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David Richards

Comment: Has Kogan Online Got Cash Flow Problems?

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COMMENT: The move by Kogan Technologies to solicit consumers to pay upfront before one of his products is manufactured in China smells more like cash flow issues than offering a consumer a big discount benefit.

This week Ruslan Kogan, founder of online retailer Kogan Technologies, launched  ‘LivePrice’ an incremental pricing scheme, which he says allows customers to purchase a product for a lower price earlier in its production cycle.

See original story here

But I supect the issue is more about cash flow than consumers having to wait months to get a product.

As Gerry Harvey, CEO of Harvey Norman and arch enemy of Ruslan Kogan, was calling on the Federal Government to introduce a 10 percent GST on all online transactions under $1,000, Ruslan Kogan would have been sweating on how much business overseas web sites are sucking out of the Australian economy.

In reality overseas web sites are more of a threat to Australian online sites than they are to branded retail stores in Australia because a consumer who is prepared to shop online is most likely shopping for the cheapest price.

Having owned Digital Home, which was an online trading site that we sold to JB Hi fi to become what is today, JB Hi Fi’s online operation, I know firsthand the difficulties of running a local online trading operation.

By majority, local online operators are running web sites that are nothing more than a marketing front. Once an order is placed the operator who often takes the money up front for a product, then places an order on his supplier, which in a lot of cases is a distributor like Ingram Micro, or Synnex, or the hundreds of other distributors who are now selling products such as Smartphones, Apple accessories, TVs  or PCs to online operators.

This mode of operation means that the cash is in the bank before the online operator has had to place an order on his distributor.

In the case of the Kogan Technologies’ web site he is primarily selling “Made in China” products such as TVs appliances, Tablets, Set Top Boxes.

 

 

Another issue for Kogan is that Australia is known for short runs, when it comes to manufacturing products for this market and the fact that Kogan is a very small operator further impacts his ability to get the cheapest price from a manufacturer who is more interested in large runs than short runs. On the up side Kogan can very easily identify a no brand product made in China and then have the manufacturer slap a Kogan logo on the device.

For Kogan the issue is cash flow and I suspect that this is why he has started offering consumers an upfront deal that if they pay for a product before it is manufactured they get a discount.

The Kogan model operates in almost reverse as to how most online operators trade for the simple reason that he has to mostly, pay for a product up front, then wait for it to be manufactured and shipped from China to Australia. There are also handling and distribution costs which have to be paid for upfront.

In some cases Kogan is advertising a product for sale using pictures and words, taking an order and then having the consumer wait for delivery. Ben Knapinski is a disgruntled Kogan customer who had to wait two months to get delivery of a Kogan 46″ LED TV which Kogan claimed was superior to what Gerry Harvey was selling in his stores.

When Knapinski finally got his Made in China TV he described it as “absolute rubbish”.

“I don’t even want to put it in the kids play room as I am worried the flickering and jitter will hurt their eyes it’s that bad” he said.

In any online operation cash flow is king and margins are thin. I also suspect that Australian independent online operators that are not aligned with a major consumer electronics or IT brand are going to come under pressure next year as more consumers move online, Kogan among them.

Spam Levels Fall 50 Percent After Illegal Networks Smashed

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The Australian Federal Police have in part contributed to an International operation that that has seen global spam levels fall by almost 50%.Taking part in an operation that started in August 2010 the AFP has been working closely with several police forces including Scotland Yard and the FBI and a private security Company LastLine as well as various ISP’s, to hurt the networks behind the illegal online operations.

Research compiled by security firm Symantec show that the amount of junk e-mail messages flowing around the net has dropped 47% in three months. Kaspersky Labs had previously reported falls in September of spam of up to 81.1% of all e-mails following a joint operation by various police forces to cut out International spam.

The operation against individuals and organisations that was sending botnets and gathering illegal intelligence such as credit card details and personal banking details has seen several organisations shut down.

Yesterday the Australian Federal Police (AFP) and online security firm Symantec joined forces to promote consumer awareness of cybercrime with a new education program called BLK MKT (Black Market). On hand to support the cause were Stephen Conroy and Attorney-General Robert McClelland, who said that the Government was continuing to push for a “secure, resilient and trusted cyber environment”.

