Renewable energy

The prospects of energy market reform are going to change the world. The pace of this change is likely to depend on two factors:
1. The capacity of manufacturers to produce the plant needed to drive markets, to allow market participants to respond to price signals
2. The pace at which government can draw up legislation. Of course that is always the greatest bottleneck. To some extent this obstacle is compensated by the promise or actuality of grants and other financial incentives offered to consumers to save energy, and generators to build renewable alternatives.

These are exciting times. There are a number of new technologies arriving on the market in 2009-2010 which are going to change the way people procure energy supplies. Intermittent or distributed power generation is just part of the equation. The future is being driven by new technology more than anything else. The implication is:
1. Greater consumer choice with respect to energy saving devices, whether its refrigerators, heat pumps, smart meters. These solutions give people the capacity to reduce power consumption as well as the capacity to alter the way they consume it.
2. Time-of-day electricity pricing gives people to profit from the timely sale of power to the grid when electricity prices are high, whilst producing or buying power when they are low. There is even the prospect for generators and traders to store electricity as more efficient battery and fuel cell technologies enter the market.

These technologies and opportunities are available to everyone, but not everyone need to participate in the generating market. There will be solutions to allow you to go off-grid with even greater ease and lower cost than you are already doing. These are interesting times. I wanted to take this opportunity to review the electricity market to determine how the market is going to evolve in future. My findings will be compelling reading to serious renewable energy generators and investors.
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Andrew Sheldon www.sheldonthinks.com

Vertically integrated food enterprises

Food retailing is big business. In small markets it can be very lucrative business. Most countries have established food enterprises that display a great deal of market power. There are 2 types or models that I have observed:

1. Developer-retailers: This model is particularly popular in Asia, with the likes or Robinsons and Shoe Mart (SM) in the Philippines, and Seibu in Japan. It is in the developing markets where they have captured the greatest market share. The strategy of this model is to develop large shopping malls built around your retail capacity, with the added attraction of integrating those retail-shopping experiences with rail transport and residential property developments. SM and Robinsons have been very successful with this approach. In such cases the companies tend to function as independent stockers of local and international food. The intent of such malls is to buy large areas of land in strategic locations and essentially build cities around them. This model works well in Asia because you need the support of government to get cheap land and for approval of any and all subsequent development. In Australia, these enterprises would have to follow local zoning rules, and they are less likely to be bent for the sake of a developer. Certainly not in a systematic way that would be evident to competitors. They would also have to win over residents, some who don't always value the almighty dollar.

2. Farmer-retailers: This model tends to be more prevalent in the Western countries because retailers don't have the same development power. The shopping mall developer is thus a more independent beast catering to all food retailers in the market. The shopping mall developer Westfield is a case in point. It offers floor area to the largest malls like Woolworths and Coles in Australia. Woolworths was previously advised by the former Wal-Mart CEO. Their approach is to develop shopping centres in key locations with the intent of dominating retail with integrated services. Of course if its 'competitive bidding' it must be good right? Well no. In Australia and NZ (Countdown) you will find 2 brands competing for the same markets - which means no competition at all, thus food prices are determined by your ability to pay (i.e. Average household incomes). This is because you can bid more if you can hold more regional market share, so customers don't have a choice. Their intent is to offer greater convenience so that you would not even bother to go to the competitors because you could not be bothered to waste time determining who is offering the cheapest cost item for the 50-odd $3 items you buy every 3-4 days.

