Delimiter » amazon

Turnbull concerned by Google, Amazon tax offshoring

Renai LeMay — Tue, 22 May 2012 02:38:19 +0000

news International technology companies such as Google, Facebook and Amazon may not be paying their fair share of Australian tax, Shadow Communications Minister Malcolm Turnbull said this week, with local tax laws not having caught up yet with the challenges of the digital environment.

In early May, Google Australia revealed that it expected to pay just $74,000 in corporate income tax for the 2011 calendar year in Australia, off claimed local revenues of $201 million, despite the fact that industry estimates have continually pegged the search giant’s Australian income at closer to $1 billion. The remainder of the company’s incoming is believed to be funnelled through its Irish subsidiary. Ireland is believed to offer Google a more favourable tax environment for its global revenues than countries such as Australia or the US.

In an article published on his website late yesterday, Turnbull said an important long-term issue in terms of Australian public policy was “the erosion of our tax base due to the growing significant of online commerce and offshore-domiciled service providers in many sectors and markets”. “Many transactions which previously generated economic activity and tax revenue in Australia no longer do so,” the Liberal MP wrote.

“An advertisement on a Google search page may be hosted by a server located overseas, and the advertisement may be sold by a company located in Ireland – but nonetheless from the Australian user’s point of view it is as “present” on his device as an advertisement on The Australian or the Sydney Morning Herald website. Equally the largest seller of books to Australians is Amazon – yet there is no GST levied on those sales, and no Australian tax is paid on the profits earned from them, as opposed to the taxes once paid by the Australian-based book sellers Amazon has, in many cases, put out of business.”

Turnbull said debate currently underway in Europe over the issue illustrated that there was “no quick fix” to the issue, or “indeed any broadly agreed consensus as yet that a fix is necessary”. Also, the Liberal MP added, he wasn’t as yet proposing any specific change to existing tax laws, flagging a shift in Coalition policy or even suggesting that Google’s activities were illegal. However, Turnbull said, there was a question about whether current taxation law was adequate in the new, converging digital world — and broader issues were at play.

“In the case of advertising dollars once spent at Australian media outlets but now increasingly diverted abroad, a diminished local tax base is only part of the challenge created by this shift,” he said. “It also reduces the resources available for gathering and publishing news, which reduces the media’s ability to hold political, corporate or institutional interests to account. And it adds to pressure for consolidation. Scrutiny of powerful interests by a robust, fearless, professional and diverse media is fundamental to the operation of any democracy.”

“All of this is entangled with free trade issues and Australia is by no means unique,” the MP added. “Just about every country in the world, or at least those with open access to the Internet, is facing challenges and questions of this kind.” Turnbull linked the issue to several inquiries which the Federal Labor Government has recently held into the future of the media, stating that neither inquiry had bothered to examine these sorts of taxation issues in any depth, “despite their critical importance to the financial viability of our publishers and broadcasters of news, and the threat to Australia’s tax base”.

The way that Google Australia accounts for its revenue does not appear to be consistent with the way other major technology companies account for their revenue in Australia.

In January, Apple, a major rival of Google, published its own financial statements for its 2011 financial year, noting that it made $4.88 billion from its Australian division in the year to 24 September 2011. The company made $190 million in local profits, and paid $94 million in tax in Australia. IBM Australia also filed its financial results over the past several weeks. The company made local revenues of $4.5 billion, with Australian profits being $428 million, and taxation taking a $119 million chunk out of IBM’s pocket.

In January this year, Mashable reported that Apple maintained much of its profits in so-called “offshore tax havens” which allowed it to stop the US Government from taxing it to the full extent possible in its home country.

In 2010, The Huffington Post wrote about IBM’s taxation purposes: “In December 2008, the Government Accounting Office reported that 83 of the 100 largest publicly-traded companies in the country — including AT&T, Chevron, IBM, American Express, GE, Boeing, Dow, and AIG — had subsidiaries in tax havens — or, as the corporate class comically calls them, “financial privacy jurisdictions.’”

However, in Australia, neither Apple nor IBM appear to use the same technique as Google with respect to tax accounting. The pair’s financial statements do not contain references to similar international subsidiaries in locations such as Ireland that Google Australia’s do, and both pay significantly more corporate income tax in Australia.

opinion/analysis
Turnbull’s approach here is characteristic of his much wider approach to policy formation. In short, he reads widely about international affairs in his portfolio, consults with key Australian stakeholders, and attempts to discern how the global experience can be translated into solid Australian policy, with local expertise and knowledge. In theory, this is the right approach, and I wish more Australian politicians would take it. However, in this sort of situation, I would have to say that it’s clear that Turnbull is taking the wrong approach on this issue. Why do I think this?

Firstly, it’s important to understand that the Federal political and media arena is currently a nightmarish, populist bullpen, where supposedly mature figures from both sides of politics are constantly backstabbing each other and feverishly checking the daily opinion polls in order to ascertain whether their latest weasel moves have had any impact on moving the needle of political opinion. Turnbull’s attempts to interject rational, reasoned debate into this raucous cacophony come across as a relic of a bygone era. Sure, many of us in the media and political spheres would dearly love to see that era come back, but frankly it doesn’t look like that will happen any time soon. In short, Turnbull’s intellectual consideration of this debate needs to get a bit more emotional oomph to make any headway.

