Iphone thoughts…

I finally bought a shiny new iphone 3gs, firmly cementing my apple fan boy status, to go my my macbook pro and multiple mac minis, and ipods.

I like apple products. The main reason I like them is you get a feeling that somewhere, someone actually cared about the users experience. Truly cared. We love you Steve!

To the Iphone! The iphone (is it IPhone, iphone, iPhone…?) is a nice piece of kit. My major concern, that I wouldnt be able to type on it as fast as on my treo 600 (with keyboard) proved to be groundless. The keyboard works really well, like the entire phone.

So its the greatest thing since sliced bread. Even makes phone calls.

But the astonishing thing about the iphone for me is the the appstore. Buying games, music, getting pod-casts. Really, really easy, and cheap.

I have bought 3 games for the iphone. I hardly ever buy games, because I don’t play them that much, and they’re pretty expensive. So 3 games for me is a lot. Except, under the covers, something fundamental about the game (and software) industry has changed, through my shiny new iphone.

My 3 games cost me in total, $6.47. And… these games are … good. Nice graphics, gameplay, more or less what you’d expect on a console. $6.47 in total, less than I pay in parking in a week.

So, we have high quality games, selling for mm, over an order of magnitude difference. Why buy a PSP? or a Nintendo DS?
PSP – $328 average game costs $30-$80
Nintendo DS – $257 average game costs $40-$60

Sure, the games you get on a PSP/DS might be better. But… I don’t care. I rarely play games, almost never complete them, and only use them while waiting for flights (or pretending I’m not on a phone call when picked up by the cops for driving and talking! just kidding!). And I think there are many more people like me.

So the iPhone is great. But… I think sneakily, under the covers of the iPod (which is destined to die very soon), apple have scored a massive, major, world-changing win. iTunes, and the integration with the iPhone. People will start very soon to expect to pay $2.59NZ for a quality game. This I believe is the true game-changing power of the iPhone, and I think its an astonishing testament to apples vision. I know, I sound like I have “I (heart) SJ 4eva” tatooed on my chest. But when you think about the scope of the vision, that started with MacOSX, and the IPod, then iTunes, then the iPhone, all in order to make the apple products, and the app-store the easiest, cheapest way to get applications, redefining an acceptable price for software in the process, taking on Nokia and Sony and Nintendo and Microsoft and Dell and HP in spaces that those companies thought they owned, and had a massive head start in? whew. Thats ballsy. Will see what happens with google.

So my question is, why would you buy a blackberry/HTC/android phone when the iphone is the same price?

disclaimer: I own apple stock

Amazon, the power of scale.

I recently ordered some books from Amazon.
In the current situation, this should be a bad move, the NZ dollar is buying $0.64US, the amazon shipping charges are a significant component of the price, so why would I do that?

I bought 4 books that were recommended on the fourhourworkweek.com blog, from amazon, 56.73USD + $24.95 shipping. So, $132 NZD + how ever long it takes to get here.
I ordered on the 28th June, and it arrived on the 9th of July.

If I had bought those books in NZ from fishpond.co.nz (a NZ online bookshop), it would have cost:
Rules of thumb: $50.58, 6-10 days
8 weeks to optimum health $34, 3-5 weeks
Science of influence $73, 10-12 days
Vagabonding $31, 24hours

Fishpond give free shipping on orders over $50, so ignoring that, total is: 188.58. And it probably would have taken significantly longer.

So its no contest. Amazon wins, from the other side of the world, hands down. Faster, and significantly cheaper. It really is an amazing service.

Restaurant Brands CEO steps up

I’ve just noticed today that Russell Creedy, CEO of Restaurant Brands has bought 45,000 shares in the company he runs. This brings his total shareholding to… well… 45,000.

I think highly of senior management who take positions in the companies they run, and think this is a great move by Russell. Obviously, 45000 is not a lot of shares, and I will be watching to see if such purchases continue. At the moment, only the Chairman of Restaurant Brands, Mr Danny Diab (a director), and now Mr Creedy own shares in the company, and only Mr Diab has a shareholding of significance.

But a good move from the CEO, perhaps coming on the back of some criticism at the AGM.

FPH. How does that work?

I’ve been looking a bit at Fisher and Paykal Healthcare recently, an innovative company from NZ specialising in breathing related medical products. Ive always been interested in this company, and it has been a darling of the NZ sharemarket.

Its recently dropped in price, so I thought I would have a quick glance at its financials. When I look at a company, I quickly work out whether its making cash. Not net profit, but free cash flow. So, at the end of the year, does its bank account have more money than at the start, which can then be used for paying off debt, lavish parties etc. The theory is, so long as the company is spinning off cash, things arent going to go too far wrong.