Is this not just good old fashioned capitalism? Well, I don't think so. The problem is that the market is divided between two major players in most countries. This creates a huge incentive for price collusion. There are often more competitors in the bigger countries, but these tend to be merged into just a few. The largest companies are entrenched because no other competitor can hope to match the efficiency of their distribution system. That is an effective barrier to entry because only a silly idiot would try to match their low unit costs. Small players can only go after the smaller rural markets offering smaller returns. These areas are open to outsiders because they are in a position to source local product and there are larger profit margins for the majors elsewhere. The majors have another strategy. They invest in growing profit margins in the city so during the boom times so that their earnings are not overstated in the bull market, but stable in the recessions. This allows them to further entrench their monopoly in the recessions because other players don't get the same benefit. This problem occurs because of our history of government regulation and high barriers to entry. It’s partly due to property zoning laws, but other laws also play a part. When the government regulator is asked to investigate the 'monopoly powers' of the regulator as the Australian Competition and Consumer Commission (ACCC) was asked to do, they find that the food retailers earnings are normal, but they investigate the wrong period, and they don't consider the increase in margins, instead focusing on profits. Why? Because they can conceal retained earnings reinvested in future growth. You can understand the 'political power' of an organisation of Woolworths, and the desire of the government to help them so long as they don't look bad. And the support of the ACCC, which has in previous years been a valuable agent for consumers might not longer be considered in the same light. I would also suggest that the ACCC is under-resourced, and even if it wins a few battles, the war is tilted towards those false prophets of capitalism.

The major food retailers have another strategy. They have this powerful market position of knowing what customers are buying. They can look at their best selling items and then go out into the market and offer contractors a new opportunity. For example, let’s say Woolworths was buying cucumbers from ABC Farm Coop for $0.5/kg. It could go out into the market offering a new player a 10 year contract to supply cucumbers at $0.30/kg. The capital expenditures allow the contractor to amortise costs over a long time, in the process wiping out the competitor, and forcing other retailers to buy from them. The great aspect of this business model is that its highly efficient. The negative aspect is that it is causing a structural shift in the market from which local food producers might never recover. The problem of course is the lack of market disclosure or unequal market power. The large integrated retailers are changing the way business is done. For example, for years I have been buying processed fruit packs from Golden Circle. Golden Circle must have increased their margins or food prices have risen because I have been paying a lot more in recent years. Recently Woolworths started offering a similar product at a discounted price. No doubt it is hoping to steal market share away from one of its food suppliers. More interesting is that the food is supplied from Swaziland. This is of course a logical development. These countries should be producing fruit because they have cheap labour. The same company in Swaziland is likely supplying Wal-Mart. This could create a competition problem. The laws in Swaziland might allow the local subsidiary of Woolworths to refrain from competing with it. i.e. Coles in Australia might be unable to buy the same fruit from the same producer. Should this bother customers?
This actually looks like an unfair development but actually this is an inevitable development which is good for food consumers, good for poverty-stricken developing countries, excellent for shareholders, a bonanza for directors with company options since food is fairly recession proof. Probably the biggest problem is the fact that the rural farm sector which is dominated by family owners will just not be able to compete. They will not be able to conceive of shifting their operations to Africa. They would not even know where Swaziland is.
What is the significance of that? Australia or NZ have even lower currencies one suspects? Or Australia and NZ become nice places to live, but if you intend to run a business, it will need to be a non-food, service business because there is no longer any money in food. Of course if you live on the coast you can sell your farm for retirement living. The question is - what happens to all that land in high cost Western markets? It is well suited to pastoral uses as well as highly mechanised farming. Can we not then expect countries like Australia to retain its lead in wheat, cotton? We might expect the less thirsty crops to win the day given the scarcity of water. Expect also a great deal more farm consolidation on a global basis in order to ensure security of income and supply. We can expect these corporations to preserve large stockpiles as well, and to trade them accordingly.
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Andrew Sheldon www.sheldonthinks.com

