Panorama and HSBC: wasted airtime

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Parking emotions to one side, companies percentage of total government tax income has been relentlessly trending down in every major economy for over 50 years. Given the size of savings needed to support the illusion of austerity to the bond markets (but don’t look too closely at booming public sector debt levels), the content of this weeks Panorama was sold heavily as a “look everyone, large amounts of money squirrelled away by the rich here”. Sounded like an interesting perspective, so I recorded it on iPlayer and watched it on the 40 minute train journey into London this morning.

Unfortunately, largely content free. You could summarise it as:

  • A Whistleblower in an HSBC facility in Switzerland leaked account details of many people holding large amounts of money in accounts there
  • Many people ended up coughing up extra tax money to HMRC as a result of the data leak
  • the bank gave advice to wealthy clients to lower their tax bills through schemes designed expressly for this purpose
  • Bank says they’ve reformed such practices
  • another Whistleblower says in her experience, they have not
  • Director at the centre of managing HSBC at the time was ennobled and hired as an advisor to David Cameron
  • more could be done (lots of see saws between the words “Avoidance” and “Evasion”)
  • err, I think that’s it

It then got surreal when the politician interviewed was one widely known as one whose £1.8m trust fund is fed from her fathers company that pays an effective tax rate of 3%.

So, the pursuit of a journalist who could do a thorough job and come out with some compelling (and actionable) story here remains unfulfilled. In the meantime, a few people are watching my question on Quora for which I can find no answer:

What benefits accrue to the UK by permitting large amounts of money to be held offshore in British Crown Dependencies and British Overseas Territories?

Any ideas? I sometimes wish I could get John Lanchester (one writer who is thorough and funny too) to have a crack at answering that.

Another lucid flurry of Apple thinking it through – unlike everyone else

Apple Watch Home Screen

This happens every time Apple announce a new product category. Audience reaction, and the press, rush off to praise or condemn the new product without standing back and joining the dots. The Kevin Lynch presentation at the Keynote also didn’t have a precursor of a short video on-ramp to help people understand the full impact of what they were being told. With that, the full impact is a little hidden. It’s a lot more than having Facebook, Twitter, Email and notifications on your wrist when you have your phone handset in your pocket.

There were a lot of folks focussing on it’s looks and comparisons to the likely future of the Swiss watch industry. For me, the most balanced summary of the luxury esthetics from someone who’s immersed in that industry can be found at:  http://www.hodinkee.com/blog/hodinkee-apple-watch-review

Having re-watched the keynote, and seen all the lame Androidware, Samsung, LG and Moto 360 comparisons, there are three examples that explode almost all of the “meh” reactions in my view. The story is hidden my what’s on that S1 circuit board inside the watch, and the limited number of admissions of what it can already do. Three scenarios:

1. Returning home at the end of a working day (a lot of people do this).

First thing I do after I come indoors is to place my mobile phone on top of the cookery books in our kitchen. Then for the next few hours i’m usually elsewhere in the house or in the garden. Talking around, that behaviour is typical. Not least as it happens in the office too, where if i’m in a meeting, i’d normally leave my handset on silent on my desk.

With every Android or Tizen Smart Watch I know, the watch loses the connection as soon as I go out of Bluetooth range – around 6-10 meters away from the handset. That smart watch is a timepiece from that point on.

Now, who forgot to notice that the Apple Watch has got b/g WiFi integrated on their S1 module? Or that it it can not only tell me of an incoming call, but allow me to answer it, listen and talk – and indeed to hand control back to my phone handset when I return to it’s current proximity?

2. Sensors

There are a plethora of Low Energy Bluetooth sensors around – and being introduced with great regularity – for virtually every bodily function you can think of. Besides putting your own fitness tracking sensors on at home, there are probably many more that can be used in a hospital setting. With that, a person could be quite a walking network of sensors and wander to different wards or labs during their day, or indeed even be released to recuperate at home.

Apple already has some sensors (heart rate, and probably some more capabilities to be announced in time, using the infrared related ones on the skin side of the Apple watch), but can act as a hub to any collection of external bluetooth sensors at the same time. Or in smart pills you can swallow. Low Energy Bluetooth is already there on the Apple Watch. That, in combination with the processing power, storage and b/g WiFi makes the watch a complete devices hub, virtually out of the box.

If your iPhone is on the same WiFi, everything syncs up with the Health app there and the iCloud based database already – which you can (at your option) permit an external third party to have access to. Now, tell me about the equivalent on any other device or service you can think of.

3. Paying for things.

The iPhone 5S, 6 and 6 Plus all have integrated finger print scanners. Apple have put some functionality into iOS 8 where, if you’re within Bluetooth range (6-10 meters of your handset), you can authenticate (with your fingerprint) the fact your watch is already on your wrist. If the sensors on the back have any suspicion that the watch leaves your wrist, it immediately invalidates the authentication.

So, walk up to a contactless till, see the payment amount appear on the watch display, one press of the watch pays the bill. Done. Now try to do that with any other device you know.

Developers, developers, developers.

There are probably a million other applications that developers will think of, once folks realise there is a full UNIX computer on that SoC (System on a Chip). With WiFi. With Bluetooth. With a Taptic feedback mechanism that feels like someone is tapping your wrist (not loudly vibrating across the table, or flashing LED lights at you). With a GPU driving a high quality, touch sensitive display. Able to not only act as a remote control for your iTunes music collection on another device, but to play it locally when untethered too (you can always add bluetooth earbuds to keep your listening private). I suspect some of the capabilities Apple have shown (like the ability to stream your heartbeat to another Apple Watch user) will evolve into potential remote health visit applications that can work Internet wide.

Meanwhile, the tech press and the discussion boards are full of people lamenting the fact that there is no GPS sensor in the watch itself (like every other Smart Watch I should add – GPS location sensing is something that eats battery power for breakfast; better to rely on what’s in the phone handset, or to wear a dedicated bluetooth GPS band on the other wrist if you really need it).

Don’t be distracted; with the electronics already in the device, the Apple Watch is truly only the beginning. We’re now waiting for the full details of the WatchKit APIs to unleash that ecosystem with full force.