If Turnbull really wants to tackle the issue of Australian taxes going offshore (as they very clearly are), he needs to make this a populist issue. Instead of conducting calm interviews with the Financial Review and issuing rational statements raising questions on the issue, he should be standing up in the House of Representatives and lambasting Google, Facebook and Amazon for their ridiculously transparent attempts at avoiding their Australian tax obligations. He should be dragging these companies before parliamentary inquiries on the matter. And he should be raising these issues with populist media outlets such as the Daily Telegraph and commercial radio stations.

Only then will it become the sort of national issue it could be.

Why do I know that Turnbull should be doing these things? Because we’ve seen these tactics succeed spectacularly with Labor backbencher Ed Husic, who for six months has been pushing a very similar popular bandwagon: Local pricing markups on technology goods and services in Australia.

While Turnbull is beating around the bush on transfer pricing and being featured in calm editorials in the AFR, Husic already has his parliamentary inquiry being set up on the matter; he already has national press coverage; and he already has local technology vendors running scared. If Turnbull is at all serious about the taxation issue, he should be aiming for the same outcome and using every weapon at his disposal. To do anything less is to reveal that he wasn’t truly serious about it at all. Right now, light touches get nowhere in Australia’s tragically dumbed down political discourse. Those who wish to enact serious change need to apply the sledgehammer every chance they get.

Image credit: Office of Malcolm Turnbull

Geo-block busting ISP not realistic, says Hackett

Renai LeMay — Fri, 11 May 2012 05:14:46 +0000

news Internode managing director Simon Hackett has downplayed the potential for Internode or other Australian ISPs to follow a New Zealand ISP and offer a “Global Mode” that offers greater access to the internet by circumventing geographical restrictions placed on the certain internet services such as Hulu and Netflix.

A long-time issue for Australian Internet users has been that a number of major Internet content companies — such as Amazon, Apple, Hulu, Netflix and others — will only stream content online to customers located in certain jurisdictions, usually the United States. Visitors with an Australian IP address are told they are not able to access the content in their jurisdiction. However, this week an ISP-based solution to the issue surfaced in New Zealand. The country’s National Business Review newspaper has an extensive article on the subject, stating:

“FYX (“Fix”), launched on May 4 as a sub-brand of established ISP Maxnet, holds the tantalising promise that its users will be able to directly access US based-commercial download services such as Hulu and Netflix, and the likes of the BBC’s iPlayer – all of which offer a motherlode of street-legal movies and TV shows for download, but are “geo-blocked” to stop people outside their parent countries accessing them.”

Could such a service be provided by an innovative Australian ISP? That’s the exact question which a Whirlpool user asked iiNet subsidiary Internode this week. The company’s response came quickly from the group’s outspoken managing director Simon Hackett.

“Frankly it’s something I’ve often pondered doing,” Hackett wrote. “To the extent that from time to time we’ve done some internal design exercises to work out what it might look like … we have routers, servers, and rack space in other countries already, so operating one of several possible forms of VPN server and/or NAT based session rewrite and/or application level gateway service (e.g. a Socks proxy etc) in the USA and/or Europe… it all works in theory.”

However, Hackett added, there turned out to be technical barriers to an ISP like Internode offering such a service in practice.

“… it winds up being quite easy for a Netflix or Hulu to identify such proxied sources and block them, based on technical tests as simple as end to end latency (e.g. > 150 milliseconds round trip time for a connection generally implies ‘out of this country’),” the Internode MD wrote. “It can also be done based on administrative tests (“who is the owner of the IP range concerned, and is that a non-USA ISP?”).”

Consequently, he said, customers who had signed up for such a service from Internode might end up being disappointed. “So, now let’s imagine that Internode fielded such a service, and 6 months later, having got a great name for it, and having had people sign up because of it, the service then suddenly stopped working for major content services like Netflix, as they caught up with us doing this … and they would catch up with us precisely because it got popular and hence because it got us noticed.”

“Then, we’d wind up being crucified by, well, by you guys, as examples of customers who have signed up ‘just because of this’. Customers who would then say that we touted ourselves as being the ISP of choice because of this. Those customers would then start demanding exit from their contracts with no penalty because it no longer did what they expected (not withstanding that the underlying service itself would continue to work just fine – it’d just be Netflix etc who had blocked us) and would spend the next two years telling everyone who posts in “Choosing an ISP” not to trust Internode because they did this ‘bait and switch’ thing.”

“Not a place we’d want to knowingly put ourselves (or our customers), really, is it?”

“I don’t know how the NZ ISP concerned is doing it, and whether they’ve found some magic pudding we haven’t thought of,” Hackett added. “But if, in six months, you see them unexpectedly withdrawing the service in the face of customer complaints that Netflix suddenly blocked them… well, put it this way – I wouldn’t personally be all that surprised.” The more realistic way to approach the problem, Hackett said, could be for Australian customers to sign up themselves for commercial VPN services from the US.

opinion/analysis
I highly encourage readers to check out Simon Hackett’s excellent post in this area. It goes through the technical and commercial arguments for this kind of ISP service in Australia at length, and provides a solid grounding for further discussion. As always, we are grateful to Hackett for this kind of transparency and insight into the situation; it’s a level of transparency we don’t see from any other ISP in Australia.

