Monday, 28 July 2008

Danielle Aubert's Art from Microsoft Excel

Leading creative journal, "Design Boom" recently covered the work of Danielle Aubert, stating, "...most digital artists use sophisticated software to create works which would otherwise not be possible. while artist danielle aubert does create one-of-a-kind artworks, the software he use is rather low-tech. aubert produces some of his drawings with none other than microsoft excel, the software more typically used for spread sheets. aubert manipulates the program in ways that clearly show the
software’s traits but from a new perspective."

Danielle's work is a wonderful example of how creative thinkers can take a concept or a technology and apply it in a way which is drastically different to intended. In this case, the end result was artwork, but the thought processes which are engaged could easily be applied to other things, whether that be business, or our lives outside that.

For many years, those in technology have seen open-source software and independent coders (often called 'hackers') take platforms and physical products (eg: ipods, satnavs, etc) and innovate to create something new. Linux, for example (a popular open source operating system) has spawned an entire culture of followers who take great delight in taking often unassuming pieces of hardware (eg: fridges, handheld computer games, car radios, etc) and turning them into fully functional computers. This generation are the followers of the 'radio shack' era, and the predecessors to a time where consumers will take a companies products and services, innovate themselves, and create often totally new objects and platforms of value.

In future articles, I will cover this consumer innovation phenomenon in more detail, but this example from Danielle Aubert, I felt, was a great illustration of it.

To see more of his works -

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Data Euphoria – The death of Science, and parallels with business.

In a recent article, a postdoctoral fellow at Harvard medical school wrote of the concept of “data euphoria” where scientists are replacing conventional scientific thought & theory with large scale data experiments. The writer identified that the “….underlying problem with the whole concept of replacing the scientific establishment with a Google like data cruncher is that it misunderstand how scientific insight is achieved.”

While his Blog has a focus towards biological sciences, we see the same is true elsewhere, in science, and business. In research, it seems the world is moving from a ‘component’ approach (where we try to understand how the parts make the whole) to a ‘system’ approach (where the aim is to understand a perspective as wide as possible and then drill down).
Much of this change has been due to huge changes in how ‘science’ works, as currently, like never before, scientists have access to huge amounts of technology, capital and data, meaning that they now have the ability to a) fund massive experiments and research studies and b) have the computing power to understand the results.

To give you a flavour of this in action, you need only look at: – a list of the fastest supercomputers in the world
– the £3bn ‘large hadron collider’ experiment (which aims to recreate particle conditions at the time of the big bang)

A simple search on Google will reveal many other large scale ‘number crunching’ experiments and research projects which many, in the science community, question with vigour, doubting their merit as more than just ‘bragging’ exercises

If we take the basic tenets of the above, we see a great deal of similarity with the business world where, rather than creating enterprise from ‘component’ ideas and growing to large companies (as firms like GM, Unilever, and their counterparts have done over many years), the zeitgeist seems to be to deploy ever more prevalent amounts of capital (whether leverage or cash) to structure bigger and more complex deals, and fund increasingly ‘ambitious’ start-ups.

In 2007, the guardian reported news of the biggest over private equity deal (US$38bn). In the year since, even in the face of turbulent markets, we receive weekly news of mergers, acquisitions and deals with (to quote a friend in the industry), “almost comically embarrassing amounts of money involved”. (The merits of these large deals are somewhat outside the scope of this article, but will be discussed in more detail in future writing.)

If you were able to pause these scientific and financial beasts for a moment and ask, simply, “why?”, chances are that along with the pages of justification for their activities, one would be greeted with a slight undertone indicating their reasons for pursuing these budget-busting-projects are “because they can”.

That said, there are, for sure, ‘right’ conditions and upsides to large scale mergers (for example the Mittal Steel and Arcelor $33.6bn merger) but in these cases, it can usually be seen that creation of immense scale is an appropriate and savvy way of dealing with the market structure (method of product delivery, research and development costs, etc), steel and other commodity industries such as o&g, et al, are good examples for these.

In other cases, though, many mergers and acquisitions seem to take place to service a ‘perceived’ opportunity and to gauge efficiencies which may not, necessarily, exist (Airlines are a great example of where mergers may not often result in significant savings, hence code/route/aircraft share schemes). This M&A culture also creates a slight undertone of secrecy within different markets, as companies are more inclined to protect assets than share them, glowing with the thought of eventual mergers, this leads to some stagnation in markets, as IP and concepts are simply not adequately developed leading to a surge of ‘equivalents’ (driving prices down) or high cost new products (maximising revenue before IP is spread), the pharmaceuticals market perhaps exhibits this more than most.

