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  • Featured, Opinion - Written by on Friday, July 16, 2010 11:22 - 83 Comments

    How can Australia build a great technology sector?

    opinion Yesterday I was roundly slammed by Australia’s technology startup community for my contrarian view on what I saw as the risk that local software house Atlassian might lose its Australian identity through the process of US listing kicked off by taking a US$60 million round of funding from US-based venture capital firm Accel Partners.

    The crème de la crème of Australia’s startup community – people like Pollenizer founder Mick Liubinskas, Silicon Beach founder Elias Bizannes, Tjoos.com co-founder Bart Jellema, Omnisio co-founder Ryan Junee, Nick Scevak of Homethinking and other startups, venture capitalist Wayne Fitzsimmons, CustomWare CEO Robert Castaneda and even Atlassian co-founder Mike Cannon-Brookes himself lined up to hand me a piece of my ass.

    The result was what I would like to describe as a ‘robust’ debate which lasted well into the night and is continuing this morning.

    The broad consensus of Australia’s tech startup elite is clearly that the Accel Partners investment was not only the best option for the company (as it allowed Atlassian to gain access to expertise which many people believe it would not have been able to achieve in Australia), but that going offshore for investment was Atlassian’s only option, with Australia’s finance community being broadly unwilling to come to the party for local technology companies.

    I applaud the passion with which this view has been put forth, as it matches my own level of passion for Australia’s technology sector. And I will admit that the fact that this view appears to be universally held within the startup sector has forced me to question my own assumptions.

    Furthermore, as many have pointed out, the timing of my article and its focus could have been better. Not only did I pick the wrong day — a day in which Atlassian was celebrating its accomplishments — to analyse its situation, I picked the wrong target. Few have done more to support the cause of the Australian technology sector and I applaud Atlassian’s work there.

    I apologise for these things.

    But for me the vehemence of the community reaction to my views raised still bigger questions, and I think it’s worth continuing the discussion.

    The big question which has come out of this debate is — how should Australia go about creating a great technology startup community that will lead to our great country becoming known as a hotbed of technology innovation as Silicon Valley curently is? And how do we take these companies to the next level?

    If you accept the argument that is clearly the dominant view of Atlassian’s situation, the company was unable to source the expertise and finance in Australia that it needed to get to the next level as a budding global powerhouse.

    What this implies about Australia’s technology sector is staggering.

    Firstly, as Sean Kaye pointed out yesterday, Australia is not fundamentally lacking in money that could be invested in great Australian startups. For starters, there is billions and billions of dollars socketed away under management in super funds that usually just sits there. Australians love to invest — just look at the amount of self-managed super funds out there.

    It’s not too great a stretch to think that some of Australia’s mammoth super funds could plough a fraction of a percent of their funds under management into early stage growth opportunities.

    We also have a large number of newly made millionaires from sectors such as the mining industry who could potentially act as a source of independent capital. And this is truly a sector which understands a great deal about rapid growth and the high levels of risk associated with it. It really has been ‘the Wild West’ in Western Australia over the past few years — and also, to a certain extent — in Queensland.

    But the situation as it appears at the moment is that there is a knowledge gap between where those funds are and the technology sector that is cruelling their ability to get together. In short, Australia’s investment community doesn’t understand technology startups or even mid-sized technology firms with recurring revenues such as Atlassian.

    The second problem relates to the quality of advice and support that people feel Atlassian will receive from Accel Partners.

    Over the past seven years I’ve interviewed hundreds and hundreds of people in Australia’s technology and finance sectors, and come across some pretty smart cookies in the process. People who have not only built businesses up from the ground several times, but successfully transitioned them into becoming large companies.

    I’ve spoken with people who have expertise in a whole range of fields — multidisciplinarians who have worked for the world’s technology powerhouses and then turned around and been successful at companies in completely different sectors.

    My critics are right when they say that Accel Partners has some fairly unique experiences as a VC firm. How many other advisors are there out there that has advised Facebook at an early stage of its development, not to mention a handful of other high-profile technology startups?

    But for me this raises a bigger issue. How do we grow the level of expertise that Australia’s technology sector has, to the extent that a company like Atlassian would not have to go offshore in order to source that advice? And how do we keep these types of advisors interested in the Australian market?

    In short, Accel Partners has offices in Silicon Valley, London, China and India. If this is truly a company with a unique level of expertise, how do we convince Accel and others of its ilk to set up shop in Sydney, Melbourne — even Brisbane? Or alternatively, how do we take our current level of technology sector advice and transition it to a level where our local advisors are rivalling firms like Accel Partners in terms of the services they can provide?

    One strong argument advanced yesterday was what that a strong Australian startup environment could naturally be created if enough Australian entrepreneurs achieved their ‘liquidity event’. For example, if Atlassian listed in the US, enough of its staff could be made independently wealthy through that process that a new crop of cashed-up investors and entrepreneurs — with that critical level of understanding of technology — could be unleashed upon the Australian market and create a wave of other companies.

    Some of these new companies would have their own liquidity events and go on to create more seeds of innovation, and so on.

    Australia’s technology startup community has already seen this sort of behaviour to a certain extent. MYOB founder Craig Winkler is an investor in New Zealand software as a service firm Xero, for example. Wotif.com founder Graeme Wood invested in Wotnews after Wotif.com’s liquidity event of listing on the ASX. And there are plenty more examples where this is coming from.

    I think that is certainly one aspect of a total solution. But this behaviour has been happening — to a certain extent — in Australia’s technology sector already for the past seven years that I have been reporting on it. My concern is that this trend may happen too slowly to show a really noticeable impact on the sector.

    So what will it take to get this right? Government intervention? A stronger community that supports itself better? A range of options are debated by Elias Bizannes in his Silicon Beach LifeGuard paper, which is valuable reading on the subject.

    To recap, my two questions thus far are:

    • How do we connect the dots between Australian finance and Australia’s technology entrepreneurs?
    • How do we boost the level of advice those entrepreneurs can achieve locally?

    My last question is one of scale.

    A number of people raised yesterday the idea that Atlassian has to necessarily focus on foreign markets to gain customers that will allow it to scale its business up to the level where it is considered a major software house globally. Of course this is right — with just 22 million people, Atlassian would be foolish to only sell its global product to the local market.

    But my question is a subtler one.

    A number of international countries are known for housing strong technology companies that are headquartered in their home country, listed on their local stock exchange but have operations all around the globe. SAP in Germany is one example, but there are plenty of others — Alcatel-Lucent in France, Ericsson in Sweden, Research in Motion in Canada and so on.

    How do we create an environment where Australian technology startups can not only grow, but grow large and maintain their Australian roots, so that the whole of Australia’s economy benefits from their operations, and we become known as a home for technology in the same way as other economies like Israel and California area? I stated yesterday, and I still think it’s a worthwhile aim, that in the long term it would be great if the ASX could come to be known as a home for great technology companies to list.

    If we had a few large, dominant technology powerhouses that were home-grown and listed on the ASX, that could be an amazing force to change the way investors and the whole Australian economy thinks about the technology sector. And it could even influence our education system. So how should Australia create an environment where large companies can feel comfortable running their dominant global empires from Sydney or Melbourne?

    I have ideas, but I definitely don’t have all the answers on this one. But if we can get a consensus about a solution as strong as the one that existed yesterday in reaction to my initial piece on Atlassian’s situation, that might be a starting point to take Australia forward and help it to become a real technology powerhouse.

    And that’s something we would all like to see.

    Image credit: Timo Balk, royalty free

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    1. Tony Healy
      Posted 16/07/2010 at 12:39 pm | Permalink |

      Renai, what would you think of turning this into a sort of feature and inviting 1000-word articles from a range of people? It’s certainly an important topic, but difficult to deal with in short comments. You could then package up the views and conflicts into a summary.

      By the way, you don’t have anything to apologise for. You were expressing an opinion. You’re allowed to do that. Delimiter actually has good discussion.

      • Posted 16/07/2010 at 12:47 pm | Permalink |

        Cheers Tony. But it’s hard not to want to apologise when 100 percent of your commenters slam your opinion ;)

        The idea of turning this into a larger package is an interesting one. I would like to do it — but then I’m not sure if I can ask people to write 1,000 word pieces on the subject when I can’t currently afford to pay them ;) If anybody wants to put their thoughts to paper on this, however, I would be happy to publish it! With appropriate attribution and linkage etc.

        • Tony Healy
          Posted 16/07/2010 at 1:05 pm | Permalink |

          On this type of topic, I don’t think anyone would be expecting payment. It’s more a matter of providing a forum for people to present their views, often from a particular expertise or with a particular agenda, or whatever. If you wrap it up nicely, it could be a valuable contribution to a perennial debate.

    2. Grahame Lynch
      Posted 16/07/2010 at 12:41 pm | Permalink |

      Renai, my view is probably informed by living outside of Aus for 13 years but I would say that Australia will never have the scale to be some kind of perfectly formed self-sustaining tech powerhouse in its own right (with financial infastructure to support tech and so on). We are probably best seen as a large US state (Ohio, Florida) in terms of economic weight and are basically a 20m population component of a greater 360m Anglosphere. Just as someone with a good new economy idea in Arkansas goes to San Francisco or NY or Leciester to London, so it will always be for Australians with bright ideas – they will seek out the brightest lights which will nearly always be American. Look at the bright side.. we have an abilty to do this because we have so much in common with them, and we are not balkanised from the mainstream as some budding ideas merchants in the world are by virtue of linguistic, cultural, education differences.

      • Posted 16/07/2010 at 12:49 pm | Permalink |

        Hi Graham,

        then how do you explain Israel? It’s a company one third the size of Australia, surrounded by a bunch of other hostile nations. And yet it has a much greater focus as an entire country on technology R&D and innovation. It is known as a global startup hub and hosts a number of large companies (such as RAD Data, for example).

        I’m sorry, but I don’t accept the status quo, and I’ll continue to push for development of the local industry. I see it as an important issue.

        • Grahame Lynch
          Posted 16/07/2010 at 1:04 pm | Permalink |

          Renai

          I lack time fo a long debate but hopefully this will push you off in some new lines of inquiry

          1) Can explain Israel easily. It faces a massive existential threat and thus dedicates much of its national priority to a modern military economy, a key part of which is tech. Israel, like Australia, also has close links to the US and leverages that. It is worth noting that Israel tech companies can’t even step in side much of their immediate neighbourhood. Personally Im glad Australia doesnt have neighbours wanting to wipe it off the map.

          2) Ever been to CEBIT? German tech companies benefit from a lingustic home advantage (Germany, Austria and Switzerland combined) which gives them a scale advantage.

          3) Australia tried very hard in the late 80s and ealy 90s to foster a local tech industry through the Partnerships of Development for MNCs and the Industry Development Arrangements for local tech companies. This led to all sorts of effects good and bad. For example Nokia outsourced basestation manufacture to ERG in Perth as a result. But too little too late, as most of these plans were non compliant with the WTO and there was no meaningful economic interests being threatened by their disbanding in the mid 90s.

          4) We have a local tech giant… listed on the Fortune 500! It is called Telstra. But it is official government policy to see its scale as a bad thing. It is also still fashionable in some quarters to deride its privatisation even though it means the ASX is less dominated by mining, banks and enables their to be a viable tech financing sector here (in the sense that the presence of TLS effectively requires most funds and equity firms to cover tech and understand it). So yeah other countries have national tech champions (dont forget companies like Lucent, Nortel were spun out of monopoly telcos, Ericsson and Nokia part. benefited from EU industrial policy to create a GSM standard to promote European tech). For better or for worse the only shot we have had a national tech champion is now really viewed as a national tech villain and is to be separated etc etc….

          • Posted 16/07/2010 at 2:23 pm | Permalink |

            I am also glad Australia doesn’t have a bunch of neighbours determined to wipe us off the map :) Although it might make us more efficient and competitive.

            To be honest I don’t really see Telstra as a technology giant. I see it more as an infrastructure company which implements others’ solutions but doesn’t actively develop new technology itself. If you look at the large listed companies on the ASX (as is pointed out here in the comments), you’ll find this is a common situation .Services and infrastructure — but no real innovation.