My own point of view on this is that Hackett is likely right. It would be unseemly and pointless for Internode or any other Australian ISP to get into this kind of ‘arms race’ with commercial content providers in the US. Much better to solve the problem permanently (and on a more legitimate basis) through a traditional avenue: Customer demand. If a company like Netflix receives hundreds of letters demanding they launch in Australia, I’m sure that would change the conversation they have internally around such matters.

Image credit: Netflix

Reality check: ISPs do not understand content

Renai LeMay — Wed, 09 May 2012 02:29:45 +0000

opinion Australian ISPs, regulators and the Government need to take a step back and stop fooling themselves that future telecommunications competition will rest on ISPs’ ability to provide bundled video content services to users. The reality is that ISPs aren’t good at this task and customers don’t want them to do it.

Over the past few weeks, an old dream has begun to resurface strongly in the ongoing conversation around the future of Australia’s telecommunications industry. In this dream, ISPs and telcos are able to diversity beyond their roots providing telecommunications services such as broadband and telephony to customers. Under this so-called ‘triple-play’ vision, ISPs would add services further up the networking stack, providing video services such as films and television episodes on top of their network infrastructure.

The desire to realise this dream has become very evident in a number of comments made by industry figures over the past year or so.

In a briefing in Sydney yesterday, ACCC telecommunications commissioner Ed Willett said the nature of telecommunications competition could change as the powerful National Broadband Network rolled out, with ISPs competing with content providers for access to video streaming rights. This new world could see ISPs forced to compete with an emerging class of rivals such as Apple and Google for “the primary customer relationship”, Willett said, according to this article published by iTNews. The Australian also has more on this. One can’t help but feel the regulator already has its eye strongly on this new market opportunity, given the provisions it forced on Foxtel in its $1.9 billion buyout of Austar, which ensured some of the pair’s key content holdings would be unlocked for competitive use by ISPs.

Across town, the nation’s biggest telco Telstra was reportedly discussing its “media strategy” with the aid of ex-Television NZ chief Rick Ellis, with the idea raised that the company could make a bid to buy pay TV ConsMedia, which, along with Telstra, part-owns Foxtel and also has interests in Fox Sports Australia.

Meanwhile, at an investment conference held by Macquarie Bank, top-tier ISP iiNet was spruiking its growth strategy. In a broadband market which is experiencing negligible amounts of growth, a core plank of iiNet’s strategy — as with every other ISP — is getting its customers to buy more from it. This means, according to the company’s presentation, getting more people to sign up for its “TV Bundle” — the FetchTV set-top box through which iiNet can get its customers to pay for TV and movies delivered over their broadband connection.

And the nation’s number two telco Optus is also certainly taking the content opportunity seriously.

Like iiNet, the company is pitching the FetchTV offering to its customer. Its chief executive has publicly called for the Australian Competition and Consumer Commission to regulate content as it does telecommunications access, citing this area as the next major regulatory battleground. And of course the telco has over the past year taken the fight directly to the TV networks with its TV Now cloud-based personal video recorder, which the Federal Court unfortunately shut down last month.

Yes, yes, for Australian telcos at the moment, you can’t escape the feeling that the future is very much about content. Lovely, juicy, value-adding content, streamed on their networks, delivering extra profit margins and locking customers into triple-play or even quad-play (with mobile) bundles. It sure sounds like a lovely vision. But there’s just one problem: If you dig a bit beneath the surface a bit, it’s hard not to escape the conclusion that it’s a false hope.

For starters, it’s important to realise that the ISPs’ forays into content provision over their networks over the past decade have broadly failed.

In total, iiNet has approximately 860,000 broadband customers. But in the almost two years since it launched FetchTV, it has succeeded in converting only 20,000 (two percent) of those customers into FetchTV customers as well. With that abysmal run rate, it’s hard not to make a case right now that iiNet should simply abandon its FetchTV efforts altogether. The project certainly isn’t making iiNet any money. Optus, which launched its own FetchTV offering in Octover 2011, is no doubt doing no better than iiNet on that front right now.

Telstra, which has many millions more broadband customers than iiNet, has fared a little better; in late March this year, the company revealed that it had sold more than 300,000 units of its T-Box Internet video set-top box. Given that the company has some 2.5 million broadband connections using its network, that’s a much better sign-up rate than iiNet’s FetchTV service enjoys — about 12 percent. But it’s not enough to call the platform a success just yet.

But wait, there’s more.

The recent wave of Internet video services launched by the telcos are only their most recent foray into the area of content provided over their telecommunications networks. Before there was content on fixed broadband, there was content on mobile.

A July 2007 article published by the ABC chronicles how Telstra had then launched a service which would allow customers to watch television programs on their mobile phones — for a charge. At the time, then-Telstra executive Justin Milne, who was then in charge of Telstra’s BigPond ISP unit, hyped the device up as a revolution.

