There is a great summary of everyone over on Shadowfoot’s blog.

Unfortunately (for me and for the audience) I was also asked to give a 5 minute talk, and as I was placed last I had to follow in some big footprints. I was filled with confidence after there was a cheer as I was introduced, before I realised that it was because I was introduced as “the last speaker before the drinks”.

I’m re-writing what I spoke about at Webstock from an early version of my notes. Sadly I don’t have the annotated notes from the event, so I am missing some of the extra pieces that I had gleaned from previous speakers.

Choosing your own topic is a peculiar type of torture – so I asked organiser all round good person Natasha for advice, and she informed me, and I quote verbatim, that she was expecting:

“a ballet recital followed by your rendition of Broadway show tunes followed by your 5 min talk on why Tash is awesome”

I’d left my tutu behind, so instead I chose instead to to add a bit of context to the last time I was up in front of a similar audience – when I affirmed with two sturdy comrades in arms at Foo Camp that “The Future of New Zealand is Fucked”. It was a convincing display by our team, but sadly the audience voted with their hearts – indicating that they preferred to believe the opposition.

So I decided to join the crowd, and spoke this time about “Why are we here?”.

Not “why are we here?” in the Dalai Lama, Catholic Church or Douglas Adams sense, but “Why are we here in New Zealand, in Wellington and at the Webstock event (or even reading this blog)”

I believe that we have a choice in all of these matters (except you Mum – you have to read my blog, even if you don’t actually do so)

By definition, anyone that has the get up and go to attend Westock, to read blogs and twitter about what is going on, also has the get up and go to do so – to leave New Zealand and head for the gold paved roads of the UK, USA, Europe and Kathmandu.

Indeed many of us do, including myself. I’ve been offshore several times now, the first time lasting about 10 years, and the last few times a year or two each.

So why do we come back, why do we stay?

After all in New Zealand, and in Wellington in particular there are three compelling reasons not to be here:

The weather sucks. It really does. As I draft this on Saturday morning the rain is lashing against the house, Cook Strait is closed to the Ferrys and the latest flight from Sydney was diverted to Auckland. Meanwhile in Perth it’s sunny and warm, in Europe summer is nigh and we are consigned to short days, rain and cold.

We are miles away from anywhere - we were the last decent place to be permanently colonized by humans (discarding Pitcairn Island and Antarctica), 4 hours away from Australia and 10 hours way from anywhere interesting (11 from Wellington).

And we have a crappy Internet connection to the rest of the world, a connection seemingly controlled by rent maximising companies (shame on you Telecom) rather than stakeholders determined to open up access to the rest of the world.

It means I’m cold, days and too many dollars away from the great friends I have around the world and my broadband sucks.

And yet, and yet – I am still here – we all are. Why is that?

Again, I believe there are three answers: The weather really sucks, we are miles away from anywhere and we are connected to the rest of the world through a crappy internet line.

In New Zealand, and in Wellington more than anywhere, we expect the unexpected. This Saturday morning the weather forecast was all doom and gales, but some friends and I grabbed and hour of relative stillness to go for a quick bike ride. Meanwhile the day before the Webstock bash, the weather was shake your house from the foundations wash the green off the leaves horrible, and yet canny Wellingtonians knew to put suntan lotion on, for lo and behold it was crisply perfect that afternoon.

It means that when Vaughan Rowsell decided to go for a bike ride back in January, he didn’t wait until next summer, but took off for an April to June journey- knowing it was going to be cold, wet and miserable at times. He’s (almost there) succeeded. It’s the same urge that will guide hundreds of motorcyclists (myself included) to ride to the Brass Monkey this weekend, which is in freezing central Otago and deliberately held at around about the time of the year when the first big dumps of snow come through.

All this adds up to a people that are ready for anything, that accept no excuses and just get stuff done, regardless of what else is going on.

You can see it when we Kiwis land work in London, study in the USA, crew boats in the Med and work in charitable organisations in Africa. Kiwis arrive and depart with a deserved reputation for being able to handle anything and everything with no fuss.

