Finally found time to post the essay I wrote for Nest and Reboot Britiain. Reading it again reminds I'm better at writing academic articles than pieces for more mainstream consumption. Thankfully, Russell Davies knows how to cater to my vanity printing it in a newspaper as an investor demo!
"Progress is not the mere correction of evils. Progress is the constant replacing of the best there is with something still better" - Edward Filene
These are troubling times. In 2008 the bubble burst and the world came
face to face with a global credit crunch. A quarter of a century of free-market
zealotry used to justify asset stripping, hostile takeovers, abusive lending,
excessive borrowing, and hedge fund secrecy has gone down in flames. But rather
than dwell on what caused the crisis, I shall look to explore emerging
opportunities in the UK's digital economy and to examine how we might place
careful bets to extract both commercial and public value.
I'm in no doubt that out of crisis comes great opportunity but for
digital to really make good on a decade of promises we must let history guide
forensically our attention, skills and wallets.
Today, as many of the world's largest economies remain in a full-blown
recession, Governments and policy makers across the globe are devising and
deploying strategies to lessen its impact. Their approaches to lessening the
effects of economic crisis are broadly similar. Strengthen national and
international financial regulation; prop up over-exposed banks and key
financial institutions; slash interest rates; increase the money supply and embark
on public spending to artificially stimulate the economy. All of this is too
re-inflate the bubble.
Public investment in infrastructure has long been seen as a way to mitigate
economic weakness by replacing the void left by private lending and investment
in generating jobs and demand for materials and equipment. George W. Bush did
the same when faced with the combination of the NASDAQ crash and the wake of
September 11th 2001. However, the spending being promised today is unparalleled
in scale, with Obama and Brown planning budget deficits to dwarf anything we've
ever seen before.
As tempting as it is to use public spending to resuscitate parts of the
dying economy, we must instead spend appropriately for the new era. The
solution lies in massive institutional innovations, as bold and as extensive as
those of the 1930s and 40s, responding this time not to the demands of mass
consumption but to the needs and potential of a sustainable global knowledge
economy (Perez
, C. 2009)
So while renewing or increasing physical infrastructure like roads and
hospitals is crucial, so is the need to expand internet access either with
fibre to the home (which can – and should – be coupled with other physical infrastructure works) or with wireless. Thankfully, many Governments have recognised the potential of digital services and technologies and have embarked or are
planning on connecting everyone to high speed broadband networks.
The Obama-Biden Stimulus Package directs over $30 billion at
Telecommunications, Photonics, and Information Technology with the specific
remit to extend broadband to under-served rural and poor areas that have, until
now, proven unprofitable to serve. In the UK, The French Secretary of State for
the Development of the Digital Economy, Eric Besson, has announced details of
the government’s France NumErique 2012
policy that proposes 154 measures including moves to give all French
inhabitants broadband access for less than €35 by 2012, up from 54% today. Lord Carter’s Digital Britain envisages everyone having access to affordable
broadband by 2012. But the Japanese and South Koreans are planning widespread
access to the web at speeds many times greater than those planned for the UK,
while Denmark, Finland, the Netherlands and Norway are already well ahead of
the British (Leadbeater,
C. 2009).
The Safe Bet
Around the world politicians are making the same bold and enthusiastic
claims for these plans. Building the actual physical infrastructure will create
jobs. When the number of unemployed can affect elections, if you were looking for
a good bet, you'd be foolish not to invest in those who supply the technology
and expertise required to physically roll out and upgrade the digital
infrastructure. Just over 100 days since Obama signed the stimulus package, Technology
and Telcos stocks in the S&P 500 have risen in value by 20.7% and 8.8%
respectively (CNBC 2009).
However, the majority of the technology needed to deliver Digital
Britain is likely to be procured from companies headquartered in the US. The
innovation and specialised research and development is likely to be centred in
and round Silicon Valley or MIT. To reboot Britain for real, we need to be more
involved in nurturing our technology companies and research centres and by
ensuring enough kids are enthused about the right subjects taught in the right
way.
A second benefit is that universal access to high speed broadband will
amplify the benefits of existing websites and digital services. With greater
access to high speed broadband, the economy in general will be better placed to
take advantage of improved efficiency, discoverability, communication, and
participation leading to increased international competitiveness. With the
right policies, the benefits of the new technological potential can be fully
realized across the economy and its social benefits better spread.
In certain sectors like communications, entertainment, information and
knowledge industries, we can be more specific. The successful companies in
these sectors are likely to have used cheap credit in 2003-2007 to invest
wisely in revenue-generating digital solutions and online markets. Companies on
the brink of generating revenue may see the publicly-funded market expansion
tip them into profitability, while dominant players will likely increase their
lead. For example, e-commerce is growing, with larger numbers of people able to
take advantage of the the easily comparable prices and conveniences of shopping
online. The interim Digital Britain report predicted that by 2012 £1 in every
£5 of all new commerce in this country will occur online (Digital
Britain Interim Report, 2009).
Music, which has already established a significant download-to-own
market, is likely to see the gap in sales between physical and digital product
shrink further until digital products make up the lion’s share of sales. This
trend could accelerate if the road can be cleared for subscription-based
services. The Games and Film industries will see their nascent download-to-own
markets grow as a larger number of people have access to faster networks making
big download files more manageable. The Games industry, which has already
embraced networked play, will enter a new era of massively mainstream online
games.