“We are inventing a new medium here and what I earnestly hope is that by giving them some slots and making them available to Australian producers to help us invent this whole short form of TV, that the folks will vote with their feet and they’ll buy those shows, and those will become the most popular shows and so we’ll produce more of them,” he reportedly said.

At the time, mobile television was all the rage. Telstra was doing it, Optus was doing it, Vodafone was doing it, and the then-separate Hutchison Telecommunications, developer of the ’3′ network in Australia, was doing it. You could buy individual ‘packs’ through the various companies which would give you access to various slices of content. The only problem was, these types of services never took off. For a time, Australians were interested, but after a while the interest dropped off and the various telco’s efforts to pump content through their mobile networks slowly failed and were largely abandoned.

It wasn’t the first time that this had been tried in Australia, either.

Those of you with slightly longer memories might recall that in late 204, Telstra launched what was then described as an ‘i-mode’ service (imported from Japan, where it was quite popular) through its mobile devices. At the time, the idea was that content providers like eBay, Citibank, CNN, Fox Sports, Whereis, Flight Centre and The Weather Channel would provide portals through Telstra’s mobile devices that would allow customers to buy content directly on their mobile.

But, just like the mobile content wave which would follow it a few years, later, i-mode bombed in Australia and is now remembered as one of Telstra’s greatest mobile-related failures locally.
Now, I don’t want to imply that every attempt by an Australian telco to diversify into content services has failed.

Probably the most high-profile success in Australia in this area — and, by now, you’re wondering why I haven’t noted this elephant in the room — is Telstra’s 50 percent investment in pay TV company Foxtel, and the provision of extremely profitable Foxtel services over Telstra’s HFC cable network. Formed in 1995 through a joint venture between Telstra and News Corporation, Foxtel has historically made a stack of money for both, and you can only get access to it if you have Telstra’s HFC cable running to your door.

Now, it’s true that Foxtel has been a success. But what’s important to realise is that Telstra has had very little to do with that.

Telstra’s role in Foxtel is essentially limited to two areas. Firstly, Telstra is a 50 percent investor in Foxtel, so it has put in a stack of money into the company. And secondly, Telstra maintains the HFC cable network over which the Foxtel services are provided. This is simplifying things a bit, given the complex relationship between Foxtel and Telstra, but when you break it down, you quickly realise that all of the content-related work that goes into Foxtel is done in a separate company to Telstra — one focused on content. The success of Foxtel is based on the fact that Telstra kept its nose out of the content and focused on what it does best — providing telecommunications carriage services to get that content to users.

And every other area where Telstra has attempted to leverage the Foxtel relationship itself, it appears to have broadly failed in.

Telstra’s attempts to provide access to Foxtel content through its mobile phones; Telstra’s attempts to provide access to Foxtel content through its T-Box platform — in short, Telstra’s attempts to leverage its Foxtel relationship through any other avenue than simply providing the telecommunications network for Foxtel to sell pay TV — have broadly failed. In fact, Foxtel is probably experiencing more success offering its services through Microsoft’s stand-alone XBOX 360 platform right now than it is through Telstra’s competing platforms.

Now that we’ve established that ISPs don’t do content very well, the key question which needs to be asked is why. On this front, I think it’s appropriate to go to a quote from Walter Isaacson’s Steve Jobs biography. This is vintage Jobs, speaking about the recording industry and why it couldn’t get its own online music store off the ground:

“When I went to Pixar, I became aware of a great divide. Tech companies don’t understand creativity. They don’t appreciate intuitive thinking, like the ability for an A&R guy at a music label to listen to a hundred artists and have a feeling for which five might be successful. They think that creative people just sit around on couches all day and are undisciplined, because they’ve not seen how driven and disciplined the creative folks at places like Pixar are.

On the other hand, music companies are completely clueless about technology. They think they can just go out and hire a few tech folks, but that would be like Apple trying to hire people to produce music. We’d get second-rate A&R people, just like the music companies ended up with second-rate tech people. I’m one of the few people who understands how producing technology requires initiation and creativity, and how producing something artistic takes real discipline.”

What’s happening right now in Australia’s telecommunications sector is that the ISPs and telcos are, as Jobs said about the record-labels, hiring second-rate people to enter industries which they don’t understand. The fundamental business of telcos is to provide telecommunications carriage services; not to provide content services. And consequently, telco people just don’t understand the content industry. Telco people think of everything through the lens of their network infrastructure; cables, routers, datacentres. But they don’t think about the content itself — the content, for a telco person, is just something carried on their network.

But providing content isn’t about getting a network right and bundling content onto it. It’s about making that content available wherever a customer wants it, in whatever format they want it; no matter what underlying network may deliver that content. The birth of the Internet has ensured that content has become disaggregated from the network layer that delivers it; and very few customers want to go back to the bad old days where the two are tied irrevocably together, as they are with Foxtel.

