A US court has ruled that Google must hand over to Viacom its log of every person who has ever watched a video clip on YouTube. According to the BBC:

The log …. contains the log-in ID of users, the computer IP address (online identifier) and video file details. Viacom, which owns MTV and Paramount Pictures, has alleged that YouTube is guilty of massive copyright infringement. When it initiated legal action in March 2007 the firm said it had identified about 160,000 unauthorised clips of its programmes on the website, which had been viewed more than 1.5 billion times.

In general, I’m inclined towards Viacom’s side in the case, since Google will earn money from showing these clips, effectively getting a free ride on Viacom’s IP.  However, putting that to one side, this court ruling raises massive issues of personal privacy.  Why does the court or Viacom need to know who watched the clips?  Surely a simple count of video viewings would suffice, for the purposes of the claim?

The US Administration’s ever-greater surveillance and access powers (eg. copying your laptop files if you pass through US airport transit lounges) will be bolstered by this court ruling.  Yet the US risks losing a large part of the expanding global market for services delivered over the internet.  Already various governments insist that their records are only hosted and backed up “at home”.  Corporations and private citizens are likely to do so as well, if this intrusive trend continues.

Software-as-a-Service providers should consider how this might affect their architectures and delivery platforms. Separate data centres in every nation? What about multinational organisations? Tricky stuff to fix after the system goes live. Do you just give up on an international offering? Or will this stifle SaaS and the internet?

Maybe there’s an opportunity for offshore data centres in reputable countries where privacy is guaranteed, say on a similar level to the anti-money laundering  access which even Swiss banks have to concede.  You can’t go on fishing expeditions, you need justifiable cause to inspect the records, with privacy protected by the rule of law.

Or maybe the argument that “if you’ve done nothing to be ashamed of, you’ve got nothing to worry about” will mean most customers won’t worry about it, and this ever-increasing intrusion will just be accepted.

Meantime, here’s the #1 featured video on YouTube today.  Somehow it felt appropriate. Let’s hope it’s legal!

No, I don’t mean the opening line of a Beatles song; I’m referring to the 20th anniversary of the first Holway Report.  It’s an annual analysis of the UK software and computer  services (SCS) market published by industry analyst Richard Holway. In marking that anniversary, Holway drew our attention to the following:

• In 1988, the top ten players had 24% of the £2.5b market.  Today’s top ten have 50% of a £31.4 billion market.
• That’s a CAGR of 14% pa, but the current decade has seen only single digit annual growth (sometimes negative).
• Between 1986 and 1987, line charges (what we used to call data communications charges) grew by 29% to £340m – somewhat less than the £544m that DP departments (what we used to call IT departments) spent on paper!
• In 1988, listed SCS companies’ average P/E was 16.8 – similar to today, and way down on the frenzied levels of the various tech bubbles.
• Of the 50 quoted UK SCS companies in 1988, most have disappeared. Logica is the only ‘biggie’ remaining.

I expect you’d see a similar story in most countries.  Oh yes, and for disappointed Beatles fans, here’s a link to that song.

“If every company uses the same commodity information tools, they will have commodity productivity levels.“ That’s a quote from Alan Kay, a leading pioneer of what might be called 4G computing - eg. networked personal computers and object-oriented programming. He was talking to John Sviokla, who has written a thought-provoking short article “Commoditized Technology and Commoditized Results.”

There is a real dilemma. Do I use these feature-rich off-the-shelf solutions, which may keep me on a par with my competitors, or do I build something unique (and by implication slower to implement, much more expensive, and more likely to fail)? IT’s reputation for cost-overruns, under-delivery, late delivery and failed projects) even with packaged solutions) has meant that many firms do not allow their IT organisations much influence on true business strategy and development. Many firms spend most or all of their IT money on running fast to stay still, and begrudge even that.

