They're Coming To Get You

What started out as just interested people wanting the right to share music downloads has become Sweden's fastest growing political party. Perhaps only in Sweden can such a progressive and philanthropic movement enjoy such support.

The Pirate Party started off in life as embracing what Sweden's liberal culture call 'Allemansratten' which means 'everyman's right'. It seemed a whacky start as the founder of the Party, Rick Falkvinge, openly explained that it was his intention to put the record industry out of business. It seems like cutting your nose off to spite your face as with no record industry there is no music to pass around but the Pirates believe that will take care of itself. One great side benefit would at least see the end of such people as Simon Cowell and his various Factors so maybe this is not such a bad ideal. However, the Pirate Party took a lurch to the centre of politics at the recent European Elections when it suddenly found a cause upon which to offer more mature opinions.

At the heart of the matter was Sweden's law called FRA, named after their equivalent of the UK's GCHQ. This law was passed last year and it gives the FRA total freedom to monitor all international phone calls, emails and internet traffic. It constantly scans for over 250,000 trigger words and phrases in cross-border e-traffic. These words and phrases are ones chosen by the agency as may be needing further investigation.

Ostensibly, the law was passed in the name of homeland security against terrorism. However, it flies in the face of Sweden's culture of freedom of speech and expression, something we all associate with that country. It helps that Sweden and the surrounding Nordic countries are some of the most developed technological countries in the internet age - companies like Nokia, Ericsson and Skype originated here and they lead the way in terms of numbers of home internet connections and broadband speeds, both landlines and mobile.

The counter-argument could be that this means that the Nordics was a fertile area for terrorists to hang out and do their planning at least.

The Shape of Things To Come

We may think that monitoring all e-traffic and scanning for as many as 250,000 triggers is a bit excessive and impinges on privacy. We may also think that at least it is Sweden doing it and not us. But readers of this blog will know that a consultative document on Britain's strategy along the exact same lines lies at the Government's feet as we read this. It is only a matter of time - very short time - before exactly the same law will be implemented in the UK.

In the European Elections this year, Swedes of all ages and persuasions voted against the law by voting for the Pirate's Party stance on the FRA law. It had given itself a cause to break free of it's hippy-type image of wanting free music and films for everyone (Swedes downloaded an estimated 15 million films last year - illegally). It resulted in a representative of the Party being elected to the European Parliament and it is widely believed that the Party will gain considerable ground at next year's Swedish Elections.

We can wipe the smile off our faces. Already we have 'Little Hitlers' in agencies and councils watching us with security cameras and often tapping our phones just to try to catch mums trying to get their kids into the wrong school or if we are putting the wrong thing in designated bins. Cameras in city centres, originally put up to safeguard us against terrorism and violence, now watch for those who over stay their parking meter. When the law is passed to allow monitoring of e-traffic, you can bet your shirt that security will be the reason for the intrusion into our privacy but just around the corner will be the extraneous gains in knowledge about us all - much of which can be used to design new taxes as well as ensure we are paying all we should now. And much more.

I used to think that if you have nothing to hide, why worry. Then I think that would I like the Government to know what friends I keep, what hobbies I have, how much travel I do and much more? What has it to do with them if I am not a terrorist? The answer is that it will be golden information for them in working out how to shape taxes to maximise revenues in the future on a local and national basis. If we do not believe it, how do we think people assess how a tax can impact us and what returns the HMRC will make on it now? Information is vital.

It is a short step to using a city centre camera to watch parked cars rather than criminals or terrorists killing people. After all there is no money in preventing crime. Realistically, we had all the CCTV footage of the 7/7 bombers making their way from Luton to the Underground and that did nothing but to help us identify them after the event. Such cameras are deployed to catch fare dodgers which in London Transport's mind is a far more heinous crime. The point is that you can monitor all the e-traffic and cameras you like but if you do not have the capability to act on the information it produces then it will not help, but that the information is useful to someone who can use it for a profit.

I find the introduction of FRA law in Sweden a precursor to similar laws in many other countries including the UK. It is a sad demise for the internet but some would say it had it coming. It started on the premise of freedom of information and was created by people with no money on the basis of honour and trust to pass information along. Today we see the consequences of those lofty ideals - terrorists use it to communicate freely and manage their money flow while paedophiles use it to communicate and refresh their network, and much more. The fact is that you could argue we had this coming. Our abuse of the internet has led to monitoring and potentially much more strict rules for the future. The vast information gathering by Government agencies in the near future will be the launchpad for many more restrictions to be placed on the web. And some would argue that is no bad thing.

What you can be sure of is that the waves of restrictions and laws associated with how we surf the web and what we do and say on there will be preceded by laws crafted in the name of preventing terrorism. The FRA law in Sweden is such a precursor for the future of the web.

They are certainly coming to get you. Quite who 'They' will be remains to be seen.