The simplest leading indicators of future performance

Crystal Ball Future

I saw a note from one of my ex-colleagues from my 17 years at DEC in a long line of the mutual hatred of who became known as “GQ Bob”, aka Bob Palmer. Palmer presided over losses in 5 years that exceeded the total profits of the company in the preceding 35 years, before selling what was left to Compaq, who in turn sold out to HP. The note struck a chord with me:

I worked for a number of years in “The Mill”, the ancestral home of Digital Equipment Corporation. Each day, I’d walk up the hill from the lower Thompson Street parking lot and into the Thompson Street lobby, past the very-near-to-the-door visitor parking area (“Blue Pass Required!”). Each day, I’d see a white Porsche 911 parked in visitor parking. After months of this, my interest had been piqued, so I asked Security who was the visitor that parked their Porsche here day after day. “Oh, that’s no visitor; that’s Bob Palmer’s car. He’s VP of manufacturing. “Isn’t that *VISITORS ONLY* parking?” I asked?” I just got a shrug back. So I figured out where his office was in the Mill and took a walk down there. “Palatial” is the word that came to my mind; with huge office areas and practically no people. I formed my opinion of Bob Palmer that day, and it never changed the rest of the years I was at Digital.

When I was in the UK PC Dealer team back in 83-84, one of our account managers (David Bedding) visiting prospective resellers always did one piece of due diligence, and would walk away from anyone who violated it. He would measure the distance from the nearest visitor car parking space to the front door, and the nearest space reserved for employees (and especially so a Director) to that same door. If the visitor spot wasn’t closer, he wouldn’t sign them up on principle. He’d just report back that he was “underwhelmed” at the prospect of recruiting them and declined to waste his time doing so.

It was simply the best leading indicator of attitude to customers that no business plan could mask.

With hindsight, the other leading (negative) indicator was the owner having a goal to be bought out and to drive the business with that objective above all other considerations; the road was littered with the remains of those outfits.

Meanwhile, the ones that obsessed over their service to their customers, above all else, did far better. But that’s obvious, isn’t it?

Blockchain: the ultimate and positive chaotic disruption

Light Bulb Lit Up

The future is here. It’s just not evenly distributed yet“. Those were the words of Tim O’Reilly, owner of O’Reilly, producer of many of the definitive books on software systems and associated conferences. His company’s Radar blog is also noteworthy for it’s excellent peeks into the future of high technology related products and services. One subject seems to pass it by, and I can’t help think the implications are much more significant than people really comprehend yet; that of the technology that sits behind Bitcoin (Bitcoin itself is but a small part of it).

The mechanics of Bitcoin are described in the original Satoshi Nakamoto paper here. Alternatively, an earlier introductory blog post from me.

The main truly disruptive innovation with much wider utility is that of a Blockchain. A public record that is stored across many hundreds or thousands of machines, in hundreds of different legal jurisdictions, but together forming a definitive record of activity without any central control. A sort of ledger that lives in the worlds commons, and operable in a way that ensures a single digital object cannot be “double spent”; only transferred between entities.

Much of the economic activity in the world is currently served by institutions who possess “choke points” through which activity is carried and who charge (in some way) at the gate. If I want to send cash to someone, I typically pay commission or transaction charges to a number of institutions to do so. There are many areas that could be unleashed when transaction costs tend to zero and the record of some activity is stored in a publicly accessible entity without any central control:

  • Proof of Existence. One of the innovations of GIT (the Source Code Control System written by Linux author Linus Torvalds) is that every individual document/file is recorded in it’s database as a “hash”. When any piece of Digital material is passed through this piece of maths, the hash is a 8 byte “signature” that is effectively unique (the change of two random documents having the same hash is circa 1 in 83 million). So, you can immediately see, with very little comparison work, whether two documents are exactly the same or different. Manuel Araoz, a 25-year-old developer in Argentina, uses a blockchain to prove authoritatively that you had a specific document in your possession on a specific date, without having to publicly publish it’s content. The fact that electronic signatures can be part of the document being held (and hashed with the rest of its surrounding content) means that you have a distributed contract “system of record”.
  • Namecoin. The current Domain Name System (DNS) is effectively the web’s telephone directory that translates memorable names (like www.bbc.co.uk) into the Internet Protocol Address(es) at which that web site resides (in this instance, 173.194.115.96 and 10 others). However, the central repositories where this information is stored can be systemically blocked or willingly corrupted by owners of the various choke points, or the governments under whom they operate from a legal jurisdiction perspective. Namecoin is an attempt to mirror the DNS in a widely distributed blockchain, with domain names ending “.bit”, and hence operationally difficult to corrupt or censor. Although I have no useful application for it at this stage, I have already registered “ianwaring.bit” to reserve my presence there.
  • Music Distribution. Following a Kickstarter type model, would you like to buy shares in a specific musicians new song? That way, you’d see a return on your investment if it proved popular and you managed to help promote it widely to a bigger audience. Piracy in reverse! The Blockchain protocol does have the ability to run such Assurance Contracts (ie: this project is funded only if pledges of a specific value are achieved by a certain date, or annulled if the target is not met by then), so there are similar precedents for Venture Capital, or even what has to date been tax funded Government projects for the public good. I sometimes wonder how HS2 would do if the UK Government ran the whole thing as a Kickstarter project, and see if the beneficiaries were willing to put money where their political mouths are!
  • Voting. One of the ultimate choke points where MPs act as a proxy for the voters in a geographic area they represent for a multi-year term. The act of multi-year elections is probably an edge case; it’d be more radical if I could choose when I want my MP to act as my proxy and when I wish to register my share of the decision making process personally instead. I somewhat doubt that folks currently in Westminster would wish to put their constituents in control of their own interests, despite how refreshing and re-engaged we’d feel as a result.
  • Vendor Relationship Management. This is the ultimate result of Doc Searl’s work on VRM, where we ask commercial entities to bid for our business. Given the low or zero transaction cost, you could delegate a lot of the associated work to software agents if the product or service was a commodity. Like a Taxi or self-driving car, as given in this excellent 25 minute talk by Mike Hearn, an ex-Google employee (it is a great talk to listen to – not least the effect when some of the actors in transactions are machines themselves, complete with their own bank accounts and long term trade related decision making). Even Yelp, TripAdvisor or Social Media recommendations would be more plausible if subjected to the authoritative “someone I can trust” standards that the underlying technology can provide.

I’d thoroughly recommend this article on Business Insider, which does a great job of highlighting some of the possibilities.

