E can do

Sunday 1st July 2001

Last century refrigeration revolutionised New Zealand's economic place in the world. This century will the internet revolutionise our place again? Can we export our intellectual products: software, education, science and ideas? And are we ready to seize the chance? Rod Oram explores E-Zealand.

Auckland and Albuquerque are hardly sister cities, but they have one thing in common - they're both a long way from anywhere and you don't go to either place unless you've something on your mind. So what was on the mind of Auckland software developer Brian Peace when he went to Albuquerque, New Mexico, in the company of US power utility executives? And why was he so happy about it?

It had to do with a small thing called market share. "We've got two of the top five US utilities as customers. We're seen as leader of the pack over here ... and that's within three and a half years of entering the market," he enthuses over the phone from somewhere in the US.

Back in Albuquerque, Peace Software International was lead sponsor of the US utility industry's recent annual jamboree. The Auckland company's stand had a great site just inside the convention centre doors. Hard-bitten Yanks hung on every word Peace people uttered about billing and customer software. Its Auckland R&D facility produces browser-based customer management software rivals try to imitate.

Oh, and did we mention who is impressed with Peace these days? Only IBM, the largest IT provider to utilities worldwide. In April IBM signed up Peace to install its software at Xcel Energy, a 3.5 million-customer utility and the fifth-largest power company in the US. IBM's Xcel contract is worth $US980 million over 11 years. What proportion of that is Peace's no one's saying, but according to Raymond Gogel, a senior executive with IBM Utility and Energy Services, it's significant. "Most other solutions are simple remakes of older systems, but Peace's starts with the customer first. That really impressed us," he told UnlimitedNet last month. Gogel expects IBM to implement more Peace energy-related software packages now that such a large US utility has endorsed the product.

For Brian Peace, that's pretty close to business nirvana. "When we were still based in New Zealand we dreamed of getting one million customers, and we got that with BC Gas, the Western Canadian utility. This deal adds another 3.5 million customers. Next, we're aiming for 10 million," he says.

Little old Brian from little old Auckland, eh? How about that!

Can do

If Peace can hit the big time in the US, can other New Zealand software companies? As a nation, have we got what it takes to make our mark on the world's information technology and make money to boot?

Peace will lecture you for hours on the subject, but in a word, his answer is "yes". "New Zealand is a great place to build software products." His opinion is echoed by many industry leaders. New Zealand software developers are highly creative and competent, good at seeing the whole picture rather than only a piece of the puzzle, they say. Heck, they're cheap too. You can get two or three Kiwis for the price of an American. That's why Peace, despite moving the company's headquarters to Miami, has kept its R&D facility in Auckland.

But let's keep this in perspective. Most successes are modest so far. Exports of software totalled a mere $110 million last year, up 13% from a year earlier. But there is widespread feeling within the industry that it's poised for big growth if it can improve its marketing and strategic partnerships overseas. A wider question is what, exactly, do new technologies (especially the internet) offer New Zealand business? Could it do to our intellectual property sector what refrigeration did to our farmers - collapse our distance to market and propel New Zealand, by 2050, to the top rungs of the OECD income per capita table? If the answer is "yes", or at least "we hope so", then what are we doing to become e-capable?

At first blush, we don't seem that well set up to ride the internet wave. We rank 16th out of 55 countries in the 2001 Information Society Index compiled by IDC. Thanks to a big jump in cellphone usage, we climbed two places from the 2000 index. But in the latest ranking Australia was eighth overall and was third in the world in the internet infrastructure category (see "Stopping the tech slide").

This low ranking is troublesome. New Zealand needs the internet and other information systems more than any other country. They are the ideal tools to overcome our twin disadvantages: huge distance to market and inherently tiny companies. Some 85% of New Zealand companies employ fewer than 10 people. E-business would help them work together at home, and reach out to the world. Yet Trade New Zealand reckons only 20% of New Zealand companies have a website good enough to attract overseas attention.

So, the triple challenge is: launch our software companies on the world market; turn New Zealand enterprises to e-business; and build up our domestic telecommunications infrastructure to support the first two ambitions.

Big idea, tough market

To get a sense of what e-business means for New Zealand, let's start with the scale of opportunity. With business systems migrating online, "80% of the world's applications have to be re-written for the internet. Meanwhile, the world is starved of applications," says Sir Gil Simpson, chief executive of Christchurch software company Aoraki, known for its Jade internet tools. "An opportunity like this happens only once in a 20- to 30-year business cycle."

New Zealand software developers have proved adept at seizing their chances, like those thrown up by economic reforms at home. Peace, for example, made its mark when the state-owned electricity industry was broken up, privatised and deregulated. Brian Peace says one of the key strategic decisions he made was to develop an operation that was highly scalable; the company has coped with moving into four countries, with 120 staff in the US alone.