Many may also perceive that the ‘city phenomenon’ plays a big part in this, as a potential oversupply of advisory, support and banking services can lead to these organisations hunting for deals to keep themselves in business (leading to the phenomenon of transaction-at-any-cost). To put this in perspective for the UK, from a population of only 60million, almost 2million are employed in the financial services sector.

Even in a ‘smaller’ context, I have seen many businesses within my own network where the owners have pursued a tactic of big-number-deal-making as a growth strategy not for any real ‘scope’ other than their view that one cannot grow ‘fast enough’ organically. For some industries (particularly those dealing with services or intellectual property) this kind of scaling is possible, but for MANY others (dealing in physical products), scaling like this can (while giving you a ‘big number’ business at the end of it) introduce an unreasonable amount of debt and complexity which can topple an otherwise healthy enterprise.

I would always ask entrepreneurs (often against the whim of their fee-generative-advisors) to consider the merits of big number deals before embarking on them, and would ask they take heed from the many otherwise successful firms that have collapsed because of this approach.

Doing something “because you can” doesn’t necessarily mean you should.

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Sunday, 6 July 2008

Credit Crunch? What Credit Crunch?

In this article we look at the “crunch-defying” world wealth market, and analyse the growth in sales of luxury goods and services together with the opportunities in the luxury market globally.

In most western countries, the ‘general’ population are feeling a pinch as inflationary pressures and contracting economic conditions contribute to a difficult climate. People are feeling a drastic reduction in the value of their money (i.e. their ability to buy goods and services) while also facing a decline in the value of their physical and other assets.

Rachel Joy, from GfK NOP (Who produce the official figures on consumer confidence for the UK) stated, “This month [June 2008] the Index score continues to tumble and is almost at its lowest level since the survey began in 1974. At -34 it is only 1 point higher than the -35 recorded in March 1990 when the UK was heading into recession. With rising inflation, gloomy forecasts for interest rates and soaring fuel, utility and food prices dominating the front page headlines, it’s no surprise that confidence in the general economy is almost in freefall. It seems unlikely that this trend will reverse in the near future”

While this ‘doom and gloom’ sets in for most, the luxury markets are booming. Merrill Lynch, in June 2008, published a report which said that, "The number of people around the world with at least $1 million in assets passed 10 million for the first time last year”. This, said the report, brings, "the combined wealth of the globe's millionaires to nearly $41 trillion last year, an increase of 9 percent from a year before". Estimates say that by 2012, this figure will be near $60 trillion.
Evidence of this growth pervades to those companies supplying goods and services to the luxury marketplace (the companies supplying the needs of the richest 2% of adults in the world, who between them own more than half of all global household wealth).

Brokers and manufacturers of luxury jets, and super-yachts are, for example, reporting record sales growth and huge order backlogs, "The private aviation market is currently growing at more than 15 per cent in the Middle East," said Shane O'Hare, the President and CEO of Abu-Dhabi based Royal Jet, an executive flight services company. Wealth markets have been buoyed in the past decade for many reasons.

- The growth of financial markets and complex financial products (eg: credit derivatives) creating huge ‘city’ wealth, globally. These products and services have also helped wealth create more wealth and can often prosper in the volatile conditions we are seeing (see ICAP shares as reference of this in practice)

- The massive growth of emerging markets creating vast amounts of wealth internationally ($18.4 trillion of the $40 trillion value of global wealth is outside America & Europe).

- The huge increases in commodity prices (we have seen in particular nations such as Africa and Russia profit from these)

- Real estate, though a four letter word in many countries at the moment, has also contributed to this growth.

Other reasons are evident yet more complex including growth in demand for goods and services globally (particularly as the east develops consumer culture) and the breakdown of global business boundaries (through communications, infrastructure and policy) allowing companies to extend their trade horizons. These factors have led to the growth in both HNWI (high net worth individuals, with at least $1 million in assets) and a massive surge in the amount of UHNWI’s (ultra high net worth individuals with over $30 million in assets).