There are many challenges ahead. Some regulatory (I hope Politicians and our Public Servants do act in our long term best interests, without being victim of the lobbying of interests rendered on the wrong side of , or distorted out of shape, by a drive for our mutual good). Some technology (things like Bitcoin will need improvements to bring down the current 10 minute delay to provide definitive authentication, and to handle an increase in Blockchain size to handle the transaction volumes currently seen by Mastercard and Visa networks). But the potential applications are dizzying both in number and of disruptive impact to everyone.

As Fred Wilson, notable VC, said recently: Let’s go back and revisit the big innovations on the commercial Internet over the past twenty years. TCP/IP, HTTP, The Browser, Search, Social, Mobile, Blockchains. Each one of those innovations drove an investment cycle. Our 2004 fund was built during social. Our 2008 fund was built during social and the emergence of mobile. Our 2012 fund was built during the mobile downturn. And our 2014 fund will be built during the blockchain cycle. I am looking forward to it.

Bitcoin (which I described in greater detail here) was only the start. The main challenge now is one of identity, and protecting it from interlopers. You have to keep your private key insanely private (even to the extent of keeping it off Internet connected machines), as that is your definitive personal identifier that someone else could use to masquerade as the real you everywhere online. At least until something can check your own physiology (it is really you), and your state of mind (you haven’t been sectioned, frail nor threatened), prior to any transaction being authenticated. Or is that what the Apple iWatch will be all about?

Intellectual Property: the best lessons avoid public subsidies

Nixon Follow the Money

One thing I find particularly sad is one of the items my MP sent out on his latest weekly newsletter, in a section entitled “Intellectual Property”. It reads:

Mike Weatherley, Intellectual Property Adviser to the PM, has called on the Prime Minister to establish permanent funding for the newly-formed Police Intellectual Property Crime Unit (PIPCU), which tackles IP crime across the country and is based within the City of London Police. More here, Twitter: @mike_weatherley. In his letter Mike said, “I appreciate that funding for this new unit is not permanent. However, I would like to put on record my support for committing future funding to fighting IP crime and boosting the current level of financial support that is available for PIPCU. As I am sure that you are aware, the creative industries add over £70 billion to our economy each year and so it really is in our national interest to protect that revenue.”

It’s difficult to know where to begin to unpick this, but for me, the immediate red flag is the familiar use of common fallacies to support an argument. A full collection can be found here. The “It’s big so must be protected” doesn’t even start to hold water on further analysis, albeit he’s done everyone a slight favour by not dragging in allegations that to do otherwise is to support terrorism – a line i’ve heard in the past from a spokesman for the “Federation against Copyright Theft” (aka FACT). Effectively, i’d suggest the “creative industries” are choosing a business model built on scarcity, and then asking the general public to subsidise the associated cost of that choice. A civil offence morphed into a criminal one in the vain hope to play King Canute.

I wouldn’t knowing mind the source of that £70 Billion figure, and the geography over which that is spread. These sort of numbers are routinely banded around, but often found to be wanting when traced back to their original source.

A few years back, one commentator noted that you could get five years imprisonment for stealing a Michael Jackson track, while Conrad Murray got four years for killing him. A British guy queued for extradition to the USA for having a web site publishing links to torrent sites, and a Dutch National queued for extradition from Australia to the USA, both of whom have committed no crime in the legal jurisdiction in which they reside. Finishing that same week with SOPA and PIPA legislation shelved for the time being, with the MPAA explicitly reminding US politicians whose pocket they were supposed to be in.

The central allegation coming back is an old chestnut on piracy costing the Entertainment Industry money and/or jobs. Does that really hold up to any scrutiny? Is it not more related to the pace at which material is released into other territories and lining up the economics to put a quality product in the hands of customers willing to buy where there is demand? And to do so at a price point where there is little incentive to invest time and effort to subvert the process??

I think that’s a lesson that Apple helped solve in the early days of iTunes. It’s easy for consumers to do the right thing. Right now, if my wife sees that the latest series of Dallas is airing in the USA, where can she send money to see it now? Answer: nowhere. Would someone like to take her money please? No??

I recall some excellent work done by Claire Enders in the days of Napster. Claire at one point earlier in her career worked on strategy for EMI Music, was adept at turning 500+ pages of BMRB research tables into pithy summaries of Music/Internet/Telco market directions, and was outrageously unPC when numbers she uncovered contradicted public statements by senior media company execs. A joy to listen to. Claire now runs Enders Analysis, and is often on Sky and Bloomberg exercising her “take no prisoners” views. But I digress.

The thing she found was that the only people who suffered any loss from Napster and similar music sharing services were the top 10 artists at each of the 5 or so big record labels. Everyone else benefited, by way of exposure of their music to a wider audience, and related secondary businesses like concerts and merchandise. So, at face value, the RIAA strings were being operated on behalf of 50 or so economic entities in total, some of whom are well known for their adept tax avoidance and deployment of their wealth in offshore tax havens.

That got me thinking. Whose interests are being compromised by the recipients of the aggressive pursuits across the world? Who are these people who are besmirching the reputation of lawmakers in foreign lands by their heavy handed approach to playing King Canute on individuals who will have little impact on the cause they are PR’ing? Why are the amounts being sought so out of proportion to the actual monetary amounts involved??

Clue is to follow the money. In the USA (and which then spills over here), the folks funding the effort are giving major money to politicians. The funds are massive. Chief beneficiary of the politicians spend is the TV Networks. Aren’t the TV networks mainly owned by the few big, vertically integrated media companies? So the money appears to go full circle.

Lest we forget, even Copyright and Patents were put in place as servants of the Public Good. To do the right thing to prevent hoarding of good works that benefit society as a whole. Unfortunately, the public the laws were passed to serve are rarely represented in the reviews that affect their implementation – and their misuse by bodies with agendas that subvert the public good for which they were designed. I think our MPs would do us all greater favours by demanding – at bare minimum – proposals to be more explicit in the aspects or areas of Intellectual Property that they feel need criminal law protection by this Police Unit – and that any which are contingent on a poor choice of business model should be passed back instead to be funded by the party choosing the demonstrably defective business model alone.

