opinion You would have had to have had your head buried under a rock over the past several weeks if you worked in Australia’s technology sector and missed the flurry of stories about maverick consumer electronics entrepreneur Ruslan Kogan.
Already engaged in a very public slanging match with Harvey Norman founder Gerry Harvey, Kogan opened up another front in his war against Australian bricks and mortar technology retailers, calling out JB Hi-Fi for being “Apple’s bitch” for what he saw as a dangerous dependence on the products of the notoriously single-minded Cupertino giant.
JB Hi-Fi chief Terry Smart didn’t waste any time firing back … soberly telling SmartCompany that Kogan’s claims about JB Hi-Fi’s Apple dependence were simply incorrect — based on bad data. Others weren’t quite so diplomatic, with Smarthouse quoting an anonymous JB Hi-Fi manager as describing Kogan as a “dickhead” and alleging that there was “every possibility” that Kogan and his primary method of distribution — his highly optimised website — would not be active come 2014.
And of course, there was the inevitable Kogan rejoinder, with the entrepreneur publicly wagering $1 million that there would be no Apple products in JB Hi-Fi’s stores on March 14, 2014 — and even going to the trouble of drawing up a contract (PDF) to put his money where his mouth is.
Now there’s a lot to like about Kogan’s ongoing battle with Australia’s big retailers. Companies like Harvey Norman have earned a reputation over the past decade for their “hardly normal” prices, and many of us like to see a young upstart entrepreneur take on some of the nation’s doddering warhorses on their own turf.
Kogan’s entire approach has a very David and Goliath feel about it, and technology is on his side, with many Australians these days indeed preferring to buy products online rather than suffer a consumer electronics retail experience which mostly seems designed to part us with our hard-earned cash as quickly as possible, rather than to actually meet our shopping needs.
But I think it’s also important to remember just what Kogan’s role is in the scheme of things.
Kogan’s has been an amazing success story. After forming his company just half a decade ago in 2006, the entrepreneur has achieved what almost no other Australian firm has done — forged close ties with the Asian cabal of manufacturers which have fuelled the success of almost every major consumer electronics brand we have grown to know and love — and yes, that includes Apple. And he has done so off the smell of an oily rag, with incredible ingenuity and relying on his own strength of personality and mind to succeed.
But all this does not mean that Kogan deserves to be taken as seriously as the heads of companies like Harvey Norman and JB Hi-Fi.
Last Sunday, as he denigrated bricks and mortar retailers as “Apple’s bitch”, Kogan also attempted to elevate his own brand, linking it verbally with global giants like Google, Apple, Dell and Amazon — and even emerging players Hunch.com and Boutiques.com.
The truth is, however, that Kogan’s company simply does not play in the same class as the brands he is attempting to emulate — his business is several dozen orders of magnitude smaller. The latest figures available about Kogan’s own business, Kogan Technologies, show that the company is an incredible minnow by any standard known to Australia’s financial markets, pulling in a tiny $12.2 million over the 2009/10 financial year, and fuelling just 22 employees.
That number was up more than 100 percent on the previous year, but it’s still incredible tiny compared to the sorts of figures which major retailers like JB Hi-Fi and Harvey Norman are pulling. Long-time JB Hi-Fi chief executive Richard Uechtritz, for example was paid a total of $3.6 million in the last financial year before he resigned mid-2010. What I’m saying here is that JB Hi-Fi’s former CEO was personally being paid each year a figure representing about 30 percent of Kogan’s entire sales revenue.
The figures get even more stark when you look at the performance of the company as a whole. In the past financial year JB Hi-Fi pulled in sales revenue of $2.73 billion — a number up 17 percent, and net profit of $118.7 million (up 26 percent). Uechtritz was personally responsible for the creation of much of that wealth, as he took the company from a medium-sized retailer with revenues of $145 million to the current titanic base it enjoys today.