Now, I was a bit surprised to find the FPH results. FPH makes a ‘reasonable’ amount of money from operations, 44 million in 2008 (2009 results not out yet). But they spent a chunk of that on capital expenditure, ie, expenditure that the company needs to make to continue operations, plant and equipment upgrades etc. So, you take that out of the money they make from operations. And then… they paid out 60+million in dividends. Now, if you only make 40 something million, and then spend 10-20 million on capital expenditure, and then spend another 60+ million on dividends, um, you’re left with a kinda sizable deficit.

So, where does that money come from? From borrowings. FPH does not appear to be able to afford their dividend payout, and this can be seen in the increasing size of their debt. Its not clear why their dividend policy is the way it is, but it doesnt seem sustainable, particularly if banks start being a bit more conservative in their lending policy.

Thoughts? Are FPH on the verge of profitting massively from their patents and innovative technology? Am I being way too bearish on a cool kiwi company?

2009 update: The 2008-09 FPH annual report shows the same trend. 62million cash from operating, minus 22 million of property/plant/intangible spending and 66million of dividends, leaves -26million in free cash flow, funded by… 37 million of new borrowings.

SGI, hit by the innovators dilemma bus…

When I was at Uni, SGI workstations were the workstations to use. I wrote my 4th year project, an Artificial Life simulation with 3d graphics, neural networks and the like on a SGI workstation, and it was like… woooo. SGI were big in graphics processing, and big in servers for big government organisations. Their hardware was seriously cool, and seriously powerful. And… expensive.

SGI was a computing icon, . Every geek knew about SGI, and they were cool. All the cool graphics apps ran on SGI processors. They bought Cray Supercomputers, the well known manufacturer of well… cray supercomputers. An icon.

And last week, their assets were bought by rackable systems (who?) for 25million. The end.

I find it fascinating, that a company that had such an iconic status, failed completely in about 20 years. 20 years is… a pretty good innings in technology terms, but SGI I think offers a lesson in the Innovators Dilemma.

SGIs market was high end computing. 3D graphics, moving processing from main frame computers to workstations for the first time. Unfortunately for them, the bus didnt stop there, but continued on to companys like ATI and Nvidia for 3d processing, and Intel/AMD for processing power. All the things that distinguished SGI became commodities, and their market became smaller and smaller as people shifted to those lower cost options.

Its a fascinating illustration of the innovators dilemma. What we can see now is that the bus still has not stopped, and companies like Nvidia struggle to reinvent themselves after years of growth led by increases in power. These companies might be the next victims of the innovators dilemma bus, as their products become commoditised. Unless these companies find new markets, it seems likely they will follow the path of SGI.

the crazy copyright struggle continues…

So, heres a story about the Pirate Bay guys getting pinged for providing Pirate Bay, which is a site that provides bit torrent, which is a peer to peer protocol that lets people download files from other people all around the world.

So they got done for copyright infringement. Does anyone else see the massive irony here? Technology has opened up these markets like never before, records and cassettes, cds, for music, and VHS and DVDs for movies. The long tail and all that. This technology allowed both musicians, actors, movie producers, and … the recording and production companies to make more money from more people than ever before. If you think about it in the movie case, before the advent of the video player, the only way people watched movies was at the theatre or on television. So movies had a really short shelf life. As far as I remember, that technology took off in the late 80s, so this market, of movies being purchased and watched by consumers has only existed for 20 years. Before that, the movie industry was profitable and popular. Before records, there were musicians who performed.

So the industry is complaining that the extension of a technology that made them more money than ever, is infringing on copyright. They are in fact having their ‘rights’ infringed, their right to make as much money as humanly possible from their artists. A ‘right’ that didnt exist 20 years ago (or 80+ years ago for records). A right that was provided by the very technology that they are trying to prevent people using in clever ways. It seems the industry want to have their cake (the technology that allows them to distribute further and cheaper than ever before) and eat it (no one else is allowed to use this technology).

This situation is not efficient. Information is free, so there need to be different methods of rewarding artists. Perhaps artists should only be rewarded for live performance? Maybe movies should only make money from cinemas? In any case, I think the record labels and distributors are a problem in themselves, and the sooner the internet make them obsolete, the better.

kiva, entrepreneurship in the world

We just got started with kiva.org which is a charity site aimed at microloans for people and groups in the 3rd world. You sign up, choose a entrepreneur who has a business idea to make some cash, send them a portion of the cash, and as soon as other investors join you and donate enough, the loan gets sent to that person. They go away, and make regular loan repayments. In the end, you… get your money back (theoretically!) and do it all again. Theres no interest involved.

I just really like the concept, and kiva is super simple. We made our first donation to a group of woman in Africa who wanted to buy food for a restaurant selling food to workers. That was about the scope of the business plan, but we decided on them mainly because they looked like what I imagined Precious Ramotswe (of Alexander McCall Smiths Number 1 Womens Detective Agency). Hardly the basis of successful investment, but then again, I invested in Telecom because I thought it couldn’t fall past $4.00. I’m betting on the African women before Telecom getting past $4 anytime soon.