Wouldn’t the resources be better spent improving the access, timeliness and expense of content across the world? I suspect (and research bears this out) that most consumers want to do the right thing, and piracy would be a meaningless economic niche. With that, a useful saving to be made in times of austerity, and police could spend their resources doing what the public who fund them to want them to do alone.

Having someone more forward-thinking in government circles – and to push back appropriately – would make the world a better place.

Jean-Louis Gassee, Priorities, Targets and Aims

Bowling Ball and PinsEvery Sunday I get a “Monday Note” email from Jean-Louis Gassee, who earlier in his career had the esteemed position of Chief Technology Officer at Apple. Besides the common sense, some of it is laugh out loud funny. Like the time he was invited to a US Meeting of Senior Nokia employees in New York, asked to present on what he’d do to revitalise their fortunes, nominally based on his experience at Apple (see the unvarnished comment in the “ps:” at the end of this blog post). He listed two priorities; One was to fire the CEO (this was the one with a finance background, ahead of when Stephen Elop was appointed). The second was to co-opt Android. I can only imagine the look on the then CEO’s face when he read that out to all the Nokia employees in the audience.

Nokia have now done both, though not before Elop had thrown the company under the Microsoft Bus and where the first million orders for their low end Android phone is set to appear after Microsoft finally take control of the company.

More Priorities

Another instance is when he was still at Apple, and a fellow (new) executive was asked to present their priorities to the Board. Jean Louis describes it thus (the full article, relating to priorities for the incoming CEO at Microsoft, is here):

Once upon a distant time, the new CFO of a colorful personal computer company walks into his first executive staff meeting and proudly shares his thoughts:

“I’ve taken the past few weeks to study the business, and I’d now like to present my top thirty-five priorities…”

This isn’t a fairy tale, I was in the room. I didn’t speak Californian as fluently as I do now, so rather than encourage the fellow with mellifluous platitudes — ‘Interesting’ or, even better, ‘Fascinating, great vision!’ — I spoke my mind, possibly much too clearly:

“This is terrible, disorganized thinking. Claiming to have thirty-five priorities is, in fact, a damning admission: You have none, you don’t even know where to start. Give us your ONE priority and show us how everything else serves that goal…”

The CFO, a sharp, competent businessman, didn’t lose his cool and, after an awkward silence, stepped through his list. Afterwards, with calm poise, he graciously accepted my apologies for having been so abrupt…

Still, you can’t have a litany of priorities.

Growing a Software Business

That reminds me of the first time I was given a software business to run. At Digital, we had two Distributors selling systems to resellers. Newly transferred into that team after DEC had switched the lights out on its first foray into the world of Personal Computers, I was asked to come up with a few ideas on how to grow the amount of software sold via that channel. At the time, the previous year it had transacted around £770,000 worth of software, and was the smallest Software selling “Sales District” in Digital UK.

I duly went and sat on the sales desk at the two Distributors – Rapid Recall (who were Intel’s first UK Components Distributor) and Hawke Systems (who started in the same area, but primarily with Motorola). I talked to sales people. I listened to their phone conversations. I talked to some of their customers. I talked to their product managers. After a few intense weeks of note taking, I produced a 35 page document on ways to increase the software business via the Distributors.

My then boss, Keith Smith, read it and just said “Go do it”. Shit. Where do I start? By a stroke of luck, I got as far as the end of the first three ideas – in two years – and the business was up to over £6 million/year, and now the largest Software Sales “District” in the company. From that base, I got given my next gig, which was to start the DECdirect Software Business; selling VAX Enterprise Software, armed only with a catalogue, 8 telesellers, 2 tech support, 25,000 potential customers and direct delivery from Software Manufacturing in Galway – which had an even bigger impact. It went 0 to over $100 Million in 18 months, at 89% gross margins.

Growing a Systems Business

A few years later, I got given a flatlining Distribution IT systems business to improve. That started off with a brainstorm on all the potential ways to grow the business, which ended up with 36 specific ideas on the board. What we then did was to list all 36 ideas down the left hand side of a table, and put 4 additional columns across the top:

  1. Ease of Implementation (1-5): on the scale, 5 was easy, 1 was hard
  2. Chances of Success (1-5): 5 for a Sure Thing, through to 1 if unlikely to prevail
  3. Revenue Potential if successful: we made an educated guess on likely business levels if all went well
  4. Total of (1) x (2) x (3)

We then went down the whole table, taking the teams view of scores for each of the 36 business ideas. Once done, filled in column (4), we picked 3 strategies with the highest total scores, and binned the rest. Those were our three priorities. That business went from £12 million per year to £52 million per year within 2 years, while our primary other Distributor competitor went from £10 million per year to… £10 million per year.

Likewise, much later on, applying the same disciplines to the VMware business I ran at Computacenter for 2 years (alongside looking after 1,071 other vendors as well in our team of 4), we got from 7% market share to 21% in two years, and won their prestigious “Global Solution Partner of the Year, 2012” award. The whole underlying strategy had 2 key aims, and 3 subsidiary development goals. Worked a treat:

VMware Global Solution Provider of the Year 2012 Trophy

The top 3-5 priorities are the only ones to focus on

Ever since, every business i’ve run has boiled down to 3-5 priorities, in order of impact – which is very much like organising a set of bowling pins and knowing, at all times, what you’re aiming at.

If you get down to brass tacks – and this is something I learnt from Microsoft when selling their wares – there are four key levers in any business. To improve profits, you sell:

  • More Product(s)
  • to More People
  • More Often
  • At More Margin (which is higher price and/or lowest cost)

Graphing the number of *different* products you sell per year, how many different customers you sell to per year, the average purchase frequency per customer per year and the overall margin percentages per year, all on separate graphs, will normally isolate pretty quickly where a business is succeeding, failing or (at the very least) which way it is trending. Towards future success, or alternatively, towards oblivion. Once you understand the dynamics you’re faced with, you can start addressing how you’re going to push things forward.

And i’m far from alone:

Equally applicable, I noticed on my weekly Quora Digest this morning that someone had asked how to prioritise feature requests submitted to a Product Manager. I thought the answer from Ian McAllister of Amazon was extremely good – see it in the flesh here – not least because if follows the same sort of process i’ve found has worked well down all the years in my sordid past.