Harvey Norman did even better … in the six months to the end of 2010 the company pulled in $3.3 billion in sales globally, a figure up 1.3 percent on the same period six months ago. Gerry Harvey didn’t pay himself that much — a paltry $738,000 — but it was enough for the billionaire to get by, we suppose, if he pulled his belt buckle in a notch.
What I am trying to demonstrate here is not that Kogan shouldn’t have his say in Australia’s consumer technology ecosystem or that the entrepreneur hasn’t done a fabulous job of building his own company and becoming a millionaire himself.
But what I am saying is that companies like JB Hi-Fi and Harvey Norman could buy Ruslan Kogans by the hundreds with the pocket change they found behind the couch. Their businesses are on a completely different scale than Kogan’s … and so when they speak, we must take what they say a great deal more seriously, because any decision they make will move mountains — while any decision Kogan makes will barely register on the scale at which they play.
We must also consider the fact that over the past week, Kogan has made several public allegations which were simply not true — or at best misinformed.
For example, in his speech last week, Kogan claimed his company was “Australia’s only international consumer electronics brand”. It’s a grandiose claim to make — and an attractive one, considering that it gave the maverick entrepreneur to take a nationalistic high ground against popular international manufacturers like Samsung, LG and Sony. Why not buy Australian and support a local success story, Kogan appeared to imply.
The problem is that Kogan’s claim was patently false … a fact which was immediately obvious to many journalists in the room listening to his speech, as another Australian consumer electronics manufacturer, router specialist Netcomm, was presenting at the same conference as Kogan on the same day — and may have even been sitting in the same room at the time.
We imagine that Kogan’s comments must have given our old friend, Netcomm chief executive David Stewart, a bit of a chuckle if indeed he was in the same room at the time, because not only is Netcomm at least fifteen years older than Kogan as a company, but it has almost five times its revenue and also trades internationally. Stewart was, in fact, rapidly expanding his prior company, Banksia Technology, during the late 1980’s, at a point when Kogan was probably still learning to correctly spell his own name.
Setting aside the matter of whether or not Kogan’s claim that over 30 percent of JB Hi-Fi’s revenues come from Apple gear is true or not, the entrepreneur has also made several other outlandish statements about the giant retailer which must not go unquestioned.
On Monday this week, for instance, Kogan wrote on his company blog that JB Hi-Fi was “about to lose over 50 percent of their business to the Internet”.
If you read Kogan’s argument, you’ll quickly realise that a lot of what he’s saying has a great deal of merit. Yes, consumers are increasingly buying DVDs, Blu-ray discs, music and all other forms of content, as well as consumer electronics, online. This trend has been increasing in strength for a decade now, and it’s only going to get stronger.
But for Kogan to claim that JB Hi-Fi — which last year increased its revenues by $400 million and is opening new stores across the nation — is about to lose half of its revenue to the internet, is pure, unadulterated bullshit.
There is simply no possible way right now internet retailing will soak up a billion dollars worth of JB Hi-Fi in the next few years, a fact which both the retailer’s management, and Kogan himself, should be patently aware of. The evidence for this is embedded in Kogan’s own business — $12.2 million doesn’t even represent an appreciable degree of interest on a billion dollars, after all. And the rest of Australia’s online retail sector is no different … from my conversations with several players over the past several years, most are seeing their businesses grow — but not on the scale Kogan is talking about.
Lastly, there is the disturbing comment Kogan posted on Twitter yesterday regarding a story about his $1 million bet with JB Hi-Fi.
The Age newspaper in Melbourne briefly ran a story about the wager, which was then picked up across the Fairfax empire and given a run on other sites such as that of the Sydney Morning Herald, before it just as quickly mysteriously disappeared. Fairfax Digital technology editor Asher Moses later clarified on the ITJourno.com.au forums that The Age’s editor-in-chief had ordered it removed, declaring it a “publicity stunt”.