There is plenty of blame to share around. Many business executives do not understand the difference between competitive advantage and competitive necessity. Sviokla himself shows this confusion, despite his article’s title:

For example, I was talking with the CIO of a multi-billion dollar military contractor… He reported … that … the typical engineer spent 30% of their time looking for information, and that 30% of their expenses were engineering salaries, which meant that 9% of their entire cost base was spent searching for information. Putting Google in would not help this problem because the firm’s data is not made up of web pages and typical documents. Despite this huge cost, they did not have a single person dedicated to creating customized search tools to drive increased productivity of their engineers.

It sounds like a prima facie case to make an IT investment, but this is a common productivity problem, not a source of long term competitive advantage. If they invest, they may reduce their costs and/or increase their time to do other things, but then so can anyone else.

Long-term competitive advantage comes from doing things or having things that other people will find hard to replicate. That usually means hard-to-get know-how, hard-to-replicate processes, hard-to-subvert relationships (brands, sales, channels, supply channels, etc.) or hard-to-obtain scarce resources (minerals, access rights, networks). Even new-age weightless businesses which started out with bright product/service ideas like Google, Ebay and TradeMe now owe a lot of their competitive advantage from having built hard-to-subvert relationships.

Business executives need to ask themselves the hard questions. What strategic difference will this IT project really make, versus other uses of our business investment budget? Is it a source of genuine competitive advantage, or a productivity advantage which may be duplicated eventually, or just catch-up, or even (and this one is really scary) not actually necessary at all?

Just one word of warning. Don’t fool yourselves that your so-called hard-to-replicate processes, know-how, relationships, and resources are really long term competitive advantages. I know one large international firm which fell for its own hype. They bet their business (and nearly lost it) on building a unique solution to a common requirement. Some of their core business processes were revolutionary in the 80s, and needed a home-built system which had outlived any technology or skills to run or maintain it. However, the old guard believed (wrongly) that they couldn’t get similar functionality from standard packages today. They argued that these systems were so fundamental to the firm’s processes that a massive bespoke redevelopment was justified, despite several advisers telling them otherwise. They wasted 5 years, many millions of dollars, and hobbled their ability to undertake any acquisitions at a time when their industry was undergoing massive consolidation. The company finally scrapped the project, heads rolled, and the firm adopted a system from one of its few acquisitions.

These are two subjects not normally seen together in a headline, but my intrepid exploration in recent weeks of the establishments recommended by the UK’s Good Pub Guide has, of necessity, also involved an investigation of their gentlemen’s facilities. These pubs usually have toilets better kept than most, but they still suffer that bane of the public loo, the electric hand dryer - noisy, unreliable, and either scalds you or doesn’t dry. But salvation is at hand(!), thanks to the maestros of design at Dyson. They’ve clearly thought about what the hand dryer is supposed to do, where it needs to operate, and the benefits for both the user (such as me) and the operator (the pub landlord).

For the user, the Dyson Airblade is faster (just 10 seconds), safer (ambient temperature air), cleaner (no touch operation, microbially-filtered air) and quieter (less noise in operation and only operates while your hands pass through the air stream).

For the landlord, the Dyson Airbade is elegant, quieter (not disturbing the pub atmosphere) and its annual running costs are less than one quarter those of the other air dryers (thanks to its lower power usage).

Not only great functionality (as I can attest), but an easy sell as well. Now that’s good design.

Click Suite, the interactive media company of which I’m non-executive chairman, has been experimenting with a weblog, to share ideas, innovations and other cool stuff related to interactive media. They piloted it internally for several weeks, but have now gone public, and you can read it on their web site. If you’re interested in interactive media, you’ll enjoy what the Click Suite team has to say.

They also blog about fun stuff to play with, but of course you’ll only be reading it for the articles, won’t you?

Olof from TelstraClear has saved the day, getting all our accounts restored and working as soon as he got into work. Thanks, Olof, for your help and speed of action.

It’s a shame that a common customer service task requires special intervention like this - and all telcos seem bad at it. Olof, like no doubt most other TelstraClear people, really wants to deliver great service. His company needs to build the tools so Olof and his colleagues can do so.

Another tale of how telcos do their best to infuriate customers who want to stay with them.