 

Brilliant Budget (but please look away from the debt)

Pie Chart showing UK Government Debt

It feels a bit churlish after the Chancellor delivered a stack of pension related changes things that help me personally, but in the background I suspect something much bigger may come back to bite us all. Something just doesn’t reconcile in my brain, but park the picture above for a moment while I explain why.

While waiting for a phone call for a planned Interview by the Daily Telegraph after the Budget Speech yesterday, I threw some data into a graph the way I normally do if I don’t understand something. Picking at the result of this sort exercise is a step of me being inquisitive, trying to reconcile things that, at face value, don’t appear to add up.

Last Year

Just before the Chancellors last Autumn Statement, I was asked by my pension provider if it would be okay to give my name to the Daily Telegraph, nominally to interview me afterwards at its effect on Jane and I personally. I think because we had a SIPP plus an ISA, and there were rumoured changes to them. In the event, really little happened to either, so none of my words, nor our photographs, were used. However, one thing really bugged me, and has done ever since.

I don’t normally listen to politicians at speaking at Westminster, and indeed don’t read any Daily or Sunday Newspaper. I buy the Economist 4-6 times per year (normally when they run a Technology Quarterly, or when something topical on the cover grabs me), but outside that, I tend to dip into articles by authors I respect on the Internet at large. One of these is John Lanchester in the London Book Review, whose financial journalism is very matter of fact, entertaining and his logic backed up with well researched facts.

Brilliant Journalism

John Lanchester wrote one story in January 2013 entitled “Let’s Call it Failure“. If there’s only one article you read all year, this should be it; 4,507 words of journalism of the highest order. The one thing that my brain locked onto was, that all the talk about austerity and budget cuts, that the total amount of government spending was still headed relentlessly up every year.

With that in mind, the thing that struck me during the Autumn statement was that every statistic of financial news was a hockey stick of relentless improvement, but every number quoted, without exception, was a future projection. If you laid the actuals leading up to those projections onto the exact same graph, I think most people would think the authors were on crack. Bad, worse, worse, (into projections), better, better, better.

Up stood Ed Balls, the Shadow Chancellor, and I thought he’d zero in on that like a rabid dog. Instead, we got given a bit of a random rambling and wide derision, but no useful repost. With that, I largely shook my head and went back to my work.

Budget 2014

Fast forward to the March 18th 2014 budget. The Telegraph asked again if they could interview me afterwards (they had our pictures ready to go too). So, I bought three newspapers in the morning, summarised the structure of what I was likely to say, and for the second time ever in my life, listened live to a Government budget related speech.

As before, the Chancellor was heavy on future GDP percentage increase projections, leading to decreases in projected borrowing, crossing the line to having income exceeding spend sometime in 2018. On the face of it, progress. This time, no mention of further targeting of the Welfare budget, which I know is 2/3 spent on pensioners and health related measures, both deemed off limit to any reduction (OAPs tend to be voluminous and willing to turn up on Election Days).  Last time, there were big cuts to this planned, which I opined at the time was an unprecedented direct assault on the less well off and those in need.

However, the need for borrowing is the delta between income and spend in the current account. The Chancellor made no mentions of any statistically significant further budget cuts (just caps on previously planned reductions, tied to the consumer price index into future years). The goal appears to be to have income to exceed total spend sometime in 2018 now driven primarily by a flurry of GDP percentage increases. So, in these times of austerity, the assumption of most people is that Government spending will continue to slow, glide over a peak and then begin to fall. Now look at the graph I posted above; this assumption is patently false. Why?

Debt Levels

One notable thing in the John Lanchester piece were the original projections back in the 2010 budget, where we were planned to pass into balanced inputs/outputs by 2014. Instead, we made little progress, and indeed had some big cash injections into the current account, like that of 4G Spectrum Auctions, and of absorbing £28 Billion reserves from the Royal Mail Pension Fund. The gotcha with taking all the assets of the Royal Mail pension fund as cash into the current account is that all it’s future liabilities and funding shortfall are booted unceremoniously into the UK Governments future borrowing requirements. So borrowing is still rising, despite all the austerity we can all feel. But then GDP is a pain to predict, where even the so-called “Office of Budget Responsibility” forecast it consistently wrong, and from what i’ve read before, it’s conversion to Government income is not a direct mapping. So, to turn back to that original John Lanchester piece; in one part of it, he defined what “Gross Domestic Product” was, which disabused me once and for all of thinking GDP was a measure of money volume. It’s not:

It concerns a technical economic factor called the multiplier, and that in turn involves us in a discussion of what GDP is and how the economy works. Imagine for a moment that you come across an unexpected ten pounds. After making a mental note not to spend it all at once, you go out and spend it all at once, on, say, two pairs of woolly socks. The person from the sock shop then takes your tenner and spends it on wine, and the wine merchant spends it on tickets to see “The Bitter Tears of Petra von Kant”, and the owner of the cinema spends it on chocolate, and the sweet-shop owner spends it on a bus ticket, and the owner of the bus company deposits it in the bank. That initial ten pounds has been spent six times, and has generated £60 of economic activity.

In a sense, no one is any better off; and yet, that movement of money makes everyone better off. To put it another way, that first tenner has contributed £60 to Britain’s GDP. Seen in this way, GDP can be thought of as a measure not so much of size – how much money we have, how much money the economy contains – but of velocity. It measures the movement of money through and around the economy; it measures activity. If you had taken the same ten quid when it was first given to you and simply paid it into your bank account, the net position could be argued to be the same – except that the only contribution to GDP is that initial gift of £10, and if this behaviour were replicated across the whole economy, then the whole economy would grind to a halt. And that, broadly speaking, is what is happening right now. People are sitting on that first tenner.

Hence the Government derives income from taxing the flow of money, and the OBR has to make a guess on not only how much money is in the economy, but to guess the multiplier to see how intense it’s flow is. That then gives an approximate mapping to tax income, which can then offset the projected spend. And despite the historical variances (which always appear to be much better than actuals achieved), the Chancellor has queued quite a few spending plans built on those assumptions.

Strange Income Sources

The curious thing about previous estimates (that resulted in a shortfall), was that the economy nevertheless grew slightly based largely on a one time positive of PPI claims on financial institutions. Fines from the LIBOR fixing scandal would usually in turn also benefit flows, but the Chancellor elected to give this to charities – albeit ones likely to have to spend the money rather than pocket it into their reserves (read: savings).

HS2 – all quiet – wonder why?