 

According to Symantec’s 2010 Norton Cybercrime Report, 65 percent of adults worldwide have already fallen victim to cybercrime, while in Australia the statistic is slightly higher, with 69 percent of adults affected.

According to police sources in Europe, one of the biggest successes of the joint operations was against the Pushdo or Cutwail botnet, which had been in operation since 2007 and was thought to be sending about 10% of global spam.

The BBC said that an international operation co-ordinated by the security firm LastLine managed to get 20 of the 30 servers controlled by the group shut down. The servers were turned off with the help of the internet service providers unwittingly found to be hosting them.
 
As a result, many of the “drone” PCs in the huge botnet used to send e-mail were cut off and no longer relayed the junk messages.

Millions of machines around the world including several in Australia are turned into spam-sending “botnets”.

Bredolab was another big botnet hit in October thanks to work by the hi-tech division of the national crime squad in the Netherlands. The arrest of an Armenian man thought to be the botnet’s controller led to the closure of the 143 servers linked to Bredolab.

At its height Bredolab was thought to involve up to 30 million computers around the world and be capable of sending 3.6 billion e-mails every day.

Apple Boss Steve Jobs Still In Strife With Regulators

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Apple boss Steve Jobs is still in strife with regulators over the backdating of stock options. In recent moves he has been subpoenaed to give evidence in a move that could see him face charges.

Securities & Exchange Commission lawyers suing former Apple General Counsel Nancy Heinen over her alleged role in the matter have issued subpoenas to Jobs. The SEC has said it won’t sue Apple over the backdating of grants, praising the company for its cooperation with the investigation. Attorneys say the company and current executives are unlikely to face criminal charges from the Justice Dept. or civil charges from the SEC.

Still, having spent months under a pall while the SEC and Apple’s own investigators probed the matter, Jobs now faces the prospect of having his version of events questioned first in depositions and later in open court. The preparation for depositions and eventual testimony will keep backdating at Apple in the headlines for months, even as the company draws praise for rising sales and a climbing stock price. The subpoena was first reported by Bloomberg News.

Allegations Flying
The SEC alleges that on certain occasions when options were granted to executives, Heinen knowingly backdated and then doctored internal documents to cover her tracks. Options let the holder purchase shares at a discounted price, typically fixed on the date the securities are granted. In cases of backdating, the price is retroactively changed to a different date, typically giving the holder a bigger payout than they’re due and helping the company conceal costs.

 

To build their case, Heinen’s lawyers may look to another former Apple executive, former chief financial officer and director Fred Anderson, who was himself sued by the SEC in the same case as Heinen, but settled the claims in April. After the settlement was announced, Anderson, now a director at Elevation Partners, blasted Jobs in a letter (BusinessWeek.com, 4/25/07) issued through his lawyer, describing a different version of events than the one put forth by Apple in a statement issued in December, 2006.

Representatives of Apple and Heinen didn’t respond to requests for comment. SEC attorney Marc Fagel declined to comment.

In Good Faith
At issue is precisely when Apple’s board signed off on a grant of options. In the case of grants issued in February, 2001, Anderson says that Jobs told him that the board had signed off on the disputed grants weeks before, on Jan. 2, 2001. SEC lawyers say that approval hadn’t been obtained before early February. This sequence of events could prove pivotal for both sides in the case, says Joel Bernstein, a securities lawyer in New York. “I’d surmise that [Heinen’s side] is going to try to build on some of the information from Anderson’s statement to argue that she had no knowledge that any of this could have been wrong,” Bernstein says.

A source familiar with the thinking of Heinen’s defense team says her lawyers will be focused less on assigning blame to someone else, and more on arguing that Heinen’s actions surrounding the options grants were carried out in good faith and without any intent to deceive. That’s in large part because Heinen’s counsel is still pursuing the same defense strategy they’ve had since the start: Nobody did anything wrong at Apple. For Heinen to go after Jobs would only hurt the basic thrust of her own defense.

 

Toshiba Creates More Embarrassment For Intel

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Toshiba is joining a groundswell of vendors who are moving to AMD at the expense of Intel. The move comes at an embarrassing time for Intel as they are currently trying to pump up their notebook processor sales.