I’ve had an account and 5 users with TelstraClear, my NZ internet service provider, since the earliest days of Clearnet. All of our friends and family, our personal business contacts, banks, utilities, and many other people use them to get in touch with us. So they are very important to us. Two weeks ago TelstraClear was supposed to shift our account from cable broadband to dialup, while we were overseas. Today we lost access to all our usernames and email; which is doubly bad because I also had all my other emails from all my other accounts and domains forwarded to my TelstraClear user account.

I explained our situation to the call centre rep who processed our service request, and she promised to put a reminder in her system to personally check that the change had been actioned correctly. A botched service task is bad enough, so imagine how I felt finding that it hadn’t been done despite having been made that promise.

The web support contact system asked me to set up a new account when I tried to use it to contact TelstraClear today (presumably because my user name was not active). No joy that way. The latest insult: calling from the UK (at my cost of course), I am told that there is at least a 30 minute wait for calls to be answered. At international roaming rates, I don’t think so!

So if anyone from TelstraClear is reading this - get my account fixed pronto!

Meanwhile I can be contacted at Isambard, and I’ve reset all my emails and web stuff to go there (apart from my Clearnet accounts which I can’t get to).

Update: Fixed, thanks to Olof. 

Mark Clare’s Valuecruncher has stepped up several gears. Originally offering a company valuation service to companies not covered by conventional investment analysts (I’ve used it), Valuecruncher now offers its tools free online to the general public. Valuecruncher is creating a community of investors, some of whom will take up its premium services later.

I’ve known Mark Clare for some years and I saw a preview of the new service earlier in the year. You input your own assumptions on key financial parameters for the company in which you’re interested; Valuecruncher’s algorithms then produce a share price projection. You can play with your projection and share it with others, who can comment on your assumptions and results. The user experience has been developed with the help of renowned web guy Rowan Simpson, who is known for his lean, uncluttered approach to website design.

In the words of Merrill J. Fernando from Dilmah Tea, “Do try it”.

Disclosure: I have no financial interest in Valuecruncher.

Congratulations to my former colleagues at Fronde for quickly bouncing back into profit for the second half of the last financial year. The second half is always tough for an NZ-based professional IT services business, with December and January usually very light, so this is a good signal for ongoing profitability (with the caveat that the IT professional services business is often bumpy, as demonstrated in the first half).

Disclosure: I hold Fronde shares.

Oops (wrong link, sorry) : For those expecting to read something about the Microsoft letter to Yahoo, look here.

Microsoft says it has walked away from its bid for Yahoo, after upping its offer to $33, but Yahoo still asking for $37. Given the scale of the deal, and the potential for a clever play based (as I saw it) on email, I’m surprised. I thought Balmer would go hostile and pursue a proxy fight, which he hinted at. However, Balmer’s withdrawal letter to Yang (worth reading) makes it clear that Yang had more poison pills up his sleeve, and which which he was prepared to use. That, plus the absence of a compelling alternative for Yahoo, puts Yang & Co firmly in the sights of litigious shareholders who now face a major drop in value, most likely to below the pre-bid price of $20.

I’m not the only one surprised. Lance Wiggs shorted Microsoft on the expectation that the deal would go through (and weaken Microsoft as a result). But Lance implies (hopes) that Balmer’s walk-away might just be another negotiating tactic. In the letter to Yang is this hint: “I still believe even today that our offer remains the only alternative put forward that provides your stockholders full and fair value for their shares.”

Update: Rod Drury has written a witty paraphrase of Balmer’s letter to Yang.

To counterpoint my recent missive on where next for tech, you might like this BBC summary of the thoughts of leading tech luminaries.

I’m detecting growing themes of pointlessness and concern among tech-business commentators. I summarise these themes as:

• Too many me-too new ventures offering trivial variations and extensions of social networking services, which themselves are over-hyped - ie. social networking won’t save the world.
• Too many ventures hoping to be viable by being “free” i.e. earning a living through advertising, when there is little evidence it works as a business model for anything other than a few special cases.
• Too few new solutions (and therefore too few new ventures) for the major challenges facing the world today.