Moves towards integration and customisation

This article on Chumby strikes me as the way of the future - or at least one path. This path promises several things:
1. Customization of product - I believe we are moving to an era where style will be less important than functionality, and that styles will not come & go, but they will just move. I mean, you will be less inclined to refurbish your house in Gothic style, you with just sell your Post-Modern design to fulfill your Gothic fetish. The same will be true for function. This is the era of specialisation, and I expect greater integration of markets will result in greater customisation in product and service offerings. This is a positive shift towards conceptual thinking and empathizing with the needs of the client. Until now its been mostly rhetoric. A great deal of this is being made possible with computers and the customisation of the internet experience such that a company can offer different sales experiences in different markets. The customisation will sit alongside premium grade servicing as value-add propositions.
2. Integration - In the area of electronics I think we are looking at improvements in product support and scalability, and the ongoing fading of boundaries between institutions and customers. We can see this with work tasking, but also in product design. We are seeing products being designed such that they are wired to the internet. It has been a dream for some time now that you could control your home appliances remotely, whether from your mobile phone or through your office computer. eg. You are leaving the office, so you turn on the aircon and pre-heat the oven before you arrive. Thats the concept, but in reality we have seen very little of this integration outside home security systems. Chumby is a move in this direction - albeit a primitive step. But we can expect more of this with GPS-based phones that download maps from the internet, external HDDs we source from anywhere. Amazon's eBook readers are an example of things moving in the right direction.
3. More outsourcing - There is no question we will be looking at more outsourcing, which will include more people living at home. But here is the trick. We will need to be trained to work at home because we are not accustomed to working with home comforts. So I see home spaces being redesigned to meet the needs of the home worker. I actually think the Philippines is actually more advanced in this respect than other countries. Two companies here - Shoemart and Robinsons - are designing low & high-rise apartment/condominium complexes integrated with shopping precincts. I wonder when the days of cooking at home will be over? Maybe when restaurants start cooking animals fats for meals that we can afford to eat out every night. When they start packaging meals like our broad lifestyles matter, then they might just have an integrated solution that keeps us coming back. The question is would we want to eat at the same place every time? Probably not, so maybe restaurants will be transient solutions in future, or maybe the meals will be delivered from off-site to store fronts.

Are we there yet?
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Andrew Sheldon www.sheldonthinks.com

Simple housing

For years we have been able to buy kit homes though they were never very easy to assemble. In alot of western markets we have seen property prices taking off. Its fair to say there is a disconnect between the materialists and the spiritualists in terms of what is important. The materialists are of course chasing money and material possessions, whereas the spiritualists live simpler lives with modest wants. The materialists have been well-serviced over the years, but I would suggest falling asset prices are going to open up a gap between the haves and 'have-nots' and that this could well spark greater interest in alternatives such as:
1. Mobile homes
2. Kit homes
For more info on mobile homes see http://campa-living.blogspot.com. For more information on kit homes see the following story.
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Andrew Sheldon www.sheldonthinks.com

The future of publishing - A New Publishing Model

Publishers like to overlook the fact that authors plagarise other authors work by merely getting their authors to sign a disclaimer that protects the author. I can’t imagine it being an easy task to define the ‘originality’ of a piece of work, yet under the current scheme it strikes me as difficult to protect the original content of a book. As we move towards a greater concentration of electronic media, I expect there will be changes to the way intellectual property (IP) is controlled and managed. This will take time because authors tend to be pretty ‘self-righteous’ people and publishers have their commercial interests to protect, so we can expect any progress to be slow. Or is it inevitable? We live in a fast-track world. If I were to write a book on self-improvement, I could find 100,000 titles online, of which probably 80% of what I might write has been said before. There is no question that some people make the same point better than others.

I respect the notion of paying credit to the originators of an idea, and even ensuring that they get their royalties. However I also think there is credit (and royalties) to be paid to the author that makes the argument more concisely. The system we have now does that in a crude fashion because we are talking about hardcopies, and there is scarcely little cooperation between publishers and authors, so are not authors just inclined to act as if they are the creators if only to avoid getting ‘hang up’ on the old in the pursuit of value-add. There is a certain piety in academia that oversteps this piece of impracticality. Of course they feel powerless, and want to avoid the scandal of being ex-communicated from the establishment.

But as a more practical creature I would value a scheme that did not place pious value on ‘old content’ and freed authors to focus on the ‘new’. The best way of doing this I believe would be to recognize the value of (i) originality and (ii) style, so that established authors can be rewarded for making these old arguments, and new authors can focus on creating new content.

The scheme that I envisage is that publisher and authors would break down packets of ideas, just as computers communicate packets of information. Those packets are either original in concept or style, and depending on which determines the amount of royalty that should be attributed to the originator(s). Of course originators who write poorly will be re-written, but they will still get attribution for originality.

Aspiring writers at the frontier of human knowledge will not waste their time creating the ‘old’. When they read an ‘old’ book, they will critique it, so they can discard the ideas that are irrelevant or wrong, and merely add the value that they have originated. The ‘current’ author will get credit for the percentage of the book which is fresh, and for the percentage of the book which is ‘old’, he will pay attribution to the ‘old’ established authors. The implication is that an author of a book might only add 10-20% new value to a book, but the implication is that books will be transient and authors will only be rewarded for new content. The same concept can apply to music. So should America fear IP violations in China? No, because the content will already be dated.

