Category Archives: Innovation

CSIRO – what price #innovation?

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Last week Startup Victoria invited scientists and researchers from CSIRO to come and talk about some of the projects they are currently working on. Around 400 people turned up to listen to fascinating presentations on flexible solar panels, 3-D titanium printing, flexible OLED lighting, robotics, wearable kinetic dynamos powering textile-based battery storage systems, high-speed instrumentation using FPGA, and micro-manufacturing processes.

logoFrom the outset, the emphasis of each presentation was on the practical application of these inventions. The goal of the evening was to encourage entrepreneurs and founders from the startup community to connect and engage with CSIRO’s project teams. There was an open invitation to co-operate with CSIRO, via R&D, prototyping, IP licensing and commercialisation initiatives.

The evening was generously sponsored by Cogent, PwC, Elance-oDesk and BlueChilli, hosted by inspire9, and ably compered by Leni Mayo; and in place of the usual Startup Alley was a team of experts offering free advice to startups, organised by Two Square Pegs.

As well as showcasing its latest developments in nano-technology, materials, fabrication, energy generation and workplace automation, CSIRO wanted to remind the audience that they have development and test facilities, which are available for commercial use at very economic rates to the right sort of project. It’s all part of a broader charm offensive, in part designed to raise awareness of the great innovation that has come out of CSIRO (e.g., WiFi…), in part to counter the challenges of reduced government funding ($111m in cuts over 4 years).

To me, CSIRO would appear to be pretty good value for money based on the $700m+ government contribution (which probably accounts for about 70% of current budget). CSIRO generates income from industry for research and other services, and earns royalties from patents and other IP it licenses. But its challenge is to demonstrate its true economic value, either as a contribution to GDP, or as a return on investment to the government (and to the wider community).

On the one hand, CSIRO is not an investment vehicle – yet on one level it operates as an early-stage VC fund, identifying which projects to “invest” in, and securing commercial returns via patents and other licensing streams. Nor is CSIRO a listed company, but without the benefit of its research and inventions, many companies traded on the ASX might not be as financially successful.

Ironically, CSIRO has been involved in research on the future of Australia’s $1.4tn superannuation assets – part of the effort to work out how to put these assets to better use, both to generate more sustainable income for Australian retirees, and to ensure the nation is investing in the right sort of infrastructure, innovation and international growth opportunities.

Traditionally, superannuation funds and other institutional investors have shied away from early-stage projects, especially home-grown startups, either because they are deemed too risky, or because the technology is not well understood. Yet some investors are willing to allocate part of their funds to Silicon Valley VC’s, only to see some of that money flow back into innovative Australian startups (a phenomenon I have previously described as an “expensive boomerang”.)

I’m no economist, but if there was some analysis done on the value of the “CSIRO Dividend”, it would both be able to secure current government funding, and attract long-term funding via the Future Fund or similar investment vehicle.

Post Script: Soon after this post was published, the Federal Government announced its Industry Innovation and Competitiveness Agenda, which among other things is seeking to generate a better return on investment on for innovation.

Next week: The Three Pillars Driving the Online Economy

 

End to #geoblocking proposed in Competition Policy Review

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Australian consumers would benefit from key Recommendations contained in the Competition Policy Review Draft Report released last week – meaning better access to, and cheaper prices for digital content and tech products. In particular:

  • any remaining prohibitions on parallel imports would be abolished, unless there is a public interest factor in retaining them; and
  • Intellectual Property licenses would no longer be exempt from the requirements of the Competition and Consumer Act.

Introduction

I don’t propose to cover the whole scope of the Policy Review here – but instead focus on the practice known as geo-blocking, whereby customers in one jurisdiction can be prohibited from buying goods and services from another jurisdiction, simply due to their country of residence. (For example, Australian consumers are currently unable to purchase music downloads from Amazon’s dedicated Australian site, or from any of its international sites; and numerous titles listed on iTunes’ US and UK stores are not available for download via iTunes Australia.)