Jeff Nolan at Sandhill:

… the notion that all online services need to be free and paid for with advertising; there are too many startups that are dependent on a business model that has yet to prove itself for tech companies…

… there are few bold “aha” ideas, lot’s of social “-this or -that”, and mostly a bunch of companies hoping to draft on the perceived success of a few gorillas.

One seismic change that’s only just begun is the take-up of utility computing and subscription-based business applications delivered over the internet; but even that’s at least 10 years overdue and, if we’re really being honest, just a modern version of the old online bureau services model from the 1970s - when I began my IT career!

At Read/Write/Web, Marshall Kirkpatrick answers his own question “What’s the next big thing?” with this list:

• Business models
• Filtering for information overload
• Standards and interoperability
• Outsourcing API services
• Backlash (Backlash is included in our list because there is definitely some push back)

That list looks to me more like fixing bugs and variations on current themes, rather than genuine new ideas. Umair Haque at HarvardOnline is blistering:

I’m vastly disappointed in the moral and strategic bankruptcy of today’s crop of venture investors and so-called revolutionaries.

There are huge shocks rolling across the global economic landscape… It is the obligation of radical innovators to create new value by solving these problems - or cede capital and resources to those who can and who will.

But today’s revolutionaries are sheep in wolves’ clothing. They’re lost in the economically meaningless, in the utterly trivial, in the strategically banal: mostly, they’re cutting deals with one another to try and sell more ads. That is, when they’re not too busy partying.

I’ll close by quoting Jeff Nolan again:

What’s frightening is the inability to answer the basic question “What’s next?” The Valley thrives on “The New New Thing” … and with every turn of a generation, there is an awkward moment where we’re just figuring out where we’ve been but have yet to see where we are going. Right now is that moment.

It’s interesting how two major tech business developments have been received by the tech cognoscenti. Putting to one side my technical illiteracy, Google’s very limited App Engine is generally received warmly, while Microsoft’s Live Mesh is bagged as overly complex and a weak attempt to bridge the gap between in-house and internet-based applications delivery. While some of the technical arguments may be justified, I suspect a lot of the difference in reaction is as much about brand sentiment as about product excellence.

If App Engine is a success, it will be proclaimed as another blow for freedom, while if Live Mesh is a success, there will be cries that the shackles of oppression have been reforged. Yes, the tech cognoscenti do use such language.

Google is still (on the whole) the fashionable upstart who’s driving a lot of new internet endeavours, while Microsoft, itself once fashionable, is now portrayed as a rapacious corporate gouging its customers with unnecessary desktop software upgrades and poor performance. However, away from the desktop, Microsoft has gone from strength to strength in its enterprise solutions, and has a huge following in customers, product partners and implementation partners. As Live Mesh evolves into a web platform, it could have an enthusiastic uptake, despite its knockers.

Nothwithstanding that, Microsoft has got to do some serious work on rebuilding positive sentiment towards itself, while Google has to avoid its own potential brand-corrosive path.

Even non-techbiz readers have probably heard of Facebook, and may be wondering what all the fuss is about. I’m not a member, so I can’t really tell you, other than to say that I turn down loads of requests to join various “social network” sites, and so do many people I know, including ones much younger than me. In my case, I don’t need the noise (I get too much stuff every day as it is) and I am not interested in the so-called networking features. I am on on business networking site LinkedIn, but only to let former colleagues, clients, etc. keep up with my current email addresses (and vice versa).

Anyway, in the style of “Here comes another bubble“, I offer you “The Facebook Anthem“. (Warning - language may offend).

When people talk about the dynamics of the manufacturing sector, they usually focus on current megatrends:

• Globalisation, offshoring and free trade
• Smart design and new materials
• Smart processes.

These are all important, but essentially they are just more efficient/effective ways of doing the same thing. There’s a quiet technological reveolution about to burst on the scene; while still very primitive, expensive and limited in application and scale, it has the potential to cause far greater change to the nature of manufacturing (and economies) than anything since the industrial revolution.