Our society helps create these people with an excellent education system, a great social welfare system that means we are kept healthy, off the streets and trained, and political parties and a system that generally allows logic and fairness to guide decisions rather than a hackneyed partisanship system. Generally.

A word on education. Not only do we have places like Wellington’s Massey Design School, which is a truly great place, but more importantly we have a very high average level of education, and a very high 10th percentile level of education. That is – the least educated amongst us are far better off than their equivalents in other countries.

I’m not trusting comparative statistics for this – I’m trusting the excellent service levels across all sorts of organisations, from airlines to banks, rental car companies to restaurants and lunch bars that we receive relative to other countries. While the systems may sometimes (often) be less than stellar, invariably the people are polite, smart and able to deal with a variety of situations.

And finally that lousy wet weather means that we live in a beautiful place, one that encourages us to get out and enjoy it, and that attracts others from around the world to do the same.

So we are resourceful and smart, a fair people, have a decent corruption free society and we can do anything.

And yet we live miles away from anywhere

Not for us the intense deal making and energy of Wall Street and Silicon Valley, where anything is possible and nothing is too expensive.

However that vast distance also means that we avoid the Wall Street of today, the excesses that crushed an economy and the deal making and loans to business and individuals that abruptly halted.

And while we do leave New Zealand by the thousands to take advantage of London and New York, we gain valuable experience overseas and then we bring it back – either on loan when kiwi stars appear at conferences and on boards, or more permanently when we return home.

We come back because it is home, but also because it is easy to live and do business here. It’s trivially easy to start a business, to open bank accounts and to pay tax here.

We have thriving local competition, even amongst start-ups. We have DonateNZ and Givealittle, Thinksmall, MadefromNZ and Bizchat, Fishpond and Mightyape, Phil & Teds and Mountain Design Buggies, and the Jobs Summit, Foo Camp and Entrepreneurs Summit.

We all want to give it a go, and that competition means that the winners (be they a single winner or, often, a merged entity) combine to be a great, and hopefully, export led company.

To be sure we also have our problems, stuck here at the end of the world, but we are pretty good at identifying them, and we are pretty good at marshaling attention and energy on them until they are fixed. The number of pre-emptive summits for the economic crisis, the reports and government moves on the lousy broadband, the likes of Cactus Kate railing against the NZX governance and the rise of the NZ Institute all give hope.

But it is that crappy internet that is the final advantage we have. Not the lousiness of it, but the fact that it is there. (And yes – please please improve it with urgency)

Decent internet reduces costs, reduces pain and reduces cycle time. It means that we can build businesses in the cloud (basing them offshore to avoid the thin pipe) and address the world.

It lowers the trade barriers between us and our customers and suppliers, and it makes the world our market.

Our Government is helping as well.

We have signed Free Trade Agreements with China, Australia, Brunei, Singapore, Chile, Thailand, Indonesia, Malaysia, The Philippines and Vietnam. That’s an astonishing 1.9 billion people – or 25% of the world’s population.

We are also in negotiations with Saudi Arabia, Kuwait, Bahrain, Qatar, United Arab Emirates, Oman and South Korea. That moves it to a free trade addressable market of 2 billion people – a market of about 480 people per New Zealander, or 4 million people per reader of this blog today. Who cares about the anti-free trade USA subsidies when we have this market?

That’s plenty enough to share.

Finally, why were people at the Webstock event, and why are you (still) reading this?

When I returned to New Zealand in 2003, I’d realised that my ideal job was to
help find and found start-ups, to help growing businesses grow faster and to help their owners and employees perform better. It’s fun.

I met the then existing VC and private equity firms, but they seemed to be on the slow train, and many were mired in government hand-out bureaucracy. The tiny average investment size, the small size of the funds and the slow velocity of transactions all counted against the industry and their funded companies. I wanted better.

I was lucky enough to land at Trade Me, just before they hit the mainstream, and the energy was there. Now, six years later, and after stints overseas and here in New Zealand, I realise that times have changed across the board.

Trade Me, Xero, Peter Jackson and Richard Taylor, amongst many others, have all demonstrated that you can be good guys and start, run and make money from (the jury is waiting a verdict on Xero) excellent and cool companies.