            For Telstra to demonstrate LTE mobile broadband, for example, is not innovative on Telstra’s part. That’s an Ericsson innovation from Sweden.

            I don’t think Telstra is our only shot at having a national tech champion :) I think Atlassian has a decent shot at that eventually ;)

            • Grahame Lynch
              Posted 16/07/2010 at 3:21 pm | Permalink |

              Renai

              That raises a interesting point about what you are arguing for then. If what you’re after is a home grown and home owned tech INNOVATION/EXPORT sector then you probably need to take a closer look at the CSIRO and that area which is where we do have some strengths (although weren’ you asking for the CSIRO to give up its financial claims on its innovations?). But I wouldn’t be so quick to diminish tech companies such as TLS based on servicing the masses with other people’s tech. China and India have both created massive tech sectors based on their cost and industrial organisation advantages rather than their patents or IPR innovations… if TLS is to become a globally recognised applications and services leader in an NBN environment it might be able to add more to the GDP than you think… an example from last decade is NTT DoCoMo and iMode

              • Posted 16/07/2010 at 4:40 pm | Permalink |

                Sorry Grahame — I don’t have any confidence in the CSIRO or Telstra about this sort of thing. Telstra is a massive monolithic network builder — it doesn’t do innovation well and when it does, it’s normally something it has outsource (eg the T-Box’s interface).

                As for the CSIRO — I see the organisation as scientists, not as technologists. And that for me is a key difference.

                • Posted 16/07/2010 at 8:10 pm | Permalink |

                  I think you need to look at the CSIRO in combination with universities.

                  Universities in Australia are skewed towards teaching rather than research while the reverse tends to be true in the US.

                  A lot of the ideas and IP that seed start-ups in the US comes out of universities. In Australia a lot more of that happens with the CSIRO.

                  • Posted 16/07/2010 at 8:16 pm | Permalink |

                    hey Martin,

                    interesting comment. Curious if you could name some CSIRO examples?

                    • Posted 16/07/2010 at 8:36 pm | Permalink |

                      The first that comes to mind was the DSP technology that was spun out as Lake Technologies. This example plays into your concerns though because Lake was bought out by Dolby although they have maintained the Australian team.

                      • Posted 17/07/2010 at 6:42 pm | Permalink |

                        Interesting, been reading a bit about them this afternoon after you mentioned them. Seems like most of the news articles about them were back in the late 1990′s and early 2000′s — do you know what’s happening now in that area?

            • Nate Cochrane
              Posted 17/07/2010 at 1:20 am | Permalink |

              I think you’re confusing innovation with invention. Much that is innovative is just an implementation, adaptation or an introduction to a sector or group of something that largely already exists (ie has been invented).

        • Nate Cochrane
          Posted 16/07/2010 at 1:36 pm | Permalink |

          Israel is easy to explain: it gets massive amounts of money from the US and has a very vocal lobby group in that country. It also had an influx of highly skilled, mostly Russian scientists and mathematicians and it is focused to come up with military tech solutions just to exist.

          The US military-industrial complex is mostly responsible for the unprecedented sums of money and intellect pumped into ICT over the years in that country, the internet being the most obvious example but you can add telecoms, radar, crypto and the semiconductor to that list. I defy anyone to point to a foundational information technology from that country that wasn’t founded for military purposes or substantially funded by it.

          It’s no coincidence that US unis that have always benefitted from US military spending, rivals Stanford and MIT large among them.

          But I’d like to put to bed the myth that the US tech centres such as San Jose and Houston just coalesced as if by magic and without any government intervention. What happened was the government spent shed loads on the military in those areas and the suppliers needed to be close to their customers. The military founded chairs at the major unis and that ignited more academic research and projects in a virtuous circle. After that, the investment groups followed the scent of money and on it went.

          If the US hadn’t waged an almost continuous war for the past 70 years it wouldn’t have the sort of ICT industry it has today.

          The US also had the benefit of Nazi scientists after WWII, Wernher von Braun figuring largest among them, which launched its rocket program (pardon the pun) that led directly to innovations such as the semiconductor, ICBMs and the internet C2 system for its redundancy. (Some German scientists came to Australia after WWII but in different fields of specialisation and far fewer numbers.)

          But there’s no chance that Australia will ever be paranoid enough or have assets or population large enough or culture receptive enough to such an unfettered military-industrial complex for that to proceed here.

          And as was said elsewhere, this isn’t about the money. What’s an audience with Accel’s partner Rob Glaser worth to a young entrepreneur? What’s it worth to spend a day sharing war stories with a Zuckerberg or Hamoui?

          You need to get out of the “Made in Australia” tetrapack image, the argument about which is more Australian, Ford or Toyota? That’s so 1980s. The fact is Atlassian’s founders are still here in Australia, they’re still recruiting and training here and inspiring through their talks and cash students to study IT. And they’re bringing what they learn through these globalised alliances back here.

          That’s Australian-owned in anyone’s books.

          • Posted 16/07/2010 at 2:20 pm | Permalink |

            hi Nate,

            I take your point about Israel’s tech success being fuelled by the military machine, but surely you’re not suggesting that this is totally the case in the US? It would be pretty hard to argue that modern successes like YouTube, Google, Salesforce.com and so on were backed by the military angle.

            A debate is also emerging in the comments here about the extent to which Silicon Valley evolved or was set up to grow that way. To be honest, I don’t know enough about the situation, but it does seem as though a lot of the innovation (Unix, the internet for example) came through the universities rather than through the government or the military.

            But then maybe it’s all part of the same picture?

            I’m sorry, but I don’t feel that I need to get out of the ‘made in Australia’ image. I don’t accept that it’s OK for Australian technology companies, banks, large government organisations, etc, to push jobs offshore and have work done overseas.

            Personally I am a strong advocate for having Australian technology companies continue to have research and development work done here. It benefits the entire Australian economy when that happens. We’ve seen that time and time again in places like Israel, Japan, Silicon Valley and so on. There is nothing wrong with preferring a ‘made in Australia’ philosophy ;)

            • Nate Cochrane
              Posted 16/07/2010 at 3:16 pm | Permalink |

              Unics (Unix) evolved out of Multics, a time-sharing OS developed by three of the biggest partners in the US milind/cryptind complex – MIT, GE and AT&T. Honeywell, another massive beneficiary of US military spending, bought the project. You can look up the rest including its links to the NSA and the US military’s long adoption of Unix systems, especially the trusted variety.

              YouTube, Salesforce, Google et al wouldn’t exist were it not for DARPA’s work on C2 military networking systems.

              As I said, foundational technology underscored by massive military spending.

              There’s no indication that Atlassian is moving jobs offshore and every indication to the contrary. Why not sit back and observe and see what happens?

              Telstra Research Labs (and the PMG before it) although cruelled by successive funding cuts was a big player for many in indigenous R&D. I’m sure Hugh Bradlow could walk you through their Blackburn labs if you asked sweetly.

            • Nate Cochrane
              Posted 16/07/2010 at 4:02 pm | Permalink |

              Further to my earlier points, how the US military sparked the ICT revolution in the Valley:

              Understanding Silicon Valley: the anatomy of an entrepreneurial region chapter three The Biggest “Angel” of Them All: The Military and the Making of Silicon Valley
              “Missing in virtually account of freewheeling entrepreneurs and visionary venture capitalists is the military’s role, intentional and otherwise, in creating and sustaining Silicon Valley. For better and for worse, Silicon Valley owes its present configuration to patterns of federal spending, corporate strategies, industry-university relationships, and technological innovation shaped by the assumptions and priorities of Cold War defence policy.”
              http://bit.ly/bDTrkJ

              Silicon Valley visitors guide
              http://www.swissnexsanfrancisco.org/resources/visitorguide-complete-small.pdf

              “Silicon Valley and Route 128 received significant funding form the U.S. military. MIT was the bigger beneficiary of military funding during World War II due to the political connections of former MIT electrical engineering professor Vannevar Bush. Silicon Valley made more substantial gains due to military funding during the early Cold War.”
              http://www.law.uiuc.edu/_shared/pdfs/IbrahimSiliconValleySept2008Draft.pdf

              Just by the by, without the military support of Stanford and SRI, Doug Englebart wouldn’t have had a pay cheque and today we’d probably still be using green screens and CLIs. That’s worth thinking about.

            • Posted 16/07/2010 at 8:54 pm | Permalink |

              “I don’t accept that it’s OK for Australian technology companies, banks, large government organisations, etc, to push jobs offshore and have work done overseas.”

              Hey Renai, I think right here is a fundamental misapprehension of how the economy does and should work. No intention to be patronising here – I know this is a majority view, and one that I accepted unquestioningly until recently.

              In considering this matter, it’s helpful to recall the story of the Luddites:

              “The Luddites were a social movement of British textile artisans in the nineteenth century who protested – often by destroying mechanized looms – against the changes produced by the Industrial Revolution, which they felt was leaving them without work and changing their way of life.”

              These days we sneer at the Luddites short-sighted, self-serving vandals of technological and economic progress, unable to recognise that the advances they sought to smother would in fact lead to improvements in living standards for all, and the creation of new, less strenuous, more fulfilling jobs.

              What we fail to recognise is that protests against the exporting of jobs to other countries is just a modern-day version of the very same phenomenon.

              When Australian IT jobs are re-allocated to less costly markets like India, it frees up local developers to work on tasks that require higher levels of competence, experience and local knowledge. To lament the loss of tech jobs to India is to suggests that it is beneficial to Australia for our highly-paid home-grown talent to be tied up undertaking menial work that could just as easily be handled by a team of Indians at a fraction of the cost.

              On the contrary, by moving lower-rung jobs to less-costly offshore markets, local companies can benefit in two ways:
              – reduced costs generate higher profits that can be reinvested in new R&D
              – by freeing up local resources, their talents can be redirected to more ambitious, creative endeavours.

              Sure, just like the Luddites, it’s understandable that people will complain over the short-term pain of this transition, particularly the front-line victims who lose their jobs and have to set about the task of finding new ones. But with time to undertake the re-skilling that any worthwhile tech professional must be capable of anyway, these individuals should all be able to end up in higher-paid, more fulfilling jobs, with companies that are more competitive and thus more able to offer them ongoing opportunities. Even better than that, some of these people might just be inspired and motivated to start companies of their own.

              So I guess what I see in your hand-wringing about the risk to our tech sector through Atlassian and other companies taking big foreign investments is a tendency to worry about the wrong problem.

              If Australia is creating companies so great that the biggest investment companies in the world want to buy into them, that is a good thing, not a bad thing. If Australian tech professionals are talented enough that we are able to move the more menial jobs elsewhere, that is a good thing, not a bad thing.

              What we really need to worry about is how we can help more companies become as profitable and as appealing to global investors as Atlassian, and how we can motivate more tech professionals to become valuable enough not to fear competition from foreign rivals.

              • Posted 17/07/2010 at 6:26 pm | Permalink |

                Hi Tom,

                I hardly think I am a luddite ;)

                Nor do I think I am unusual in my view that it’s a good thing to create Australian jobs and to keep as much employment on-shore as possible.

                If you asked most people what they would think about a company offshoring most types of workers, they would say it is a bad thing. When Australian factories are closed and the jobs moved to China, a lot of Australians think that is a bad thing. When Australian banks shift IT jobs to Bangalore, a lot of Australians think that is a bad thing.

                And rightly so – because people don’t like losing their jobs! ;)

              • Posted 17/07/2010 at 6:54 pm | Permalink |

                *Sigh* :)

                OK, you’ve showed yourself as being capable of rethinking your position, so I’ll persist – I just hope you’re as open to a logical argument as you are to unanimous condemnation from the “crème de la crème of Australia’s startup community”.

                I didn’t say you were a Luddite, I explained why the popular view opposing offshoring is flawed for the same reasons that the Luddites were.

                “Nor do I think I am unusual in my view that it’s a good thing to create Australian jobs and to keep as much employment on-shore as possible.”