You Couldn't Make It Up

Former Home Secretary and now Justice Minister, Jack Straw, has been the victim of Internet scammers from Nigeria.

'Don't Worry It's Only My Constituency E-Mail Address'

The scam was excellent. Nigerian hackers bashed their way into Straw's Blackburn constituency email account and sent out a message to people on his address book like Party members, Council Chiefs and Ministerial people at The Justice Department, you know, the usuals on his joke distribution list. The message read that he was stuck in Nigeria and his wallet was stolen so he needed $3,000 to get home. Apparently a fair number of constituents and contacts received it and Mr. Straw only cottoned-on that he was the victim of a scam when he started to receive phone calls from worried constituents to see if he was actually in Nigeria.

It is a baseless lie that many called in to offer money to keep him there.

Mr. Straw was swift to point out that only his constituency email address had been hacked into. One theory is it happened when he logged onto some dodgy porn or gambling site, but we are sure that could not be the case. But Mr. Straw said that security was not at risk as his ministerial email account was fine and that there was nothing worth knowing on there as he didn't do much anyway, or some cynics would say. As for his constituents, they should not worry that they have been posting their private details of concerns or worries, possibly with revealing details about their homes or possibly even bills they have received unwarranted. Most likely all were safe as he deleted most off without reading them.

Embarrassment

Jack Straw knows a thing or two about Hi Tech security. As Home Secretary, he established a National Hi-Tech Crime Unit precisely to stop such Internet scams - good to see all that hard work and money paid off.

Mr. Straw was quick to point out that 'The Internet is wonderful in many ways, but I think it was so obviously ridiculous that I could go off trekking in Africa and lose my wallet.' He no doubt went on to say that's about as ludicrous as thinking highly sensitive data on CDs and laptops could be lost as close at hand as the UK.

The best laugh is that only one person apparently replied to the mail but no money was offered.

Yahoo! - This Should Be Interesting

After a period when it seemed nothing could wrong for Yahoo! it did toward the end of 2008. It resulted in one of Silicon Valley's whizzier kids resigning and making way for an industry powerhouse, Carol Bartz. But can this software veteran turn around Yahoo!?

The End of The Yahoo! Era?

It seemed not much could go wrong for Yahoo! in the early 2000's. A steady stream of revenue announcements showed the company was growing along the lines everyone thought was the future - effectively an internet play that made its money on the marginal returns on advertising. It wasn't the only form of revenue but over time it became overly dependent. In 2008, when the global markets started to dive, this model was exposed. Yahoo! had to shed staff and suddenly Jerry Yang, once the brighest of CEO's in the Valley, was being ridiculed for his folly.

Enter Carol Bartz.

Autodesk - The Software Phenonemon

Having worked for Datech in the 90's, albeit setting up and running a specialist Videoconferencing Division within the company, I knew that Carol Bartz's name was already being revered. At one time Autodesk was a sleepy CAD company which had indeed brought design to the desktop and so had collapsed not only the price of CAD software but had also brought down the cost of running it. Soon CAD, which had always been associated with huge software costs and heavy computing power to run it, was running on Intel based PCs. It brought about a quantum shift in sales.

But under Bartz's control, Autodesk was not content with CAD only sales. Soon a whole raft of associated products hit the market that helped the company drive revenues from $300m to $1.5bn and become the fifth largest software company in the world and one of the most profitable at that.

Carol Bartz became widely respected for her hard-nosed and often uncompromising style which ensured Autodesk became one of the great success stories in software instead of being a niche also-ran. The company, situated in the picturesque Bay town of Sausalito, had a great view of the rat race of Silicon Vallay over the Golden Gate Bridge and South of the majestic City of San Francisco across the water. It remained quietly apart from the often incestuous and inbred feeling the Valley has and maybe that was a part of it's success.

Whichever way you cut it, Carol Bartz presided over a dramatic growth in sales at Autodesk and is rightly credited for her tenure there. Now she sits on the Board of prestiguous companies like Cisco, NetApp and Intel. Her resume is very powerful indeed.

The Web

There is one thing that is missing in Carol Bartz's superb success story - she has little or no exposure to the web. Autodesk was essentially an off-the-shelf software in a box company which leveraged a great deal of after sale revenue on complimentary products and services like training or maintenance. It had a very traditional feel to the sales effort and while at Datech we often talked in terms of 'How many CADs had been sold' which referred to licences shipped.

Yahoo! is very, very different. It is a 100% web 'pure play'. Classic Web 1.0, Yahoo! grew through giving away software and services to a vast web community that lapped up its email and directory services amongst other things. Now there is messenging, video calls, communities, blogs, websites and much more. The sorts of things Carol Bartz will not find are boxes of software, lots of juicy, high margin services and no third party Distribution companies to woo.