Meanwhile the internet generation is hitting their stride. The 22 year olds of today have always been online, and they intrinsically get the space.

There are older returnees that are bringing energy, experience and cash back to our shores, and, most of all, there is a sense of opportunity.

The opportunities and energy is real. After landing back here in March, after selling up in Fremantle, it took only two weeks before I had over 20 opportunities of one description or another, and I am now part of two new companies.

Almost at the same time I received a call from Equip Design – who consult as part of the Better By Design program. I’m now on the team, and have visited the first of a series of clients that will build off a rich NZ history of successful transformation into design-led export-driven companies. I’ve toured Formway Design (unbelievable) and looked at from afar at the success of Obo, Phil and Teds and other successful graduates of the program.

We are good at this stuff – product design, anything internet based, branding, lean and flexible manufacturing – indeed the entire product development process.

Our local economy is strong, our addressable economies of the world are in varying degrees of trouble, but our export volumes are trivial to them, and our products are often clever and cheaper solutions to problems that they are just starting to look at.

So we have the people, the experience, economy and education. People are giving start-ups a go, and we have a huge market to address.

There are plenty of roadblocks on the way, but we Kiwis can do anything, regardless of the weather outside.

Let’s make it happen.

The first shows the effect that the USA’s poor schools have had on their economy – and was just released. It finds the economic loss in the order of US$2,400 billion to $4,200 billion of GDP in 2008 alone. That’s more than enough to compensate for the current economic crisis.

It’s a tough number to get to though, as it means that the US schooling system would need to be the best in the world, whereas in fact is is close to the worst in the Western world. Their top schools are astonishingly good, but their average and below average schools are appalling.

NZ fares better than the USA, but there is a lot we can learn from this report. It wouldn’t be too hard for the local McKinsey office of the NZ Institute to generate the economic loss numbers for New Zeaand – how about it?

The Economic Impact of the Achievement Gap in America’s Schools

Poor school systems mean the students have poor grades, which mean that a lower proportion go to university, the average income is lower and they are more likely to have low civic engagement and criminal records. That’s summarized nicely in a page, as is a McKinsey team’s wont:

Somewhat frightening are the differences in scores relating to being black and/or low income – things which are also correlated. I wonder what the sme chart looks like in other countries.

While the most recent report stays well away from asking why the education is so poor, the report from 2007 does so – and it is fascinating reading as well.

How the world's best-performing schools systems come out on top

The summary is simple – get great people, help them become great teachers and support them with an equitable excellent system:

The difference a great teacher can make is immense – lifes are changed:

The end of the document has this wonderful check-sheet to determine whether you have an excellent education system or not. The gaps are pretty clear:

I would like to see this on every headmaster’s wall, along with everybody in the Ministry of Education, every member of a school board and all teacher of teachers:

In closing my recent favorite question to ask teachers is “how often are you reviewed by your peers?” The answer is usually close to “never”, and that is sad. It is very hard to improve if you are not getting continuous feedback related to normal situations.

I strongly feel we need to get to the stage where peer teachers can wander into and out of each others classes, sitting quietly at the back (say) without the students changing behaviour, and then giving and receiving 1-1 feedback after the class. This means the teachers need more time in the day, which in turn means more teachers.

We need to also better reward great teachers, those who work in lower decile schools and tough areas,  bringing back the student and society’s respect for teachers. It’s a tough job, and the teachers themselves (in the form of their union) are often against performance pay.

However I have yet to meet a teacher that would not welcome the feedback from peers, while the pay for the people to whom we entrust our children’s future is a national shame. Teaching is a calling, and we should not be doing it for pay, but I really think we owe it to them to allow them to live a decent life.

I believe a summit was a good idea – the depression looms, and that also the focus on jobs was right   – as it is in job losses where we feel the biggest impact of a depression. Loss of investment value, scaling down spending or even bankruptcy are all sustainable if you retain employment. Losing your job and being unable to find another can lead to loss of home, increase in crime and other social problems and personal depression. So yes – making sure we all have jobs is good.