Now, I don’t want to argue that the content industry is getting this right either. It has been exhaustively documented right now that Australians are getting a rough deal when it comes to obtaining TV and film content on-line, on-demand and in a timely and affordable manner. But the answer to that problem is not going to come from Australia’s ISP industry.

As the US and UK have also exhaustively demonstrated with companies like Netflix, Apple and Amazon, the solution to that problem will come from a new category of companies which sit in the middle between content owners and consumers, with their service to be provided on top of telecommunications networks, but with no need for an explicit relationship with the providers of those networks. Quickflix founder Stephen Langsford, whose company sits squarely in the middle of this new industry category, nailed this concept in a speech last week; he’s perhaps one of the first executives in Australia to do so publicly.

The Quickflix executive said the best option for Australian consumers was a streaming platform which would offer an unlimited “all you can view” movie and TV streaming service for a single monthly price across any device or platform. This, he said, was an important point because currently in Australia, most companies locked customers in to a particular device, which he said limited the number of consumers who would take up such services. This is the model which has driven Netflix to a level in the US where it accounts for 20-30 percent of all Internet traffic in the country. And it is the model which will see paid Internet video succeed in Australia.

Ironically, Langsford’s speech was given at the same conference where iiNet and Telstra were hyping up their own Internet video options. I wonder if many in the audience appreciated the subtle difference — which will mean the difference between success and failure — between the different philosophies presented.

I suspect not.

Update: This article has been updated with correct T-Box figures. We had estimated about 100,000 sales over the past several years; the correct figure is 300,000.

Rackspace promises Aussie datacentre

Renai LeMay — Tue, 08 May 2012 07:51:45 +0000

blog If you talk to US-based companies about hosting providers, they’re likely to rabbit on and on about the unholy dominant duo of the US market: Amazon and Rackspace. Amazon. Rackspace. Rackspace. Amazon. It gets to be a bit repetitive at times. If you’re not with one, you’re with the other. Or both. And now both are (reportedly) expanding into Australia.

Like Amazon, Rackspace recently opened an Australian office and starting hiring local staff. Like Amazon, Rackspace has already notched up some Australian customers. And also like its eternal rival, Rackspace’s appeal to Australian customers has been somewhat limited by the fact that it doesn’t have any Australian infrastructure. But as iTNews reports today (we recommend you click here for the full article), all that may be about to change, as Rackspace follows Amazon in yet another way: Australian infrastructure. The publication quotes Rackspace chief operating officer Mark Roenigk:

Roenigk told iTnews this week that an Australian data centre was “a possibility in the next year”. “As you know, we have a sales office in Australia, and we will open a data centre in Australia in the next 12 to 18 months.”

Now Rackspace is a little more than a pure hosting company. I would say that, like a handful of companies in Australia such as Hostworks, the company doesn’t really specialise in the commodity web hosting hosting space but pushes up more towards the premium area; delivering managed service and cloud-computing type services, and even Software as a Service platforms such as Sharepoint.

If it does invest in its own datacentre infrastructure in Australia (probably becoming a tenant in a facility such as that offered by Global Switch rather than deploying its own physical facility, it could become a strong local player; bringing a maturity to the hosting and cloud infrastructure market which is still somewhat lacking locally, with most rival companies in the space still gradually working out the technology back-end to make this kind of service scalable.

Of course, we’ve heard various promises and speculative hints about Australian datacentres from a number of global companies over the past few years. There was Amazon.com. There was Salesforce.com. There was Netsuite. And even Telstra has expressed its desire to host Microsoft cloud infrastructure on shore. None of this has eventuated so far; it will be interesting to see whether Rackspace can be the global cloud provider to break the trend. We await the outcome with bated breath.

Image credit: Whrelf Siemens, royalty free

Vendors unimpressed by IT price hike inquiry

Renai LeMay — Tue, 08 May 2012 05:30:36 +0000

news A number of global technology vendors likely to be hauled before Australia’s Parliament to justify their local price markups have grudgingly and briefly signalled their acceptance of the proceedings and willingness to participate, although some have completely refused to comment on the issue.

In late April, Communications Minister Stephen Conroy confirmed the Government would hold an official parliamentary inquiry into the issue of technology companies marking up goods and services for Australia, following a long-running campaign by Federal Labor MP Ed Husic.

Husic (pictured right) has been raising the issue in Parliament and publicly since the beginning of 2011 (he was elected in the 2010 Federal Election), in an attempt to get answers from technology giants such as Adobe, Microsoft, Apple and others as to why they felt it was appropriate to price products significantly higher in Australia (even after taking into consideration factors such as exchange rates and shipping) than the United States.

Just last week, for example, global software giant Adobe continued a long-running tradition of extensively marking up its prices for the Australian market, revealing that locals would pay up to $1,400 more for the exact same software when they buy the new version 6 of its Creative Suite platform compared to residents of the United States.

After the inquiry was announced, Delimiter invited global vendors Adobe, Microsoft, Apple, Lenovo and Amazon, which are some of the most visible companies selling high-profile technology goods and services to Australians, whether they would commit to attending the parliamentary inquiry if invited, and whether they had any other statement to make on the matter.
The results were brief.

