In Richard’s post he mentions that it seems that Michael Jackson (former Chairman of Sage) had made an offer for the Kashflow business of £1m, which was rejected by Kashflow’s founder Duane Jackson.

According to Richard, Jackson made the offer with a view to using the Kashflow product to act as the “heart” of a new SaaS venture he was planning.

Well done Duane for saying no to the £1m for 100%… If I were him I wouldn’t give the company up at this point in time, but I’d be very keen to find a way to sell Michael Jackson some kind of stake since he’d made a very city-friendly supporter and has a wealth of experience that money cannot buy.

I’m only posting this, because it reminded me of a conversation I’ve had several times with Holway – I’ve always been critical of what I perceive to be a deep lack of innovation at Sage, and have given Richard a hard time in the past over his positive opinion of the company. Richard only needs to point to the company’s long-term financial performance to justify his view of course, but I believe that Sage will be dead in 5 years unless it can develop a completely new platform around SaaS – which is something you don’t do by buying lots of companies and cobbling them together.

Sage could actually be behind Kashflow in terms of its ability to deliver a user (and accountant) friendly product that is delivered as a service.

Yes, SMB take-up of SaaS has been tentative – but there’s now doubt that the technical, legal and emotional barriers are falling away, and there is absolutely no guarantee that the biggest share of the market will belong to today’s incumbants.

Sage needs to invent Sage 2.0… and learn from some of the minnows that are emerging.

A great mix of attendees and speakers – including a number of analysts from other firms, Rakesh Kumar and Nino Moscardini from Gartner, Martin Hingley from IDC and Andy Lawrence from the 451. This has prompted a couple of questions from attendees – “Why allow other analysts to muscle in on your action?”. The simple answer to this is, because they’re smart, they’ve got something valuable and important to say, and the Bathwick group is absolutely committed to working and collaborating with other smart analysts. It doesn’t need to be “formal”, it doesn’t need to be an “alliance” – Let’s get on and do stuff.

And Reuters ran a piece on the event -> here

I was challenged on this by a client recently, who asked “what about the additional heating of your home?”

So I did a bit of analysis (it being wot I do..) This is a superficial analysis – just looking at the commute and the additional home heating. I’ll do a more detailed model for all costs (electricity to run your home computer etc – although many of these are offset by the fact that you’d be running a computer if you were in the office anyway).

Getting to grips with a home-worker’s CO2 Footprint

So… And this will vary according to your circumstances, but here are mine.

If I commuted to the office every day, my commute would involve a 5 mile car journey to the local railway station, a 50 mile trip into london and a short walk from Waterloo to my office.

So… that’s 10 miles a day by car, and 100 miles / day by train (because I’m going there and back)

For simplicity, I’m assuming 200 commute days a year. So that’s 2000 car miles, and 20,000 train miles.

In CO2 terms that works out (using the calculator at Carbon Footprint ) as ;

Car – .844 tonnes / year

Rail – 1.938 tonnes / year

In cost terms it works out as -

Car (assuming a generous 45 miles / gal.. which my American mande 2 litre Beetle does not do on short runs) – £213.33

Rail (for a season ticket) – £4132

How does this compare with my home-worker CO2 footprint?

My central heating bill has risen by approx £10 / month. So that’s an annual cost of £120 and an annual release of CO2 of .055 tonnes.

So comparing the two options…

Commuter Gary – 2.78 tonnes of CO2 (at a cost of £4345 per year)
Homeworker Gary – .055 tonnes (at a cost of $120 per year).

So by not commuting, using just this rather simplistic and limited set of digits -

I’m releasing 50 times less CO2, and spending 36 times less on travel.

Go figure!

I’m going to write a little php script so you can do this yourself, since it’s unlikely that you have the same car / commute as me…

The initiative is the result of an agreement between IBM and Wuxi Tai Lake Industry Investment and Development Company Limited.

“The announcement states;

IBM will work with Wuxi Tai Lake Industry Investment and Development Company Limited; the Wuxi municipal government; and its business partners to build the China Cloud Computing Center, which will be a shared facility providing each software company in the park with its own virtualized computing resource. For example, a company will be able to use the allocated resource for designing, developing and testing its software products. Such virtual environments can replace the traditional data center model, in which each company owns and manages its own hardware and software.

While this is one of many announcements that IBM has made with respect to its investment, and business interests, in China (And you can expect to see LOTS of announcements from IBM concerning projects that it is kicking off in the BRIC (Brazil, Russia, India, China) countries, as well as in other emerging economies like Vietnam, and continental Africa over the coming 12 months) – I think it’s important because it highlights a number of things that western companies, and indeed western governments, seem to completely misunderstand.