                Really? An appeal to the majority? Are we talking about commonly held views, or correct ones? Surely you know that the two are often very different. Surely you realise that to get to the bottom of this issue requires all of us to be willing to scrutinise common assumptions and think differently.

                There’s no argument about wanting to create Australian jobs. How do you do that? By making Australian companies more profitable. How do you do that? By allowing companies to operate in the most cost-effective way possible.

                Why do we want to keep boring, low-value jobs on-shore, when moving them offshore would open up opportunities for our talent to move into more interesting, creative, highly-paid jobs?

                Holding onto mundane jobs helps no-one. The objective should be to create good jobs that attract the very best minds into the industry, and for the sector to be globally competitive and to be able to innovate ever more rapidly.

                “When Australian banks shift IT jobs to Bangalore, a lot of Australians think that is a bad thing.”

                You might just have identified one of the cultural aspects that holds our industry – and indeed our country – back.

                “And rightly so – because people don’t like losing their jobs!”

                Except they don’t. They get better ones.

                To argue that they do makes you sound just like the Luddite you claim not to be.

                • Posted 17/07/2010 at 8:10 pm | Permalink |

                  Hi Tom,

                  I understand what you’re saying and the argument you’re making.

                  You’re arguing that artificial, national barriers shouldn’t be created that get in the way of work being done in as efficient a manner as possible. And that if that can be done, resources can be freed up to do better, higher value work and create better jobs and spiral upward.

                  I understand the argument, and it’s a good one ;)

                  But in this case there is a big difference between the theory and the practice, which is so often where these sorts of ideas fall down.

                  Yes, Australian banks can do technology work cheaper in Bangalore. And they do – ANZ Bank, for example, has a massive development facility in Bangalore.

                  But because business and markets are not always efficient, sometimes what happens is that when a bank like ANZ shifts jobs overseas, those jobs are not replaced with higher value ones.

                  Taking a theoretical case, a bank might shift 500 jobs offshore. But they don’t have enough new projects to re-deploy the Australian developers onto. So they have to let go 250 Australian jobs.

                  What then happens is that those workers (and justifiably, I think), get angry about losing their jobs. Sure, they might be able to get better ones at other companies eventually. But that doesn’t take the sting out of it for the employees. They feel betrayed by their employer.

                  As a journalist, I am often on the receiving end of these problems. Just a few months ago, an IT contractor for the Federal Government was telling me that they were laid off because of implications stemming from the Gershon report into government technology use.

                  Late in 2008, for example, when I was at ZDNet.com.au and Australia’s IT industry was going through a bloodbath, we received dozens of tipoffs from readers about layoffs in the industry. You can see the result o the investigation we conducted here:

                  http://www.zdnet.com.au/aussie-ict-layoffs-the-scorecard-339293142.htm

                  I ask you, what should be my response in that situation? Should I tell them that a free market means that their jobs can be done more efficiently in India?

                  Of course not. They would be angry at me. It is my role as a journalist to represent those IT workers’ concerns to the powerful companies which employ them.

                  Taking another example, recently IBM Australia has been attempting to shift some jobs offshore. You can see an article about that here:

                  http://delimiter.com.au/2010/05/28/19-ibm-staff-made-redundant-union-claims/

                  I can’t simply tell those workers that it’s fair that they lost their jobs. They’re concerned about their families and income, and they feel betrayed by the company that they put so many years of their life into.

                  I agree with you that opening up world markets has opened up efficiencies. But every publication has its slant and its audience, and Delimiter’s is not towards the capitalist system or towards workers in India.

                  As a publication, Delimiter’s slogan is “Just technology. Just Australia”. I solely report on and for the Australian technology sector. With this in mind, I can never agree that it is a good idea to shift any technology job offshore, even if it would be more efficiently done that way.

                  So you see, I do understand the two sides of the argument ;) But I have picked my side.

                  • Posted 17/07/2010 at 11:23 pm | Permalink |

                    Hey Renai,

                    OK, now we’re getting somewhere :)

                    “But in this case there is a big difference between the theory and the practice, which is so often where these sorts of ideas fall down.”

                    The idea isn’t falling down. In practice the world is moving just as I describe – you’re just cherry-picking bits to complain about.

                    “But because business and markets are not always efficient…”

                    Well, the implementation of your ideas would make damn sure of that :)

                    “… sometimes what happens is that when a bank like ANZ shifts jobs overseas, those jobs are not replaced with higher value ones.”

                    I wasn’t suggesting that the company that offshores positions reallocates the same staff to other roles. And for a company like a bank, we should demand they don’t. If technological and economic progress means a bank can perform the same functions for a fraction of the cost, it’s crucial to the economy that they do so. They should pass on the savings through reduced fees and interest rates, or use the extra profits to fund riskier loans to startups.

                    It seems you see it as the bank’s duty to keep these staff occupied via some tech equivalent of Keynes’s digging holes and filling them in again. To the contrary, it is the bank’s duty to operate efficiently for the benefit of their shareholders and customers, and free up resources so they can be put to better use by other companies. And despite your protestations, that is exactly what is happening.

                    “Sure, they might be able to get better ones at other companies eventually. But that doesn’t take the sting out of it for the employees. They feel betrayed by their employer.”

                    So you would rather keep them cosy in their mundane lower-paid job than subject them to a bit of short-term distress for the longer-term gain of a more interesting and lucrative job? That’s the Luddite spirit in a nutshell.

                    Sure they might feel betrayed by their employer, particularly with the encouragement of politicians and journalists who cash in on their self-pity.

                    The problem is that people are made to believe – by politicians, universities, the media, and the employers themselves – that they are entitled to a cosy job regardless of how valuable they are in the context of global competition.

                    That’s the mentality we have to change most of we are going to build the vibrant tech sector you purportedly have in mind.

                    “Just a few months ago, an IT contractor for the Federal Government was telling me that they were laid off because of implications stemming from the Gershon report into government technology use.”

                    So I take it you’d consider it better for the government to waste tax dollars by overspending on technology, soaking up resources that could be used more effectively for the private sector innovation that is essential to expand the tech sector and the wider economy.

                    “I ask you, what should be my response in that situation? Should I tell them that a free market means that their jobs can be done more efficiently in India?”

                    I’ve been betrayed by employers too. It sucks, I know it does. So sure, you might want to choose your words carefully when dealing with people at the height of the trauma of having been their lives thrown into disarray. But you don’t help people by encouraging them to sit around and moan about it. You can do it all you want, but it won’t change anything. Better people get about finding out where the best opportunities are for new employment, and what they need to do to become great candidates. Or start working on that startup project they’ve always dreamed of launching but never had the time or motivation.

                    What do you think ended up happening to all these people anyway? The national unemployment rate hasn’t gone up since that period. Even if it had, do you think the Centerlink queues would still be filled with talented, experienced, motivated, valuable technology professionals? Of course not. There is ALWAYS demand for good tech staff, increasingly so as the country’s economy grows due to newly found efficiencies.

                    Your position is just as reactionary and myopic as to claim “the immigrins are comin to steal mah job!”, when the reality (not the idealistic hypothetical, the actual reality, as observed in the unemployment figures) is that both immigration and offshoring bring about economic growth that creates more plentiful, better paid jobs for everyone.

                    “I agree with you that opening up world markets has opened up efficiencies. But every publication has its slant and its audience, and Delimiter’s is not towards the capitalist system or towards workers in India.”

                    I take it you quite like having ever faster, cheaper laptops and smartphones, higher-resolution cameras, bigger plasma TVs, more easily accessible digital music and video, a growing range of software apps with ever-expanding feature-sets and a increasing array of airlines competing to out-do each other either on price or service levels? And indeed I take it you really like having exciting new companies like Atlassian. If so, you’ve chosen in favour of capitalism. You can’t have it both ways – and you shouldn’t even try to. This isn’t about favouring workers in India at the expense of Australian workers, it’s about better jobs and rising living standards for Indians, Chinese, Australians and everyone else, and it’s happening regardless of your campaigning against it.

                    “As a publication, Delimiter’s slogan is “Just technology. Just Australia”. I solely report on and for the Australian technology sector. With this in mind, I can never agree that it is a good idea to shift any technology job offshore, even if it would be more efficiently done that way.”

                    Can you not argue for it even when it leads to a more competitive, vibrant industry, with more innovative startups and more plentiful, lucrative and awesome jobs?

                    As someone who doing his darndest to build a great company that creates many of said lucrative, awesome jobs for Australians and that does Australia proud on the world stage, I desperately hope you can.

                    If you can’t, I might just have to start referring to you as the Ned Ludd of 21st Century Australia :D

                    • Posted 18/07/2010 at 9:30 am | Permalink |

                      hi Tom,

                      mate, I think to be honest, the realistic situation here is somewhere in the middle. If Australian companies don’t maintain a certain degree of focus on keeping Australian jobs (and we certainly see this at Atlassian, for example, I don’t see them sending jobs to India), then we will hamstring our economy. But if Australian companies completely ignore efficiencies of international resources, we will do the same.

                      You have chosen your side of the argument, I have chosen mine. The truth is probably somewhere in the middle.

                      But the real difference between us is that you are accusing me — and by definition, anyone who doesn’t like Australian companies offshoring jobs — of being a Luddite and backward.

                      It’s a personal insult. And that’s why I am not going to continue to discuss this with you.

                      • Posted 19/07/2010 at 2:12 pm | Permalink |

                        Oh c’mon Renai, lighten up!

                        I really don’t mean to be personally insulting. Provocative, sure, but I’m trying to be good-spirited about it. Sorry to cause offense.

                        I don’t question your good intent. You’ve shown you have passion for our sector, and that’s admirable. I just hope that passion extends as far as being willing to question all your assumptions – as you have shown a commendable willingness to do in the broader discussion – in seeking to answer the question in the title of this post.

                        “mate, I think to be honest, the realistic situation here is somewhere in the middle. If Australian companies don’t maintain a certain degree of focus on keeping Australian jobs (and we certainly see this at Atlassian, for example, I don’t see them sending jobs to India), then we will hamstring our economy. But if Australian companies completely ignore efficiencies of international resources, we will do the same.”

                        There’s no evidence to suggest the truth is in the middle, and your point validates mine more than refuting it.

                        Atlassian will continue to employ Australian workers to undertake the sort of highly skilled, innovative, creative work that cannot be offshored to Bangalore, because it is an innovative, creative company. It may choose to keep all roles, even lower-skilled ones, here in Australia, because it’s good for morale or good for its brand. But that decision will be based on good business sense, not charity. As soon as it starts over-paying for work that could be done elsewhere more cheaply, it will be out-innovated or out-priced by competitors and will move into the decline you so fear.

                        Atlassian can only continue to thrive by employing Australians if there is a steady supply of motivated, talented, creative Australian workers who are not tied up working as drones for banks and government departments.

                        So you see, it could be convincingly argued that the foundation and success of innovative companies like Atlassian is the end-point of a process that begins with the automating and offshoring of less innovative roles.

                        It’s perfectly understandable that job cuts are always seen as bad news. When a bank or telco or government department slashes hundreds of jobs, causing huge stress for people as they wonder how they’ll pay their mortgage or rent and feed their families. But the good news side of the story doesn’t make headlines, where one-by-one they find new jobs with more innovative companies, perhaps after an extended hunt, during with they had to upskill or take some other action to become more employable, but after which they – and their new employer and the wider sector and the entire country – ends up better off.

                        Of course the happy ending doesn’t happen for everyone, and that’s the part we should worry about and address. But that is very much part of the broader industry question of how best to prepare our technology professionals for work and how we can provide innovative companies like Atlassian with a rich supply of talent so they don’t need to look abroad to continue to thrive.

                        Make no mistake, my argument is only for more plentiful, more lucrative jobs for Australians and a richer talent pool for innovative companies like Atlassian and the newer startups that hope to follow in their footsteps. I’m happy for my position to be challenged; not on the basis that creating more jobs for Indians is a bad thing, but rather on the extent to which moving our less innovative tasks to India directly leads to more plentiful and lucrative jobs for Australians through the foundation and success of more innovative Australian companies.

                        It’s not an argument that one should have to choose a side on – the only side we should choose is the one best supported by research and observations of economists over many decades, and by the progress we can see with our own eyes if we’re willing to look at the whole picture.