But Kogan himself alleged a much more nefarious situation, writing on Twitter: “The story got taken down from SMH/The Age because an advertiser got a bit upset,” and linking to JB Hi-Fi’s page on Google Finance.
The problem here is that Kogan has produced zero evidence for his claim. It remains fact in 2011 that major newspapers such as the Sydney Morning Herald simply do not remove stories from their web sites if an advertiser complains about them … having been employed at the Financial Review, I can tell you that the response from a newspaper editor, if JB Hi-Fi had contacted The Age yesterday, would be a swift middle finger, directly squarely at the ceiling.
What does all of this point to?
As we said before, Ruslan Kogan is a talented, visionary and successful entrepreneur who deserves our attention. But the events of the past few weeks have demonstrated we simply cannot take the maverick businessman at his word — because he has done little over the past week to back up some very large and very public claims with hard evidence.
Secondly, the fact is that he does not deserve to be allocated the same megaphone which Gerry Harvey and Terry Smart possess. His business is not (yet) of a size where it deserves to be given equal footing, and we must recognise that fact in the way we listen to his words.
Last week, Kogan quoted evolution pioneer Charles Darwin as saying that it wasn’t the strongest of species who survived the evolutionary process, nor the most intelligent – it was the one who was most responsive to change. Kogan — and Darwin — were right. The companies who are the most responsive to change are the ones who will survive in the long term.
But that doesn’t mean much when you’re a tiny fly buzzing around the ear of a giant Tyrannosaurus Rex. Your ability to evolve change will remain severely restricted until you truly put on some scale and become a meaningful predator yourself.
Image credit: Kogan Technologies
Agree 100%
Kogan is doing great things, but isn’t yet a big fish. His flamboyant stunts are fun, but the big boys in the game would have to be bonkers to stoop to his level and play by his terms, doing so would give him the credibility he craves and undermine the traditional retailers position.
I’m totally sure that apple aren’t expanding their channels…
http://www.apple.com/au/retail/jointventure/
Totally shooooore…… ;-)
Of course Apple is … my question is — why isn’t Kogan also expanding into bricks and mortar — if it works for Apple …
Apple can afford the cost of the high traffic showrooms (selling Apple care would help I imagine). Kogan would just be another store in a cheap space.
oh, and then he becomes the man. he dont like the man, remember ?
hehe I think that is one insight into his personality at present — indeed, he doesn’t like being “the man” … but then, neither do I ;)
Renai – why did you discount his claims about Apple and JB Hi-FI as “pure, unadulterated bullshit.” – I working in the Investment Banking industry. Did you bother to do your research and see what the reports from Australia’s most senior Retail Analysts are saying about JBH? Your comments clearly suggests you didn’t do your research but felt like writing a fluff piece.
A very well considered and enlightening article. I think you did as great job illustrating some truths about Ruslan Kogan, while remaining respectful of his achievements and unique business style. I like to see anyone take on the big boys of retail, but I don’t think he goes about it in the right way.
I think most people would agree that if you want to be taken seriously and treated with respect, you don’t make absurd, offensive and outlandish public claims and then try back them up with giant wagers. Frankly its embarrassing behaviour and I don’t think I could ever trust my money with a man who runs his business that way.
Cheers Simon! I had fun writing it …. and this has been bubbling away in my brain since I saw Kogan speak a week and a half ago :) He would be much better served by simply and quietly expanding his business as fast as he can, including retail distribution.
Renai – read my comment at the bottom. I know you had fun writing the article, but is your aim to have fun or be a journalist?
The two aren’t mutually exclusive, but of course this was an opinion piece, as it notes at the top — not an investigative journalism piece.
so it was a piece where you felt you can attack someone elses claims without any evidence that they are wrong and then make your own claims without any need to substantiate them? Is that what writing “opinion” at the start of an article gives you permission to do?
I think you’re mischaracterising the article.
How so? What is the “character” of your article?