Toshiba has joined Dell in cutting their exclusive ties with Intel. Instead several mainstream vendors like Toshiba and Dell are moving to AMD notebook processors claiming that they deliver equal or better performance while also allowing them to deliver better pricing for business and consumers.

Toshiba, the world’s fourth-largest laptop PC maker, said that it expects to put AMD processors in about 20 percent of the notebooks it sells.

The move follows an announcement last year by Dell, the world’s second-largest PC maker which had been procuring microprocessors only from Intel for more than two decades, that it would begin using chips from AMD. The move will start to hurt Intel as several other vendors such as Acer are set to move to the AMD platform.

 

“With PCs becoming commodity products, there seems to be a new way of thinking that competition should be introduced even in procurement of such core parts like processors as long as there are no major differences in product specifications,” Macquarie Securities analyst Yoshihiro Shimada said.

“This could be a message that an era in which Intel took the lion’s share of microprocessor profits as the king of PC chips is over.” Toshiba plans to put AMD chips in moderate-priced standard models for individual and corporate clients, Toshiba spokeswoman Yuko Sugahara said.

The Nikkei business daily reported earlier that prices of AMD-equipped PCs are expected to sell for up to 10,000 yen ($82) less than comparable models. Toshiba will install AMD chips in some models to be released this summer, enabling it to reduce parts-procurement costs by at least 10 percent, the paper said.

Shares of Toshiba were up 1.0 percent at 906 yen in early afternoon trade, outperforming the Tokyo stock market’s electrical machinery index which gained 0.37 percent.

Smart Phone Just Keeps On Growing

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The worldwide converged mobile device (aka smartphone) market set a new record for quarterly shipments in Q1 2006, according to research from IDC.

According to the IDC Worldwide Quarterly Mobile Phone Tracker, worldwide shipments of converged mobile devices totalled 18.9 million units in the first quarter, which was an increase of 7.5 per cent from Q4 2005 and an increase 67.8 per cent from Q1 2005. There’s a lot going on in the market, and the growth is showing no signs of slowing down, said Ramon Llamas, research analyst with IDC’s mobile markets team.

There are a lot of vendors getting into the converged mobile device space, Llamas said. Still at the top of the heap is Nokia, which captured 43.2 per cent of the worldwide market. While the company saw a bit of a decline from Q4 2005 to Q1 2006 (12.2 per cent, to be exact), the company saw 49.9 per cent year-over-year growth from Q1 2005 to Q1 2006. Nokia is by far the worldwide leader in the space, Llamas said. During Q1 2006, it added new devices to its product line-up, including several new N-Series devices and the E-Series, the latter of which is targeted at enterprise users.

Relative newcomers to the space Panasonic and NEC took the second and third spots in the top five, respectively. Panasonics shipments grew 28.3 per cent from Q4 2005 to Q1 2006, and 65.1 per cent from Q1 2005 to Q1 2006. Overall, Panasonic captured an even 10 per cent of the worldwide market.

Not far behind Panasonic was NEC, with 9.5 per cent of the market. NEC saw a 32.6 per cent increase in shipments from Q4 2005 to Q1 2006 and 57 per cent growth from Q1 2005 to Q1 2006. However, all of the company’s converged mobile devices were shipped within its home region of Japan.

Research In Motion experienced its fifth consecutive quarter of growth in Q1 2006. Its shipments grew by 12.4 per cent from Q4 2005 and Q1 2006, and the company saw 85.7 per cent year-over-year growth from Q1 2005 to Q1 2006. Overall, the enterprise-focused company had 7.7 per cent of the worldwide market share.

The only newcomer to the top five rounded out the list. Sharp joined the converged mobile device market late in 2005, so as a result, Sharp’s shipments grew 174.4 per cent from Q4 2005 to Q1 2006. That allowed the company to capture 5.7 per cent of the worldwide market share. As with NEC, Sharp only shipped devices in Japan.

While the converged mobile device market was at one time dominated by enterprise users, that is changing as vendors have begun to target the consumer market. Some, like RIM, still mainly appeal to the enterprise, but many of the newcomers are targeting consumers fairly heavily, Llamas said.

“These devices have made their way into the individual consumer side,” he said.