Bill English, amongst others, mentioned that 80% of NZ’s GDP was represented amongst the participants, which is a pretty amazing statistic. It’s not so amazing that the people were there, it’s amazing that just 200 people could represent that much of the economy. It says a lot about our lack of diversification, but also about our tiny population. There were a fair smattering of current and ex consultants, (McKinsey was well represented) and a few folk I have met, and even one I have worked for (Joan Withers). I don’t see a lot of the dot com crowd there though, aside from Rod Drury. Maybe that is a liberal versus conservative thing, perhaps it is a generational thing or more likely there were no (aside from Rod) people that could represent the entire industry.

All in all it appears that the day went well, with people across sectors working together in a common goal. Well done.

So here are three quick posts on the day. I can only write about what I read and see on video – being there would give a lot more.

Following some kick of speeches, the attendees broke off into groups and later into sub groups. So let’s first look at  the groups, the aims for each group and what they each proposed for “Big” “Near Term and High Priority” actions.

Group 1: Core workplace & core employment issues (Rob Fyfe, Helen Kelly)

AIM: Identify workplace solutions that are in the long-term best interests of NZ by identifying specific potentially time-dated measures and agreements that are ‘right’ for these conditions.

Big, Near Term Actions

1. Retain jobs by reducing wage costs while firms’ earnings are down and long term by using this opportunity to upskill workers.
2. Creation of a seasonal work marketplace that will remove barriers between employers and seasonal workers.

Group 2: Workers – Skills and transition (Stephen Tindall, Joan Withers)

AIM: Concrete actions, not frameworks or taskforces, that utilize existing assets, and capabilities –public, private and NGO – including educational, to assist in re/upskilling labour and minimizing transition time and costs.

Big, Near Term Actions

1. Keep people in training
2. Improve matching of supply and demand for training
3. Flexibility, enablers and incentives in education and training to build skills and create and keep jobs
4. Improve support to help people cope with redundancy or unemployment

Group 3: Maori Economy, Local and Regional government (Ngatata Love and Lawrence Yule)

AIM: Minimize school-leaver unemployment. Define actions that will allow rapid deployment of Maori, and local and regional government assets into greater productive use.
Increase certainty and speed up regulatory functions to bring forward private sector investment.

Big, Near Term Actions

1. Integrated Approach to Māori Secondary and Tertiary Education
2. Integrated delivery of education and training in senior secondary and tertiary sectors, through existing Māori and other education providers.  Involves linking education and training to support the Māori asset base, and emerging sectors; and relaxing funding and regulatory barriers (eg, remove capping of Student Achievement Component funding to enable demand driven response; relaxing movements between secondary and tertiary; enabling use of alternative delivery sites such as marae.

1. Councils agree to roll out good practice and streamline consenting processes
2. Councils commit to bringing forward infrastructure development
3. Mayors commit to broaden the scope of the Mayors Taskforce for Jobs

Group 4: Helping firms Survive (John Bongard)

AIM: Implementable, targeted near-term actions that make a meaningful difference to identified industries.

Big, Near Term Actions

1. Cabinet Directive issued to government agencies/regulators that “now is not the time to be introducing new or extended rules, standards or processes that create additional compliance costs for firms
2. A fund for initiatives to encourage more tourists to New Zealand, both long and short haul
3. Actively manage regulatory approval process for complex and/or major projects (over $25M)

Group 5: Business Investment (Wayne Boyd, John Shewan)

AIM: Create a package of policies and options that give business the confidence and rationale to not delay capex, and identify some specific new business opportunities that will see new, productive jobs created. In this area we expect to see some ‘upside risk’ as well as ‘downside mitigation’ from the policies.

Big, Near Term Actions

1. Reform regulatory approval processes for major infrastructure projects
2. Target and attract offshore investment and entrepreneurial migrants (e.g. wealthy investors, foreign students)
3. Improve SME access to working capital

Group 6: Firm Funding (Rob Cameron)

AIM: Honest assessment of the role and goals of the bank sectors, with clear understanding of how the bank sector and government will work together for the best interests of the NZ economy on both firm and consumer sides – during this period. Identify solutions that ensure NZ is ‘core’ to the use of Australian banks’ use of funds, and will see bank funding at acceptable price and volume levels. Improve the set (range, speed, cost) of non-bank funding options for firms.