“Adobe Systems will co-operate with any parliamentary inquiry as required,” said an Adobe spokesperson. “We are not making any further statement at this time.”

Microsoft is charging Australian software developers about 83 percent more than their US counterparts to access subscription services associated with its Microsoft Developer Network (MSDN) platform, and also charges higher prices for software products and cloud computing offerings.

A spokesperson for the Redmond, US-based company said: “Microsoft will review the Parliamentary Committee’s terms of reference when available and will respond to the Inquiry.”

Lenovo and Amazon are both represented in Australia by the public relations agency Text100. The company acknowledged the receipt of queries on the matter of the price inquiry, but did not respond with comments on the matter. Spokespeople for Apple did not acknowledge the receipt of Delimiter’s queries and did not issue a comment on the matter.

PC manufacturer Lenovo has in the past attempted to defend of its Australian pricing, despite in 2011 launching its flagship new ThinkPad X1 laptop in Sydney for$560 more than the same hardware will cost in the United States. Apple also commonly charges more for its products in Australia, although the company has made some moves towards international price harmonisation over the past year. Amazon’s prices are the subject of less complaints by Australians than the other vendors mentioned in this article, but price differences on the company’s extremely popular eBooks offerings do exist, despite the content being the same between jurisdictions.

The Australian Competition and Consumer Commission (ACCC), which has indicated that it is following the issues the IT price hike inquiry is raising, is also interested in the eBook issue. In mid-April, the regulator noted it was considering its options on the issue of eBook pricing, following a lawsuit filed by the US Justice Department against Apple and five global book publishers on the issue of price fixing.

opinion/analysis
I am disappointed in the muted reaction which we’ve seen from these massive technology vendors on the issue of IT price hikes in Australia so far. This is an issue for the entire technology sector to ponder, and we really need these companies to be open and honest about how they set pricing so the debate on the issue can be on an honest grounding.

It is possible that the parliamentary inquiry approved by Conroy will broadly find that vendors such as Adobe and Microsoft have been doing nothing wrong when it comes to their Australian pricing, and that their honest testimony will vindicate their actions. We need to keep an open mind with respect to this possibility. But the unwillingness of the vendors to comment on the issue will only lead to an impression that they have something to hide.

Image credit: Still from Gladiator

Offshore cloud an adoption barrier, finds KPMG

Renai LeMay — Tue, 01 May 2012 06:29:56 +0000

news A research study partially funded by major offshore cloud computing vendors Salesforce.com, Microsoft, and Google has found that one of the major barriers stopping Australian organisations from migrating to cloud computing platforms is the lack of cloud infrastructure based in Australia, with legislation such as the US Patriot Act cited as key concerns with offshore hosting.

The study, entitled Modelling the Economic Impact of Cloud Computing, was launched by consulting firm KPMG in Sydney this morning, at a launch attended by Communications Minister Stephen Conroy and other senior figures in Australia’s technology sector. You can download the full report in PDF format here.

In general, it found that, should Australian organisations adopt cloud platforms over the next few years, as the experience of “more mature markets” such as the US suggest is likely, then the benefits for both enterprises and the economy as a whole could be “substantial:, lowing ICT operating and capital expenditures significantly, while still boosting overall gross domestic product by a figure of around $3.32 billion per year. However, ultimately KPMG concluded that the Australian cloud computing market was still “at the early stages of adoption”, particularly in comparison to the US and Europe.

The report was commissioned by industry lobby group the Australian Information Industry Association, in coalition with Conroy’s Department and Salesforce.com, and with the support of other vendors such as Microsoft, IBM, Optus, Fujitsu, Google, CSC, Hitachi, IPscale and Macquarie Telecom, all of whom have some skin in the cloud computing game. In its report, KPMG noted that many executives it contacted while conducting research on attitudes towards the cloud “believed that the Australian ICT market does not yet have mature offerings in cloud-deployed solutions”, with some therefore declining to participate in the study.

Additionally, in the “barriers to uptake” section of its report, KPMG noted that issues included the “location of data and related security and data sovereignty issues (including implications of the US Patriot Act)”. A 2009 survey, KPMG noted, had found that although cloud computing made it possible to access services located anywhere in the world, “there is a strong desire for services located within Australia’s borders”. Other issues also included the issue of latency when accessing cloud computing services; which would especially be an issue for services located offshore.

The comments represent something of an irony for companies like Microsoft, Salesforce.com and Google. All three have repeatedly declined over the past half-decade to invest in dedicated cloud computing infrastructure in Australia, as has rival company Amazon.com. In part because of this issue, Salesforce.com and Google have particularly struggled to make headway in Australia’s public sector, which has expressed a particularly strong interest in on-shore facilities, due to regulatory concerns associated with storing information in the US.

Microsoft is known to provide local services from Singapore, and Salesforce.com from Japan, but many Australian organisations have still continually expressed doubts about storing data even in such jurisdictions, which are not known to have the same laws allowing government access to corporate information.

At the event this morning, Conroy reportedly (click here for iTNews’ article on the subject) outlined plans to visit Google’s US headquarters, in an attempt to promote Australia as a potential cloud computing hub, especially associated with the rollout of Labor’s National Broadband Network project over the next decade.

