When Bitcoin went public in 2009 it introduced to the world of finance and economics the technology of blockchain. Even the many who thought Bitcoin would never make it as a major currency were intrigued by the BlockChain technology and a large set of new companies have tried to figure out how to offer new services based on blockchain technology. It is still fair to say that very few economists and social scientists understand blockchain, and governments are even further behind.
I will argue that blockchain has no economic future in the regular economy. I will give you the bottom-line, then describe blockchain, discuss its key supposed advantages, and then take it apart as a viable technology by giving you a much more efficient alternative to the same market demand opportunities.
The bottom line for those not interested in the intricacies of blockchains and public trust
The essence of my argument is that a large country can organise a much more trustworthy information system than a distributed network using blockchain can, and at lower costs, meaning that any large economic role for blockchain is easily displaced by a cheaper and even larger national institution.
So in the 19th century, large private companies circulated their own money, in competition with towns and princedoms. In that competition, national governments won, as they will again now.
The reason that the tech community is investing in blockchain companies is partially because some are in love with the technicalities of blockchain, some hope to attract the same criminal and gullible element that Bitcoin has, some lack awareness of the evolution and reality of political systems, and some see a second-best opportunity not yet taken by others. But even in this brief period of missing-in-action governments, large companies will easily outperform blockchain communities on any mayor market. Except the criminal markets, which is hence the only real future of blockchain communities. Continue reading “Why Blockchain has no economic future”
The Australian startup ecosystem is growing too slowly, but existing firms are becoming more interested in innovation as a source of competitive advantage.
Australia performed poorly in the global startup ecosystem ranking 2015 which was published recently (http://goo.gl/UXcGcO). Sydney fell 4 spots and now ranks 16th in the world, while Melbourne fell entirely out of the top 20 despite being on that chart in the previous version of the report published three years ago. The study expresses concerns about the Australian ecosystem that echo those in other studies performed by academics as well as in the Australian Government’s Innovation System Report (http://goo.gl/kvQZhK). The 2014 AIS report sums it up nicely: “Australia performs relatively poorly on ‘new to market’ innovation”.
Yet on the ground, interest in innovation and startups has never been stronger than before in Australia. Compared to five years ago, we now have many more ‘meetup’ groups in Melbourne and Sydney for founders and entrepreneurs, a variety of incubators and accelerators, and a number of innovation-oriented programs at leading universities including Melbourne, UTS, Swinburne and QUT. There is strong interest in courses on “design thinking” and “lean startups”. MBS has our innovation bootcamp for MBA students, while the University of Melbourne now has an accelerator and is about to launch a new Masters in Entrepreneurship program. A growing number of entrepreneurs are contacting me to discuss new business models, market entry and how to protect their innovations. These will take time to bear fruit.
How do we reconcile the weak findings at the ecosystem level with growing interest at the ground level? Part of what’s happening is that other startups ecosystems are maturing faster than the one in Australia. Many ecosystems abroad have continued to enjoy stronger government support, better access to venture capital and closer industry-university linkages. The most successful ecosystems (including Silicon Valley, New York, Los Angeles, Boston, Tel Aviv) have continued to develop and reinforce a coherent system for connecting resources, talent, funding and market access. Here in Australia, we have bits and pieces that are good in each major city, and we also have specific firms and sectors that are incredibly innovative. But that distribution is uneven and the parties involved are not as seamlessly interconnected as they could be.
A second part of the explanation is due to the business environment in Australia. Given our small domestic market, many of our startup entrepreneurs will continue to sink at least one foot (if not both feet) into other ecosystems. This makes sense from the point of view of being close to market and expertise.
A big change however is the growing interest in innovation by existing firms. In recent years, incumbent firms in industries ranging from retail to energy, news and financial services have been jolted out of a comfortable (often monopolistic or duopolistic) existence due to the threat of entrants, both online and offline.
The embrace of innovation by Australian firms has taken a long time, partly due to the difficulty of changing the mindsets of senior executives who run these organizations. However, it is clear that in a variety of industries across the globe, the terms of competition have changed and Australia is no exception. In conversations with senior managers at Australian organizations, I am discovering a growing interest in innovative strategy, business transformation, ‘design thinking’ and ‘business model innovation’. These conversations often begin with a reactive or defensive tone reflecting a need to respond to market or technological threats. However at some organizations the discussions have begun to advance beyond that stage: managers at some firms start to view innovation as an opportunity to reconsider their existing ways of doing things, engage new stakeholders and to develop new capabilities.
In the short run, I see a good opportunity in helping existing Australian firms learn to innovate and become more agile and competitive. In the longer run, it would be nice to see the startup ecosystem flourish in Australia, but that is something that will take time and sustained effort.
Note: I was invited to write this article for the Melbourne Business School student newsletter. It is reprinted above, sightly edited.