Growth or Turnaround?

Some still think Yahoo!'s current predicament is one of lacking growth - a minor blip in the upward trend that the web offers clever companies. However, there is more of a concensus that Yahoo!'s model has been the issue and that continuing in the same way will not be the right thing. Critics of Bartz, and there are a few, say that she is a CEO who is fine managing an upward trend or even an 'even keel' as Rob Enderle of The Enderle Group describes her. For him, growing a company fivefold is actually just manning the tiller. But he does have a point - Yahoo! is not just an entirely different company, it is a serious turnaround situation.

Very different from Autodesk, which was entirely in control of its operating margin by adjusting the price of its product and production, Yahoo! is a marginal player entirely dependent on the supply and demand of online advertising - and that is up the creek at the moment. Supply and demand means that pricing and margins are much more sensitive and you cannot easily change the operating costs by sacking programmers, it means wholesale redundancies as there is little Intellectual Property (IP) that Yahoo! gains revenue for - and that's the nub of the problem.

Freebie Business Models

Perhaps this was an obvious outcome of a freebie business model and we have seen the last of these. I am not so sure. I think Yahoo! went far too far down the path of earning from marginal sales and did not get some core technology it could obtain revenue from as Google has done. The giants of this space have all got a crown jewel, a black box of core technology that has to be paid for - Yahoo! bypassed that and went for an advertising biased model for which it has paid a big price.

Will Bartz Succeed?

It's a huge ask, that's for sure. It's new territory for Carol Bartz - as head of Autodesk, and even on the Board of such companies like Intel and Cisco, she has always been associated with businesses with traditional models and IP, which can shore up its profits by flexing its pricing model because it owns the technology. Not so Yahoo! - it's a different ball game.

The jury is out, but as someone who saw at first hand the company she transformed, I think the lady who shook the masculaine status quo and became one of the first female CEOs of a software giant has a great deal more up her sleeve than most think. I think she may just prove the sceptics wrong (no rhyming slang intended).

Ying, Yang and Yahoo!

This week, Jerry Yang the CEO of Yahoo! must be ruing his decision to turn down the £29bn offer made for his company by Microsoft in May of this year. As recessionary warnings abound, Yahoo! has suffered more than most and earlier. Since May its share price has more than halved while the current $12.65 per share value is a mere 10th of the peak achieved in 2000.

Worse still, Yahoo! this week announced 1,500 jobs are to be cut as it struggles to battle a global downturn; it simultaneously announced a 64% drop in quarterly profits. It seems the Internet companies will suffer just as badly as the rest of us in a recession.

Business Models Based on Advertising

Some companies will fare worse than others. This is the contention of Wikipedia Founder, Jimmy Wales. He highlights Yahoo! as a particular concern as global advertising revenues will inevitably drop in a recession and those whose model is based on the marginal returns on advertising are particularly vulnerable. It leaves Yahoo! right in the firing line.

It is estimated that the global advertising market may drop by 10% or more and while it is expected that digital online advertising will not dip as far, those companies who rely on Internet advertising as their core revenue model are very exposed.

LinkedIn & Monetisation

This week I saw a debate on LinkedIn about some new applications that are being beta tested for members. There was some disquiet about the ability to add slide shows to your profile or blog links but some applications like your 'Amazon Book List' was pretty blatant links for book sales which it was assumed LinkedIn would get a cut of. I remember also a discussion about Facebook's attempt to 'follow' it's members to attempt to gain money from their buying habits using Facebook as the launch platform - as Google has also looked at in its grand plans.

LinkedIn, with over 28 million members, is a classic example of a company that has 'land grabbed' members and consumed a great deal of money to do so and gained a valuation based on the potential to monetise the membership - and that valuation was pretty impressive. But as it attempts to do so, there are more than a few getting a little uncomfortable.

LinkedIn is a an advertiser and recruiters dream - lots of juicy names and titles in all sorts of companies in lots of countries. Unlocking their potential is now a priority. Recently, as a member of the IOD (Institute of Directors), I have been questioning the value of my membership and I wanted to get more than nice meeting places and not just be the butt of glossy adverts for 'Member Privileged Products'. I wanted to leverage contacts, gain referrals and even do business with fellow members. Lo and behold LinkedIn suggested to the IOD that a LinkedIn Club was the answer and one was created with a discussion forum where the IOD have asked no one to blatantly advertise their wares - nice idea.

Sadly, the first blatant advert came from the IOD itself offering inducements if Linked In IOD Group Members would introduce their other LinkedIn network connections to the IOD. I complained and duly it was removed.

Conclusion

Business models which rely on advertising to its membership is a game model in the good times. In the bad, value is critical and my point here is that LinkedIn, the IOD, Facebook, Yahoo! et al need to find a patch of value to show members beyond bombarding people with adverts. True, these sites are what you make of them and I have written on tips and methods to make such networks work to build business but in reality the vast majority of members are just passive receptors of spam and adverts. As advertisers rein in the spend, these business models become exposed and I would suggest Yahoo! is not the only company in the next year or so who will suffer.