However, the Senator’s lobbying may fall on death ears. Google has over the past several years continually refused to commit to constructing Australian datacentre infrastructure. In February 2010 the company acknowledged “intense interest” from local customers in Australia-based application hosting, but said it would be hard to say that local infrastructure would be “the right path”.
Some of the companies supporting the KPMG study, however — such as Fujitsu, CSC, Macquarie Telecom and Optus — do have Australian infrastructure, and have won significant customer contracts to use that infrastructure over the past several years, with companies as large as top-tier bank Westpac getting involved.

opinion/analysis
Another vendor-supported report produced by a consulting firm, broadly concluding that Australian organisations should adopt new technologies. We’ve seen this a billion times before. So what’s new? Interestingly, quite a lot.

Firstly, let’s be under no illusions. As anyone with any industry experience would expect, KPMG’s report attempts to paint a rosy future for cloud computing in Australia, no doubt with the intention of at least paying lip service to the interests of its corporate sponsors. Although these kinds of reports are, on paper, “independent” — as in, the AIIA and the other sponsors technically can’t pay KPMG to conclude any in particular, there’s always a fine line, and KPMG obviously knows who’s funding its research (and potential future consulting engagements).

But reading between the lines, it’s clear that KPMG has at least done an honest job here. Reading the report, one can’t help but conclude that cloud computing vendors are finding it tough in Australia just now. The hype has died down, early adopters are losing their enthusiasm for the various platforms around, and the whole industry is clearly in what Gartner would call “the trough of disillusionment”.

This, again, is no real surprise. Many within the industry have been aware of this for a while.

But what is interesting is the extent to which a great divide is emerging between the various cloud players. On the one side of the line are companies like CSC, Fujitsu, Optus, Macquarie Telecom and so on, which are implementing on-shore cloud computing solutions and winning early success. Much of what these companies are doing isn’t really technically “cloud computing”, or at least not the “public cloud” that so many people associate with true cloud computing. It tends to be things like “private cloud”, which gives customers much more control over their infrastructure.

On the other side of the line are companies like Salesforce.com, Google, Amazon and Microsoft (although Microsoft has a foot in both camps — public cloud with Azure and private through partnerships with companies like CSC and Fujitsu). These companies are struggling to win public cloud customers in Australia, due to their nature as offshore hosters. As KPMG notes in the report: “Firms are more likely to be using private than public cloud at this point.”

None of this is really a surprise. Companies which invest in Australia, meet the demands of local customers and don’t stick to hardball philosophies which mandate only public cloud and nothing else (I’m thinking here of Salesforce.com’s antiquated concept that software is dead, or Google’s refusal to acknowledge that the idea of private cloud has any merit). But it is interesting to see it spelled out this way, in a report, ironically, sponsored by both sides of the coin.

Image credit: Krystle Fleming, royalty free

New Kindles hit Australia a week early

Asha Jacob, Chillibreeze — Mon, 23 Apr 2012 23:41:03 +0000

news Amazon has announced that its new Kindle Touch e-reader devices would start shipping to customers in over 175 countries and territories worldwide (including Australia) seven days earlier than the previously announced shipping date of April 27.

The Kindle Touch and Kindle Touch 3G commenced shipping to customers April 20 onwards from Amazon.co.uk, Amazon.de, Amazon.fr, Amazon.es and Amazon.it, and to Australia from Amazon.com. The company’s press release stated that Kindle Touch 3G orders were being fulfilled in the order that they were received.

Dave Limp, Vice President, Amazon Kindle said that orders from customers worldwide for the new line of electronic ink Kindles had exceeded expectations. He said: “We know that customers are eager to get their hands on our newest Kindle which is why we’re delighted to be able to ship several days earlier than we planned.”

Kindle Touch is the latest addition to the Kindle family. It is a full-featured e-reader with an electronic ink display that reads like real paper, even in bright sunlight, with no glare. The device has fast page turns, search and shop options for content, and also takes notes. It eliminates battery worries with “an extra-long two month battery life.”

The Kindle Touch 3G is a top of the line e-reader offering the same design and features as Kindle Touch, with the added convenience of free 3G wireless to download books. The in-built Wi-Fi in the latest Kindle version guarantees connection to Wi-Fi hotspots anywhere in the world. Amazon pays for the 3G connection so there are no monthly fees or annual contracts.

Lightweight and compact, the Kindle Touch 3G holds up to 3,000 e-books. Free cloud storage is offered for all Amazon content downloaded on the Kindle Touch 3G – books, magazines, movies, TV shows, music, apps and games. Basic web browsing can also be done on the Kindle.

Buyers will have access to over one million books in the Kindle Store, including international bestsellers, newspapers and magazines. Apart from the Kindle itself, the ebooks can be read on the iPhone, iPad, iPod touch, PC, Mac and Android-based devices. A touch screen is used to turn pages, search, shop, and take notes. The Kindle Touch 3G comes bundled with an X-Ray feature that allows readers to read the “bones of a book” before purchasing it. A single tap is all that is required to trigger EasyReach, the page-turning feature of the device, and the X-Ray feature to explore the pertinent sections of the book.