The Amazon Kindle, Apple iPad and other e-readers are fast becoming mainstream and their usability has improved tremendously over the past years. However there is one area in which printed books are still much better: the ability to open multiple books at once. This might not matter if you are reading the latest “50 shades” novel and want to be uninterrupted. However, if you are working on a research project and constantly need to switch across multiple books, you will find that current eBook readers are a nightmare. Switching eBooks involves creating bookmarks, returning to a main menu (library page), going to another book and navigating it. This quickly becomes tedious. I cannot understand why tabbed browsing is absent from eBook software since it is rudimentary and exists in practically every web browser.
One solution is to buy multiple eBook readers and open one book per device. This turns out to work quite well. One might argue that the savings from not having to ship printed books will more than cover the cost of additional eBook readers. However it occurred to me recently that another solution exists: simply remove the DRM from your existing books. This is really easy to do. You can then manage your books using software like calibre, which allows multiple eBooks to be opened at the same time. On a fast computer with a large screen, this is a liberating experience! A 27″ or 30″ screen is sufficient to give me as good an experience as with 3-4 printed books. You can even do things that you cannot with regular books (without mutilating them) such as opening multiple instances of the same book for quick cross-referencing across different sections. If you take the extra step and export your library into pdf format, you then have the ability to manage, annotate and search your eBooks using software like Papers 2, treating them just like any other pdf file and merging them with your collection of journal articles.
There are other benefits of unlocking DRM, including the ability to prevent vendor lock-in (e.g., read your Amazon ebooks using Apple iBooks), avoid arbitrary and unfair removal of your books, and to overcome silly device download limits. For some of us, opening multiple books at the same time is another big plus. I suspect that over time, eBook DRM will go away. We are at the stage of the eBook industry that we were at with music 10 years ago, when we had to rip music from our personal CD collections or the proprietary formats on iTunes and convert them into unlocked files that were more flexible. Today music is sold unlocked and I don’t see why it should end up otherwise with eBooks.
(ps: yes I know eBooks are licensed, not sold, but lets save that for another discussion).
Blue Ocean strategies promise to break the tradeoff between costs and willingness to pay. But they don’t really. The tools offered by the blue ocean approach are useful such as the strategy canvas and ERRC framework, but irrespective of whether your ocean is blue, red or some other colour.
Yesterday my MBA students and I discussed “Blue Ocean Strategy”, a popular book on strategic management by Kim and Mauborgne. A good thing about the book is that it encourages managers to be innovative and to pursue new markets rather than competing in highly competitive existing arenas, i.e., playing in “blue oceans” instead of “red oceans”. According to the authors, this way of thinking has served well for companies like Cirque du Soleil, Nintendo and Casella, an Australian firm that has succeeded in selling easy-to-drink wine in the US. Managers are encouraged to use the Strategy Canvas as an organizing framework (see here for an example). This encourages managers to ask themselves whether their products and services are really distinct after all, and along what dimensions they actually differ from the competition.
So far so good. But the problem is that in their enthusiasm, Kim and Mauborgne go on to make a tantalizing claim that the blue ocean approach allows you to break the tradeoff between pursuing differentiation and low costs. This puts them at odds with many leadingstrategytextbooks, which argue that it is often difficult for firms to increase consumer “willingness to pay” (WTP) while simultaneously reducing cost, all else being equal. You usually have to spend money on R&D, marketing and better execution in order to increase WTP. The “blue ocean” claim leads to all sorts of confusion among MBA students.
Does the blue ocean approach actually offer a silver bullet? Unfortunately not. The truth lies in the details. For a blue ocean strategy to work, you aren’t just supposed to add new activities that increase willingness to pay. You are also supposed to look for opportunities to eliminate or reduce others in order to cut costs. This is presented as the “ERRC” framework (pg 35 of the book) which asks managers to raise and create new dimensions for their product/service, while eliminating or reducing others. For example, Cirque du Soleil increased willingness to pay by introducing broadway-style themes, artistic music and dance, and better stage lighting to their productions. Meanwhile they reduced costs by eliminating animal shows and star performers, both of which are expensive cost components for a circus.
From the above it should be apparent that you still face a tradeoff between costs and willingness to pay. But you are just avoiding it by removing some of the costly activities. In other words, it isn’t the case that all else is equal. If Cirque du Soleil were able to offer all the new features in addition to having animals and circus stars (but at no marginal cost), then it would be legitimate to make a claim that the cost-WTP tradeoff had been broken. But fundamentally this tradeoff remains, and while the exciting new features enabled Cirque du Soleil to differentiate themselves from ordinary circuses and to increase ticket prices, the removal of animal shows and star performers inevitably meant that some customers who valued those things were now less willing to pay for a show.
Overall, the strategy map and blue ocean approach are useful because they encourage managers to think outside the box when looking for new competitive opportunities. But personally I find the distinction between blue and red oceans somewhat forced, especially when you realize that a firm produces multiple products, and these are likely to fall along a spectrum ranging from red to blue and beyond. So while the Nintendo Wii was blue ocean in approach, other Nintendo products at that time such as the DS were clearly not. In a fundamental sense, increasing WTP and reducing costs are complementary (Athey & Schmutzler, 1995). Hence, finding new and innovative opportunities to increase WTP and reduce costs should be something a manager ought to do anyways, regardless of whether their ocean is blue, red, purple or some other colour.