Big, Near Term Actions

1. Stimulating the development of New Zealand’s debt markets
2. Equity growth fund for SMEs
3. Bank and Government transition fund
4. Statement of commitment from banks to continue to meet the demand for credit

Quick Feedback

Some groups did well, while others came back with motherhood statements. Frankly this is all a bit too raw to over-analyse and thankfully a this work has been crystallized into a “top 20″ – which I shall walk through next.

It’s really important in these sorts of session to take notes/actions well – usually you’d assign a consultant to each one. You can tell a lot from the outputs – some of them have bullets that are clearly inadequate, while others encapsulate tangible actions well. Well written actions are not everything, but they do make sure that everyone in the room has common understanding and agreement.

It is a bit pedantic, but very few of these these are actually written as actions, and none of these are written as actions that clearly describe what needs to be done, by who, by when and why. For example  “Equity growth fund for SME’s” can be interpreted in many different ways. My vision may be very different from yours, and I imagine that even within the room there could have been different ideas. I use this example as it is rectified somewhat by the top 20 list, it a powerful idea and clearly the result of some discussion. However it’s also indicative of how difficult it is to come up with crisp answers in short sessions, and with large numbers of opinionated participants.

I’ll pick on the local Government/Maori actions next, they were the only group requiring two separate Powerpoint packs to present their answers, and the Maori one (for example) addressed the question of unemployment by a long-winded answer which boils down to “training”. Unfortunately it takes a lot more than trained people to create jobs – as anyone in the Philippines will tell you. Fortunately better ideas did emerge in the top 20.

The Workplace Training group one didn’t really answer their question’s call for “Concrete actions” – how can we, for example, “keep people in training” or “Improve matching of supply and demand for training”, and who will be responsible for it?

The 4th Group – helping big firms survive – did very well  – coming up with 3 actions that could reasonably easily be written up with a workplan.

The last two groups are shovelling around big dollars, and we can anticipate some debate on their proposals – and debate is good. None of their proposals come across well in bullets, but the top 20 has more.

So next let’s look at the top 20.

1: It isn’t normal to find open wireless connections in NZ. The reason for this, of course, is that we pay for MB usage, unlike in the USA where things are typically uncapped.

The implications of this are manifold, but the first is that if you open your laptop in any reasonable dense area in the USA the you are bound to find several open connections to borrow. The second is that if you surf in pretty much any US based cafe, then you are surfing for free, and the third is that the sheer volume of stuff you download for free means that Apple through iTunes can reasonably expect people to use GB’s of bandwidth to rent movies. Te reverse is true n NZ, and as a result the internet is not pervasive nor that useful.

2:  David felt guilty about using the open connection. To me, unless you crank up the P2P programs or hit pr0n sites, you should not feel guilty about using a free wifi port instead of getting raped by mobile data charges. But you should make sure that you are playing the game fairly by having an open connection at home.
3:  We are miles away from mesh networks – to me these are the logical future, where we wirelessly connect to each other to send local traffic and reduce our dependence on the telco lines to the house. We’ll still need huge pipes conneced to the global internet, but this will reduce last mile costs. Until we have critical mass of wifi ports open, and until we get rid of any ideas that you can charge money for wifi, then we are not on the path to maximising our bandwidth for least infrastructure cost.

NZ Institute estimate $800m in extra benefits, with the tree showing $680m to $1.03bn. Here’s the top half:

Let’s look the right hand sides.

Current cost base = $2.1 billion.

The source for this is unclear, but stats NZ is listed as one of the sources, so let’s assume that this is derived from the total revenue from digital media companies in New Zealand.

But, err, what is a digital media company? Is Stuff a digital media company? (it is after all part of Fairfax, a media company, and is in the Fairfax NZ “Digital” group). The box further down the page shows numbers from film and video games, and also shows ‘over $2bn” for film, so are we to assume that ‘Film’ is the Digital Media space? If so then the report misses the online media space, which is growing really quickly, and is also suffering from the shonky broadband.

