COVER STORY: Digital Economy – More than a pipe dream

There’s growing body of evidence that we’ve been so busy arguing about how to build the digital highway that we’ve forgotten to construct the cars to zoom along it.
Increasing numbers of people now argue the debate needs to switch away from how fast we can drive, who pays and who gets to choose the route. Instead, we need to focus on where the rubber meets the road. What types of vehicles do we need? What should they be carrying? Where are they going? Most importantly: how can we make sure all that traffic adds to our national good?
When the New Zealand Institute investigated our broadband pathway last year, it identified annual national economic bene­fits of between $2.7 billion to $4.4 billion, plus further upside potential.
Earlier this year, Communications and Information Technology Minister Steven Joyce announced plans for the Government to invest $1.5 billion in ultra-fast broadband to reach 75 percent of New Zealanders in the next 10 years. The Government is looking for similar dollop of funds from private sector investors.
Yet Darryn Melrose is one of growing number of people voicing their concerns over our digital future. He’s both CEO of direct marketing agency Aim Proximity and chair of the newly formed Digital Leadership Group. The group aims to help New Zealand businesses adapt to remain competitive in an increasingly digitised and interactive environment.
Melrose says the danger of focusing on broadband speed is that many New Zealand business folk now view broadband as some kind of construction site rather than an option that’s already here and usable.
He concedes that hi-tech, pure-space digital businesses truly need high speed. But our digital future will encompass wealth of other companies whose reliance on super-fast access to the other side of the planet will be partial or less relevant.
“Unfortunately, the rest of the business community is interpreting the broadband debate as though it’s something that’s still being sorted out,” he says. “They think they don’t need to worry about it yet.”
Melrose reckons it’s not just that the future is now. To his mind, the future was about 10 years ago. We’re way behind huge tranches of the developed world including most of Europe, the US, Japan, Korea and even Brazil. “We’re still crawling when most of the first world is getting up to quite an advanced run.”
Hans Frauenlob, ICT sector director at New Zealand Trade and Enterprise, admits being frustrated with industry players who claim that, somehow, broadband infrastructure is holding us back from developing great new products and services.
“Yes, it’s factor,” he says. “But in some respects it’s also an excuse. If you want to build technology business you could deploy it outside of New Zealand on other countries’ infrastructure just as easily as you could do it here.”
In any case, our technology sector companies are not Frauenlob’s top concern. They’re already hard-wired to tap into new hi-tech trends. It’s the rest of New Zealand industry that needs to get with the programme. From banks to bakeries, beauticians to banana importers, they need to understand that the key to their competitiveness will increasingly be around how they utilise technology.
The digital space will reframe how they view everything from monitoring their supply chains, to understanding what their customers are saying, designing and developing product and service, and reaching their clients.
Just how poorly do we rate on broadband? The OECD’s broadband portal identifies five main categories which it says are important for assessing broadband markets. These are penetration, usage, coverage, prices, and services and speed. These splinter out into another 40 or so micro-measures and it’s the combination of measures that makes us rate so poorly.
A combo package of high prices, inadequate speeds and poor service has contributed to lower broadband uptake in New Zealand compared with our OECD cousins.
Our performance is lacklustre. In June 2008, for instance, we had 20.4 broadband subscribers per 100 inhabitants. That’s more than we’ve had in the past. But it still ranks us at lowly 19th on the OECD charts. Denmark – at the top of the chart – has 36.7 subscribers per 100. The UK, in 11th spot, has 27.6. The US, in 15th place, has 25, closely shadowed by Australia with 23.5.
Melrose, for one, bets Facebook would never have got off the ground in New Zealand. Our lack of infrastructure would have killed the project.
So if we want to grow digital economy what exactly are we talking about? That’s not an easy question to answer. Trying to define the digital economy is like trying to lasso wave.
Deloitte partner Grant Frear says it can span collaborative authoring and content creation (such as YouTube, Facebook or wikis); connectivity (LinkedIn, Facebook or websites); marketing (online advertising); updated business models (changes in supply chain management and collaborative business models); consumer aspects (online shopping); time and place shifting (TiVo); and remote and mobile working models (such as Blackberry). “The list goes on and on.”
Peter Finch, CIO of ICT solutions company Gen-i, says digital economy carries embedded in its DNA three core characteristics: it’s highly connected, operates 24/7 and is truly global.
All of which flings open the gates of Kiwi commerce to every person in every corner of the globe. Right now your competitor might be the bloke, or bloke-ess, literally down the road. Much of the Kiwi business landscape is built on having natural stranglehold on New Zealand consumers.
As the high-speed digital economy gathers force, that dynamic gets speed-dumped.
Now, and in the future, business will centre around being better than anyone else at understanding what consumers need and fronting up with the goods.
While broadband economy is potentially harmful to New Zealand if we don’t get our act into gear, the converse is also true. There’s tremendous upside for Kiwi companies that can tap into our natural entrepreneurship and our small pool of talented people with big ideas.
So far, says Melrose, with few notable exceptions, most of us have failed to do that. Ask people to list our digital success stories and most of them come up with TradeMe – the much-celebrated poster child of New Zealand digital enterprise – and Rod Drury’s online accounting software company Xero. They then grind to halt.
Further under the radar there are plenty of examples of hybrid bricks-and-mortar digital enterprise. For good 10 years now we’ve been able to buy our carrots, cheese and chicken from Woolworths without leaving home. Turners allows us to check out vehicle auctions online. Air New Zealand lets us ‘grab seat’. Telecom has set up business hub for small to medium sized enterprises wanting to order products and services via shopping cart technology.
Then there are growing number of smart specialist players. Back in May 2007, young media specialists Pamela Minett and Adele Barlow set up yMedia, web-based social enterprise that connects media students directly with not-for-profit organisations and commercial businesses.
In Wellington, Clare Tanner and Stefan Korn have set up Bookhabit.com, digital business that challenges and rethinks what it calls the traditional ‘broken’ book publishing model by connecting writers direct to readers. Bookhabit.com slipstreams past the editing, publishing, printing and marketing stages to put books direct into the hands of readers who judge each book’s merits for themselves.
In Dunedin, Areograph pumps out international-award-winning innovative photo-realistic online games. Its characters inhabit 3D worlds based on photographic technique that is both much faster to produce than those used in traditional games and much more visually compelling.
CIO Graham Hambleton says Areo­graph has just signed with Mumbo Jumbo – “the world’s largest retail (hard copy) distributor of adventure games (they have shelf space