                        So, how can Australia build a great technology sector? Liberating our homegrown tech professionals from mundane, un-innovative jobs in banks, telcos and government departments, and paving the way for them to undertake more creative, inspiring work for innovative, ambitious, globally competitive new companies seems to me like the way to do it. And the great news is that slowly but surely, that’s exactly what’s happening.

                        Sincere thanks for the discussion.

            • Ben Sand
              Posted 16/07/2010 at 10:39 pm | Permalink |

              But does it benefit the world?

              Will sending our best to tech mecca be better for technological progress than supporting a fledgling industry here?

              Or is trying to push for diversity a better way to go?

              (I don’t know the long term answer).

              I’m all for whatever will drive tech forward. I moved town to put myself in a better place to make that happen. If I need to move country, then I’ll suffer the pain of setting up again to put in my bit for the future.

              • Posted 17/07/2010 at 6:43 pm | Permalink |

                Well, my view on this is now well known :) And there is no way I am swapping Coogee Beach for Venice Beach ;)

    3. Cameron
      Posted 16/07/2010 at 12:46 pm | Permalink |

      It’s a great idea for a series or a survey: This should help: http://www.asx.com.au/research/pdf/it_and_telecommunications_sector_factsheet.pdf

      C!

      • Posted 16/07/2010 at 12:50 pm | Permalink |

        That is an extremely worthwhile document. It shows how deep the listed Australian technology sector truly is.

        • Cameron
          Posted 16/07/2010 at 1:03 pm | Permalink |

          Here’s a sobering thought: Atlassian sold a minority interest for $60m as their first placement. Extrapoloate those numbers, and have a look where that places them on the list. It doesn’t matter whether you consider minority to be 5, 10 or 25% – there are only eight companies in the AUD240 – 700m range. Of those eight, I’ve heard of three of them (Sorry other five – Renai will be calling soon!)

          I will disagree with your ‘deep’ observation, and replace it with ‘broad’. I don’t have the time available right now, but the distribution of market capitalisation shows the lack of depth with 14 of that top 100 having a market cap of less than AUD5m. Buyback and save the compliance and listing costs anyone? Consulting opportunity right there.

          C!

          • Posted 16/07/2010 at 2:08 pm | Permalink |

            I guess ‘broad’ was what I was saying, Cameron :)

            And yes, you’re right, a majority of those technology companies which are listed are quite small. We do have some larger IT services companies, but they do tend to get acquired — such as was the case with Kaz (bought by Telstra), Alphawest (bought by Optus) and so on. Right now one of the larger listed companies, UXC, is in the throes of having due diligence done on it by a potential buyer.

          • Cameron
            Posted 16/07/2010 at 2:34 pm | Permalink |

            Further interesting factoid:

            14 of the top 100 are sub $5m market cap. Altassian received AUD60m. If we were to err on the generous side, and say that the average market cap for the 14 was greater than the mean at AUD4.2m, then Atlassian just received funding (for a minority stake) that exceeds the sum of the market cap of all 14 of those companies. Combined. In the words of Zaphod Beeblebrox: Cool and Froody.

            Note to self: find out who their buyside M&A guys are – there’s interesting work ahead!

            C!

            • Posted 16/07/2010 at 2:51 pm | Permalink |

              I don’t have any inside info to base this on at all, but with a 250 headcount and a lot of those engineers, Atlassian’s annual wage bill alone probably exceeds the market cap of some of these smaller “top 100″ ASX listed IT companies.

              • Cameron
                Posted 16/07/2010 at 3:02 pm | Permalink |

                Some? I reckon their fully loaded wage bill (salary, super, workers comp, payroll tax, Tim Tams and a coffee machine) would buy them a spot in the top 50! #50 only has a market cap of ~AUD20m.

                C!

                • Posted 17/07/2010 at 12:14 am | Permalink |

                  nup, no coffee machine :-(

                  Sydney CBD has plenty of great coffee though.

        • Posted 16/07/2010 at 1:12 pm | Permalink |

          It also shows how incredibly skewed it is towards telecoms/ISPs, Telstra being the obvious one here. Quite the long tail…

          • Posted 16/07/2010 at 2:08 pm | Permalink |

            True — telcos and IT services firms tend to be the majority.

    4. Cameron
      Posted 16/07/2010 at 12:47 pm | Permalink |

      (Post for followup notifcation)

    5. Ben Sand
      Posted 16/07/2010 at 12:52 pm | Permalink |

      Why is patriotism so important in the Internet age?

      • Posted 16/07/2010 at 2:11 pm | Permalink |

        Hi Ben,

        to be honest I don’t really see it as patriotism. I more see it as a community. A lot of my friends, family and so on work in Australia’s technology sector, and I have an enduring interest in that field. I’d like to see it grow large and strong.

        I think it’s natural to be proud of what people from your country have achieved. I’m sure that a lot of people feel proud about how Australian sporting heroes are doing — especially in areas that we are underdogs in. I’m not that interested in sports, myself, but I am interested in Australia’s technology sector, and I’d like to see it do well globally :)

    6. Tom Howard
      Posted 16/07/2010 at 12:56 pm | Permalink |

      Congrats for re-thinking your position and refocusing the discussion.

      A couple of quick points:

      – You mention SAP, Alcatel-Lucent, Ericsson and RIM as all being listed in their home country. From my quick checking, some if not all of these companies are also listed on the NASDAQ. They have to be, in order to access the global market for funds. There’s no reason why, if/when Atlassian lists, they could be dual listed. For a company to list on the NASDAQ in addition to the ASX would not be a bad thing, it would be a wonderful thing, as it would be returning investment funds into the country that Atlassian or other companies can use to continue their growth.

      – I think a big mistake in your reasoning is that you think that a strong market can be planned rather than evolved. Silicon Valley didn’t emerge due to government planning, and neither did Israel’s tech scene – though in both cases supportive government policy would’ve helped. But in both cases, the key ingredient was grassroots entrepreneurial determination. Having observed the local scene for the last couple of years, I just don’t see enough of it in Australia. It’s there, and I like to think it’s growing, but I think it’s still the case that not enough kids who like the idea of being wildly successful are aware that technology is the best path to pursue. How do more kids develop that awareness? By companies like Atlassian having huge success, showing us all how they did it, then reinvesting in the new up-and-comers. And it looks like that is exactly what they’re doing. Atlassian’s achievement is a huge step forward in the evolutionary process that needs to happen for your hopes to be realised.

      So to answer your question – how can Australia build a great technology sector? Quite simply, by encouraging and supporting more people in doing precisely what Atlassian has done.

      • Posted 16/07/2010 at 2:14 pm | Permalink |

        No worries Tom.

        You raise a great point about dual-listing. I’d be curious to see whether this would be something that would be possible in the Atlassian case. You could imagine that it would really drive a high degree of interest from Australian investors in the company and the IT sector in general if Australia had a technology company which was dual-listed on the Nasdaq and the ASX.

        I take your second point, but I was really getting at what can we do to encourage and support more people to start companies like Atlassian?

        Does it require a better tax regime, as some people have suggested? Government grants for startups? Or does entrepreneurialism need to be better infused through the university and business systems somehow? I think maybe it could be a combination of all of the above — but it does seem to be the consensus that there is a lack of leadership in the area atm.

    7. Posted 16/07/2010 at 2:56 pm | Permalink |

      The mining industry is one reason why we don’t have a strong IT industry.

      Traditionally, Australia was an agrarian and mining country, with our major the UK. During WW2, Australia had some medium industry and very little heavy industry. This can be shown that we made only 60 Sentinal AC series tanks (we had to use the railway works in Chullora) while we made plenty of Universal Carriers and aircraft (which used existing car and light industry).

      Since the war the economy changed, with Asia (first Japan and then China) demanding our raw resources and our imports being dominated by Japan, USA and lesser extent UK and Europe. Slowly, after recovering from the war (partly helped that unlike the UK, Australia broke even with Lend Lease with the US), prosperity, better education and efficiencies in agriculture ment we had a highly skilled, well fed, workforce willing to spend money on consumer goods.

      After the war, we had a very strong car, aircraft (RAAF demands made Australia the 5th largest air force in the world), shipbuilding, mining, wool, Finance, and scientific industry.

      So what happened?

      Government indifference for one. Governments ignored scientific research (we had a vibrant rocket industry and built one of the earliest computers), or felt that the UK or USA could manufacture the stuff cheaper, and we be better off with our strengths, raw materials. The government realised early that this was a big blunder, but it is hard to change track in situations like this, and there is a vested interest from miners and growers to keep things the same (we call some of them National Party). Hence things like the Multi Function Polis, the Australian Rocket Launch facility and the NBN.

      Secondly: Market forces. Australia is insanely good at growing food and digging mines. Given that we are so close (relatively speaking) to Japan during the Korean war scare and the rapid industrialisation that occurred there, made it more effective to put resources into agriculture and mining. Look at the maratime industry, Australia does not have a merchant marine any more, because it is cheaper for other countries to build and man the ships than it is for Australia, and it is more efficient for us to dig and plant

      Thirdly: Tariffs. Our industries up to the 1980′s where inefficient, because they where protected by tariffs. Tariffs make imports dearer, which makes Australian manufacturing competitive while being less efficient. A classic example is the car industry. Holden and Ford have benefited for years from government subsidies and tariffs, because it is really not that efficient to run multiple manufacturing plants in Australia. Our wages are higher, our industrialisation less automated. So when globalisation of trade occured, many industries collapsed or moved to places where wages are lower.

      Fourth: Taxes. Any tax distorts the economy. One reason why the recent Resource Tax debacle was a bad result for Australia was that Mining is creating a duel track economy where demand for labor is outstripping supply. Therefore, you get truck drivers earning $100,000. Now there is nothing wrong with that per se, except that it means the rest of the economy can not grow as fast because labour is harder to source. The resource tax is a device that INTENTIONALLY slows down mining, and using the revenue to increase capital (in the form of Super) so that the citizens and the rest of the economy can benefit from the mining boom, while preventing mining from overheating. Also, there is a lot of taxes above and beyond income tax (generally in place due to market failures). Superanuation, Workers Comp and Payroll tax are some examples (payrol tax is a market failure in Federal/State revenue collection). So while our workforce is highly skilled, there is a large cost to expand staff in Australia, or even starting a company.

      Fifth: Entrepreneurship. Australia is a conservative country. Things like the tall poppy syndrome (compared to the american worship of rich people) makes it harder for entrepreneur to raise capital. Also, there is less of a culture of Venture Capitalization and Angel Investing. However, Australian regulations makes it easier to start a listed company on the stock market than in the US, but by the same token, Australians tend to be less risk takers than the US.

      Sixth: Size. Australia is the size of the US with the population of Greater London. No matter how rich we are are a nation per capita, in gross terms we are small bickies. Our stock exchanges have lower market capitalisation than US, London, Tokyo, Hong King and Shanghai.

      So that is where Australia finds itself. With a super hot a politically powerful mining industry and a expensive place to start or expand a business, coupled with a government playing catchup in the tech sector and a small capital market.

    8. Posted 16/07/2010 at 3:02 pm | Permalink |

      Renai, well done for this and reframing the debate.

      To answer your question: I think it’s important to say what *doesn’t* spur a thriving entrepreneurial community.

      So many people are worried about the Government doing something. No one in the US talks about the Government except to ask them to keep out of it. I cringe everytime I hear an ‘entrepreneur’ mention government grant programs, COMET advisors and all the other policy crap that doesn’t make a lick of difference. It’s the startup-equivalent of lining up at Centrelink.

      I also think Universities are extremely over-rated as a need for a vibratant community. Not from the perspective of a place to connect smart people but rather ‘R&D programs’ that need ‘commercialisation’ in the ‘ICT industry’. And all the ‘advisors’ who are there to help who have had no previous startup experience.