Make no mistake, Kogan is a shrewd businessman. If you think he’s taking on the big guys to right wrongs, then you’ve bought his schtick hook, line and sinker.
Kogan’s brand exists to the same thing as everyone else. MAKE MONEY. No more, no less.
It’s a classic example of free advertising, which you’ve yet again helped along. Ruslan thrives on conflict, it shoves his brand front and centre. You can’t buy that kind of coverage. Even Gerry realises the opportunity to get his brand name in front of hundreds of thousands for free.
There’s an old adage. “War is good for business.” — a public battle is really no different.
I wouldn’t say Kogan exists purely to make money — although it is a large motivator — from my experience, he is a pretty nuanced, thoughtful individual.
“his highly optimized website”… WTF?
have you seen this site lately…? “highly optimized”???
and you’re questioning Kogans inability to back his claims up with fact….
Kogan has put a great deal of effort into the site, working out which areas people click on, which they don’t etc. Sure, it looks a little dodgy, but it’s very functional.
From one of the linked articles, where JBHiFi responded to the 30% claim, quote from Mr Kogan:
“I can’t comment on things I don’t know first-hand. All I was told is what these investment bankers told me”
Anyone see the problem with this quote?
Incredibly meta :)
Does anybody else see the irony in this article?
Renai issues a cover story on Ruslan, talking about why we shouldn’t be covering Ruslan.
Stranger than fiction…..
I didn’t say we shouldn’t cover him … just that we should take what he says with a grain of salt.
@Renai. I think you’re giving him to much credit here.
Ok.. he’s made a few bucks but he is not going to win any awards by acting like an egocentric maniac. There are alot of nasty people out there making money he is no different. If he actually said something based on fact, and with some degree of insight that eventuates he may be worth listening to.
Otherwise stop wasting mental CPU cycles on this guy….
You have to give him credit for building up a $12m business in only five years. But what I’m saying is that doesn’t mean we have to take everything he says seriously.
Yep.. Credit for making a few bucks. Take it with a grain of salt.. hmm.. try a bucket of salt.
He is a try hard, and out of his depth on these topics when making un-founded statements. Such irrational behaviour is indicative of someone who may not be around to settle his $1million bet.
His remarks reflect that, and are not noteworthy, and best ignored…. as a British Bobby would say.. “Nothing to see here, move along, move along”
If the race on retail becomes who can scale online fastest without cutting into margins… Kogan seems to have the better position.
I still think he needs a tablet and a ‘bob’, maybe even an iptv to cut though the general consumer brand name static.
Hmm … but that’s the thing, it’s not a race in Australia yet — and do you really believe Kogan can scale better than Harvey Norman or JB Hi-Fi? Not to mention … Kogan only sells Kogan-branded gear.
‘Believe’ is a bit to… committed for my taste re: scaling.
If the race goes that way I can’t see HN or JB extracting themselves from showroom based overheads fast enough to stop the loss of share that will be dirven by the mainstream media picking up the coverage of the sector ‘reshuffle’.
Kogan only selling Kogan gear IS still a variable I can not account for. Unless, of course, he hits a six with a ‘bob’ or tablet.
I know I keep mentioning the ‘bob’/tablet thing… The only thing I really believe is he needs solid geek niche device to drive the media interest he needs to really threaten the ‘establishment’.
ON the other hand, he does not really need to threaten their share (sector profits overall) at all to drain them of margins. Just keep the stunts going… let the converted spread the word ( A bit like an exetel fan. (Not suggesting Kogan IS a JL). I can’t see Kogan going out of business, for market competition reason at all, any time soon or future.
Hmm, May I could condense all this into something like… Kogan; It’s MSY for consumer electronics.
(this post has not been proofread and is probably gibberish)
Has Ruslan once claimed that he is bigger than JB Hi-Fi or Harvey Norman? I think you missed the point. He talks about trends in the industry and where it is heading – there is no doubt the other companies have been around for years and are now much bigger. There was a time when Kodak was much bigger than Canon. You should have a listen to the last sentence in his kickstart speech you recorded.