Evidence of this latter group’s growth is not just observed by wealth managers and the investment community, but by the market at large, with newspapers and magazines carrying reports of these individuals purchasing ever more expensive yachts, art, homes, aircraft, and more. According to Bloomberg, “London auction houses sold a record 558.8 million pounds ($1.1 billion) of art including fees over two weeks”. Even aircraft manufacturers Boeing and Airbus are getting in on the action, selling personalised versions of their jetliners to the ultra-rich, “from about $50m for a single-aisle plane to the $300m or so Saudi Prince Alwaleed bin Talal is paying for his Airbus A380 flying palace”. Yacht brokers I spoke to were reporting increases in interest and sales of vessels above $100million, with more esoteric markets emerging such as private submarines.

Economists and analysts argue, though, that there is more at play to the growth of the luxury markets than simply an increase in wealth. High net worth individuals have many objectives with their assets, first and foremost to protect them, and then, using diverse strategies, to grow and develop that wealth.

Globally, credit markets and other investments (such as stocks) have certainly stalled, leaving those with cash and investable assets to turn to other means to meet their strategies. The luxury goods marketplace has stepped in to this void, by providing many opportunities for the world’s wealthy to engage in ‘investments of passion’ where they are able to protect wealth by buying goods which seem to grow in value year on year including jewellery, art, collectables (eg: luxury cars) and fine wines. This phenomenon has spread with innovative companies creating many ‘securitised’ versions of luxury lifestyle accessories such as car clubs, hotel room investments, international luxury property clubs, and boat clubs. In all of these cases, the ‘primary’ investor generates a good return on the back of a luxury good or service. As for whether this will decrease when global markets resume their stability? My view would be there is clearly enough liquidity in wealth to sustain both classic and luxury investment strategies. Note that much has, recently, been discussed about the impact of the global credit market fall-out and inflation on this strata of the population, and indeed whether they are more exposed than they admit, but this will be covered in more detail in a later article.

Alongside this pragmatic attitude to the purchase of goods and services (ie: turning them into an investment), there is clearly growth in the general uptake and consumption of luxury goods and brands, seen by increases reported from established players such as Rolls Royce (up almost 60% as reported in July 2008 by the independent newspaper in Ireland).

For entrepreneurs in the luxury arena, times are good. If blinkers are applied to shield
them from the carnage of the credit markets crisis, a clear picture is created of a market which is becoming (through breakdowns of policy, communication and infrastructure barriers) more accessible and growing year on year.

High net worth consumers in Europe and America are seeking ever more extravagant and limited products, and as the social distribution of wealth increases (ie: the backgrounds and natures of individuals with wealth) we are seeing brands becoming more numerous and powerful (contesting the usual ‘controlling’ position in these markets held by the likes of polo, Chanel, Cartier and others). In non US/EU markets, the brand and product growth is even more interesting, as these high net worth consumers are truly global citizens, with ‘new’ money, and an appetite for the consumption of luxury goods. They are open to new brands, products and services, and have not ‘grown up’ with any ingrained views or attitudes towards particular companies (in the UK and USA, brands like Polo, Chanel and Cartier are almost seen as ‘uniform’, with little or no exploration outside these remits apart from the provision of bespoke). But even in these established markets, the inflow of international wealth (particularly to London) has seen a diversification of brands and products, creating more opportunities for entrepreneurs and existing brands. Many global financial institutions and funds are, for example, launching specialist investment funds to capitalise on this market, “Société Générale”, as reported in the International Herald Tribune in January 2007 “which manages $437 billion, will [through a luxury fund] invest in companies like LVMH Moët Hennessy Louis Vuitton, Porsche and Tiffany”

Ayn Rand, a Russian born American writer in the 1900’s wrote, “Money is the barometer of a society’s virtue”. There is a great deal of reluctance from companies to enter these (luxury) markets in light of global economic conditions, but in my opinion, the growth of global wealth, especially outside America and Europe provides entrepreneurs and existing companies with an incredible opportunity to develop exciting goods and services to service an ever more present and demanding strata of the population.

The world, it seems, is becoming increasingly motivated by money, and while many argue this does not buy happiness, it will (says Helen Brown, an American writer), “…help you be miserable in comfort.”


1 GFK NOP Consumer confidence index:

2. Merrill Lynch World Wealth Report:

3. World Wealth Distribution:

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