      To thrive the industry needs more folks like Mike and Scott who can help a startup get the first customer or the first revenue and more importantly who can make quick investment decisions as angel investors. You can get some pretender from McKinsey or MacBank that go to startup events so that they can pander to their ego that they’re ‘innovative’ and ‘entrepreneurial’ but they take years to make a decision and time the startup doesn’t have to educate not only about the company but the market. They have the money but they are fence sitters and nothing should ever be expected to change there.

      People who are successful, who have done it before in technology and the Internet and who have money make very quick investment decisions and they have the right expectations. They know that a startup struggles along from failure to failure until it works out the kernel of something interesting and adapts and refocuses their efforts on chasing that and only then does the ‘overnight success’ happen.

      There is also just a great need for people to buckle up and start companies. Screw the secrecy and planning and looking to patent an idea and foraging through government funding processes and just fucking do it!

      Mick and the Pollenizer guys are the greatest champions of lean startup principles and customer development in Australia and I really hope it resonates with the community. In the end it’s the people who are toiling away in a soulless job in banking or consulting pretending they might start a company one day but ‘they just need more experience’ and one day they wake up with a large mortgage on a house in the Eastern Suburbs with 2 kids and no chance in hell they’ll ever do something with themselves but whine about their current job and do nothing about it! Until those people become inspired and do something to change the status quo we’ll be nowhere. And it’s events like yesterday that will hopefully rustle the bushes.

      • Posted 16/07/2010 at 3:16 pm | Permalink |

        The worst thing about govt grants, be it COMET or other is they operate on government timeframes. Instead of building a minimum viable product and getting cashflow/customers happening, the focus becomes the application process (which can take months) and then if you’re successful, on fulfilling these rigid agreements and funding deeds that say you will do X by Y to get your next installment of $$$, where X has no real world relationship to building a sustainable enterprise.

        We had a program here in Tas called Intelligent Island, that was funded to the tune of $40m by the sale of the first tranche of Telstra. I worked for a company that was funded to the tune of $100K or so through this program.

        It. Was. A. Joke.

        The sad thing was that this was during 2002/2003 when the IT sector was at its lowest point – which resulted in the program being treated as corporate welfare by companies which should have otherwise died a natural death. The program totally failed at attracting the kind of entrepreneurs from other states that would have eaten these guys for lunch, and not a single success that I’m aware of came from it.

        And the amazing thing was after something like 4 years, they couldn’t find enough ventures worthy of investing in, and the ended up giving the rest of the money to the CSIRO to set up an ICT research lab in Hobart.

        • Posted 16/07/2010 at 5:12 pm | Permalink |

          Yeah, personally I am a big fan of having a startup business plan that focuses on small wins quickly, spiralling up into much bigger things as you reinvest those wins in the business and don’t lose your house ;)

      • Cameron
        Posted 16/07/2010 at 3:25 pm | Permalink |

        Niki

        Get out of my head! Your final para describes me exactly (well – except for the house in the Eastern Suburbs, although I am in Sydney).

        I think the challenge is to identify and help those carrying a bucket full of light bulbs. I know what I want to build, and as a chartered accountant / OPI consultant, it’s something that I would use with my clients every day. I’ve sold software and change to the big end of town, and I have confidence that there is a market. But I don’t have the first clue about what the first step is to turning my light bulb into something. Do I find a developer? Do I do some pretty powerpoint? What are the steps? And how do I know that my idea isn’t going to be pinched by trusting someone that can either build or prototype my thought? How much money do I need? When? NDAs? Look out behind you!

        Frankly – I’d be happy to document a ‘how to turn a lightbulb into a Maserati’ guide of my journey for the next innovator, but simply put, I’ve got nothing. It’s emerging from this thread that there are people to speak to (Altassian guys, Pollenizer etc), and the second hurdle for me is trust.

        Oooh. Honesty. I should start a blog. :-)

        C!

        • Posted 16/07/2010 at 5:11 pm | Permalink |

          It used to describe me too, Cameron ;)

          • CPKHarris
            Posted 17/07/2010 at 12:43 pm | Permalink |

            Ryan

            Thanks for the considered response, the reading suggestions, and some tentative next steps. I suspect that I’ve found a developer that has experience in the likely underlying technology, and that I’ve worked with in the past, which has been a 4 month effort. Thanks as well for the suggestion around networking events: I take it that this is what outfits such as Pollenizer are about, so research to do there as well.

            Thanks for your observations in relation to trust. Coming from a big 4 background, I’m used to having all risks documented, mitigated, and contracts and agreements for everything. It’s nice to have that background in terms of rights coverage, but I’ll move forward contemplating your view of how stuff works.

            To be clear: at this stage I’m not looking for funding. I’ve had a solid career doing more traditional work for others people / companies / firms, and have the luxury of being able to fund myself for the early stages (if only I could come up with more time as well!). The value in your comments for me is finding those next steps, and finding others that are on the journey as well that I might connect with to share experiences and war stories.

            Thanks

            C!

        • Posted 17/07/2010 at 8:51 am | Permalink |

          Sounds like you have something quite valuable – domain expertise and first hand knowledge of a problem that needs to be solved. I would recommend reading something like Four Steps to the Epiphany (http://www.amazon.com/Four-Steps-Epiphany-Steven-Blank/dp/0976470705) or The Entrepreneur’s Guide to Customer Development (http://www.custdev.com/). This will give you some practical guidance on how to proceed. You should also attend entrepreneur networking events and try to find a developer with whom your idea resonantes (in the mean time you can easily put together some screen mockups and start testing your idea with potential customers).

          Regarding the trust issue, I see this a lot with Aussie entrepreneurs and very rarely with entrepreneurs here in silicon valley. My advice is don’t worry about people stealing your ideas. Sure there are some unscrupulous people out there who may try to do so, but in the end you have to believe that you are the best person to execute this business. Even if someone copies your idea exactly, you have to believe that you will beat them due to superior insight, execution etc. If you don’t believe that, then seek another opportunity. You will gain much much more in terms of feedback and advice by talking freely with as many people as possible about your idea, than you will potentially lose. Remember, VCs (at least here in silicon valley) never sign NDAs.

          R

          • CPKHarris
            Posted 17/07/2010 at 1:24 pm | Permalink |

            Ryan
            Thanks for the considered response, the reading suggestions, and some tentative next steps. I suspect that I’ve found a developer that has experience in the likely underlying technology, and that I’ve worked with in the past, which has been a 4 month effort. Thanks as well for the suggestion around networking events: I take it that this is what outfits such as Pollenizer are about, so research to do there as well.

            Thanks for your observations in relation to trust. Coming from a big 4 background, I’m used to having all risks documented, mitigated, and contracts and agreements for everything. It’s nice to have that background in terms of rights coverage, but I’ll move forward contemplating your view of how stuff works.
            To be clear: at this stage I’m not looking for funding. I’ve had a solid career doing more traditional work for others people / companies / firms, and have the luxury of being able to fund myself for the early stages (if only I could come up with more time as well!). The value in your comments for me is finding those next steps, and finding others that are on the journey as well that I might connect with to share experiences and war stories.

            Thanks

            C!

      • Posted 16/07/2010 at 5:06 pm | Permalink |

        hey Niki,

        I couldn’t agree more with you about the government and universities when it comes to this sort of thing.

        As you might have guessed from the name of my company, I don’t have any real confidence in bureaucratic organisations funded by the public purse to get innovation done.

        I think an example from my own experience might illustrate what I think about the whole situation.

        Fundamentally, I feel you have two kinds of startups. You have startups that require a high capital cost to start their business. I count manufacturing companies in this area, as well as startups that are aiming to build big, fuck-off projects that will make a lot of money in one hit. Video gaming companies that are full of game designers and coders who want to build the next God of War are also in this camp. Bio-informatics startups. Medical or drug startups and so on.

        These guys need offices, they need to buy stuff, they need to pay their costs for several years and they need to have an investor to help them do that. There are no ifs and buts about it. If your startup costs are getting into the high tens of thousands then you are probably in this camp, and you might need to consider how to win investment or grants.

        These type of startups need the environment to be right — VCs to be around, government grants and tax incentives to help and so on. This is hard — it’s a big picture problem. And I don’t currently know how to solve it in Australia.

        Usually these are the type of startups I hate :) Because usually these are the types of startups that fail.
        I like startups that are quickly profitable because of a good business plan — and use that money to reinvest in the business and get to where they need to be gradually.

        This is the type of startup that my company is. Low costs, a high amount of work, winning small contracts almost immediately and spiralling up towards lots of small contracts and then big ones.

        For this second type of startup, there are lots of things you can do in a small way to support them. The biggest thing for me has been having a network of other small companies around me so that we can all help each other keep going when the going gets tough.

        When I need web dev work done, I go to one of several mates who run startup web dev shops. When I need accounting or legal work done, the same. And we all push ourselves up together.

        So to foster these kind of startups, the main thing which I would like to see is more things like Pollenizer. More startup clubs. Less speeches — I’m generation Y, low attention span and I don’t really see people as inspirational who have already succeeded, to be honest. I want to talk with people who are struggling, right in the middle of it.

        More mailing lists, after work drinks, mentoring and so on. I couldn’t even begin to describe how far Australia’s startup scene has come since Pollenizer began to give it a focus and hub. There’s also similar things in Adelaide, Melbourne, Perth, even Brisbane.

        But also, I feel it needs to relate to honour.

        The biggest difficulty with running a startup is not money. It is not the amount of work, or the time, or your spouse and kids, or anything like that.

        The biggest challenge when running a startup is loneliness and the need to continue to believe in your vision when everything else falls away.

        If I was to say what I would like to see change in Australia to help foster the development of startups, I would like to see some really formalised rite of passage setup where anyone who has just left a 9-5 job to found their own company could have that move celebrated. The celebration couldn’t involve just drinks or whatever.

        It would have to involve some symbolic gesture to say that you have now taken the harder path to success, and other entrepreneurs recognise you for it. We need to make founding your own startup a badge of honour, and not one of shame as it so often is. This would encourage those people toiling away at 9-5 jobs and hating them (and I was one of them, believe me) to make that jump and leave, knowing they are joining a hardcore club who respects such a decision and supports it.

        Because if there is one thing that I have learnt about humans, it is this: We will do many things for money. We will do many things for sex and power and stuff like that.

        But for honour — we will do anything.

      • Posted 16/07/2010 at 8:22 pm | Permalink |

        Hallelujah Niki.

    9. Posted 16/07/2010 at 3:48 pm | Permalink |

      Hey Renai

      Good move shifting the focus of this discussion to something more constructive.

      For the record I think at a high level everyone agrees with your sentiments that we need to create a better Australian tech sector. You were unfortunate, however, to have picked on the wrong story and on some of the most generous and hard-working guys in the Australian tech scene in Mike and the rest of the Atlassian team, in trying to make your point.

      To be honest, I think that some of that had to do with the fact that you haven’t spent that much time engaging with the community at a grassroots level.

      No dramas there, we’re all busy and you’ve had to focus on building your own startup in Delimiter, which you’ve been doing really great things with. Perhaps that was part of why people were so shocked by your other post – it was very unexpected based on the high standards you’ve demonstrated in the past.

      But those of us that have spent time at the grassroots level how important Mike et al. have been in supporting ANY initiative to grow the local industry and I’d say the vast majority of us (including me) are delighted that the Atlassian deal has brought more attention to what’s going on in Australia.

      Anyway, lesson learned I guess, time to move on to your new question – how to build a great technology sector.

      To be honest I hate going over this stuff as it’s been discussed to death over the past few years. There’s a general understanding that what’s missing are successful serial entrepreneurs, connections with universities and other learning institutions, more and more relevant investors at all levels and the right type of Government support e.g making investing in tech startups more attractive and making it easier for startups to attract quality talent by removing ridiculous laws around ESOPs etc.

      Much of this was captured in the LifeGuard document Elias and the Silicon Beach team put together – http://siliconbeachaustralia.org/lifeguard/. It is also discussed continually at tech community events and by me and other tech bloggers – http://thenextweb.com/au/2010/05/21/musings-on-the-australian-tech-industry/ (sorry for the self-reference but it’s relevant in this case)

      Long story short, the bad news is that the Government support isn’t there and is unlikely to be there any time soon. That’s bad news as Government support was fundamental to the development of Silicon Valley and other 2nd tier tech hubs like Israel.