Vendors have been adding consumer-level functions such as multimedia capabilities, cameras and computer functions into the devices. “So what you have is a lot of other vendors are making devices with a consumer focus,” Llamas said.

He added, “Because folks are very mobile, in the sense that they’re in the cities, they’re in their cars, you have all the functionality you have on your computer now on your handset.” Converged mobile devices are fairly prevalent in the enterprise, but the market is still in the early adopter phase in the consumer realm, Llamas said. However, he said there is tremendous potential in the consumer market for converged mobile device vendors. There is still some hesitance on the part of many consumers, though.

“Most folks use their phone for one thing and one thing only, and that’s voice capabilities. What’s the value prop for them when they basically just want to use their devices to make phone calls? It’s a delicate balance that people are trying to figure out,” Llamas said. Vendors are currently trying to figure out how to entice such consumers into buying smartphones.

“Is there a tremendous potential in the consumer market? Yes, there is. The trick is can you bring that consumer user on to that,” Llamas said.
 

HP Recalls Tens Of Thousands Of Hot Digital Cameras

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Hewlett-Packards may need the $450 million tax refund from the IRS after its bid to be a player in the digital camera market ran into a problem as the Company is forced to recall tens of thousands of digital camera that can catch on fire when used with a non-rechargeable battery.

HP and the U.S. Consumer Product Safety Commission announced the recall of the software that controls the battery charging functions in the HP Photosmart R707 Digital Camera. About 224,000 of these cameras in the United States and 679,000 worldwide have been purchased between August 2004 and April 2006. Owners can request a CD-ROM or download free software from HP’s Web site to correct the problem.

HP spokeswoman Jennifer Pershall said the software recall is an isolated incident with a simple fix.

“I wouldn’t say that it’s a setback to our overall strategy and goal,” Pershall said. “We have a reputation for providing reliable quality products….Customers should feel confident in using their camera without any concerns about the battery.”

HP initially thought the Photosmart R707, which costs between $250 and $400, could be safely used with either rechargeable or non-rechargeable batteries. But the company later learned that the non-rechargeable Duracell CP-1 battery can cause the camera to overheat and catch on fire when the camera is connected to an AC adapter or a docking station.

Only one incident has been reported of the Photosmart R707 igniting while plugged into the docking station, which caused minor smoke damage to the room but averted bodily injuries.

Larry Lesley, HP’s senior vice president of digital photography and entertainment, said in an interview last week that he has set a “pretty progressive goal” of having HP become the first company that pops into customers’ minds when it comes to photography.

“You look at the Kodak logo today and you think photo,” Lesley said last week, after HP unveiled four digital cameras that should hit store shelves by the fall. “We would like HP to be the iconic symbol of photography for the 21st century.”

HP already has seven cameras on the market. The company introduced its first digital camera in 1997, he said, and got really serious about them three or four years ago. Its newest cameras offer professional photography capabilities to casual consumers in an intuitive way — with larger LCD displays, easier user interfaces and technology that automatically removes red-eye and corrects lighting imbalances, he said.

For more information: Visit HP’s Web site at www.hp.com/go/r707safetyupdate or call HP toll-free at (866) 304-7117 between 5 a.m. and 5 p.m. Monday through Friday.

Sony Video Bends It Like Beckham

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Sony has developed a new commercial TV screen that bends like paper. Described as ideal for retail and other businesses where video displays play a key part of their operation the technology is still under development.

Sony have developed a commercial TV screen that bends like paper allowing SMB organisations who use video displays to show full colour video on curved objects.

Sony said it has yet to decide on commercial products using the technology. “In the future, it could get wrapped around a lamppost or a person’s wrist, even worn as clothing,” said Sony spokesman Chisato Kitsukawa. “Perhaps it can be put up like wallpaper.”

Tatsuo Mori, an engineering and computer science professor at Nagoya University, said some hurdles remained, including making the display bigger, ensuring durability and cutting costs.

But he said the display’s pliancy is extremely difficult to imitate with liquid crystal displays and plasma display panels _ the two main display technologies now on the market.

 

 

“To come up with a flexible screen at that image quality is groundbreaking,” Mori said. “You can drop it, and it won’t break because it’s as thin as paper.”