Maybe it calls for these sorts of companies, beyond the faddy, clever facilities they gave for free, to think long and hard about what value they are going to bring to the table to charge for in the future. The days of freebie business models are perhaps over - can these companies actually make any real money?

Where Next for eBay?

This year's annual eBay gathering eBay Live was not the usual happy-go lucky affair celebrating the rise of the individual, small time seller. The expected 10,000 attendees was rumoured to be much reduced as the auction pioneer experienced the effects of boycotts from the small sellers it built its business on.

One of the more controversial areas in the firing line is the new eBay seller transaction ratings. In a move to stop retaliatory negative feedback, eBay has introduced a new system where sellers can only leave positive feedback ratings. Lorrie Norrington, President of eBay Marketplaces said, 'Building trust is a priority for us and it should be for you too. But some of our users have developed bad habits.' It was part of a talk that received much booing.

There was much talk of small sellers quitting and moving to rivals, many talked of lobbying Google to become a credible rival. Meanwhile eBay is changing. CEO, John Donahoe, stated 'The Company wants to operate less like a car-boot sale and more like a shopping mall'. Therein lies one of the issues.

The issue of trust in using eBay is a major problem as it has long been dogged with an image of dodgy dealers, scams and fraud. I have personally been on the end of an attempted scam when having bid on a car and failed to win, I was offered a 'second chance' at my derisory offer price. Being the trusting sort and tempted by an amazing bargain I was completely sucked in by the official-looking eBay email and so ignored the fine detail that the transaction was to take place outside of eBay. I was given a phone number, email address and details to transfer the deposit of £2,000 by Western Union. Looking back, I was really dumb, but I can understand how people get sucked in by this official-looking scam. Luckily, Western Union came to the rescue and put me straight onto a special security department who informed me in the London area alone, eBay scams were running at the level of around £1.6m per week. Even that could buy enough petrol, gas and electricity for an average British family for a few weeks. Meanwhile, eBay had an email address I could send the attempted fraud to from which I got an automatic reply. I had supplied the email address and phone number and to my knowledge none of it was followed up.

How is the eBay Model Changing?

In the quest to find its nirvana, eBay is moving its model evermore away from its auction roots - the idea a seller could put a reserve on an item and over a short period buyers could bid against each other and buy at the highest bid. In the last quarter of 2007, fixed-price sales accounted for 42% of the total revenue for eBay which is now a staggering $60bn last year from 233m customers. However, despite a 22%leap in profits thanks to a superb performance by its Paypal subsidiary, the eBay core business was pretty flat and listings rose only 4%. Its business is vastly underperforming the ecommerce market where Amazon is growing at 32%.

Part of the cause in underperformance of its core business is that small sellers are not the only ones affected. Larger sellers like Emovieposter.com who have sold over $13m on eBay have estimated to continue their business under new fee changes would increase selling costs by 40%. The claim is that large discounts for the massive sellers will be offered by eBay and there will be changes in its search processes to favour them with good feedback.

eBay seems to be looking to drive toward the Amazon model. Its major issue is that Amazon does not have the weight of all those small sellers to carry and it has virtually zero fraud. What happened to the integration of the Skype acquisition - well there was no mention of that particular 'weight' around the corporation's neck.

Is This The End of The Housewife Millionaires?

So does this signal that eBay is about to ditch the generation of small time business folk who from their homes bought and sold items and made a very healthy living out of it? The stay at home entrepreneurs who used eBay initially to get a supplementary income and found that their reach was way beyond the boundaries of their home and all across the US and beyond. Will this be the end of the era when anyone could pop onto the web, participate in a short auction and find a secondhand barbecue for the Summer months at a bargain price?

Inevitably businesses have to change to maintain their momentum and deliver consistent growth and returns for shareholders but I cannot help feeling eBay has rather cynically ditched the very customers who fuelled the staggering growth of its business. I also think that it has a long, long way to go to match the simplicity, logistical expertise and image that an Amazon has in terms of trusted buying. The difference in the model is that Amazon is a true internet retailer - in charge of its own logistics, product buying, selling and payments; an end-to-end online store. eBay is a platform for traders to sell and buyers to buy, only the payment side is owned by eBay the rest is delivered by the traders and buyers amongst themselves. It still means that eBay is very dependent on the trustworthiness of those who use its platform and their logistical expertise and honesty which means the eBay brand will forever be the sum of its traders.

eBay might have done well to contemplate that as it moved toward the goal of an online shopping mall, because once you have ditched the small market traders there is no turning back should eBay fail to achieve its goals. I think it's a massive gamble.