But back to the definition, which is mainly film. The next assumption is that 80% of the revenues from these film industry companies is costs. But is that low margin fair? It seems not to me when you take Peter Jackson’s various successful empires into account, empires which no doubt have much higher margins.

Moreover, are the numbers sustainable, or do they assume that Peter Jackson will keep delivering LOTR scale hits? Without digging deeper into the source data, I’d assume that the actual historical costs are lower than $2.1bn, and suspect that the revenue over the next few years for film will be lower. (While sincerely hoping that they are higher, and that Wellywood can keep growing.)

Productivity gains: 15-20%

These gains are all about reduction in time to move and manipulate data, not about increased sales, which is tracked further down the page. If this productiviety gain is true, then I’m shocked that the cost structure of the movie industry is so biased towards the movement of data.

Indeed, it is surely is a relatively small part of the industry costs, 3 simultaneous locations LOTR productions not withstanding. Perhaps Weta Digital has big costs in this area, but surely what data transfer solutions they have now are adequate for most of their work, else they would have flown the coop years ago.

I’m also dubious about ‘productivity gains’ as this implies that people will be able to do more in less time. I would imagine that people are not currently sitting idle watching data move at a snail’s pace, but are concurrently working on whatever data that they have on the local servers, and at local speeds. The increased broadband speeds will certainly increase speed of delivery to the internal and external customers by reducing waiting time, but not necessarily increase the amount of work done per individual, or even the costs (aside from BB costs).

The second half of the tree estimates growth benefits from better broadband. I feel it is really understated.

Firstly, let’s bring back the online media industry. Last year the ASA tallied $65m of online advertising, and the latest numbers imply we’ll hit $120m or more in 2007.  That’s pretty good, but over in the UK the online penetration is over 10%, which would imply over $220m in online advertising income.

I estimated in a conference presentation a few months back that the difference in speed of online advertising penetration between here and more advanced countries has meant the industry lost $500m or so of income over the last few years (total, not annual. Annual would be about $160m last year). That income would have spawned any number of innovative online media companies, some no doubt with world wide appeal.

This to me is where the growth is – not just the transfer of advertising spend, but the creation of companies fueled by NZ dollars that can compete around the world. This is the sad loss we have suffered, and will continue to suffer unless something is fixed.

But back to the tree, which is film focussed. Frankly I guess that the film industry here gets by on reputation, not speed of delivery. However, I’m willing to bow to the industry experts and accept a 5-8% kicker. This could be in Weta Digital (and spin off’s) post production work perhaps.

That’s the second part of the tree on page 7 of the NZ Institute report. It shows total annual benefits of $165-$335m in increased exports from decent broadband allowing better telepresence. Telepresence I guess is defined by the authors as basically video conferencing with big screens and higher resolution.

To work it out the authors have basically said we’d get 5-10% increase in overseas sales productivity, which is applied to new sales activity 20% of the time, and as a result we wll sell and export more stuff.Now this is a really tough thing to work out, and credit to the NZ Institute for giving it a go. The validity of the answer lies, as it always does, in the numbers on the right hand side of the tree. Let’s go through them.

Current Exports: $3,200m

I’m not sure where this number comes from. NZ’s current annual merchandise exports are 10 times that, at $2-3 billion per month or $33 billion for the year. I can only assume that the authors have taken the bit of the export stats that is from businesses that stand to gain from better sales activities. This should exclude, for example, all commodity based businesses (aluminium, wood, sheep etc.), as their business are production and cost driven, and they are price takers from an infinite market.

We should also care about the destination of the exports. A bit over a fifth of our exports go to Australia, which is relatively cheap to serve face to face these days. Meanwhile China, Korea and Japan are significant markets, but these are cultures that depend on face to face interactions to drive business relationships. The USA, and to an extent, parts of Europe, are better markets for increased use of video meetings. Total exports to USA and Europe were $9.7 billion for the year ending June 2007.

So all in all, the total applicable exports number should reflect non-commodity sales to markets that have a similar culture and decent broadband infrastructure themselves. $3.2 billion, however it was derived, feels about right, or even high as US and Euro exports would be heavily weighted on the commodity side.

There should, at the very least, be a footnote in the text to show how this number was derived.

