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…