      The Good news, however, is that there are already a wide range of initiatives, that have been running for several years now, that are building a strong tech community. The next step as you mention, is to turn that community into a genuine tech startup industry/sector.

      From that perspective, the even better news is that things are already underway that will help make that happen. That includes the building of better early stage investors and investor groups, better supporting industries with a real understanding of the needs of tech startups and new programs, being planned as we speak, to help educate and guide entrepreneurs in how to build genuine tech businesses.

      On top of that, through the success of Atlassian and other startups, there’s a growing belief amongst students (including the all-important computer science grads) that tech startups are a genuine career option (if the number of uni kids that are starting to show up to Sydney Open Coffee is anything to go by)

      We’re not there yet, but we’re well on the way and things are looking very bright. All we need is more action, more time, more success stories and some help from people, no matter where in the world they are, who have knowledge and experience we can learn from.

      • Posted 17/07/2010 at 6:49 pm | Permalink |

        +1 to this post

        (apart from the bit about me not engaging ;))

    10. Posted 16/07/2010 at 4:39 pm | Permalink |

      Renai, honest question – do you see any conflict between your critical comments about the CSIRO’s attempts to monetise its technology innovations and your desire to see the Australian tech sector grow?

      • Posted 16/07/2010 at 5:08 pm | Permalink |

        No — because I don’t really see the CSIRO as a big part of the cycle of innovation. And I don’t have any confidence that the CSIRO is going to use those funds in a really positive way. If I thought it was, my view would probably change.

        • Nate Cochrane
          Posted 17/07/2010 at 1:17 am | Permalink |

          Ever hear of CSIRAC? Trevor Pearcey? I know it was a long time ago but come on – they kickstarted the ICT revolution in Australia,

    11. Posted 16/07/2010 at 4:41 pm | Permalink |

      I’m not going to say too much about Atlassian’s deal specifically – although well done to the gang there, and good luck. Personally I say ‘smart move’, not just for the cash component.

      I’d like to touch on the Aussie startup scene if I could, as I’m currently trying to raise some seed investment here and I’m finding it very intriguing, not to mention a little frustrating! (as a bit of background I’m originally from the UK, have spent time working in mainland Europe, the US – East and West Coast – and am now a dual UK/Aussie citizen living in Brisbane).

      As you do when starting a new venture and trying to raise cash I have been networking with plenty of folk on both sides of the fence (entrepreneurs and investors). What I’m finding as I’m digging away and attending various functions is a fairly strong group of small startups, great ideas and passionate people who are unfortunately coming up against what I can only describe as ‘old school’ investors. They, unlike many folk in the US, would rather not invest in, nor do they necessarily understand, technology startups (physical ‘stuff’, yes. Established entities with revenues and customers they can touch and feel, sure).

      But for that very early stage venture, requiring an investor with a visionary mix of sufficient imagination, experience and courage .. things seem rather lacking (and we’re fishing in a much smaller pond of course).

      What’s also missing in my experience is the whole support network around this area. Where, for example, are our equivalent of the techhubs (http://www.techhub.com/) and drop-in spaces you see in places like SF, London and New York?

      i.lab and co do an admirable job, but – as with getting government grants here – the barrier to entry is normally too high for the true credit card funded startup. The various meetup groups, pitch clubs etc are moderately well attended, but again I’m seeing a huge difference between the level here and what you’d see in London or the Valley. It saddens me to say but I would have hoped not to have to relive ‘First Tuesday circa 1998′ style events, but it feels like that here sometimes (I need more space and time than I have here to explain that one!).

      Whilst there is certainly an angel network here, all I’m hearing so far (not necessarily just for my venture, but people I know here who are also trying to raise some funds) is … ‘get yourself over to the US. You won’t be able to raise money for an early stage / web / gaming / technology /location-based / non-industrial / …. startup here in Aus.’

      It’s almost as if there’s an air gap between what I think are some incredible stories and boot-strapped ventures and the next step on the ladder to a decent seed round (let alone doing a Series A etc here).

      Couple of examples: chatting with a friend of mine in the US last night on Skype. He’s looking to raise about 500K for an online marketing venture and he is about half-way into filling that in about 4 weeks of effort. Chatting to another friend here in Australia last night who has created some incredibly powerful technology in the area of document and media analysis (for law firms, search entities, plagiarism, patent dispute cases etc) and he can barely raise an eyebrow, let alone money.

      Anyway, maybe I’m picking up the wrong rocks and talking to the wrong people, but having raised money and started companies elsewhere, this is proving to be an interesting time (to add to which, global events have an impact on appetite for risk right now of course!) :-)

    12. Posted 16/07/2010 at 8:25 pm | Permalink |

      Paul, same story here in Sydney mate. I fly out to the valley on Monday…

    13. Posted 17/07/2010 at 12:39 am | Permalink |

      Having a look at all the great tech startups around the world (meaning the really successful, or truly innovative), the one thing that really stands out is the age of the founders. Most of them are _kids_! I mean, Mike and Scott are kids, really – they just turned 30 (and Atlassian is maybe a tad old to be truly called a startup anymore). Most of these tech companies start with the innovative idea, continue with some excellent technical implementation and then grow that into a business. To do the latter takes enormous technical skill mated with business skills. And I’d argue that the latter is of way less importance (how many “businesses” seem to survive and attract buyers despite not actually turning a profit).

      Traditional business does not understand tech. They don’t even understand the application of tech. Most people over 40 don’t get blogging, they don’t get Twitter (except that they might be able to use hash tags as a marketing channel), how the hell are they going to understand, advise or invest in innovation? They can’t and they shouldn’t.

      Tech (and particularly internet tech) is a continually and rapidly evolving new market with new rules and significant challenges. Evolution in this space is so rapid that every wrong turn could be fatal, and you can spend a hell of a lot of money very quickly going absolutely nowhere. So, I ask, just who do you think is going to lead this Australian innovation sector and how are are they going to do it?

      • Ben Sand
        Posted 17/07/2010 at 11:05 am | Permalink |

        Ellison started Oracle at 33. At 65, he still heads up his company in a way the kids don’t seem able to.

        Branson has proved again and again, he has far more entrepreneurial ability than most of the tech startup crew.

        Age is less important than determination and awareness of what’s going on.

        • Posted 17/07/2010 at 5:08 pm | Permalink |

          I’m not describing what it takes to run a business, but what it takes to create and foster technical innovation. Jobs is arguably the rolled gold counter-argument you could use, but his genius is in understanding the product and its application and how to finesse the delivery – the actual innovation has generally come from others.

    14. Posted 17/07/2010 at 12:54 am | Permalink |

      Great article, and I am equally passionate about changing the attitude in Australia so we can build a truly great tech industry. I now live permanently in the USA after selling a number of companies, and I’ve just founded a new one (www.majura.com).

      There are lots of great comments below, but most people don’t delve deeply into the psyche of Australian culture to identify some of the issues. Without a doubt endemic laziness, the tall poppy syndrome and a lack of risk taking are big factors, but there are more. I’d recommend a read of Donald Horne’s “The Lucky Country” – although written in the 60′s, it’s the only decent analysis of Australian culture I have ever written. We’re not a very reflective lot, and any self-criticism is automatically branded the ultimate insult of “un-Australian”.

      Anyway, I think we’re going to need to change attitudes in younger people, hopefully while they are still at school – plus we need uber-rich tech-entrepreneurs to come back to Australia and spend their money. It’s laughable how almost none of the really rich Aussies from exits have become active investors, and it’s also laughable how none of Australia’s wealthy have a history of philanthropy. We tend to make our money and squirrel it away..

      Anyway, I’m in the process of raising some money for my next business, and the first VC I saw here gave me a verbal “OK”, and offered me more than I wanted. It hasn’t closed yet, but I know that I wouldn’t have got this far in Australia so quickly.

      Phil

      • Posted 17/07/2010 at 6:31 pm | Permalink |

        Cheers Phil!

        I do think Australian culture is a big thing that needs thinking about here.

        I feel strongly, for example, that Australians sell their companies too early. It’s a lifestyle thing. We have an entrepreneurial culture, but Australians are also quite focused on lifestyle. I think the lure of cashing out early quickly becomes much more important than building a really big company in the long term.

    15. Nate Cochrane
      Posted 17/07/2010 at 1:14 am | Permalink |

      Another element in America’s post-war success and rapid expansion that has been missed is the massive leg up it gained at the expense of Germany. The US strip-mined Germany of its productive capacity dismantling factories whole and shipping them back home.

      At the same time, it appropriated just about every patent the country had and handed them over to US companies to retool after the war. Innovations in every field of endeavour were given to favoured companies with political clout to enable them to leapfrog the rest of the world and dominate in many industries that became critical to ICT.

      At the same time, US corporations such as IBM Dehomag (implicated in the Holocaust) and Coca Cola (ever wonder where Fanta came from?) that operated in Germany through holding companies and other mechanisms were busy repatriating those funds back to their head offices.

      Machinery. IP. Money.

      That’s not to say that the success of a US IT company today is directly dependent on what happened 60 years ago, but it’s worth bearing in mind that the post-war US “economic miracle” was built primarily on what today would be called theft and that many of the advances we now take for granted flowed from those reparations.

    16. Posted 17/07/2010 at 2:55 pm | Permalink |

      It’s hard NOT to like the ideas you outline as criteria for greatness. But for me, they are motherhood statements.
      True greatness, IMHPO, would be to create a technology sector that leads with new models of development and commercialisation rather than catching up to other succesful models.

      • Posted 17/07/2010 at 6:28 pm | Permalink |

        Hey Simon, not sure what this was in reaction to — are you talking about motherhood statements I made in my article? And what new sorts of models of development and commercialisation are you interested in?

        • Posted 19/07/2010 at 9:28 am | Permalink |

          The motherhood statements are “let’s be ‘great’” – have you ever heard anyone advocate mediocrity? – all the stuff about the need for local VC to pay more attention to tech, the hope for greater interest in tech from super funds and your fondness for the startup model.
          This is all impossible to oppose and has all been jangling around ever since the late 90s..
          But there are other ways to do things. As others have pointed out in this and other threads, the conditions that sparked technology industry growth in the USA and other nations may not be reproducible here for a variety of reasons, some to do with historical factors others to do with the nature of our local economy and available resources.
          Exactly what the model will look like that grows and accelerates Australian innovation I don’t know.
          But I do know we have a colossal resources sector and a colossal investment sector (thanks to our Super arrangements). I suspect that working with industries that already have deep pockets and have already achieved massive scale may be more fruitful that trying to ape models that have worked overseas but have not, over 15 years, seen Australia’s tech industry, enjoy the same kind of success of other nations.
          I’m often reminded of a story I heard (and have no idea if it is true or not, but it is illustrative) about Nippon Steel, which once got into the semiconductor business. The CEO was pilloried at the announcement, as the press and analysts wondered why a company with Steel in its name would get into an entirely different manufacturing caper.
          The CEO, so the story goes, replied that “what we do is take dirt and make it into something more valuable. This is just different dirt.”
          I suspect that growth for Australia’s tech sector may come from this kind of thinking: we do a lot very well and have many resources. How can we leverage what we do into more and more lucrative activity?

          • Posted 19/07/2010 at 1:08 pm | Permalink |

            To be honest, I think we did try this strategy somewhat — with a software company called Mincom, which piggybacked on the mining giants by selling software to them. Unfortunately they were bought out by a US private equity giant.

            • Posted 19/07/2010 at 1:26 pm | Permalink |

              Have you ever used Mincom Ellipse?? I bet there were a lot of users of that ERP system that were glad ownership when offshore!

              • Nate Cochrane
                Posted 19/07/2010 at 1:34 pm | Permalink |

                Logisticians at the Australian Army were being treated for PTSD (Post-Technology Stress Disorder) after being subjected to Ellipse, which was cited by Amnesty International as being on par with waterboarding as a cruel and unusual punishment outside the bounds of the Geneva Convention.