What am I talking about? A technology known as 3-dimensional printing. Think of your computer printer. Using either bubblejet or laser technology, it prints any image you want, at very low cost, and the printers themselves are cheap. 3D printers do the same thing, using droplets of materials, but overprint the previous image many times until a 3-dimensional shape is built.

New materials are a key compenent of this technology. Here are just a few examples that are already in development:

• plastics and ceramics capable of conducting electricity, for motors and circuits;
• non-stick plastics and ceramics which when printed do not adhere to the existing materials, acting as bearings;
• printable metals
• superstrong plastics and ceramics for moving parts.

It is not science fiction when I suggest that many household objects could be be produced by downloading a standard design, adding your own customisations, and printing it out on your home 3D-printer, while larger objects, perhaps requiring more complex materials annd processes, could be produced at local 3D print shops. Imagine the transport and packaging savings alone.

All a bit too far-fetched? Well, the technology exists, albeit very limited in its present form. Commercial 3D printers are available now, mainly for design and prototyping, due to current limitations on printable objects. There’s even an open-source model that, once built, can replicate itself. Relevant developments in materials, plastic printing, and down-loadable designs are already well underway. You can even buld a 3D chocolate printer using Lego!

The science fiction idea of a universal fabricating machine isn’t that far way. Who’s going to dominate that technology? No idea, but printer & consumable businesses already exist (e.g. HP), so they’d be contenders if they address themselves to the opportunity. Mind you, what the world economy will be like after this technology takes off is anybody’s guess.

Conventional wisdom says that big company acquisitions of other big companies are bad. There are certainly plenty of examples that failed to live up to expectations. However, just because some fail does not mean that all will fail.

In 2001, HP’s then-CEO Carly Fiorina proposed that HP acquire Compaq. Fiorina argued that the two computer giants had complementary strengths which, if combined, would enable the merged entity to do even greater things. The proposal met vociferous opposition on all sides - commentators, competitors and major shareholders. Even after the proposal was finally approved, the merger was held to be a folly, evidenced by defections of key people and customers, and 3 years of poor results. Fiorina eventually had to go. But was her strategy wrong?

Writing in The Huffington Post, Ben Rosen analyses the deal 6 years on. He is a former chairman of Compaq, who retired from that role a year before the deal was proposed; so he’s informed, but independent. Rosen hails the “merger” as a great strategic success, but opines that Fiorina lacked the skills to manage the much larger post-acquisition business. A change of leadership brought those skills in. Under Mark Hurd, the combined HP/Compaq business was able to harness its potential and deliver outstanding success:

Today, the merger is nearly six years old. And, surprise, surprise — it’s turned out to be a sensational combination, whether measured by market share, market leadership or increased shareholder value.

The share price chart says it all. 6 years on, and despite those 3 poor years, the strategy looks to have been vindicated. The lessons: even the best strategy needs great execution, and poor execution doesn’t mean the strategy was wrong.

OK. This looks huge. Google has launched its App Engine, what is known technically as “platform as a service” or PaaS - a development and hosting offering for online services. I’m not technically qualified to say whether it’s any good, but even I can see it’s fairly limited (at least for now). However, given it’s effectively free (unless you get really big), I expect lots of start-ups will look very seriously at this. I’ll watch what more informed commentators have to say with interest.

Disclosure: I own Google shares.

I’m saddened by the news that Compudigm has gone into receivership. It was my first passive venture investment (albeit a small one) after the successful sale of Deltec. The main funder in that round was Infratil, through its shortlived technology investment fund, but I was able to participate because I knew Compudigm CFO Mukesh Ghordan. There was some talk of me going onto the board, but it came to nothing in the end, so I just observed from the sidelines, so to speak.

From what I surmise, Compudigm, after an early flurry of success, was unable to build up demand for its data visualisation software in any markets beyond casinos. Living off support fees and the occasional licence and implementation, it entered “the land of the living dead”. Other things went wrong, until the writing was on the wall last year, when it sold the casino market rights to a gaming systems specialist. I voted for the sale, knowing it was a last ditch attempt to keep Compudigm alive.