But – how do projects like HS2 work? Currently estimated to cost £42.6 Billion. Experience in other similar projects suggest the effect is to move the London commuter belt out to Manchester, a lot of whom are going to wave as it flies by places en route through the West Midlands. A lot of the financial analysis will suggest that the government will get an infusion of cash (as they did with HS1 between London and the Channel Tunnel, in that case £2.1Bn from a Canadian Pension fund), which will be paid with guaranteed returns to that source over the next 20 years. So, the government gets a short term wad of cash, but throws it into liabilities as a flow of debt repayments, with interest, long into the future.

This mirrors the way PFI projects work; the cost-benefit analyses are constructed on the belief that there will be tax income from the project, albeit in a lot of cases the private companies use various techniques to avoid paying that tax on a grand scale. Tax haven and avoidance city. For a sobering read, have a read of “The Great Tax Robbery”, written by ex-HMRC inspector Richard Brooks (and now resident at Private Eye magazine). He’s fairly convinced that the Government (by their actions, rather than their words) openly encourage corporate tax avoidance to feed their need to keep PFI projects off UK current account books. However, his wording is a bit more careful than mine is likely to be if I dared repeat the gist of the various examples he cites:

Austerity?

So, what’s all this austerity thing about? Ed Milliband’s reply was accurate, that we can all feel a drop in living standards – particularly the current Governments targets of the less well off. A lot of problem statement puffery, but nothing tendered in the time available for an alternative set of proposals (if they exist – no evidence that stands up to any statistically valid scrutiny yet).

As a country, we’re borrowing at unprecedented levels, and the hunger for more debt is rising like topsy. We’re largely fueling our existence from large one time shots into our current account, which add to more long term debt. The cost of servicing that debt is equally huge, so all eyes on the bond market, and ratings of our ability to pay back our debts. If it looks like we’re not tightening our belts with our spending enough, we may give the impression we’re not being prudent, and if our credit rating downgrades, the increase in interest charges alone may send us swirling into a downward spiral.

One other funny in the future projections is that the Government apparently adjust the future spend levels, playing the consumer price index inflation in to deflate the currency value of our future loan payments. That helps dampen the apparent spend projections quite markedly (a bit like a snowball, but in reverse). Yet the graph still heads relentless upward regardless.

What have the Romans done for us?

So, it’s all a bit of a shell game, and our current debt levels are 10x that of those in 1980 the last time we all felt deep austerity – just before the financial markets were deregulated. So far, i’ve not found how the graphs subdivide into what the spend categories are. The Government appear to have not decided to reign in final salary pensions that the rest of us had to, based on commercial affordability. And things like Trident, HS2 and countless other money sinks are also still in the future mix. And UK Government debt levels are still rising relentlessly.

The only historical precedent is that of the fall of Rome, where the currency ended up being devalued into oblivion leading to an eventual collapse. Something successive UK governments appear to ignore – so far. I wonder if it would be more prudent to systematically reduce our current huge, relentlessly growing debt levels. Harold McMillans warning concerning “selling the family silver” are now ignored, and i’m not sure the new owners have our own long term interests at heart.

Shareholder Positions and Profits YTD

Pie Chart of Ian Waring Stock Profits YTD

At the start of last year, I started to run my pension funds personally. In line with normal advice, I put circa 70% of the available funds in Vantage LifeStrategy 100% Equity Accumulating Index Trackers, and the balance i’ve used to bet on a few companies I believe have a rosy long term future – while being fully aware of likely swings of the US Dollar vs GB pounds. I’ve lived long enough to see that cycle between $1.40 and $2.20 to the pound – currently nicely in the middle and with holdings I can leave in situ waiting for the right position to enact an exit – albeit that’s not for many years into the future.

At the moment, my total fund is up 9.05% in the year i’ve been running it. The shares portion of this has come in +17.68% year to date (touch wood – profit of £21,871.99). The sources that contributed to the increase in the fund are as above.

In the early days, I did bet on a few others but kept the shareholding small until I had visibility of what they were doing. When they weren’t giving meaningful return, or where I felt I didn’t understand the company direction (strategically) well enough – or learnt their susceptibility to unfounded competitor rumours – I unloaded them. That applied (for various reasons) to ARM, Baidu, Red Hat, Salesforce.com, Splunk and Netflix.

At this stage, i’ve retained positions in Google, Amazon, Tableau Software, Apple and… Facebook. I did buy some Facebook shares in the early days after it’s IPO, but unloaded them at a slight loss while they were in the $20’s. I’ve now bought back in at $69 – largely because Mark Zuckerberg’s purchase of WhatsApp, and the fact he’s put the WhatsApp CEO – who is vehemently against advertising – onto the Facebook Board. I thought this was brilliant, as advertising is the major current source of Facebook’s income, and there was a willingness to put someone up there that will push an alternative, subscription based model. A good sign that Facebook are willing to be radical with their business models, and not follow the normal high technology malaise of clinging to a failing business model into oblivion.

I always think that the Advertising Industry is naive to think their next frontier is the screen of people’s mobile phones; it’s a bit like having a kiddie jumping up and down in front of the TV when you’re trying to watch something. WhatsApp currently charge $1/year for the instant messaging service, and at that level, there is even scope for friends (or vendors) to offer to pay the subscriptions of large numbers of users.

Liquid Metal and GT Advanced Technologies were a small punt based on hearing about various Apple licensing agreements two years ago, and then seeing Apple employees start filing patents on the associated materials just ahead of contract renewal due dates. Liquid Metal is likely to be used for the carcass of new iPhones (without the need to mill aluminium as at present) and GT Advanced Technology supply very resilient Sapphire screens large enough for the display surface of same. Those shares turned out to be quite volatile, so I did an exit stage left on profits of 30.9% and 24.2% respectively – within 3 weeks of their original purchase.

Google shares will split in April, improving their liquidity. Amazon have had a recent fall, but i’m confident that they’ll recover 20-25% in the next 2-3 months. Tableau Software are just about to dilute things a bit with a new share offering, but my returns are still very good (not too far away from 100% returns for the 218 shares I still have). Apple are a blog post all by themselves, cursed by Analyst expectations of slowing growth (despite ratcheting up their market share relentlessly, plus earning 70% of the mobile industry profits) and discounting the likelihood of laying another category of Golden Egg, as they’ve done for iPod, iPhone and iPad already. Quite funny when Amazon trade at huge multiples on the suspicion that their conveyor belt will magic Golden Egg league profits as soon as Jeff Bezos decides that’s what he wants. And Facebook is a wait and see.