Context

It is now more than 20 years since the Hilmer Report (which led to the National Competition Policy), and as last week’s Draft Report states, much has changed since then in terms of new technology, market globalisation, the Internet and the digital economy. (Back in the mid-90s, before Amazon, PayPal and eBay, I recall having to buy from overseas via e-mail – including the payment information!)

The Review Panel, under the Chairmanship of Professor Ian Harper is to be commended for the speed of its draft review, and the breadth and depth of its Draft Recommendations, which cover a full range of structural and regulatory reforms. The Review was announced in December 2013, and based on current performance, is on target to deliver its Final Report within 12 months of being launched. (But I don’t expect much to happen by way of legislation until after the next Federal Election in 2016.)

The end of geo-blocking?

Most notable for the purposes of this article is Draft Recommendation 9 – the removal of any remaining prohibitions on parallel imports. Since this is a rather technical aspect of IP law, and because the proposal seeks primarily to benefit consumers, any reforms in this area will require extensive public education initiatives.

For example, some current restrictions on parallel imports may relate to health and safety issues (e.g., electrical items sourced from overseas which are not designed to run on Australian power supplies); others appear to be merely the capricious whims of trade mark owners, copyright holders, IP licensors and their licensees, designed to create artificial market barriers, especially when it comes to product pricing and availability).

So, if consumers and businesses are going to benefit once parallel imports are fully legitimized, they will need help in understanding their rights and obligations under the proposed reform. By way of example, if I can’t download a movie from iTunes Australia, and if this content is not available via any other local online store, can I force Apple to sell it to me if it is available in another iTunes store (and at a truly comparable price)? Can I seek to buy a copy directly from the copyright owner or from the locally licensed distributor, even though neither of them have chosen to make it available in this market?

Shades of Grey?

Parallel imports (also known as “grey market goods”) are not the same as counterfeit or pirated goods – grey goods are authentic and otherwise legitimate products originating in one country that have not been specifically licensed for direct sale or distribution into another market. Given that local consumers can already access many goods from overseas online retailers, and since items bought for personal consumption are generally not caught by the ban on parallel imports, there are already ways to get round these obstacles. (For example, Levis Australia does not import all sizes of its jeans for sale in the domestic market, but a careful search on eBay can usually uncover a retailer in the US willing to ship direct – and probably cheaper than buying locally if available, even allowing for shipping costs).

The bum deal for Aussie consumers

In its Issues Paper released in April this year, the Review Panel highlighted the impact of international price discrimination on Australian consumers, which in my view is a direct consequence of both the ban on parallel imports and restrictive IP licensing practices:

“A further issue in relation to imports is international price discrimination. International price discrimination occurs when sellers charge different prices in different countries and those prices are not based on the different costs of doing business in each country. A recent parliamentary inquiry found that Australian consumers and businesses must often pay much more for their IT products than their counterparts in comparable economies, in some cases paying 50 to 100 per cent more for the same product.” (1)

Noting that price discrimination is not specifically prohibited under Australian competition law, the Issues Paper also acknowledged that consumers and businesses alike already circumvent this “legitimate” trade practice via parallel imports, despite the potential legal and other risks.

Redefining the market

Unsurprisingly, the Draft Report does not recommend a ban on international price discrimination (2), mainly because of the cost and difficulty of enforcement (similar arguments have been made against lowering the GST-free threshold on online imports). And yet the Review Panel is in favour of extra-territorial reach under the Competition Law (making it easier to pursue legal action against off-shore parties). It also suggests redefining the scope of “competition” to include markets for goods and services that are “capable” of being imported or supplied into Australia (Draft Recommendations 20 and 21).

