson.

The internet has extended it further, from companies delegating services to us:

  • Printing your own bill
  • Arranging you own payments to other people
  • Answering customer service questions on a brand’s behalf (Get Satisfaction, GiffGaff)

Even the job of product manager and financier has been moved over to the consumer.  Businesses like Threadless used consumer votes to decide which t-shirt designs they then manufactured and sold to those who showed interest.

Crowdsourcing platforms built on top of Salesforce are used by major corporates like Dell and Starbucks to filter new product ideas and service improvements. Crowdsourcing has been taken further with the likes of Kickstarter, Indiegogo and Demohour which allow the consumer to fund the manufacture of their product upfront. Something that Jolla copied on its own website when it launched it’s first handset.

Even marketing has been outsourced services like Buddy Bounce have the potential for fans to be a largely self-organising marketing organisation. At the moment you can see the way One Direction fans use social media to rally around their band.

More information
Eight trends for the future
Eight trends for the future: digital interruption
Eight trends: Immersive as well as interactive experiences
Eight trends for the future: Social hygiene
Eight trends for the future: contextual technology
Eight trends for the future: Brands as online tribes
Eight trends for the future | Divergence

Flash data on UK online Christmas portends poor numbers?

Earlier in the month I saw numbers that indicated that the savings of UK consumers dipped to their lowest level in forty years.
UK-Christmas-Graph-2013-Computop
So I found this information about smaller e-commerce sales in the UK during December. The smaller volume but better basket value could be indicative of a professional e-tailing marketers. What if, those savings weren’t spent on material goods but instead Christmas groceries? It indicates things are worse than the economic figures make out.

More information
UK Online Sales Slowdown For Christmas Whilst Eurozone Sees Significant Expansion According to Computop

Observations from the UK: austere Christmas advertisements

I must be one of the very few people who didn’t pay much attention to this year’s John Lewis advert until I had a chat with my friend Ian Wood. Ian pointed out that lack of overt consumerism in terms of the number of presents shown in the advert and considered it to be in-tune with a more austere consumer environment, the underlying form being you’re only going to get one present this year, make it a decent one. I had a look at economic indicators versus consumerism in John Lewis adverts pretty soon after I had that discussion with Ian.

Food and family appeared in spade in the adverts, but presents not so much. The closest you had to it was Cadbury’s who wrapped an entire street and the people who lived there then enjoyed each others company and the joy of tearing the wrapping off. When Christmas does come it seems that it will be at a high cost to the economic health of the British consumer; disconcertingly there were reports that savings had hit their lowest point in 40 years for the UK in November as consumers dipped in to fund Christmas.

Other posts in this series
Observations from the UK: Pay-day loans, pay-day backlash