Added Value Facebook IPO

Facebook, the most popularised social networking application, provides the foundations for A Small World. Its an exclusive, by invitation only, networking application for the rich and famous.

It is looking to launch an IPO to raise between $6 and $8 million dollars to fund growth, albeit at a much smaller rate that the social networking sites of the mass market. Given the current turmoil in financial markets and the credit crunch management decided to delay the European IPO instead focus on advertising revenue from the worlds most luxurious brands.

They believe that each of their current 265,000 members are worth more than the $300 (as proposed by mass market social networking sites), in terms of advertising spend, which gives an implied valuation of at least $78 million dollars. Who knows exactly how much it is worth and maybe we should all just sit tight and see what happens if and when Facebook launches an IPO?

Data Centre to Replace Tiawi Point?

I talked earlier this month about the impacts of the proposed ETS in "ETS - Can Tiwai Point Survive" which relates to some interesting articles I read today from The Economist about computer data centres. The link lies in the amount of power that each uses - it's comparable. So if Rio Tinto decides to leave maybe we can replace it with a data centre, just like the ones that power Google?

Down on the server farm explains that the rise of web based applications is increasing the amount of computing power required to run the world wide web. It is data centres at the other end of the fibre that will become increasing important as we embrace "cloud computing." Football sized warehouses filled with thousands of computers are needed and it may become a bit of a surprise as to the location of such structures.

As more and more servers and systems are required the more energy they will require. Thus energy is a major consideration when deciding on a server farm location because it must not only power the computers but cool them also. It is therefore understandable that geographic locations with cool climates are being investigated. Iceland may be an option? Maybe Bluff?

So Bluff maybe the right location, but how does it stack up against the ETS? At present, not as great as one would think. I have always thought of a web business as having a low impact on the environment but if current cloud computing trends hold some estimate that by 2020 its carbon footprint will be larger than aviation!

If you read my blog Think Smarter Not Harder you will be aware of the big impacts of relatively small increases in efficiency. Well the same is true here. It appears that companies that supply to data centres are playing on these estimates because guess what? They can provide a solution!

According to Buy our stuff, save the planet many servers are not running to capacity and those controlling them only have a vague idea what is happening on each computer. By increasing efficiency, through matching computer requirements and availability the estimated carbon footprint would be significantly smaller.

Skycity Divestiture of Non Core Assets

Corporate strategies change over time as internal and external forces act upon the firm. As strategies change the factors of production within the firm must change also. When this occurs it is likely that firms will sell off assets that do not contribute to the emerging strategic direction. The selling off of assets, for this reason, is often referred to as the divestiture of non core assets.

Yesterday the Dominion Post reported that Skycity was progressing through a deal to sell off its cinema division to an American firm, Reading Cinemas. Skycity, primarily a Casino and Hotel operator, acquired cinema assets as it moved towards a diversified entertainment portfolio. Since then Skycity have begun to distance themselves from this strategy to return their focus to the casino and hotel industry, its core competency, as the following remarks from New chief Nigel Morrison explain:

"There was good rational for acquiring those assets several years ago. But as the board has already recognised they are not a core asset for us. Going forward it does make sense to divest that business." NZ Herald

Although assets may become 'non core' it does not mean that they are unprofitable. So why then should they be sold?

In the long term, the corporate strategy is more likely to drive bottom line profitability than individual assets. The value generated from a corporate entity, or any business entity for that matter, is driven by the combination and application of assets towards the goals of the under riding strategy.

As the environment changes we must change in order to capture the opportunities around us.

Rob Fyfe at the Coal Face

A few weeks back I posted “Clearer From the Coal Face” and in today’s Sunday Star Times I read “Carrier Gets the Staff on Board” in which CEO Rob Fyfe describes his methods to increase customer awareness. To understand both his staff and their customers, once a month he spends a day a month working in overalls in the hanger or pouring tea on flights. He places a great deal of value on these experiences and as a result is better positioned than most CEO’s in terms of the needs and behaviours of his staff and their customers.

As economic times tighten understanding ones customers is of prime importance and can lay the foundations of a customer focused organization, which Air New Zealand sees as their competitive advantage.

It is clearer at the coal face and I just wonder how many coal faces I can visit?

Can China beat the duopoly?