Another very smart move by IBM

Perhaps you need to be an organisation that is nearly a 100 years old to take the kind of “long view” that IBM takes to some of its strategic decisions. IBM will be “officially” 100 years old on the 16th June 2011 – The company can trace its roots back to the late 1800’s, but the current corporation was founded as CTR in 1911 and then changed its name to International Business Machines in 1924 (See this history of IBM).

As an aside, I once asked an audience of IT Managers to put their hand up if they could tell me precisely how many employees, how many data centres, and how many sites their organisation would have in 10 years time. Only one person was confident that he could tell me that – He was from a 2000 year old organisation; the Catholic Church.

IBM’s age does, I believe, bring a level of maturity that younger organisations simply lack. I met Steve Mills (GM of IBM’s Software Group) yesterday, and one of the things he said highlighted this level of maturity-

We don’t think in terms of eliminating the competition, we expect most of our key competitors to be around for a long time to come

A far cry from the “we’re gonna Kill XYZ” utterances of some of IBM’s competitors.

IBM’s investment in China has a long history, and the current investments that the company is making will pay dividends over the long term (and for a long time).

And, remember, that IBM isn’t just making investments in China. You can add India, Brazil, Russia, Vietnam, and Africa to the list of places where IBM is investing.

These are long term plays, that only a smart company that has a long-term vision makes.

IBM and the “Globally Integrated Organisation”

IBM has done a lot of thinking about what it means to be “Global”. They’ve come up with the term “Globally Integrated Organisation” to describe an organisation that isn’t “directed” from a single HQ in a single country. A Globally Integrated Organisation is one where business processes are performed wherever makes most sense for the corporation as a whole. Instead of the classic “Hierarchy”, business units span the globe – teams are global, lines of management span timezones and the corporation is fully engaged wherever it is located.

IBM is fast becoming a template for the Globally Integrated Organisation (which helps to explain why they like to talk about it so often!) – it’s a template that other companies ought to emulate.

IBM and the Global Innovation Outlook

Another initiative that ties in closely with this topic is IBM’s very significant investment in genuinely global research on key topics. IBM’s GIO programme runs on an annual basis and seeks to engage with smart people from business, technology, and academia all over the world to consider specific questions. Last year’s GIO programme was focussed on Africa – and IBM (along with a couple of partners who joined in supporting the GIO project – including Cisco) – presented the results at a hugely interesting conference at the end of last year.

The GIO process undoubtedly benefits IBM – but any benefits that IBM derives from it will be over a long term, something like the GIO would be hard to justify on a quarter-by-quarter basis but as a means to establish what opportunities might be available to you in three (or ten) years it’s a powerful approach.

My analysis

There are several reason why I think this is significant, I could (and in fact I intend to) write a much longer piece on this But briefly, I’ll look at this from a global economic perspective, from the perspective of national economic policy, and from the perspective of the global corporation.

The Global Economic Perspective
Looking at things from a global economic perspective, you can’t deny that the balance of economic power in the world is changing. While many in the west (and I’m using the term “western” to describe the economies of greater Europe and North America) have fallen into the trap of believing that “Globalisation” means the ability to exploit resources on a global basis – A kind of economic imperialism that is much celebrated by the Right (Rumsfeld et al) and much decried by the thinking Left (Chomsky et al) , the emerging economies have largely figured out that they have as much of an opportunity to exploit their internal resources as the western, and they plan to do so.

In Tom Feidman’s book “The World Is Flat” (a book I have serious issues with, as it happens) Friedman quotes Rajesh Rao, CEO of Dhruva Interactive;

India is going to be a superpower and we are going to rule
(Friedman, T – “The World Is Flat” (Hardback edition) p191

No matter how many smug and narrow-minded books we read, describing the changes that are taking place as a “threat” is like describing the tide as a “threat”. They’re happening now, and we can either huddle together like King Canute and his pals and deny the inevitable – Or we can figure out how to manage our way through this inevitable change.

The winners of the future are the ones that embrace the change that is coming – and do something positive about it

National Economic Policy

Many of the emerging economies (notably China, India and Brazil) have very well defined programs designed to promote commerce within their national boundaries. China and India are creating dozens of special “zones” that are intended to act as a cradle for commerce, innovation and entrepreneurship. These zones are the subject of massive investment, and very significant long-term planning. In China, for example, the siting of Schools, Universities, Power Plants, Transport infrastructure etc etc is all influenced (if not completely governed) by a long term plan.

None of the western nations make anything like the same investment in long term economic planning – We trust “the market” while the likes of China are choosing to “change the market”.