The new display combines two technologies: Sony’s organic thin film transistor, which is required to make flexible displays, and organic electroluminescent display.

Other companies, including LG. Philips LCD and Seiko Epson., are also working on a different kind of “electronic paper” technology, but Sony said the organic electroluminescent display delivers better color images and is more suited for video.

Sony President Ryoji Chubachi has said a film-like display is a major technology his company is working on to boost its status as a technological powerhouse.

In a meeting with reporters more than a year ago, Chubachi boasted Sony was working on a technology for displays so thin it could be rolled up like paper. He had predicted that the world would stand up and take notice.

Phone Carriers In Content Box Seat

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The mobile content market in Australia is dominated by the telecommunications carriers, with most consumers identifying with telco brands over the content provider brands a leading research group has claimed.

This continues to enable the carriers to drive favourable revenue-sharing deals with content providers and to increase on-portal revenues at the expense of off-portal.

 As a result, the share of on-portal revenues has grown year-on-year, to become the largest revenue earner in 2006. The strong competition among carriers to increase the market shares of their portal revenues is leading many to form exclusive premium content partnerships, including sporting rights. This is one area where major content providers have stronger negotiating clout, but is also attracting regulatory attention.

 New analysis from global growth consulting company, Frost & Sullivan  The Australia Consumer Mobile Content Market 2006 – 2010, reveals that revenues in this market totaled $576 million in 2006 and is set to grow to an estimated $1.3 billion by end-2010.

 “Personalisation remains the largest content segment, while Information is the fastest growing content segment in 2006, growing by 132 per cent year-on-year”, notes Darryl Nelson, research director at Frost & Sullivan Australia. “We estimate that Information content will represent 25 per cent of the total market by end of 2007”.

 Trends by content type include: realtones saw explosive growth in the Personalisation market; games still heavily dominate the Entertainment content segment; Guides, sports results and listings are the largest revenue contributors in the Information segment and E-mail accounts for 43 per cent of revenues in the Productivity segment.

 The increasing technical capabilities of handsets will play a large part in driving the mobile content market. 3G mobile subscribers now represent approx 13 per cent of all mobile subscribers. Frost & Sullivan forecasts a strong transition by mobile users to 3G services, with a compound annual growth rate (CAGR) of 38 per cent for 3G subscribers over the forecast period.

 However, limitations still exist in the availability of sophisticated applications. “Location Based Services have long been promised as the most important content development for mobiles,” adds Mr. Nelson. “However, this remains only a promise. Some LBS services exist, such as Sensis’ Whereis, but these are mainly directory, SMS or cell-id based at present, as market penetration of GPS-enabled handsets is still negligible”.

 

Other next generation mobile content services include mobile TV. With carriers now rolling out HSDPA on their networks, TV applications may become viable in the next 12-24 months, handset compatibility withstanding.

 

Problems At Netcomm

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The CEO of networking Company Netcomm has hit back after two executives who failed to get promoted quite the Company last week.

Joseph Raul a new business development manager and Michael Fitzgibbon a member of the Netcomm Marcom’s marketing team left the Company this week. Raul was sacked and Fitzgibbon left of his own accord to join Samsung.

Earlier this week Joseph Raul who was responsible for product development claimed that he could no longer work for Netcomm after interference from Netcom CEO David Stewart . “During the past 18 months we had developed a uniformed approach to the Netcom product range now Stewart wants to change this.”said Raul.

Raul who has a chequered history in the IT marketplace added “I often had arguments with Stewart about the direction of the Netcom product range. We were taking it into the future Stewart wanted to take it backwards”.

David Stewart has a different spin on the story. “Raul was responsible for product development. He had his own opinion of how the Netcomm product should look or  how it was packaged. He view was not supported by myself and other senior management at Netcomm including marketing.” He said

Stewart said “Raul was often slow in processing products and was not a key contributor to the development of new products. With regard to Fitzgibbon he was an excellent contributor who wanted the Marcom Managers job. He did not get this position and as such left the Company. I wished him luck and we parted on good terms”.

Stewart claims that Netcomm is growing and that over the next 12 months they will be launching several products into the multi line voice market. Netcomm are also working in the Power over Ethernet market and Steward has said that he is looking for aquisitions in these markets.