Similarly, healthcare software companies are the unsung heroes - accounting for about 20%, or $22 million, of the software industry's exports - thanks to a change of government policy about nine years ago, when government decided everybody in the country should have a unique health identification number. That spawned a number of health record software companies, leading to some 60% of New Zealand GPs using computer-based patient records, perhaps the highest rate in the world.

This sets New Zealand up at the forefront of one of the next big health opportunities: disease management. "This is a very big topic internationally," says Ian McCrae, chief executive of communications software developer Orion Systems. "We have much of the infrastructure in place to build on that, with South Auckland Health a leader. We can't let the US, UK or Australia get ahead of us or we'll never catch up."

Roadblock: marketing

McCrae believes the main thing holding back Orion's development is marketing. He likens the leap across the Pacific to "crossing a chasm". One response is to ask for government help. Why can't the government use taxpayer money to support exporters where it would really help, he asks, rather than in a plethora of research and industry programmes at home? If we don't tackle this weakness, says McCrae, we run the risk of foreign investors buying into our software companies cheap.

Marketing is a crucial key, agrees Keith Phillips. He recently resigned as chief executive of venture capital company IT Capital to help promising software companies in marketing, an area he knows well from running Apple in the UK. But there's a bigger problem. "The amount of capital required to take those companies all the way is huge." Moreover, you need to build up their management capability to put the money to good use.

The government's new seed capital fund is welcome but risky, he says. "You'll have many more people coming out of the trenches inadequately armed. The whole process, from incubation to commercialisation, needs a lot more thought."

One way to solve the problem is to go bi-coastal: an office in Auckland and one in Los Angeles. Right Hemisphere, the Auckland-based developer of the 3D graphics software packages Deep Paint and 3D Exploration, which are selling like hot cakes to film- and gamemakers around the world, did that last year. Founder Mark Thomas took the title of president, and appointed American Michael Lynch as chief executive working from Los Angeles.

"It's a huge weight off my shoulders to have Michael out there communicating the company vision," says Thomas - not to mention the advantage of staying close to big customers.

The US accounts for some 70% of the company's sales, with the rest coming from other parts of the world. "Essentially, we don't have any business in New Zealand," says Thomas, but he's determined to keep development here because of the quality and loyalty of the people. "And I like the fishing here."

Roadblock: talent

Another problem is the lack of software talent; corporates and the tertiary system have their work cut out for them. Having greater mass to the industry would help, argues Peter Robson, manager of the 75-people-strong New Zealand development arm of Dialogic, an Intel company.

"New Zealand doesn't have a deep computing infrastructure. More than 90% of people work for corporates; less than 10% in research and development. Until we have more depth, we'll be blown about on the commercial tide." He advocates, for example, using government funds to help persuade foreign companies to set up research labs here.

The industry is finding alternative ways to put on muscle. One is the formation of a number of software clusters: Canterbury Development Corporation has just launched a big one, saying it is bringing together "money, mentoring and marketing to sharpen the thin end of the wedge". Similarly, healthcare software companies like Orion are forming a cluster in Auckland with the help of Trade New Zealand. And Venture Taranaki, the region's economic development trust, has set up iTaranaki, with 10 corporate members so far. "Before, everybody operated in splendid isolation," says Anthony Stenning, the Venture Taranaki employee running it. One role of iTaranaki is to spearhead the take-up of e-tools in the local business community. The need to e-vangelise is spreading.

Roadblock: ignorance

A third roadblock to e-business is sheer ignorance. "We're almost as e-ready as any country except the US," says Jim O'Neill, chief executive of the Information Technology Association of New Zealand (ITANZ). "But if you look at the application of electronic business we are quite a bit worse off. We must get New Zealand businesses to understand they have an opportunity they've never had before: entry into a much, much larger market. But it has to be done in a relatively short time frame."

"We've got an old company economy that has exponential gains to make by applying new economy tools," says Mark Jeffries, chairman of the e-commerce committee of the Telecommunications Users Association of New Zealand (TUANZ) and an Auckland company director. But it's not simply a question of using e-systems to run your existing business. It's about gaining the knowledge from suppliers, customers and the marketplace to help you create a much better business.

Over the past 18 months, e-tools have taken another leap. Now they offer an interface across a company's systems, rather than simply plonking a web front-end on an existing infrastructure. "New Zealand developers are getting very smart," says Jeffries.

