Tag Archives: #Content in Context

Online Pillar 1: #Health

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When my iPhone upgraded to iOS8, and up popped a new screen icon called “Health”, was there any further proof needed of the importance of this market to Apple’s app store?

Last week, I launched a series of blogs on the Three Pillars of the Online Economy. This week, I take a look at the Health sector.

There are 10,000’s of health and fitness apps available – digital magazines, monitoring apps, relaxation tools, brain games, diet planners, exercise diaries….

It’s probably the fastest growing category for apps (outside games and social media), so no wonder Apple sees value in integration, as well as making it easier for developers to bring new apps to market.

The health sector is a natural leader in innovation – from pharmaceutical research, to e-health management. But the health industry is not so vertically integrated that it is invulnerable to market disruption – neither in its supply chain, nor in its traditional business models.

For a start, despite our lifelong need for health services, as consumers we do not rely on a single provider. We may have continuous or recurring relationships with a specific doctor, clinic, hospital or health insurer – but by and large, barriers to switching are low, and in fact we often need to change our providers at various stages of our lives.

The discontinuity of our health provider relationships, and the fragmented service delivery are key reasons for the development of digital health record management systems. Notwithstanding privacy issues, the ability to consolidate our individual health records in a single online profile makes enormous sense:

  • continuity of patient information
  • remote and/or shared access to individual records
  • trend analysis across aggregated data
  • strategic planning for service design and delivery
  • public health monitoring and awareness

An area where the health sector is potentially vulnerable is circumvention of the stringent regulations that normally create a barrier to market entry. None of the health and fitness apps I have seen in the iTunes Store carry any sort of health warning or regulatory notice, and most of them have a 4+ rating. OK, so these apps don’t actually administer drugs or direct treatment, but pharmaceuticals and other therapeutic goods usually face significant regulatory hurdles before they can be released to the general public. So, maybe regulators need to take a look at this issue to ensure consumers are better informed before they cause themselves harm.

The increase in wearable devices linked to smart phones and mobile networks offers huge benefits for the medical industry – from web-based diagnostic tools to remote-controlled administration of treatment; from early warning monitors for stroke victims, to better delivery of pharmaceutical information to patients. As we know, prevention is better than cure, and I wouldn’t be surprised if health insurers start to offer discounts to older customers who use a wearable device linked to a monitoring service for things like heart rate, body temperature, glucose levels or dehydration. While some people may balk at this “Big Brother” intervention (well, Nanny State interference), the benefits would undoubtedly accrue to everyone via cheaper medical insurance, more targeted health resources and streamlined service delivery.

In recent months I have come across numerous local startups in Melbourne within the health sector – from improved co-ordination of patient information between hospital staff, to matching carer skills to customer needs; from an epilepsy monitoring tool to remote-controlled prosthetics. This just proves the point that innovation in the industry is both leveraging off and contributing to developments in the wider online economy.

Next week: Online Pillar 2: #Finance

The “Three Pillars” Driving the #Online Economy

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Games and social media apps may currently be generating the most downloads and revenue, but the real innovation in the online economy comes from the “Three Pillars”: Health, Finance and Education.

What these pillars have in common are:

  • clearly defined market verticals
  • well-established business models
  • life-long customer engagement
  • highly regulated operating environments

They are also industries that are continuously innovating, which makes them interesting bellwethers for what might emerge in other sectors of the economy.

However, they do not display closely integrated vertical markets, and despite the regulatory barriers to entry they are vulnerable to disruptive technologies and new business models.

I’m reminded of the proverb “early to bed, early to rise, makes a man healthy, wealthy and wise” – such that we cannot afford to ignore what is going on in these industries, and nor can we fail to understand the implications for each of them based on what is going on elsewhere.

From mobile payment systems to wearable fitness devices, from Apple’s new “Health” app to mass open online courses, from peer-to-peer lending to shared health alerts, these sectors are responsible for (and responding to) significant changes in the online economy, and over the next few weeks I’ll be offering some personal observations on the trends, threats, lessons and observations for each of the three pillars.

I encourage readers to contribute to the debate via this blog….

Next week: Online Pillar 1: #Health

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?