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.

ETS - Can Tiawi Point Survive?

The implementation of the Emissions Trading Scheme (ETS) may will impact deeply on heavy industry in New Zealand. Rio Tinto, the owner of Tiwai Point aluminium smelter, said on Tuesday that hundreds of jobs could be lost if ETS requirements mean that Tiwai is longer the most cost competitive location.

It is a difficult situation and Rio Tinto's moves could even be considered as holding the government to ransom as they suggest a double standard by seeking to be excluded from the scheme. The government has proposed a concession of tax credits to the same value of carbon but this will be phased out by 2030. Rio Tinto say that this is not enough and that they need the tax credits until other countries face the same carbon treatment. So are we about to see another large manufacturer shift offshore, just as Fisher & Paykel announced in April?

We all know that we need to reduce pollution and our emmissions and a recent study said that 71 percent of businesses believed that large polluters should pay. This is a very reasonable view as heavy industry are likely to produce higher proportional pollution, which means that if they reduced then the reduction on national emissions would be far greater.

Given this announcement I wonder what effect the ETS implmentation will have on Holcim's proposed concrete plant near Oamaru. They do have some information on climate change here that is probably propaganda but interesting none the less.

New Zealand, an early adopter of an ETS system, needs to weigh up what it can do to protect industry but also the environment. No easy challenge. The survival of Tiawi seems to be in the hands of the government.

Everything is online!

Earlier this month it was possible to download the 2005 income tax returns for the entire Italian population. You may think that this is an impossible misprint, like I did, but this is the truth! At first I thought the information must have been stolen but it was the tax authorities themselves who published these figures. When something as unbelievable as this happens we must delve into the history of the situation to see what events transpired to make this so.

In their defense the Italian government told the press that this information has been available to the public since the 1970’s as annual data is display in town halls around the country. Therefore the only change that I can see is the channel by which the information is disseminated to the public.

The moves of the tax department have angered Italians, with many seeking compensation. This fiasco demonstrates the speed and publicity that internet can create and if Google’s vision is to ring true then this may just be the start!

Google's mission is to organize the world's information and make it universally accessible and useful.

Indices - Useful comparision

It seems that prices are rising almost daily at the moment, especially diary and oil derived products. One may feel that that prices are rising but how do we know?

A price index measures how prices change. Most commonly prices are compared over time but they can also be used to compare prices between geographical regions. The most commonly referred to index is the consumer price index (CPI) which in New Zealand measures a basket of goods which make up typical household spending such as food, alcohol, clothing, household utilities, health, transport, communication, recreation and education among other things. For more detail see the Statistics New Zealand site.

An index is often 'normalized' which means the user does not need to concern themselves with the units that define the data within the index because it is always in percentage terms. An index is calculated from the base year, which is in effect time zero, meaning the index will show the change between now and that base year. If you would like to know how to calculate an index view this wikipedia example.

The scope of an index can be as narrow as the user defines, e.g you could have an index that measures the price of Central Otago apricots using the spot prices of the stone fruit over a number of years. You could define a productivity index within your business to measure how productivity is changing. You can use an index to measure the change in almost anything.

Are You Prepared to Change Your Brand?

After 60 years of hard work the New Zealand wine company Nobilo Wine Group is re-branding itself. After all that time and effort this could not have been an easy decision, but perhaps made easier by the fact that the Nobilo family sold out seven years ago.

Nobilo Wine Group, now Constellation New Zealand, owns a number of leading export wines including Kim Crawford, Nobilo, Monkey Bay, Selaks and Drylands. Chief executive Joe Stanton explained that the company was changing its strategy from a volume and sales orientation to one focused more on quality and premium positioning. This is understandable given current industry trends of increasing competition and increasing educated global wine consumers.

Stanton uses the term "free up" when referring to the effect the name change will have as it neutralises the impact that 'Nobilo' has on the wines in its product portfolio. Thus, their strategy will allow each wine to speak for itself.

Personally I think that this is a great move as even though it appears that all their hard work building the brand is worthless, it is not. Nobilo will still remain a standalone brand, as it currently is, and because each of the above mentioned brands are so strong Constellation New Zealand may take on the persona of a parent company with each brand as a strategic business child.

For the New Zealand wine industry to be successful it needs to build strong brands positioned in premium markets, Nobilo recognised this and acted. This idea of brand building is not foreign to the industry sustained, consistent, targeted effort is required.

Overall Nobilo has more to gain than it will loose therefore decision made.

You can expect many more posts on wine related issues as it forms the basis for my Master of Entrepreneurship thesis at Otago School of Business

Think Smarter, Not Harder

A couple of weeks ago I read an NBR article "Truckers see more costs ahead" [18/04/08] which outlines the cost disparity of road transport between New Zealand and Australia. Road transport is 103% more expensive in New Zealand than Australia! If that was not enough the government is looking to introduce new policies including an emissions trading scheme, the introduction of biofuels, and a shift to low-sulphur diesel. All these environmentally focused policies will increase costs even further.

Road Transport Forum chief executive Tony Friedlander said a proposal to increase the maximum payload from 44 to 50 tonnes to increase efficiency has been before the government for eight years. This increase could go some way to reduce the difference in price with Australia but more importantly decrease carbon emissions. A study has shown that this increase would be four times friendlier on the environment than a switch of New Zealand's fleet to biofuels. No alterations need to be made to the trucks as it is only the payload that is increased, and there will be no need to purchase more expensive biofuels.

So it seems there is a sensible, almost immediate solution to decreasing the carbon emissions of New Zealand's transport fleet yet the government is fixated on the 'silver bullet' that it thinks biofuels will provide. Why not increase the payload now and then introduce biofeuls when technology has made them more efficient. I thought that to save our planet we needed to act now? The current government thinks otherwise.

Clearer at the Coal Face

Information overload is an everyday occurrence which lead me to ask; Why do certain pieces of information stick better than others? There are many scientific variables at play here but these are far beyond the scope of this post. I think, although no great epiphany, seeing, hearing or experiencing something that you have learned or are interested in makes everything seem that bit more clearly.

On a flight to Auckland this week I read an NBR article "Be wary of the digital pundits' Web 2.0 vapourware" which discusses the dangers of focusing a marketing strategy on the next new web craze. For example, advertising on Facebook is not a silver bullet to get young people to buy your product. The authors suggest it is more likely to be successful as part of a wider web or digital strategy.

On the return flight I was sitting next to an individual with 20 years of experience in the broadcasting industry. She talked about the changes that she had experienced over her career and remembering the above article I asked her if they were communicating digitally. Indeed they were through utilising podcasts, banners, partner’s web sites and social networking sites such as Facebook and Bebo. This conversation was the closest I have been to the broadcasting coal face but hearing firsthand about their digital strategy after reading about it gave me clarity.

Over the summer I travelled with my girlfriend throughout Southeast Asia. We did not know very much about the countries that we were going to explore but we brought a few guide books and read them as we travelled. Everything became much clearer as we visited the palaces of Bangkok, ate bowls of Pho on the streets of Vietnam and visited the Killing Fields in the outskirts of Phenom Phen. The experience clarifies the written word.

Overall experiencing things helps make them memorable leaving an impression far deeper than any book, lesson or documentary. I will be finished my studies in the coming months and relish the chance to get to the coal face to clarify and strengthen my understanding of business.