Delivering the desired outcome

Consequently, for Draft Recommendation 9 to have any real impact, it must facilitate consumer and business access to goods (especially technology, software and other digital content) that have not been licensed for direct sale or distribution in Australia, either because the overseas manufacturer chooses not to make it available in the Australian market or because the local licensee/distributor chooses not to supply it (or not at a comparable price). In other words, it should not be more onerous (or expensive) for an Australian customer to acquire legitimate goods from overseas if an off-shore supplier is willing to fulfil local orders direct. (Expect huge resistance from the global tech suppliers – who are probably concerned about the implications for transfer pricing and other international tax issues; and await a backlash from the FMCG sector – where some companies have already been disputing territorial control over sales of instant coffee.)(3)

Related reforms

Along with the repeal of Section 51(3) of the Competition and Consumer Act 2010 (to bring IP licenses within the purview of the Act – Draft Recommendation 8), the Draft Report also proposes a thorough review of Intellectual Property law in light of “new developments in technology and markets” and their impact on competition (Draft Recommendation 7).

The latter recommendation can be linked not only to the practice of geo-blocking, but also to the emergence of the shared economy, aspects of which challenge traditional notions of markets, vertical supply chains, business models, ownership and licensing.  Elsewhere, the Draft Report comments on the significance of services like Uber (which has faced industry resistance since launching in Australia).

Conclusion

Most importantly, the Review Panel is keen to ensure Australia has a more relevant (and robust) IP regime that both encourages innovation and enhances market competition. A positive start would be an end to geo-blocking.

Footnotes:

(1) Source: The Australian Government Competition Policy Review – Issues Paper, April 2014, Chapter 2.6 (emphasis added; see also my earlier blog).

(2) It is worth noting that price discrimination is prohibited within the EU.

(3) The full ACCC Decision can be found here. Makes for interesting reading.

NEXT WEEK: What is CSIRO up to?

 

Stripe’s John Collison: “Better to be #disruptive than incumbent”

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In a Melbourne fireside chat with Paul Bassat (hosted by NAB and Startup Victoria) Stripe‘s co-founder and President, John Collison offered the insight that “it’s better to be disruptive than incumbent”.

Incumbency comes with all the baggage of legacy data, semi-redundant systems, siloed business operations, and customers with long memories.

Whereas, a nimble and agile startup like Stripe can cut out inefficient and lazy business processes – especially in areas like online and mobile payment systems. And in doing so, a disruptive service can make us think, “how did we ever manage before this was invented?”

Collison was careful, though, to point out that Stripe is working with the banks, not against them, in case anyone thought his company has designs on becoming a fully fledged financial institution. “We simply want to make the payments business more efficient.”

Stripe’s approach is to leverage engineering skills and solutions “to fix first world and middle class problems”. Precisely so – why would you want to undermine the system (payments and transfers between banks and their customers) that gives rise to your very existence?

Collison also reflected that never before has it been possible for such a small number of people to create such enormous value, very quickly – citing the fact that WhatsApp had a mere 55 employees when it was acquired by Facebook earlier this year for $19bn. (Stripe itself, founded in 2010, had about 100 employees when it was valued at $1.75bn around the same time.)

While WhatsApp does not yet generate revenue, its valuation as a disruptive IM platform is largely based on a notional value per user, and what that may represent in terms of data from customer analytics or premium pricing for add-on services.

But you don’t even need to be a startup business to disrupt an existing market, as the music industry continues to discover to its cost – you simply need to be part of the demographic that is used to “free” stuff, has no real concept or appreciation for IP, refuses to pay for anything on the internet, and develops brand loyalty based on likes, shares and number of views. Even Stripe would be out of business if everyone switched to peer-to-peer money transfers without wanting to pay commissions or transaction fees.

 

 

 

 

Why #collaboration is not simply “working together”

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Along with productivity, innovation and employee engagement, collaboration is fast becoming the new mantra for businesses seeking growth and/or competitor advantage. But while collaboration can take many forms, the mere act of “working together” does not of itself lead to sustainable collaborative outcomes.