I’m finally getting back to blogging after spending a couple of months traveling then catching up with work. This week I was invited to speak at a “guru forum” of managers and academics who work in information technology. Among the many issues that were discussed, two conflicting trends were identified. On the one hand many corporate organizations are moving towards cloud services and all-in-one outsourced solutions (Oracle, SAP, IBM, …). On the other hand individuals are moving towards a “bring your own” model, bringing their own computers, e-books, cellphones, iPads and other devices to their workplaces. With the advent of smartphones and social media platforms such as Facebook, computing is becoming more consumer-centric and primarily a means for social interaction, rather than just a tool for specific tasks like word precessing and accounting.
These opposing trends create a disconnect at the workplace between the ability of firms to manage and control information (especially proprietary information) versus the desire to give employees flexibility and freedom in choosing the tools they really want to use. My view is that the trend towards consumer-centric computing will dominate the other paradigm. There is no turning back the preferences of modern information workers who grew up with their iPads, Android phones and Kindles. Companies should embrace rather than fight the trend.
How do we solve this “me versus you” problem? i.e., organizing information on multiple devices in a way that separates private from work and other shared information in an easy but manageable way? Existing solutions are unsatisfactory because they do not adapt to the different and changing contexts that individuals find themselves in. Companies like Apple, SAP and Oracle take a fully integrated approach, allowing you to run everything on their software and leveraging their own cloud solutions, treating each device as a client. Bringing this to the extreme, you can run entire virtual machines from your own device with everything hosted on the service provider, such as via Amazon S3 or OnLive. Unfortunately this is often an all-or-nothing proposition, so while it creates separate contexts, the operation across contexts is not seamless. You’re basically running separate computers (or syncing to separate clouds) from within your own device, and it is slow and clunky to inter-operate between them.
In contrast, other firms like Dropbox provide services that integrate into your existing applications and folders, but end up being highly fragmented especially when it comes to setting permissions and giving access. Each application and each collaborator needs to be authenticated, so coordination can be a hassle. This week my colleague tried to set up a shared Dropbox folder for the faculty members at our school, and it seemed a lot more of a hassle than it needed to be, especially the bit about inviting each user and trying to get them to actually sign up to the Dropbox cloud.
The good news is that the solution of the “me versus you” problem is closer at hand than many might think. The architecture for such a solution already exists in products like Google Circles and VMware but is not yet pervasive. Here’s an example of what one such solution might look like. At present most operating systems support multiple workspaces, but for now they are all tied to the same set of permissions and applications. Well, imagine a future in which each workspace on your device is authenticated to different sets of applications and clouds. For example, your device could include a personal workspace that authenticates to Apple and Dropbox and which contains your personal files, apps and Facebook page. A second workspace could authenticate to your office, with the IT system at your office determining what apps and cloud services are made available and which of these you can transfer across workspaces. A third workspace could be one created by your friend so that when you visit her house, her workspace would appear along with some of the data and services from her home network that your friend is willing to share with you.
A small number of us already have something close to this setup running on our computers by using multiple virtual machines that are active simultaneously. But it isn’t the same thing. I’m thinking of something with much more integration than is available in existing virtual machines and with much less of the “heavy machinery” that is needed to support multiple operating systems on the same machine (the action is in the data and apps, not in the operating system itself anymore). I also have in mind something more dynamic, for example with the ability to seamlessly add or remove workspaces when the context around a person changes. In the example above, if your friend defines a workspace that is shared with you when you visit her, that workspace should actually exist in a virtual sense, and it should slide on and off your various devices in a consistent manner including your smartphone, iPad and notebook computer.
Granted, the ideal solution in my head might be a bit far-fetched. However I suspect it will become prevalent in the next several years. I don’t know what it would cost in terms of implementation and adoption. However, the fundamental issues are of great concern among industry practitioners such at those attending the IT Guru forum, so I suspect that over the next few years entrepreneurial firms will end up exploring solutions and frameworks along these lines.
Several months ago I wrote about a public forum we organized on the future of book publishing. Our panelists included Piers Pickard (Editorial Director at Lonely Planet), Graeme Connelly (CEO of Melbourne University Bookstore), Nathan Hollier (Manager at Monash University Press), Max Barry (independent author) and Emmett Stinson (Melbourne University lecturer in publishing and communications). Since then, dramatic changes have occurred. Lonely Planet has reorganised while moving aggressively into apps and digital publishing. Amazon has entered the publishing business, bypassing traditional publishers. Books have gotten shorter with efforts like Amazon’s Kindle Singles and TEDBooks being particularly interesting. Closer to home, Melbourne University Bookstore will be privatised soon. So, I decided to spend some time during the weekend editing the video from our public discussion. The podcast is now online. Please follow the link and watch it if you are interested in book publishing.
Bruno Cassiman and Don O’Sullivan presented several months back on R&D strategy and executive compensation, respectively. Bruno’s talk was on how collaboration on research and development (through open innovation and science linkages) can dramatically affect R&D outcomes. Don spoke on how the structure of executive compensation relates to the valuation of intangible assets.
Thanks to each speaker for allowing us to share their presentations online.