The best aspect of the scheme is that old content eventually looses its value, and becomes cheap to copy for poorer countries, so they need not be left too far behind. We all know that we have learned from others, but we want to brand ideas as our ‘thinking’ not because we are the originator, but because it embodies the way we think.

I also think its important that readers should not have to pay for content that they have already read. Clearly if your computer has a record of the IP you have read, based on your reorded downloads, then it can easily credit you for those packets of information already downloaded in an earlier book.

I think this type of scheme is likely to be developed with a shift towards greater electronic content. I think we will see authors and publishers selling books in packets, just as we can imagine software programmers selling certain programming code that is a standard unit in different programs. Before we download a book we will be able to see whether it has any arguments we have not seen based on any packets of information that we have already read & paid for.

Clearly there is an opportunity for authors to work with publishers to derive more value from works. This type of model actually gives authors a greater capacity to make money from their old writings because they live on in others. It also means credit goes where it should, people are rewarded for improving, and authors are not rewarded for copying. Its easier for them to take an existing book and edit the parts they don’t like. The consequence would be faster writing for authors because they can focus on what is essentially fresh.
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Andrew Sheldon www.sheldonthinks.com

My new career as a futurist

On this page I get to be a futurist. It occurs to me that the same skills that make me a good writer, a great CEO, a great investor, are largely the same skills that make me a great futurist. There are several important underlying attributes:
1. Superior capacity for critical thinking
2. A large general knowledge about the world

On that note I will explore some of the ideas that I think make me a great futurist. Seeing the future is perhaps the most difficult undertaking because you have to anticipate so much. Of course it would be difficult to anticipate everything, but there is a certain logic to how broad trends unfold. Often don’t happen as we expect, and sometimes delay can overtake them. But fundamental developments can have a certain criticality to them. The best futurist will anticipate the obstacles. Its interesting that you can critique issues of what could be, just as you can critique what is, or has been, using the same principles of logic.
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Andrew Sheldon www.sheldonthinks.com

Open Source - its strategic direction

One of the big attractions of open source is the idea of tapping into external labour markets. Afterall there is a plethora of people out there wanting to learn on the job, in an environment where they can get support, and they are willing to do it without payment. That is a compelling business model.
The closed ‘commercial model’ is supported by those whom regard OS as ‘disastrous in practice’. Well that’s true enough based on prior experience but it need not be the case. Like in any organizational model – the problem is better management. The principal problem with OS is the lack of market-savy developers and managers. These projects are too often run by tech-heads with no sense of market needs. Why? Because they are at an early stage of development. They are still looking to develop products for developers. Why? Because it’s a shared profit model. The idea is for developers to profit from value-added development for users, not to sell a universally loved factory-made solution. Why? Because it would decrease the value of their value add? So might we expect the likes of Drupal to become more customer-friendly? I think that’s inevitable as these products mature, the developers will profit from add-ons whilst offering a customer-focused core product. I think also there is competition which will drive this trend.
The other compelling reasons will be rising research & development costs, shorter product lifecycles forcing ‘commercial’ developers to develop open community solutions. We already see this with some products, so its an inverted model.
The risk of the traditional business model is that it is focused on internal content so can miss market ideas or trends. Commercial developers also restrict outside parties from developing ideas that they don’t have the resources to develop. Businesses run on dangerous assumptions of what constitutes value. Eg. They set salary and qualification criteria when exploying which might fail to reflect market pricing or candidate’s personal context. The result is that they pay more for sub-optimal value. The Chinese are the best ‘bottom feeders’. Recognising the lack of ceativity in China, they will employ 18yo western geeks to fill the vacuum because these guys are keen to travel, appreciate the value of working in a low-cost country, and the responsibilities that they would otherwise not get in the USA.
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Andrew Sheldon www.sheldonthinks.com

Strategic trends in farm economics

Check out the following insights into the strategic direction of food retailing worldwide. It has implications for all farmers.