The theme for last week’s inaugural class of Melbourne’s Slow Business School was “How to collaborate effectively with other businesses”. Hosted by Carolyn Tate and facilitated by Richard Meredith, the class did not arrive at any prescriptive processes or techniques for collaboration. But, as one student wryly observed, our discussions took the form of a dance without choreography, which is perhaps the highest form of collaboration. However, we did identify a few core attributes without which successful collaboration would be unlikely, if not impossible:

  • Shared values among the players
  • Defined roles
  • Common purpose or vision
  • Mutual trust between all participants
  • Voluntary (i.e., parties choose to be here)
  • Equitability (e.g., recognition of each contribution)

I would also add that from my experience, collaboration does not happen unless there are opportunities for the participants to be co-located at least some of the time.

Which leads me to those activities that are NOT collaborations:

  • A routine or regular project (“BAU”)
  • Outsourcing
  • Commissioning
  • Remote teamwork
  • Shared services
  • Trading transactions

For example, if I commission an architect to design a house, even if I am intimately involved in all the detailed decisions about materials, specifications and aesthetic choices, it is not a collaboration – it’s a transaction between client and professional. However, if I was a heating engineer, and I used my knowledge and experience to work with my architect to come up with some new energy-saving solutions (that could be used in future projects) that would be a collaborative outcome.

Collaboration certainly cannot happen if organisations operate within silos, but nor does it come about by happenstance – there has to be a deliberate and conscious decision to collaborate, even if at the outset there is no specific product or solution in mind other than a desire to collaborate (“Let’s see where the dance takes us”).

One aspect of this approach is “co-creation”, where companies embed themselves in their client’s world to identify what problems they can work on to solve together. In this way, collaboration leads to the outcome. Clearly, to be effective, co-creation would be backed by some formal product development or service design techniques, agreed ground rules and even a game plan – whether that is a lean canvas business model methodology, an iterative prototyping process, or a defined supply chain framework.

In any collaboration, one party may try to force the pace, but if this is not reciprocated, the mutuality will be lost – it becomes just another transaction (or a series of mis-timed steps). The best partnerships and joint ventures are founded on the commonalities of purpose, process and participation. Further, a successful venture will know when it has run its course – even if this means having those “difficult conversations”, which the class felt were also a vital feature of the best collaborations.

By strange coincidence, the same day Slow Business School was in session, Deloitte Access Economics published a research report commissioned by Google Australia. It concluded that greater collaboration by Australian companies could be worth $46bn to the local economy, based on increased productivity and reduced costs/wastage. Although the report reads more as an OD approach to collaboration (linked to the productivity, employee engagement and innovation mantras) it nevertheless offers some empirical evidence that companies who get it right will see benefits across a range of KPIs. If nothing else, employees who are given more opportunity to collaborate will display greater job satisfaction (this is part of the philosophy behind etaskr, about which I have written before).

For me, there are a few interesting data points in the Deloitte report:

  1. While technology has been important in enabling increased collaboration, the right workplace culture, management structure and team members are seen as paramount.
  2. Although “shared electronic resources” were seen as the single most important tool for effective collaboration, “common areas for staff to socialise” was not far behind, and “more meeting rooms” scored higher than “open plan office”, while having more technology solutions (collaboration software, video conferencing facilities and social media) all rated lower.
  3. Finally, just over a third of respondents reported that “collaboration helps them work faster” (and nearly a fifth said “their work would be impossible without collaboration”), but nearly a quarter felt that collaboration meant their work took longer.

So, a paradoxical interpretation of the report could be:

  • fewer open plan offices (but more meeting rooms);
  • more technology (but not just productivity tools); and
  • more teamwork (but not at the expense of getting my own work done).

A final thought: If we think that the prerequisite for collaboration is the “willingness to co-operate”, then this can get murky, as participants will only be prepared to operate at the level of trading favours (and only because they’ve been told they have to play nicely) rather than entering into the venture with enthusiasm and without ulterior motives.