China’s investment in special commercial and industrial zones will make China more competitive, more innovative and more successful – and western nations have to step up in terms of their willingness to make the same kind of investment

The Global Corporation

Too many western corporations view countries like China as simply a “market” to exploit. The number of times I’ve heard marketing people waxing lyrical about China being a market of “1.4 billion consumers”, without a single thought as to what proportion of those consumers can afford their products (When you look at wikipedia you see that if you separate the rural population in China which had an average annual per capita disposable income of household in 2005 of U.S.$397 from the urban population with an average annual disposable household income of U.S.$1,281 the “market” opportunity narrows to something similar to the population of the US (only with an annual income of 1/20th of the average in the US).

This “market to exploit” notion is a fallacy not just because of the reality of that market’s spending power – but also because international corporations simply wont be permitted to get away with exploitation. The governments of the emerging economies (and this is particularly true of China) will reward companies that demonstrate a long-term commitment to investment in their countries. Smart global corporations will already have invested in China (IBM has been present for two decades), those corporations that haven’t yet will need to step up and show some commitment.

Smart corporations will see emerging markets as an investment opportunity, not just a “market of potential buyers”

I’ve a personal interest in the recording industry, as I (myself!) have a small connection with it – I was an executive producer on, and investor in, the debut album by Clear (a band whose lead singer was one of my oldest friends; a Mr Neil – you hum it I’ll sing it – Ward-Dutton). Alas, the debut album was also the last album – though not for want of talent or effort.

The EMI revolt has been triggered by the wholesale changes that Guy Hands (CEO of Terra Firma) has set out to make – notably a reduction in headcount of 2000, and a stated intention to drastically reduce the advances payed to artists (Robbie Williams reportedly negotiated an £80 million advance from EMI in 2002).

Hands is taking some flak from the “Artistes” at EMI, and there have been a few slightly snide remarks about his lack of experience in the Music industry. One side-comment that has caused some amusement is the smirking notion that the £200,000 that EMI spends each year on “fruit and flowers” for its HQ isn’t really for fruit or flowers… (wink wink).

But given the way in which the Music industry has responded to the changes brought about by technology over the past decade, perhaps it’s time for a new-comer (especially one who has a track record as a hard-headed businessman) to take over the reins.

Or… maybe Hands has gone a step too far? Is there any hope for EMI in a changed world?

Like many, I think that the music industry is in crisis. It’s in crisis because its forgotten a couple of the key rules in business -

1. Don’t expect to make profits if you don’t add value
2. Don’t expect to add value if you don’t know what your value proposition is

This post is going to take a look at “value add” in the context of the music industry – in a way that, I hope, will go some way to explaining the extent of the crisis that it faces.
The Acquisition

EMI is the one of the world’s leading music companys. In the 2007 financial year the EMI Group reported revenue of £1,751.5 million and £62.7 million in underlying profit before tax. The company is made up of two core businesses, EMI Music, one of the world’s biggest recorded music companies, and EMI Music Publishing, which manages a huge portfolio of artists’ work.

But times are changing, and the music recording and publishing industry has been struggling to adapt.

In August 2007 EMI was acquired by private equity firm Terra Firma which is run by Guy Hands, a veteran investor who began his career with Goldman Sachs (where he went on to become Head of Eurobond Trading). Terra Firma tends to focus on European investments and has invested nearly €11 billion since it’s inception in 1994. Terra Firma has acquired a number of British household names like the Odeon and UCI cinema chains.

The Old Model

The Pop Industry was born a a result of technology – The emergence of a cheap way to distribute recorded music (in the form of vinyl records) made it possible to build a massive multi-billion dollar industry around the discovery, recording and distribution of music and musical talent.

But this was a complex and expensive process, “finding” talent meant that you had to send A&R people to scour clubs and venues, listening to hundreds of dreadful musicians before finding one that might have what it takes. The process of recording music required a massive capital investment in a studio and the druid-like experts that knew how to make it work (“Engineers” were the real heroes in the 1960’s because it was their mastery of the technology that created a band’s “sound”).

Next you had to be able to promote the record – A new job description “Plugger” was created, for people whose job it was to get records played on the radio and to get the band onto the TV. Then of course you had to distribute those vinyl discs – getting them into record shops so that punters could buy them. Artists would be sent out on “Tour” – not to make money, but to promote record sales.

This was a hugely expensive, and risky, undertaking – And the expense and risk was used to justify deals which sometimes left musicians broke, while the record company made fortunes.

But the system worked because the music companies were adding plenty of value to the processes involved in making money by making music.