Also, Netcomm is not a consumer electronics brand. They even say so on their website. I think it could be considered one because they do sell some things to the public but there is also merit to Ruslan’s claim. I also saw someone tweet at you explaining this but you didn’t want to listen.
I also like how you a moral high ground on truth and then quote an anonymous JB Hi-Fi manager..nice work :)
It’s important to note that Ruslan’s claims about the industry are squarely linked to his belief about the future of his own business — like many business owners, he publicly pushes a view that is favourable to his own business. He’s hardly commenting on the industry from an independent viewpoint.
Secondly, Netcomm’s devices are sold in shops and online retailers. Whether it’s described that way or not, they do sell consumer electronics. And the person who tweeted at me explaining this? It just so happens that was Kogan’s PR representative ;)
So based on your reasoning, is Telstra an Australian consumer electronics brand?
Do you know that over 80% of sales from Netcomm are to telcos? The majority of this is networking and communications infrastructure that they don’t onsell to consumers – it’s to make their network work. I think Netcomm is a great brand for Australia, but using it as an example to try prove Ruslan wrong is straight out manipulative. Your statement shows a clear lack of research and perhaps some alternate motives. I’ve been following your articles for a while and this will be the last one I ever read.
I’ve heard Ruslan say many things in the past that I disagree with – but I never manipulated the truth to try and prove to myself why I am disagreeing.
No worries mate ;)
By your logic then, Samsung are not a consumer electronics brand, just because the “majority” of their sales are not to consumers (i.e. they make most of their money selling components to other manufacturers, and selling to other industries – e.g. they also make heavy manufacturing equipment (bulldozers and the like), they’re building wind and solar farms for the Canadian government, etc). A similar story exists for Sony, Motorola, and many other “consumer” electronics brands.
Besides, if Netcomm’s revenue is 5 times what Kogan’s revenue is, but only 20% of their sales is direct to consumers, then they’re still making the same amount of money from consumer sales…
“Netcomm’s revenue is 5 times what Kogan’s” – Netcomm revenue is $50M, Kogan is a shade under $20M and Wealth Creater magazine recently reported it will be close to $100M this year due to UK expansion.
Even if Kogan grows 0% this year, your numbers are way off (but sounded really cool and smart)
Renay – where do you find your readers?
Actually we asked Kogan for their revenue and they pointed us at the $12m figure. I really doubt it will be $100m ;)
The bulk of my argument was that just because a company doesn’t make the “majority” of their money selling directly to consumers doesn’t mean they’re not a “consumer” company. But good on you for ignoring that and focusing on the bit I wrote as a “besides”…
Enjoyed the piece, Renai!
I’m a fan of Kogan’s products, of which I own three, and it’s great that he has cracked the lucrative UK home technology market, where his smart-alec approach will sell well (witness Mayor Boris).
Hyperbole in advertising and silly public wagers (for which Kogan has probably obtained an insurance underwriter, just in case) have been around since Roman times, and no doubt earlier.
Of course Gerry Harvey’s antics appeal to the same low-brow parts of the mass market as Ruslan Kogan’s latest efforts. I just enjoy the jousting, and always bring a healthy measure of skepticism into assessment of them both.
Nice article and well thought through. I have never purchased Kogan’s goods but I am sure they have a market. The world is changing when it comes to retail buying and how we do it and where. The internet’s market share is growing but you simply can’t replace driving up the road, walking into JB and checking out the iPads and other technology before you buy. If the price is right and you want it now you will buy retail. If you can wait a few days you will buy online.
The other issue is brand. Consumers are still driven by brand, simply saying that Kogan has a TV equivalent with features offered by a Sony and half the price doesn’t make me want to buy his product.
Circuit City anyone – he could be right. But of course that couldn’t happen here. Could it?
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