% increase in Sales productivity = 20%

This number flies or dies on the assumption that the folk at the other end have video conferencing, that video calls and conferencing results in significntly better sales interactions than telephone calls, and that the increase in broadband will actually have a real difference on the ability of NZers to make those calls.

Video is increasingly a part of the way people interact and do business, but it seems to me that it is mainly used internally within businesses rather than externally. Right now I would really challenge the assumption that a decent video system would help our sales staff make calls, simply because even in those markets described above, we cannot be sure that they even have a compatible video system. Moreover, while the infrastructure and products may be there, in many industries the spread of the video equipment is limited to the top teams only. Our sales folk will perhaps be wanting to talk to those top folk (but if the deal is that big then perhaps they should get on a plane), but also to people at much lower rungs in the organisation.

Meanwhile right now, and for the next two or three years at least, setting up a ‘professonal’ conference call between parties is painful, and we should ask ourselves whether potential customers really want to go to the bother just for meeting a sales person. Would it not be more common for the potential buyer simply accept that a phone call or web call/event at his desk is sufficient?

Finally there are already usable conference products we can use even within the existing business broadband speeds in New Zealand. As discussed earlier, Skype in audio and video forms is becoming ubiquitous, while MSN, AOL and dot Mac offer free video solutions as well. There are plenty of ways to present a Powerpoint or Keynote show while showing a video of yourself (e.g. free out of the OSX Leopard box), and all of these are doable on existing broadband speeds. They are, however, not really doable on my lousy home connection.

Overall this is a tough number to estimate, as we are operating in a real data-free environment. But overall I’d say the 20% productivity rate is really very generous, given the small increase in effectiveness, the lack of counterparties and the existence of technologies at current speeds. Indeed, I’d say it is pretty close to if not zero. Businesses that want to use this stuff should be using it now.
The final assumption, 20% of the increase spent on new business, is rendered moot.

So put me down for $0 increase in sales due to better sales effectiveness from higher broadband, and thus $0 in net economic benefits for Telepresence. I’d remove the page from the final deck.

This was second in a series. Stick around – I believe the money is there…

Related Posts

#1 NZInstitute BB report: Telepresence costs savings are minimal

NZ Institute report: the benefits of broadband

NZ Institute uses, in true consulting style, driver trees to calculate and show the benefits. I’m a fan of this method as it is a great way to identify the ‘drivers of value’, or the bits of a business or sector that create and cost the big dollars.

This is the top half of the telepresence driver tree.

It shows that there are $95m in potential savings from an increase in the use of telepresence due to higher broadband uptake.

The top branch of this tree shows $180m in savings from reduced business trips, from a total business travel spend of $250m domestic + $650m international = $900m.

The bottom branch shows $85m in costs, which if you read the notes on the right breaks into $37m each year of purchasing telepresence systems, and $48m of losses to NZ of less business trips.

I beleive that the $48m is too low, the 20% savings on the $900m is too high, the cost of telepresence systems is too high and the overall cost savings benefit is too high.

A huge amount of the $900m travel costs is revenue for New Zealand companies, such as Air New Zealand, hotels and restaurants, and reducing this cost will have a lessor impact on the economy. Moreover, reducing business travel may have a serious effect on the economics of the number of flights to and within New Zealand, which would mean increased fares for the rest of us.

Let’s try another way of working out the benefits.

$250m of the travel spend of $900m is domestic, and savings on that number is largely moving money between sectors of the NZ economy. However a lot of the $250m is paying for fuel for planes (and other internationally sourced costs like plane leasing), which is a net loss to the economy that can be saved. So let’s say 40% of the domestic cost is air and car travel x 60% of the air/car travel cost is fuel = 24% of the overall domestic costs that are savable. That’s $60m available to be saved domestically.
Meanwhile $650m of costs are international, but let’s say 35% of that is AirNZ revenue, which leaves $423m of net economic benefit to be saved from international travel, and $483m in domestic and international savings.
Now some of the travel costs (an unknown portion) are “lost productivity estimate”. Again I’d push back, as anyone knows who travels on business, the amount of work you do increases rather than decreases. When you travel on business you are not constrained to 8 hour days, but pretty much have all day available to work, even if you waste some time in long security queues. So let’s say the productivity loss is zero, and take, say, $83m* away from the $483m estimate to leave $400m that is savable.
*Wild guess, like a lot of my assumptions.