The process can be summarised fairly simply -

1. Discover talent
2. Record talent
3. Promote talent
4. Distribute music

And the music industry was able to add value at each of these steps because they were fantastically difficult for an individual artist to do.

But things have changed…

The new model

The discovery phase still has a fair amount in common with the “old days” – Most aspiring bands will set out to get gigs at different venues in order to play live to crowds of four or five of their best friends in the hope that that number will grow to the extent that they’ll become part of the circuit and build a “following”. But instead of a flyer listing their next gigs, you’re increasingly likely to be given the address of the band’s web-site. You’ll be offered the opportunity to buy a CD, but the chances are you’ll be invited to download their tracks from iTunes.

New bands often find themselves in a bit of a bind when it comes to musics sales though; they actually want as many people as possible to listen to their music – So they’ll often offer a bunch of songs for download without requiring any payment – They want you to tell your friends about it – they want you to share those MP3 files.

Lilly Allen’s career was given a huge boost by MySpace – at the beginning of her career a number of the tracks that eventually found their way onto her Debut album were available for free download on her MySpace sitelet. Whether this was an evil scheme by her management to promote her or whether it’s a true story of rags-to-riches doesn’t matter very much. I’m one of thousands who bought her album precisely because I’d been playing a downloaded version of “Alfie” on my iPod for weeks.

Talent discovery has been totally transformed by the internet – While sites like MySpace are undoubtedly full of the most hideous rubbish, the site itself provides plenty of mechanisms to filter out the dross.

For example – I’ve just been to MySpace, and this week’s “featured download” is Amy Macdonald . On this occasion, the banner ad was for Robyn (never heard of her) and her single “Be Mine (Radio Version)” – click on it and you’re sent straight to iTunes. Enough about the gorgeous (if somewhat oddly coiffed) Robyn, let’s get back to Amy Macdonald.

I’d never heard of Amy MacDonald…. Although now that I’m listening to her, I’m thinking I may have heard her on the Radio at some point, what’s important is that I’m listening to, and liking, her music.

But I’ve heard a couple of her tracks, and I’m getting to know her a bit – She’s from Glasgow, she’s cute (although something of a devotee of the slightly “angsty” facial expression that is, I think, intended to imply soul and depth). She’s talented, the music is great, the lyrics meaningful – I can imagine playing this stuff.

She’s signed to Mercury records, and she’s gigging all over the place. There are a couple of videos… I’m a nascent fan! Listen to her track “This is the life” and you might become one too.

So… I know she’s playing in Portsmouth on the 20th Feb. I’ll pop a couple of her tracks onto my iPod and if I’m still listening in three days time I might get tickets to hear her live.

Mercury haven’t had to work that hard to get me from “Who is Amy Macdonald?” to “Oooh… maybe I’ll take in a gig…”. Screw it – she doesn’t need to release a CD, I’ll go to iTunes and download her album from the store.

But wait a second! We’ve just gone from step 1 (Discovery) to step 4 (Distribution)… what the hell happened to steps 2 and 3?

Recording music…. You don’t need a million dollars to create a really good recording studio any more. You can record good music using a decent set of microphones and a computer. Sure, there’s a big difference in the quality you can get in a full on studio (they have really good microphones) but in a lot of cases – they’ll be using very similar techniques (and sometimes the same software) to edit the digital music that gets made. What about talent promotion? Well… MySpace did that. Perhaps Mercury paid to get Amy “featured” – but I could just as easily search for the top rated unsigned bands (and if MySpace’s search function had been working when I went looking, that’s what I would have done).

The point I’m making is that the old “process” is still there – but it’s being fulfilled in a host of different ways. And the Music industry needs to get out of the way… or figure out how to add value.

While it does that, look at the opportunities that are being created as this business process evolves… On myspace, you have artists offering alternative drum tracks to other people’s songs. There’s an opportunity for “internet only” pluggers to help “pimp your profile”… lots of NEW ways to add value.

Change or die

EMI has to change – and it has to change fundamentally. Because, essentially they’ve stopped being the owner of the process – they’re now just offering a set of services that allow artists to outsource some of the things they do.

They’re not in charge any more, and they have to get used to it.

And this could be precisely why Guy Hands has invested. His firm had a mandate to “release hidden potential” – And EMI has plenty of that. EMI’s “book” – the collection of songs that it manages is vast. There are a host of ways to get more bang out of that asset. The recording side of the business faces much greater challenges though – EMI’s recording business has to get it’s head around the fact that the days of owning artists are over, and that the recording business should increasingly see itself as a service provider. If Hands is prepared to make  the tough decisions – and all the signs are that he is, then maybe there is a future for a very different EMI.