But there are two big threats to fulfilling that potential: complacency and the lack of management attention. Curiously, Ireland - gloriously successful Ireland - has that problem. It used buckets of European Union cash to set up "telecentres" to foster the establishment of e-businesses. "The attitude was 'build and they will come'. But they didn't, because the government had misunderstood the economic and social impact [of the internet]," says a senior New Zealand government official. Tellingly, Ireland ranks only 20th in IDC's Information Society Index, below Taiwan and South Korea.

To try to avoid that trap here, the government has set up the E-Commerce Action Team to bring together IT specialists and users, including a wide variety of business and professional bodies. The team tries to educate and stimulate ideas within existing businesses and associations.

Roadblock: infrastructure

Getting people excited is admirable but could lead to disappointment when they run slap-bang into one of the country's biggest e-business challenges: lack of infrastructure. Take iTaranaki. Rich prospects in new and old economies fall within its remit as a regional development agency: software developers, call centres, tourist operators, gas fields, engineering companies and farmers, to name a few.

Just the gems, in fact, to transform the region's fortunes. But iTaranaki lacks a critical tool to mine its rich seam: fibre-optic cable. Even though it's located in the old telephone exchange right in the centre of New Plymouth, it has to make do with pumping digital signals down copper wires. As does everybody else in the copper-bound town, even WebFarm, the IT innovator that offered New Zealand businesses the first multi-currency e-commerce software. But the townies are lucky. Work out of reach of the central exchange and you can't even get ADSL, Telecom's moderately fast digital-over-copper service.

Into Taranaki's e-dilemma, read the nation's: lots of people would benefit from doing e-business across town, across the country or the world but big chunks of New Zealand's telecommunications infrastructure are simply not good enough.

"Every year that goes by without a significant increase in broadband capacity will put us further and further behind," says Ernie Newman, chief executive of TUANZ.

In contrast in the US and many other countries, low-cost and permanent access to broadband gives people a terrific advantage: powerful and user-friendly services thanks to the vast volume of data pouring down the line.

"People don't understand how much better the internet could be if everybody had cheap and easy access," says Thomas of Right Hemisphere. "The range of products and services would be enormous. But with volume pricing [of broadband] here, there's no incentive to develop innovative e-commerce models. If you do, your product isn't as applicable in markets with a different bandwidth environment."

What we need is a "McDonald's structure across the country", says ITANZ's O'Neill. "Top to bottom, left to right, utterly predictable and reliable." Right now, he reckons the national infrastructure for users who need 24-hour broadband coverage is not absolutely reliable or secure.

Bandwidth by edict

Later this year the government will come up with proposals for getting more bandwidth around the country. Commerce Minister Paul Swain says it is likely to have four main thrusts:

1. "A bold target" such as high-speed internet access for every New Zealander. Note that this won't mean access in every home but rather in every community, school, marae, library or similar place.

2. "Using sharp instruments of government policy", in particular BCL, the transmission arm of TVNZ. BCL will be split off into a separate state-owned enterprise and given the remit to use its network of transmission towers to bolster telco capacity nationwide. The government has yet to decide whether BCL will simply rent out its capacity to telcos or will become a competing provider in its own right. Either way, BCL "is an absolute jewel in the Crown" and won't be privatised, Swain says.

3. Bundling telecommunications demand from organisations like schools, police, government bodies and businesses, "so we can go to the telco companies and ask them what kind of deal they'll deliver."

4. Acquiring "robust data" on the business case for embracing e-tools, work which is already underway in Dunedin and Southland, for example.

In addition, the government may target rural services in an auction of the radio spectrum. Since wireless seems the best hope for getting data to sparsely populated areas, it could award licences to bidders offering the best quality and breadth of coverage, rather than top dollar.

And how's this for just one really big idea about the upside of great e-capability? Thanks to Telecom's new Southern Cross Cable, we have huge fibre-optic capacity linking us to Australia and the US. We also have a nice cool climate, and cheap land and labour. Meanwhile, California is host to a large number of server farms, huge constellations of computers and memory drives serving websites. Trouble is they (and their air conditioners) consume a lot of expensive power - power the state is short of. All up, they use some 10 times the power of an average business, per square foot. On top of that, their stand-by generators pump lots of noxious gases into the already-polluted air. Some San Francisco city politicians suggest that electromagnetic emissions from the farms are excessive, a theory debunked by the computer industry.

So, if the farms are a burden on California, why not offer to host them here? (For a related idea, see "Hits and myths for brand NZ".) IT experts here reckon the running costs would be one-third of the price, with lots of other bonuses such as being able to service the systems during the day when it's night in the US and traffic is lightest. In turn, such a concentration of equipment would foster a skilled workforce and all sorts of spin-off businesses.

How's that for an e-vision?

Rod Oram
oram@clear.net.nz

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