So check it out if you have an entrepreneurial bent, mixed with a splurge of social responsibility, coupled with just a cool idea in action!

No Gordon, Greed is NOT good

As I’ve taken a more intimate interest in stock picking and trading, I’ve noticed something that I’ve never really experienced before. A sense of… greed.

For example, one of my stocks has been improving recently. So I feel this urge to put more money into that stock so I “don’t miss out!”. Pure simple greed. I have overseas shares, and I feel an urge to time the exchange rate fluctuations (ignoring the fact that I have no idea what the exchange rate will do!) to make more money. I recently sold Xero shares on the assumption that they would go out to the market to raise more capital, diluting the current shareholder base substantially and thus devaluing the shares. Now, Xero have gone to the market, they have devalued the share base, but the shares have shot up about 40%. I feel an urge to buy more Xero shares to not miss out! Even though rationally, I have little idea other than speculation why the shares have appreciated so much.

Pure, simple, unadulterated greed. I find it fascinating that it appears to be a very base emotional response. Now I’m very aware of it, so my rational mind can (most times!) crush it, but I never realised it is such a fundamental part of me. And I’m guessing I’m not alone…

predictions 2014

A few months ago, Shane, Kelvin and myself, along with Carl for a little bit, found ourselves in a bach on Waiheke island. It was lovely and sunny, the beach was about 100m away, so we stayed inside all day and talked about just about everything. And of course, predicted the future.

A quick summary of our predictions, so we can check these in 2014 (these are 5 year predictions).*EDIT* It should be pointed out that… we didn’t exactly agree on all of these. I’ve indicated the ownership and agreement/disagreement *EDIT*. In no particular order:
1. Obama gets 2nd term.
2. Stagflation period in the US, ie, recession coupled with inflation (Kelvin, I didn’t know what stagflation was…).
3. Digital camera market tanks, subsumed by cellphones.
4. PC Hard drive market vanishes, subsumed by flash memory (Shane partially disagrees, argues HDs will continue in big servers etc. Greg thinks big servers will also use flash memory to save power).
5. Android (or similar open platform) dominate mobile space (Kelvins, Greg disagrees)
6. Apple licenses Mobile Mac OS to drive people to ITunes (Gregs prediction)
7. Oil > $80/barrel
8. National second term, introduces a capital gains tax on property (Gregs, Shane disagrees).
9. Xero returns to market for funding in 2009 (looking like a pretty certain bet!). CORRECT.
10. One I forgot, Apple branded PCs have share of PC market > 20%!!! (Gregs, Kelvin disagrees and Shane 50/50)
11. Michael Jackson returns with a bigger album than Thriller (Ah, Kelvin. Greg and Shane…er… well… yes. That Kelvin…) As Shane said in comments, the odds of this one happening now are… slim.

The longer range forecast includes Shanes prediction of true machine intelligence within 20 years. It might be best to hope he is wrong about that!

Copyright and the sun.

Rowan has asked a pretty pertinent question, following the scrapping of the Section 92a of the copyright amendment act.

For those not up on the play, 92a basically said that people could have internet suspended if they were accused, presumably by music/movie companies, of infringing on their copyright. The ‘accusing’ word got a lot of people rightly worked up, and considering how ridiculous the clause was, it got a long way before being stopped. Judith Tizard, who in a fit of , well, not sure really, I guess just a fit, was the champion of the amendment, got this completely wrong. And so, after a lengthy process, the clause has been scrapped.

So Rowan asks… now what?

So my comment, and partial answer is: The landscape has changed forever. This cannot be legislated against. If I want to download your song/movie/et al that you spent ages and millions making and its on the web, I can. For free. You can argue about right and wrong, but you might as well argue against the sun coming up.

The thing that can be legislated against is me downloading your song, then using it in a commercial enterprise. This is already covered by copyright law. If it can be established that I am making money by unlawfully leveraging your IP, sue my sorry ass.

But if I am playing your song/movie, and giving it to my mates and they’re giving it to their mates, that is the nature of the landscape. There are winners and losers, I suspect more winners than losers, but thats another story. This is the reality. You cannot legislate against reality. Oh look, the sun is up.

So what does this mean? Whats the solution? There are a million examples of highly profitable industries being buried by technology changes. Artists need to ensure that people want to pay for the add-ons only they can provide. Movies need to generate revenue from cinemas. Like, well, you know, they used to, profitably, before the advent of the video player. Musicians sell concerts, and meta data type add-ons. And industry companies sell convenience, eg, ITunes store.

The industry has changed. In some senses, its just gone back about 50 years in terms of how to raise money from being an artist. In others, like being able to reach billions more people, the future is here. The world for artists therefore, should be a much bigger, better place. Interested in comments…!