Now, overall the report estimates a 20% reduction in the number of trips, which would be 20% of $400m = $80m.

However, we Kiwis are already minimising our international travel, simply because those overseas trips are so long and expensive. We can’t get rid of many of those expensive international business trips, as forming relationships is something best done face to face. It’s also often seen as a perk of the job, and so staff will push back hard on losing their ‘yearly trip’. So I would push hard on the 20% reduction in frequency of travel figure, and go lower. Let’s take 10%,which would make $400m x 10% = $40m saving in total.

Compare this $40m with the NZInstitute’s $180m gross productivity benefits less the $48m losses to NZ = $132m in net productivity benefits before setup costs.

Those setup costs are annualised at $37m, and that is money that will mainly go to products made and sold by companies from outside NZ. However, a good chunk will go to NZ vendors and installers – and those local margins can be good. Let’s say $10m of the $37m goes to the NZ economy.

But wait – there’s more.

The cost of telepresence systems is dropping to close to zero. It’s free on my mac, and will be even better when Leopard is released. Windows PC’s are slowly coming with cameras built in, and the IM and Skype clients are increasingly easy to use with video.

My parents, for goodness sake, are already using Skype video to talk to their children and grandchildren. It helps that they have TelstraClear’s Wellington service of course, and that their ‘counterparties’ are offshore.

So the future (and the present) is video conferencing from PC to PC, from desk to desk. Most will just come for free, and emerge as we upgrade our PC’s and chat software. At the top end of the masrket there are companies that will help this along. Communique Conferencing (which a friend of mine helped start) will, for example, provide cheap audio conferencing for huge events, and web, powerpoint and video conferencing over your PC, in a meeting room or or in 9000 public conference rooms around the world.

So that’s all to say I’d knock a good chunk out of the $37m estimated costs for telepresence systems – let’s say to $20m with $8m (installing screens etc) coming from NZ economy. That leaves $12m in net economic costs, and let’s agree not to discuss the distribution of spend over the next 5 years.

So. We now have $40m in annual cost savings benefits and $12m in increased costs, which is $28m economic benefit per year.

Let’s apply the last test – How does that number feel?

Not so good. I can see three issues.

The first is that the teleconferences and simple telephone calls are very good substitutes for travel in almost all cases. Many huge business are run very effectively on teleconferences, backed up by occasional face to face meetings, and so travel costs are already ‘reduced’.

The second is that the major effect of ubiquitous video will be the migration of teleconferences to video conferences, rather than the migration of travel to video conferences. This means increased overall costs of communications as video costs much more than audio, if the telcos have anything to do with it.

Finally the migration of travel to video for sales seems a big reach. Video (and phone) calls are not substitutes for a quiet beer or coffee, or a door-knocking get-to-know-you visit. Sales people will still need to meet people face to face in order to build the relationship that they can continue later via the phone and video calls. So even with video Kiwi businesses would be wise to ensure that they meet face to face their better overseas clients at least once per year.

Overall to me the benefits of costs savings are over-stated, and the setup costs are over stated. When it comes down to it I’d just prune this top branch and assign a zero value.

Related posts:

NZ Institute report: the benefits of broadband

DEFINING A BROADBAND ASPIRATION:

HOW MUCH DOES BROADBAND MATTER
AND WHAT DOES NEW ZEALAND NEED?

is essential reading.

The presentation is in classic McKinsey style, which is an acquired taste, but has proven a remarkably effective method of communicating results. For more on this see The Pyramid Principle by Barbara Minto.

I’m going to comment on the report in a series of posts.

#1 NZInstitute BB report: Telepresence costs savings are minimal
#2 NZInstitute BB report: Telepresence growth benefits are limited

Other Sites

NZ Institute report: Defining a Broadband Aspiration

Rod Drury: The business case for Broadband
Mauricio Freitas: New Zealand Broadband needs action now