There are three potential IPOs i’m looking out for, but that apart, the strategy is “Long Term Buy and Hold”. Working well so far, touch wood.

Ask not what your mobile phone can do for you, …

John F Kennedy Photograph (JFK)

Last nights Gillmor Gang felt like it arrived at a conclusion that the next big frontier for mobile platforms was the message bus that is notifications. From a consumer perspective, Google are good at this, albeit Google Now and Google Plus tread over each other occasionally, and Google Plus’s Circles quickly fall into disrepute. Apple’s notification system is mostly empty and unused. It was perceived that Microsoft didn’t have a strategy at all. Meanwhile, the messaging vendors running across multiple platforms are lined up for a battle royal to keep their respective user bases growing, and applicable in their niche use contexts (WhatsApp, Line, WeChat, Hangouts, Skype, Linc, Secret, Snapchat, Chatter, Twitter, LinkedIn, etc).

For me, interesting and pertinent comment tends to come from Feedly (mainly RSS feeds), my DoggCatcher Podcast consumption, a couple of mailing lists and the occasional post on Twitter, Facebook, Google+ and very rarely, in LinkedIn. For the most part, all of these social apps shift ungodly amounts of pollution in my stream, and are systematically getting worse. It really doesn’t surprise me that Twitter have had over 1 billion registrations, of whom only 1/4 are regular users now; the daily requests to add more suggested users does nothing for my feed quality – and in fact precisely the opposite.

My Nexus 5 with Google Now already flashes up a bus timetable and next bus eta when I walk past a bus stop. It has all the performance of the stocks I own already tabulated. It tells me the result of Aston Villa’s last match (1-0 against Chelsea – must be a bug there somewhere) and soon will tell me the next match due, along with the relevant league stats of both teams. And at the moment, it will throw in the name of someone from Google+ whose Birthday is today, although i’ve never heard of any of the folks listed in the 5 months since i’ve switched to Android. And if I have worked out how to integrate my calendar, it will tell me if I need to leave early for my next meeting in light of the current traffic conditions.

With that, most of my future use cases that help *me* are largely covered. Improving the efficiency of me recording my food intake and exercise routines may help; i’ve logged all my food intake and have it summarised as carbs, protein, fat, calories and exercise calories expended by day, every day since June 3rd 2002. My weekly weight readings go back that far too. My fitbit does a reasonable job counting my steps and I get a £5 book voucher to spend every 4 months or so for the privilege of admitting my exercise stats. So, an Apple iWatch with heart rate/pressure monitoring may add a bit more data meat for me to have graphed. So, what’s next to help… me?

The industry is now off the starting blocks and into the calls of “Big Data”, “Internet of Things”, “Sensors everywhere”. My phone already knows the time, my location, who i’m calling, who’s calling me, how fast i’m travelling, where i’m headed (be it in my calendar or set as my navigation destination) and where I have notification of tracking data for an inbound package from Amazon. Some data based on data clues i’ve shared with Google (location, searches, Chromecast media consumption) and Amazon (purchases). I wonder if any Visa/Mastercard data makes it back. And now that the role of “information hub” has escaped from living room Games Consoles and into that Smartphone into my pocket, what value to I get back from it now?

A lot of the benefits are going to accrue higher up the food chain – in which case Steve Gillmor’s words may (as usual) be prescient.

One of my previous employers had over 10,000 staff, thousands of suppliers and a large number of B2B customers. One system there collected the metadata from email on who was conversing with who; anyone could go onto the system and see (in priority order) who was engaged with a specific supplier, or all the touch points into large enterprises they serviced. That speeded up the engagements (as it would do in any knowledge based business). That may also work for phone calls made or received on the company mobile in the future.

The same company also have high water marks in various business processes, so if an iceberg is heading your way that will break the customers SLAs, the management chain get the needed urgency and corrective actions instilled – before the customers notice. However, it is silo’d on specific tracking systems that managers have to dip into regularly.

For an Enterprise, one of the keys is to be able to link business processes and the exception handling flows so that the relevant people know whatever is important to them, when it is important to them. Some of my previous work was to graph important things simply to show, for example, what the flow of incoming cash was, it’s sources and any queries that may impale the chances of a customer paying their invoice(s) on time. Very much like the sort of card dished out by Google Now, but with some limited interactivity to dig down deeper into a prioritised list – to enable fast spotting of the root cause to address. It worked spectacularly well to help eradicate potential problems and to markedly improve DSO.

(For what it’s worth, once I could reach the database tables I needed, I prototyped the reporting needed to address the business issues very quickly in Tableau Desktop Professional. Then in line with corporate reporting platform decisions, self learnt then reimplemented the whole lot in Microsoft SQL Services Reporting Services (aka SSRS) – a very bitty, detailed and long process – where the reports still run to this day).

Some time ago, Facebook provided an alternative UI that made your friends the centre of your mobile experience. This largely fell into disrepute as many of the apps on a phone are gateways into simple process tasks, and the entry point wasn’t specific to a designated “friend”. John Borthwick wrote a piece on Medium about which Mobile apps appeared on a wide variety of home screens. Yahoo bought startup Aviate who provide a launcher that moves icons to the home screen – for immediate availability – based on the context of where you are and what you do regularly. I’m yet to see any analysis that segments which apps are used, when and how often; that would be a useful base to ask further questions.

In the meantime, linking apps into appropriate notifications from Enterprise systems may well be a useful thing for mobile applications. That historically has been the domain of Microsoft applications with custom extensions written in VBA (Visual Basic for Applications). It’s probably a sign of genius that you can do likewise with Google Apps now (Chrome Extensions were announced last week) – with add-on code written JavaScript – the most popular programming language in the world.

The main downside is that, for a business process, JavaScript (as indeed is true of VBA) is akin to writing stuff in very basic assembler. Mind bogglingly long winded and subject to excruciating minute detail. I think there’s probably a lot of mileage in being able to provide Google Now type cards with graphs and data you can drill into out of the box – all thrown into the notifications stream with an interface not unlike IFTTT (If This then That – one of John Borthwicks companies) to deliver the information to the correct people, at the right time, only.