As a New Zealander I am aware of the duopoly market every time I send a text or visit the supermarket. Defined as a market in which two firms dominate, duopoly markets around the world include Coca-Cola & Pepsi, Gillette & Schick, Moodies & S&P, and Airbus & Boeing.

The Economist article Flying the flag outlines the launch of Commercial Aircraft Corporation of China (CACC) by the Chinese government which, it hopes, will reduce the reliance on Airbus & Boeing for its national air transportation needs.

Who could blame them? Communist countries have always been blindly nationalistic and the Chinese prime minister announcement was in line with his launch statement:

“The Chinese people must use their own two hands and their wisdom to manufacture internationally competitive large aircraft. It is the will of the nation and all its people to have a Chinese large aircraft soar into the blue sky.”

There are predictions of double digit growth until 2012 when it will slow to 9 percent. Airbus predicts that they will need 2,800 new planes by 2026 ... what an opportunity! Will China be able to take on the aerospace duoploy and produce an aircraft that Chinese airlines will commit to?

Firstly, what does China know about the aircraft industry? The business model for aerospace industry mean Airbus & Boeing rely on a global supply chain, of which China has been a been a part of for the last 20 years, building their knowledge base ever since. Even though the distributed supply chain has caused delays for both major manufacturers their must be some well grounded arguments for both to switch to a global manufacturing process. So can new players compete?

Secondly, lets look at history to give context. The only successful emerging market producer of aircraft is Embraer from Brazil. It was a 30 year cash drain, and is just producing a competitive product after a long and troubled road. However, Embraer is the exception. Indonesia has tried but failed just like Japan. Question: How long is China's pipeline?

CACC inherited a 70 seat regional jet program from China's previous attempts which it hopes will be a starting point for its 200 seat rival to the Airbus 320 and Boeing 737. More recently Airbus also announced a joint venture with a Chinese firm, unsurprisingly associated with CACC, who see the transfer of knowledge as a cost of doing business in China.

Government subsidies could define the success of CACC and knowing this Boeing highlighted WTO rules which discourage market distorting subsidies. This raises an interesting point: Have Airbus or Boeing received such subsidies in the past?

Ultimately, to be successful, CACC needs to produce aircraft that airlines want. If Airbus or Boeing can provide a better offering to Chinese airlines then only extreme government intervention will produce a successful company to challenge the current duopoly.

Incremental Innovation

Austrian economist Joseph Schumpeter popularized creative destruction which has come to mean radical innovation. It comes as a great relief to me that we do not live in a world of constant creative destruction which could foster the haphazard evolution of our society. However, I am extremely pleased to be living in a world of constant incremental innovations, with creative destruction providing the spice of life.

Reading my RSS feeds I happened upon "A Need for speed: The path to a faster loading start sequence" from the Official Gmail Blog which delineated the process by which the Google team went about making incremental innovations to its Gmail service.

They tested and broke down the processes into its components (the flow of data between client and server) and thought about a different way of doing things, a more efficient way. As a result they managed to reduce the number of HTTP requests from 14-24 to 4. Well done!

The information technology space is characterized by creative destruction and incremental innovation. Let’s look at web-based email as a radical innovation. Hotmail was first, soon to be followed by countless imitations, all a little bit different but all utilizing a web-based model. Perhaps this creativity caused the destruction of client based applications, especially in the personal email space. So from the launch of Hotmail in 1997 incremental innovations have taken place to strengthen and develop the body of knowledge that supports web-based email systems.

As a regular user of such systems I have seen first-hand these changes, all of which have greatly increased my efficiency and ease of use. Incremental innovation may be subtle, even the blog points out that you may not notice the difference, but with each change comes room for another change until another creative destructive event occurs … exciting!

Come on stuff.co.nz, be positive!

I use Google Reader to keep up-to-date with headlines and RSS feeds and it was interesting to see the difference between the headlines regarding the Xero first year profit announcement today. The stuff.co.nz headline reads "Xero posts $4.3 million annual loss" where as the NBR released "Xero beats forecasts but receipts lower." Essentially both articles had all the same facts and figures so the only real difference between them was the writers opinion of Xero.

Personally I like the positive approach that NBR took on this headline which shows their attitude towards fostering business success in New Zealand, unlike Fairfax. Maybe they just don't like new things or its founder Rod Dury ... who knows? I know that from now on I'll be checking my NBR feeds long before any from stuff.co.nz because I like to be in a positive frame of mind.