    17. Posted 17/07/2010 at 8:41 pm | Permalink |

      How will Australia ever have a strong tech sector when tech is not considered to be a desirable occupation? If kids are going to get hassled for enjoying maths and science at school, and see the sports ‘stars’ receive all the adulation, then perhaps that biases their thinking about careers?

      It will take a big shift from the sports jock atmosphere so that engineering and basic sciences are seen as desirable. I think there is a good reason that ICT business is being shifted to India, and it is the quality of the people working there, particularly when dealing with logic and maths.

      The ‘invented here, so must be rubbish’ syndrome is strong in Australia and New Zealand. Pegasus Mail was one of the best email systems around, but very few businesses in NZ adopted it for their Novel networks. I used it at University, and only stopped using WinPMail when I went to IMAP mail, which Thunderbird handles better. The price was great, the server was stable, but it wasn’t from the US so it couldn’t be any good. People in the US tend to only buy locally developed products from what I’ve heard (could be wrong), and perhaps that gives their local tech sector the boost.

      The world evolves, and just as people move from Australia to the US, people are moving to Australia. Compared to most cities in NZ, the opportunities are greater in Oz. This is certainly the case for the biological sciences — cancer research is fairly well funded here, but in NZ most genetics research is on crops.

      Renai, organisations like universities and CSIRO are fundamental to having a strong tech industry. Without the basic research, there is little for the applied research to be based upon. This is the difference between Research (where the outcome is not known) and Development (where the outcome is expected, and effort is expended to achieve it). Research provides the training, the intuition and ignites the spark for some, and Development is a way of making a quid along the way. There is very little opportunity to take risks when shareholders want a return, but provided a grant application can show the merit for doing something funding can be forthcoming. Not everyone is a risk taker, and so the research institutions provide for clever people to do what they do. Clever people who are will to take risks can form startups, and will either get hugely rich or fail spectacularly, while the risk averse will get their government salary and 9% super (and be happy for it).

      It is time to celebrate the creators of the country (designers, engineers, scientists), and not just those that play games for $ or shuffle other peoples’ money. There is a place for all, but the balance needs to shift. If it doesn’t, creators with portable skills will move to where they are accepted and rewarded, and more rugby league players will move to Australia from NZ.

      • Posted 17/07/2010 at 9:34 pm | Permalink |

        hi Dave,

        +1 to almost all of your post, I agree with almost all of it, especially the bits about Pegasus Mail :) We do need to make tech cool and not just for geeks.

        Mind you, I have always thought being a geek was cool, but probably I am in the minority ;)

        I just wanted to address your point about the CSIRO, which quite a few people have tackled me on. My feelings about the CSIRO are based on the fact that in my years of reporting on the Australian technology sector, I haven’t seen much of value come out from the organisation. In seven years, the only things I can remember are a Firefox multimedia plugin (which went nowhere) a search startup (which, from memory, was used on Govt web pages and was then acquired), the Wi-Fi thing (which, as I have been on record for saying before), I think they are pushing too hard with to enforce their patents, and the Lake DSP thing, which was before my time, really.

        They also have been talking about some Gigabit wireless thing for quite some time, which, as far as I can see, has gone nowhere.

        What I am really interested in is not the scientific research sector which will lead to new technologies. What I am interested in is in Australian companies using building block pieces of software and hardware to build innovative IT solutions.

        I don’t think YouTube, eBay, Atlassian, Twitter and so on are companies that came from a research agency like the CSIRO. They are companies that were built by programmers using existing tools to build something bigger and more innovative.

        This is what the past half-decade has been about in IT — the fact that building blocks of IT infrastructure have become remarkably commoditised, and that programmers can now take those building blocks and create interesting things. Building blocks like LAMP, Amazon’s cloud, and now even next-generation software like Cassandra that is helping us to understand more interesting things about how we can process information in large amounts.

        Are organisations like the CSIRO important? Yes. But, as far as I can see, they are not responsible for the game-changing growth and development that happens higher up in the IT industry. I see groups like the CSIRO as being part of science — not really the technology side that I am interested in.

        They’re just not my sort of thing ;)

        • Posted 17/07/2010 at 9:59 pm | Permalink |

          Renai, I don’t think that it is the role of CSIRO to be the game changer. As for the WiFi patent, why should they not defend it and get some more money? I am quite happy for consumers around the world to be paying a bit more for the wireless toys and for the Australian taxpayer (who funded the work to start with) to be funding a bit less.

          The WiFi patent (well, the patent was on coding) came out of radio astronomy research. This is an example where some pure research in one field impacts another.

          I went to a CSIRO open day held in Brisbane a few years ago at the Queensland Centre for Advanced Technologies (http://www.csiro.au/places/QCAT.html) and the stuff on display was very cool. Lots of machine vision and autonomous systems. It is quite likely that the technology coming out will be game changing for autonomous aircraft and mining vehicles. Not all ICT involves webpages!

          The work of Bill Venables from the CSIRO Cleveland Laboratory (near Brisbane) with the S-plus & R statistics packages should be recognised too. R is open source and does a mighty fine job with some heavy stats, and much of the effort has come from Bill and statisticians from the University of Auckland.

          You say that the building blocks of IT infrastructure have become commoditised. I disagree. Where are the optical network switches going to come from? Not Belkin, but from a lab that specialises in electro-optics. I think that you are focusing on development, which is the application of existing tools to do new things. Google Maps is an example I think. A fantastic product from the people in Google Australia, but not something revolutionary. I’ve been able to do pretty much anything Google Maps did with ArcMap, but it wasn’t as easy or accessible to the public. I’ve had 12cm resolution aerial photography to use at work, but Google Maps made it available to the public.

          Real improvements will come from changes to the building blocks. Fibre optics, open source and virtualisation were game changers. Apache vs IIS, or Oracle vs MySQL are not. I’m not knocking the interesting and innovative ways that people can use the existing tools to solve problems, but those tools are not going to improve without the less commercially focused organisations keeping a steady stream of improvements coming along.

          Finally, with the comment “I see groups like the CSIRO as being part of science — not really the technology side that I am interested in.”, I think that it would be good to have a look at the Marsfield (http://www.csiro.au/places/Marsfield.html) and North Ryde (http://www.csiro.au/places/North-Ryde.html) facilities if you can arrange a tour. You might be surprised at what your tax dollars are funding ;-)

          • Posted 18/07/2010 at 9:43 am | Permalink |

            Hi Dave,

            you can find the extended discussion on the CSIRO’s Wi-Fi patent here:

            http://delimiter.com.au/2010/06/03/wi-fi-patent-has-driven-csiro-money-mad/

            Firstly, yes, I am talking about development, and not research. I’m not personally interested in science or research, I am interested in development and technology, because I’m an information technology writer, not a science or research writer ;) And in this discussion about how Australia can build a great technology sector, I’m interested in talking about how we can build startups like YouTube or eBay — not how we can spend 10 years researching fibre-optic efficiencies ;)

            I don’t see them as the same thing at all.

            So when I talk about the building blocks of IT infrastructure being commoditised, I am primarily talking about software and the fact that vast hardware layers have been virtualised and abstracted now by companies like Amazon.

            With respect to science and research, of course I believe that there is a strong role for governments and universities to aid in that work being conducted.

            But what I don’t approve of is governments and universities carrying out work that could be better done in the private sector. For example, you mention Bill Venables’ work. I don’t know much about that project, but is it really appropriate for a government agency like the CSIRO to be doing work on software development, as it appears to be?

            Surely that work could be better and more efficiently done by a company that specialises in stats software development? And that company could then make profits and contribute to the global marketplace?

            I guess my views here reflect the fact that I really do have an overwhelming philosophy of small government. I believe the government’s role is to protect Australia’s borders and internal security, as well as setting basic internal economic controls (the sort of stuff that the Reserve Bank does) and basic health and education services.

            But most other things, I really believe can be better operated by the private sector. As a taxpayer, I would like to see the government provide tax incentives to the private sector and universities to conduct research in Australia. I don’t really like seeing a huge agency like the CSIRO in operation, because I believe that its functions would be better performed in the private sector.

            My view here is a contrarian view in Australia, which likes ‘big government’ and for the government to take care of most things. But in other countries — such as the USA — for example, it’s not. Some countries have a strong ethos of small government and minimal government intervention, and letting the private sector get on with its own job.

            And lastly, what is my overall view based on here? Experience, of course. In the past 7 years since I have been reporting on Australia’s technology sector, as I mentioned, I have only seen the CSIRO do a couple of interesting things in that whole time. It seems to be that the agency moves at a glacial pace compared with the private sector.

            They’ve hyped up their Gigabit Wi-Fi project about once a year in that time, for example. But I have yet to see the project really go anywhere.

            • Posted 18/07/2010 at 1:39 pm | Permalink |

              Hi Renai, fair enough that you are a technology writer rather than a science writer. What does lead to confusion is the definition of ‘technology’. To a physicist my electrical engineering research may well be considered technology because there is some vaguely useful aspect to it, but to someone working in industry my work is research/science because it is not solving an immediate problem. The definition of tech may well be an article in its own right.

              I think there is too much focus on IT based tech when people are talking of knowledge economies etc. There are great things happening in farm machinery, biotech, electronic engineering, hydraulic engineering and so on. Not everything revolves around a webserver, and while it is your prerogative to write about IT/ICT tech, I think there is still a need to acknowledge the other fields. GPS guided seed drills, the Protel/Altium series of electronics design tools, machine vision based weed-spraying trucks and machine vision ginger sorting could well be of interest.

              CSIRO & the universities are more involved in the development of tangible technology than perhaps you’d like in the ICT world. Some of this might come down to the large costs of establishment. If a company is building high tech machinery, then the costs of a CNC workshop, SMD production lines and so on are very high. The costs of outsourcing to contract manufacturers are very high during the development stage when there are regular changes being made (been there, done that), and so having these facilities in house makes sense. Perhaps ICT is simpler since the outlay seems to be around $3000 for a fast PC and $50/mth for internet access.

              The US is big government, but it is largely at arms length. A previous commenter mentioned that MIT, Stanford and other top-tier US universities get a huge amount of their funding from defence grants. My supervisor mentioned the same things recently when he came back from a visit to MIT. It is these grants that pay for the facilities that can also be used for non-war purposes. Australia is just more honest with what the govt. is doing.

              As for who should be doing development, I’m not sure that is a policy decision that the government should be involved in. What is the harm of a university spinning off a company to work on something where there is commercial opportunity? UniQuest (UQ) and Blue Box (QUT) are setup for this purpose, so what you see as ‘private investment’ may well be university based.

              As for the stats thing, Venables wrote books on S-plus (the commercial software) and then on R (the open source software). Yes, there are commercial statistical analysis packages (SAS, S-plus, Minitab etc), but the pricing is quite high. I’m not sure of the motivation of Ross Ihaka and Robert Gentleman (both at the University of Auckland) in creating R, but it has been widely adopted in research. The source is available, and people working in the area can extend the functionality as they go. With commercial packages you get what you’re given. R could be a building block of a new tech venture as ‘the price is right’, whereas the $2400 for Splus or $6000 for SAS might be too much.

              The motivation for publicly funded research or development is publication and getting results out there, and the motivation for private development (and sometimes research) is return for shareholders. These are very different motivations, with quite different outcomes. Public discovery of a gene for a particular cancer will result in the info being available for all. When a private company does the work the gene is patented. The BRCA1 story (http://www.abc.net.au/am/content/2010/s2921053.htm) is an example of this, and shows that having private companies ‘discover’ is not always in the best interest of the public.

              If CSIRO is as slow and glacial as you suggest then there is little competition to nimble private enterprise when bringing things to market. Sometimes however, slow and steady does win the race, and so what is the harm in allowing both systems to operate?

            • Me
              Posted 19/07/2010 at 3:28 pm | Permalink |

              Hi Renai,
              Quite the Hornet’s nest!
              Don’t you think it’s pretty hypocritical to state in an earlier post that you think it’s a bad thing when Australian IT jobs are lost to India, but then you state later that software jobs should be taken away from the Government because the private sector can do it more efficiently?
              Surely what’s good for the goose is good for the gander?
              You should check out a book by Matt Ridley called “The Rational Optimist: How prosperity evolves.”
              If you don’t have time I’ll give you a big hint – prosperity does not evolve from being insular and spending your time doing things that others can do more efficiently. It evolves from trade and specialisation (amongst other things), according to him, and many notable others.