I’m just waiting for the first signs that the Enterprise Software vendors will start putting the hooks in to enable Google to undertake the assault on this hitherto Microsoft stronghold using Chrome Extensions.

In the meantime, I also ask myself how folks like SAP and Oracle survive with their very clunky ERP software, all of which looks ripe for disruption with modern open source based software – but that’s another story about money, customisation and organisational inertia all by itself.

 

Giving Kids (and Parents) the Greatest Gift of All

One thing you learn very quickly is that if you have a decision makers spouse, or children, engaged in any purchase decision, they carry a disproportionately huge degree of influence. At Digital in 1984, Mike Tait (who previously ran Commodores PC operation in the UK) bought on John Mitchell to run Dealer Sales Incentives; besides a misspent youth serving beer in a Munich Hofbrauhaus, he’d run Sales Incentives for Olympia Typewriters. I think he’d largely given up on their attempt in the PC market (Olympia’s machine was called “the People”), and his last exercise at the previous company was offering a special green model to Irish dealers, which he told them (with a straight face) was to be called “the Little People”.

He concocted a “points make prizes” campaign, which we were to announce in a nationwide 5 minute slot on TV-AM, to be aired at 7:25am precisely. While we had many of the 120 PC Dealers bought their staff in early especially to watch that broadcast, TV-AM duly screened it 20 minutes early – and refused, despite my managements very fast and vocal protests, to repeat it at the agreed time. Having pee’d off the whole channel, John nevertheless ensured that the “PC sales make points make prizes” campaign gift catalogue got sent to every participants home address. We had plentiful (positive – for us) feedback that suggested salesfolks were getting impaled on questions on how many Digital PCs had been sold on their return home, be it from their spouses and (where present) kids.

Fast forward to my time at Demon, where I got several opportunities to follow my boss, Sales & Marketing Director David Furniss, into unfamiliar but mind changing meetings. One to meet some management in an office opposite Harrods to agree outline terms for Demon to be shirt sponsor for Fulham Football Club, which we then did for three years. Another was to meet a team of people in an office above shops at the intersection of Regents Street and Oxford Street, London, to fund a campaign to promote Demon Internet in secondary schools up and down the country.

The company we met were experts at taking a brand product family and building course curriculum material for school teachers to reuse in class. So, a Sun Cream supplier could sponsor a class on Skin Cancer, and folks would know how to protect themselves in summer months. An electric razor company could sponsor packaging design in Art (and found that 14-15 year olds were very loyal to their brand when they bought their first razors – normally as presents for whoever they were dating!). A Computer Supplier could do some ICT work and sponsor “Computers for Schools” (which is what they did for Asda – ahead of Tesco doing a similar effort). David told me that one of his friends had done such a campaign for Microsoft, and he had done one while he worked at Compaq – and the brand recognition of both had major jumps in familiarity as a result.

We did one for Demon (project led from start to end by one of my staff – Wendy Sidaway), focussing on ICT teachers and giving a professionally produced course curriculum around “The Internet”. Besides the Demon branding on all the posters, course materials, teaching guides and homework sheets, we paid for a competition open to all students – and to their schools. Students would build an idea for a web site and say what they’d promote. Prize has one of the new candy-coloured Apple iMacs plus software and printer for the three top entries, and 5 iMacs for the school of the eventual winner. The take-up of the (free to the schools) materials and participation in the competition was unbelievably high – well over 80% of all the secondary schools in the country took it up. Brand recognition for Demon went off the dial, and our new per-customer acquisition costs kept to around 16% of that of our benchmark competitors. Total cost (in 1998) was circa £50,000 for the work and around £10,000 in prizes.

Fast forward to 2014, and I hear various proposals from the Government to fund the provision of Independent Financial Advisors to ensure people are getting good deals out of the Pension Industry, variously for selection of pensions and for Annuity providers. In reality, the education needed to pick a pension fund to invest throughout your working career(s) should be a simple three box flowchart. It’s even explained in one paragraph in Scott Adams “The Dilbert Principle”. Paraphrased:

  1. Management charges for an “active” or “managed” fund do not give better rewards than a monkey picking your stocks despite their disproportionately large charges. If the choices include either of these terms, move on and disregard the allure of thinking the high charges will buy you any advantage; the opposite is true.
  2. History (and this includes all the stock market crashes along the way) says that the consistently best performance is to bet on all the horses, aka putting your funds in an Stock/Equities index tracker. The charges should not exceed 0.5% of your fund value. Highest returns normally come where the funds are accumulating (ie: any dividends paid are used to buy more units of the index tracker shares automatically).
  3. Once you get within 10 years of retirement, you may normally expect to step the mix of the fund you’ve built up from being 100% equities to be a mix of equities plus a more predictable (but much poorer returns) proportion of government debt (aka Bonds).
  4. Steps 1-3 will give you the biggest snowballed returns with which you can live, or at your option, to buy an annuity after your retirement. If you do choose to buy an annuity (a company will take your fund and agree to pay you a specific weekly/monthly pension for the remainder of your life – but swallow any money left at that point), it’s good business sense to shop around. Don’t just accept the first offer you get. And if your fund is healthy, you may have enough to live off without having to buy an annuity – and your dependents can get the funds left over, less capital gains tax, after you pass away.

So, with that, if the government ensures consistency in the way charges are published, annuities can be compared simply, and draw down options are presented, then the job is done, with no IFAs needing to be retained in order to explain how to navigate around companies giving poorer value.

However, what about children? That’s where “The Richest Man in Babylon” comes in. Originally prepared in the 1920’s as Insurance Industry Pamphlets to explain good financial practice, it got consolidated into a book. If a child makes it through to the end, they’ll learn all the core financial skills: budgeting, saving, avoiding scams, picking domain experts, structure of business models, the futility of games (read: lotteries) and above all, the art of snowballing. That of your money parenting interest, and the accumulating interest’s children, grandchildren, etc building up your personal wealth.

The book is not expensive, and you can even download the full audiobook from YouTube – either nearly four hours in one take, or in 17 individual chapters worth.

That said, it should be a simple job to spend around £100,000 to encode that into a modern version suitable for inclusion in every school curriculum. That would be a gift to all the children in the country unparalleled by any government in our history.