Venture capitalists often say that they expect to lose most of their investments, but make good money from the one or two in ten that really succeed. Unfortunately for Compudigm’s investors and staff, that ratio held true. But at least they tried. When politicians, journalists and the public berate businesses for lack of growth and profit, remind them of the risks and the difficulties. Most of them wouldn’t bet their homes and reputations on a business venture that might not succeed. The Compudigm founders did, and for that, at least, they should be applauded.

Remember the rule about angel and venture investing: if you aren’t prepared to lose the lot and smile about it, then don’t invest.

Update: Peter Griffin has written about the demise of Compudigm, including the departure of founder Andrew Cardno.  I know very few details, except that things got very messy towards the end.  Another of the tribulations of being a small, passive investor in such a venture is that as other investors come in, you lose touch with what’s happening, but it’s almost impossible to exit. Again, read my closing paragraph above.

I’ve been sceptical about many of the frequent calls for “someone” to build a state-owned high speed broadband network throughout New Zealand. My argument, basically, is that if it was a viable proposition, someone would build it, and empirically, since no-one has, the economics don’t stack up. However, things have moved on since Rod Drury’s initial attempts to get fast broadband onto the national agenda. He’s got together with various smart people who understand something about networks and economics, and their proposals are now starting to take on an air of feasibility. At a function last week, Rod outlined some new perspectives (my comments are in italics):

• The business case for the public good of broadband has been made (public good: yes; business case: hmmm).
• There is not a corresponding business case for a business entity to build the network we desire. (at last some realism).
• International links are as important for economic transformation
• There is substantial economic risk to NZ due to lack of international diversity.
• New Zealand needs a strong and vibrant Telecom (the dominant player) + competition.
• Telecom is probably best qualified to run a NZ network. (agreed).
• The Internet is a user pays model.
• Consumers happy to pay up to an amount - but want service close to technical limits.
• There is demand for safe, long term investments.
• CAPEX to solve the problem spent each year as OPEX. (not sure of the validity of the distinction - it’s all cash; also sounds like part of possible solution rather than a fact, but never mind ).
• We want the market to deliver a solution, not government funding. (yes!!)

Rod’s revised goal: an open access, user pays network, linking major NZ towns and cities to the world. (This is an important and valuable restriction: not going everywhere, just the major centres, means the plan might be affordable)

Rod’s revised solution:

• Separate infrastructure from retail telecommunications services.
• Cost plus model to allow for uneconomic network build.
• Infrastructure funded on bond style basis.
• Includes new cable from NZ to major international POP (jargon for another big network entry point).
• Terminates at each local authority (major local government centre) with Peering Point.
• User pays, fair interconnect accounting part of platform.
• City wide network is local government issue (i.e. any high speed local fibre would be a local commercial or community-funded issue, another important clarification which means CBDs would be fast-fibred, but not every suburban street unless local communities decide somehow to fund it).
• Network company tenders for contract for NZ.net management
• Strong governance structure.
• Seeks open access relationships with other countries.
• ‘Don’t blink’ strategy (probably needs cross-party support)

There’s still a lot more refinement to do, but this is a marked improvement on earlier ‘pie in the sky’ proposals. However, putting aside the technical points, there are still some questions: what will it cost to build and operate, and will users pay the true costs, especially while it’s being built?

Most importantly, will Telecom and the Government want to do it this way? As we start to define the proposed restricted network and business case more clearly, and assuming that the network separation already underway works, why wouldn’t Telecom just build, own and operate the new network as normal, albeit under an appropriate regulatory environment?

Disclosure: I have financial interests in Telecom, but it’s not significant enough to influence my thinking.

One or two people have asked me about the mobile phone designed for older members of society. It’s now available in NZ via the Hearing Association, who are selling it to ‘active seniors and the hearing-impaired‘ for NZ$485 plus p&p.