    18. Posted 22/07/2010 at 8:23 pm | Permalink |

      Thanks to the iLab LinkedIn feed for putting this in front of me. Thanks to Renai for sparking such valuable debate. Hope you will forgive this lengthy post (heading for the 1,000 words :-) ).

      This has been a great discussion to read through and it is so satisfying to see people engaging in this constructive search for a better way. Some of my thoughts on this were briefly voiced in an article last year [http://anthillonline.com/australia-desperately-needs-a-virtuous-cycle-of-innovation/] but, I have been worrying away at this problem for decades.

      It is definitely a hard nut to crack and definitely best attacked by getting out there and doing ‘it’ whatever ‘it’ is for you. However, that won’t be enough and it won’t be sustainable.

      Let’s not ignore the issue of scale. Australia represents a population and economy not dissimilar in size to Southern California (that doesn’t include Silicon Valley) but, we are isolated while SoCal operates in the heart of a market 20+ times our size, even more than that in value and it is the focus of every other nation on the planet. That does make a difference and not one we can directly address by some process of replication.

      Australia needs to find another way and while I have a lot of sympathy for Renai’s wish for home grown billion dollar tech firms (no Telstra doesn’t count for all sorts of reasons we can discuss another time), I am inclined to go along with some of the other writers who suggest that we build a different model of success, a model better suited to our circumstances and opportunities. Comparisons with Northern Hemisphere examples all fall down on the basis of their being embedded in markets that are so much bigger and so much more mature.

      Israel is a slightly different case but, as others have noted, it has a rare imperative to be smarter or die which, together with USA dependence on Israeli technology, has created a rare dynamic. The success of most Israeli tech companies has been on the USA exchanges (primarily NASDAQ). Yet even for the Israelis, larger players acquire the vast majority of their successes.

      The trade sale of companies is the natural path for the vast majority of successful start-ups. It represents a way out for management who have grown beyond their competence, for investors who are seeking returns, for founders who need to get a life back and for customers who want faster expansion of capability. Let’s not bemoan the trade sale path to success and if we are truly seeking to build the billion dollar tech companies let’s embrace our advantage in Asia rather than trying to me-too ourselves in the USA.

      When I returned to Melbourne after living and working in Silicon Valley, Europe and the Middle East I was astounded at the lack of commercial expertise in the business and investment community around computing, electronics and engineering technologies. The average tech/web entrepreneur in the Valley, in Israel, in London has more commercial nous absorbed from their context than most Australian early-stage investors acquire from decades of education and corporate experience.

      I found any number of promising technology opportunities and, even if one eliminates those that suffer from investor syndrome (still too many for our own good), there were solid opportunities in semiconductors, advanced materials, sophisticated software applications, energy efficiency and more. Yet, they all struggled to find investment and still do.

      The examples mentioned by others such as YouTube, Facebook and the like are even harder to fund but, they do get backed here. After all, Seek is a good web-tech success story and, for its trials and tribulations, let’s not forget the globally recognised brand of MYOB (the favoured software for start-ups when I was doing mine in Silicon Valley).

      Just as some of the writers above have rejected the notion of relying on government to solve the problems for start-ups, I think you need to be realistic about the relevance of the start-up dilemma to the big super funds. I certainly agree that if they had the sort of appetite for risk that is seen in some of the USA pension funds then they would risk a few points of a percent (that’s hundreds of millions of dollars) of their funds on early-stage investment through new models. Then again, even in the USA those pension funds are in a small minority.

      Early-stage investment is an asset class fraught with high rates of failure – it’s a long odds gamble and without sufficiently large portfolios, investors are almost certain to fail in their financial goals. To build large portfolios and hold them over the long years required to achieve success demands more and better quality investors and entrepreneurs. We need people with a common set of expectations about what it will take, the sacrifice involved and the pedal-to-the-metal attitude required to compete on the global stage. We have some but too few with all the right resources in place.

      I’m still looking for a scalable answer and I don’t exclude anyone from playing a role. We are not the USA, we are not Finland, we are not the UK, we have different circumstances, a different social contract, different opportunities and we will need a different path to success. Our governments, research institutions and institutional investors can all play a valuable role in facilitation but, the heavy lifting of execution will remain with the entrepreneurs and the investors with the vision and the skills to share on the road to commercial success.

      • Posted 23/07/2010 at 2:17 am | Permalink |

        Great post Jordan – as an Aussie living in Silicon Valley I can identify and agree with many of your comments. However I really believe that we are all doing a disservice to this debate by not trying to analyze the cultural issues that must be tackled for Australia to become successful as a manufacturer of anything (including IT).

        We have deep seated societal/cultural issues to address, such as the tall poppy syndrome. We don’t praise business people who create jobs and value, but instead brand them as criminals. There is a cultural “she’ll be right mate” that often leads to shoddy work and laziness. Anyone who enjoys their job is laughed at. You need to go to the pub and get pissed every night, then turn up to work with a hangover. When I had my startup in Canberra the most common question was “couldn’t you get a job”.

        Other people have addressed elements of the cultural cringe – notably our aversion to buying anything Australian made – perhaps some sort of psychological throwback to convict times where we still think we’re the rejects :-) When my startup was in Australia ComTech (the biggest distributor) wouldn’t even return my calls – once we moved to the USA, one of their product managers kept on calling me to distribute our products (he didn’t know we were from Oz).

        IMHO changing these and other attitudes is more important that anything else, and the only way to do this is with our kids – we need to get high schools to educate people on the benefits and thrills of being an entrepreneur, and create heroes in our society beyond testosterone fueled athletes. My ambition is to come back to Australia and setup an entrepreneurial high school, and work with others to let our kids know that creating a business, in any field, is the true path to wealth and happiness.

        Right now I do what I can to help any Australian startup in the IT space – I freely meet with anyone coming over for a chat, and can hopefully help them move in the right direction. I’ve just launched a new startup as well, and hope that this is the one that gives me the funds to come back home and start the school.

        Phil Montgomery
        Founder and CEO
        Majura LLC

        • Posted 23/07/2010 at 9:07 am | Permalink |

          Interesting comments Phil. I don’t think the cultural cringe is due to the convict thing — the same happens in New Zealand and we’re from free settlers :-) I suspect it is more from ‘Mother Britain’ historically providing anything that was technically challenging. The Sydney Harbour Bridge was engineered in the UK, most powerstations had Parson or English Electric turbines & generators and so forth. Australia is slowly developing more capability, and the civil design & construction businesses are doing well globally (even if budgets slip). To have an Australian company, Multiplex, build Wembley Stadium is a bit of a role reversal.

          This even happens within companies. I worked on a product that predicted impending failure of certain equipment. It was sold to equivalent companies other states, but was not adopted by our own company (which also had the equipment prone to failure). I think there was a view that if it was built in-house it couldn’t be any good. That part of the business was sold (not core business), and then the old owner bought a system, because it was now from a UK company. !@$%!$@!

          Perhaps the lack of IT industry ‘success’ is just a result of the reduced number of people here. With 10x the people in the US you’d expect there to be more success. A couple of companies in New Zealand have managed it, despite the odds. TradeMe rules the online auction world in NZ – eBay can’t get a foot in the door. The trading system is a bit different (auctions carry on if there is a certain amount of activity in the last minute, so no sniping), and it suits the trade/exchange culture. I think it has retained its NZ feel, even though it was floated and bought by the big nasty Aussies :-) Endace (makers of very high performance network cards for capture and analysis) were spun off from the University of Waikato, and are one of two manufactures building real-time Ethernet capture cards. I think they’ve floated, but are still based in NZ. Tait Electronics would probably be the tech darling of NZ, and since the death of Sir Angus, is a charitable trust. Australia has the equivalents with TPG (originally making Routers) and Codan (HF and microwave radio rather than VHF & UHF)

          The size of the nearby market has to be a big factor too. When NZ was compared to Ireland (when it was the darling of the tech world), it was countered by some with the statement that a circle 2000km in radius drawn around Ireland covers most of western Europe. The same size circle around NZ covers quite a few seagulls and not much else. It is harder to ship product and to meet people, and so logic dictates that you go where the market is. Would Ian Wright (wrightspeed.com) be able to build his gas turbine hybrid racing cars in NZ? Probably. Would he get investors? Probably not. Being in Silicon Valley and having co-founded Tesla Motors gives more credibility.

          There might be times when a local company nails in (Wotif.com, Seek.com.au), but with fewer people these are going to be fewer than in the US or Europe. The attitudes to academic and economic success also need to change, and Phil’s comments show that the schoolyard attitudes to using your brain instead of brawn carry on through into the workplace — that needs to change for Australia to have more success in knowledge industries.

          • Posted 23/07/2010 at 9:09 pm | Permalink |

            I agree with Dave and Phil that the cultural issues are a big part of the problem. Tall Poppy, Foreign Poppy, fear of failure, distorted sense of self-worth created by imbalanced focus on sports role models (we’re still one of the most obese nations so that role model isn’t exactly working, is it??).

            I live in hope that we can change faster than generational change. Phil is right that we need generational change and it will be the underpinning of sustainable change. I just hope that we can create heroes and a habit of success faster than that.

            Just today, I had an excellent meeting with an Australian serial entrepreneur. He is on his fourth or fifth company and I think I will probably invest because he has all the hallmarks of success. His most recent venture has already collected over USD50m in aggregate revenue and his career total is well over USD200m. Yes, he has taken his companies to the USA and has even obtained citizenship over there but, he maintains his home base and idea origination/product design in Australia.

            During our meeting, we discussed some of these issues and some of the contradictions. For example, at the personal level Australians have a great sense of initiative. We have a healthy lack of awe – a good part of the Tall Poppy syndrome. Yes, “she’ll be right” can lead us towards complacency but, “you never know if you don’t have a go” empowers us to do the unexpected and to succeed were others fear to tread.

            We need entrepreneurs who are as willing to sacrifice and take real risks as they are expecting of the investors. In another opportunity I was reviewing today, the two founders want full market rate senior management salaries from their investors for a business that has zero revenue and relies on technology that they can only envision (they’re domain professionals not technically competent). These guys won’t mortgage their homes. They are offering less than 25% of their business to investors. Now, to be sure, they are entitled to style and build their business as they see fit and shouldn’t take risks they can’t tolerate. Still, why should investors risk their money when the founders don’t seem willing to back themselves with their own risk/sacrifice??

            This is a very common example, one where founders have some sense of entitlement from which they develop an attitude that investors should just trust them, hand over the cash and shut up. That’s not a very respectful attitude, especially when dealing with private investors who have at least done something successful in their own lives to be in the position to risk their very own money. On the other hand, that first founder I described has a track record that might inspire an investor. Sure he has had success but, he has also had failure, he continues to take risks, has invested his own cash in his new venture, will scrape by on a minimal salary until the new business is performing and is eager to include investors as advisers in building his next success. Which attitude/opportunity would move you to risk your money??

            Australian ventures can overcome many of the external challenges, the tyranny of distance, the small domestic market, even the lack of investment but, few will succeed while the prevalent attitude of the community is “you’ll never succeed – can’t be done here”. We need envy of risk takers (entrepreneurs and early-stage investors) not condemnation. Corporates, governments and institutions are not really the place to look for risk takers. After all, one doesn’t embark on a life as a “company man” because he is seeking a risky path.

            Building a business can succeed overnight, or in a couple of years but that is rare. Most big successes take much longer and that is HARD for everyone. We all need to do a better job of building relationships between entrepreneurs, between them and investors, building a team approach (Team Australia – there are great folk like Phil ready to help the newbies) and having expectations that are aligned with a “can do” approach which respects those who have the experience.

            For those who have succeeded, if the new entrepreneurs make the experience of trying to help them too hard and unpleasant then the mentors, advisers, investors and competitors just get on with their own lives because helping start-ups is something most people do from a passion not an expectation of making a decent living.




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