In essence, many of the businesses that have slowly been building online
market share will be excellently placed to take advantage of the government
actively growing this market for them. If these internet businesses can survive
the recession, they should be able to accelerate growth with minimum amount of
additional investment. Wikipedia will have more editors, Yahoo more answers,
flickr more pictures, Google more links, Amazon more sales and Ebay more lots. Even
the micro blogging service twitter could migrate from the preserve of those
currently connected 24/7 to a more representative slice of the population! If
people were asking me where I’d place my bets in this new era, I'd say look to
the industries that have taken advantage of the cheap credit frenzy that preceded
the bust to build business that will genuinely benefit from government-encouraged
market growth.
While this is all well and good, it concerns me that so many of the
internet's leading consumer services, those best placed to take advantage of UK
public money, do not originate in the UK. Recent ComScore data confirms this.
US web companies dominate the attention of UK web users. In February 2009, UK
web users spent over 70% of their time by on the US-owned sites in the top 100.
Over time this risks significant economic, cultural and social consequences
which policy makers are only just starting to wrestle with. Foreign-owned
companies are not commercially incentivised to invest in content and services
specific for UK audiences, nor to back new UK talent and innovation. With so
much UK revenue leaking out of the system, the smaller UK players lack
resources to invest in innovation, particularly if it is for public rather than
commercial purposes. This problem is exasperated with the recession led
contraction in European private capital. Will Britain’s digital talent ever get
the chance to build truly global internet business. Even with Digital Britiain
could Britain ever produce a Google?
Placing Bets That Count
The more important but less well-understood claim made by Governments
and policy makers is that universal access to high speed broadband will
stimulate new growth sectors. Worryingly the hopes set out in the interim
Digital Britain places an undue emphasis on content as opposed to services. As
audiences fragment across the web it’s clear we produce too much content to be
supported by current business models.
However, through my work at 4iP, I'm sure internet entrepreneurs and
technologists haven't stopped dreaming up newfangled widgets or sketching
technological marvels on the back of cocktail napkins. The internet is still in
its early stages with so many new users and demands yet to be adequately met.
But cutbacks have slowed the pace of getting the latest US let alone UK
innovations to market. Venture capital investments have plummeted. Lenders
aren't funding business start-ups. Bank loans and ‘angel capital’ — money that
friends and families and wealthy individuals cough up to support innovation—
also are contracting.
So now more than ever we need to think carefully about our ideas before
we rush to pitch it / build it / test it. Are we building sustainable
businesses and working on things that really make a difference? I can’t help
but feel that while the web has been travelling in a better direction since
2001 so much money and time has been wasted on frivolity. In my opinion one of
the most sobering lessons of our current financial situation is the realisation
that we must invest in new British companies rooted in production, dividends
and real cash. There's no point in Rebooting Britain to the same unstable
operating system we had before.. The pot is limited so we need to make sure we
place bets that count.
But there is another type of value, public value, that will become
increasingly important as we claw ourselves out of the recession. Public value
goes beyond the monetary measures of the marketplace and into the area of
social well being. The UK's creative technologists would do well to look wider
than the financial bottom line when thinking about their next business or next
job opportunity.
First, services delivering public as well as fiscal value will all be in
demand as public spending kicks in. With governmental funding in technology as
well as areas like education, health and the environment, digital solutions to
these crunchy problems should be able to avoid the current private investment
drought. Lord Mandelson, , talks explicitly about the opportunity to build a
high-tech, low carbon economy.
But generating public value also provides the answer to a bigger piece
of the puzzle, one that's often overlooked: providing meaning in peoples'
lives. As web guru Tim
O'Reilly puts it: "If you’re working on a project just for the money
or where earning a living is the primary motivation and you fail, you’re
probably going to feel like you’ve wasted your time. On the other hand, if you
work on something you love that delivers some public good and you make a small
improvement in the world because of what you care about, then that’s going to
feel a whole load more worthwhile."
The problem with public value in the UK is that it's too much associated
with charities and non-profits. This could well be because the two largest UK
public value institutions, the BBC and the NHS, are rooted in public service. Ihowever,
I strongly feel that to relegate the important questions of our time – the environment, health care, democracy and
the sustainable economy – to non-profits and social ventures diminishes our
chances of solving them.
My favourite case study here is Google. Their original mission – to organise the world's information – was
incredibly altruistic and public-spirited in nature: Clearly their original
investors and then shareholders ensured that the business generated revenue,
but it would be wrong to argue that profit was their raison d'etre. I'd hazard
a guess that most people don't work for Google for the money; they join Google
because they want to make a real difference. The success of the company has led
them to increase reach and impact and critically invest further, expanding
their public value beyond search into numerous other products. If Google had
been a charity or a social venture, it wouldn't have been half as successful in
raising the original funding necessary to go mainstream.
Over the next five years, the influx of public sector funding and the
refocusing of private money offers an enormous opportunity to the UK's digital
economy. The opportunity goes beyond simple economic growth and job creation to
finding the key to some of the problems we face on a national and global level.
However, as we attempt to Reboot Britain, we should bear in mind the mistakes
of the past so we might better understand future opportunities. The UK is
teeming with all the digital talent we need to answer the questions of the day.
To unlock that talent Britain must focus its public and private investment
alike on products, services and technologies that really matter. This public
value mustn’t mean overriding traditional business values. We must give those
our digital business the space and support to build, test, fail and rebuild,
but also to be run as real businesses and not quangos and NGOs. Sooner or later
we're all going to have to pay this public money back, and the key services we
build must be able to innovate and grow.