The media release stated that customers could purchase Kindle Touch 3G online and from select retailers worldwide. Additional information about Kindle Touch 3G is available online.

Image credit: Amazon

Amazon mulls Aussie distribution centre

Renai LeMay — Wed, 18 Apr 2012 06:56:35 +0000

in brief According to a report in the Sydney Morning Herald, giant international Internet retailer and cloud computing giant Amazon is considering deploying a distribution centre — Amazon-speak for giant warehouse filled with goods to ship to customers — in Australia. The newspaper reports (click here for the full article):

“It is understood representatives of the global giant are preparing to visit in coming months to tour prospective sites down the eastern seaboard with the potential to lease an existing property, or sign up as a pre-committed tenant for a greenfields property.”

The move comes as The Australian newspaper has recently reported in July last year that the company was planning to set up an Australian datacentre. Amazon has since advertised for Australian staff for a local facility, and has also ramped up the number of staff it has in Australia to meet customer demands, although the company has as of yet announced any datacentre facilities locally.

Hosting an Australia-based distribution centre would mean Amazon would be able to ship some products to Australian customers faster, although the facility would not be able to house the same breadth of products as its giant US warehouses. It is likely products popular in Australia — such as Amazon’s Kindle e-reader — would be shipped from the facility locally, if it eventuates.

Image credit: Amazon

US slams Australia’s on-shore cloud fixation

Navina Anand, Chillibreeze — Fri, 13 Apr 2012 01:30:22 +0000

news The United States’ global trade representative has strongly criticised a perceived preference on the part of large Australian organisations for hosting their data on-shore in Australia, claiming it created a significant trade barrier for US technology firms and was based on a misinterpretation of the US Patriot Act.

The Office of the United States Trade Representative (USTR), recently released “The 2012 National Trade Estimate Report on Foreign Trade Barriers (NTE),” that surveys significant foreign barriers to US exports. The issue of cloud computing was a major barrier, it was felt.

A number of US companies had expressed concerns that various departments in the Australian Government, namely, the Department of Defence, The National Archives of Australia, the Department of Finance and Deregulation, the Australian Government Information Management Office (AGIMO) and the State of Victoria’s Privacy Commissioner had been sending negative messages about cloud providers based outside the country, implying that “hosting data overseas, including in the United States, by definition entails greater risk and unduly exposes consumers to their data being scrutinised by foreign governments”.

The cloud issue is not a new one. In August 2011, the global head of CSC’s cloud business, Siki Giunta who was present in Australia to launch BizCloud commented that she felt that there was a lack of collaboration between the Information and Communication Technologies (ICT) industry and the Government in Australia. However, Glenn Archer, First Assistant Secretary at AGIMO, said the AGIMO had, in fact, been working very closely with industry for many months through the Australian Information Industry Association (AIIA) Cloud Task Force.

Recently, Acting Victorian Privacy Commissioner Anthony Bendall highlighted some of the privacy concerns with cloud computing, particularly in its use by the local government. He said the main problems were the lack of control over stored data and privacy, in overseas cloud service providers. He felt that data security; accountability for data breach; and differing privacy laws were concerns that needed to be addressed, when considering storing information and data, especially relating to the government, in a cloud.

On the issue of privacy concerns, the report stated that there seemed to be a misinterpretation of the applicable US law including the US Patriot Act and regulatory requirements. In November last year, draft legislation had been introduced in Parliament, banning the overseas storing of Australian electronic health records. The report claimed this to be a significant trade barrier for US information technology companies with data centres in the US and other countries. US industry sources have appealed asking for a risk-based approach to ensure the security of sensitive data as against a geographical one.

In the telecom section, the report stated that the structure of the National Broadband Network Company, NBN Co, (responsible for implementing wholesale broadband services in Australia) could enhance non-discriminatory access to network services for overseas companies including US companies, as the NBN would not compete in retail markets. The United States expressed concern that foreign equity limits in Telstra, were still capped at 35 percent, and the individual foreign investors could own only up to 5 per cent of the company. The report stated that the US Government would monitor the development of the NBN to ensure that competitors obtained fair access to services and customers.

opinion/analysis
This is pretty much what you’d expect from the US Government — it’s looking out for its own interests and trying to push Australia to conform with it. However, I don’t view the US Trade Representative’s views as legitimate, when examined from an Australian perspective. US cloud computing companies such as Salesforce.com, Rackspace, Amazon and Google have committed very little infrastructure to the Australian market, and analysis after analysis has warned of the data security dangers of storing sensitive data in jurisdictions covered by US legislation, which can, at times, allow the US Government unprecedented access to private data.

I would hope that Australia’s large organisations, and our governments, ignore this criticism from the US. Cloud computing companies are completely free to build infrastructure in Australia, and it’s not a trade barrier when some organisations simply don’t want to buy your products because of some portions of your government’s legislation. In fact, it’s probably true that Australian companies view the Patriot Act as a trade barrier to dealing with US companies. Perhaps Australia’s own trade representative should lobby to have it repealed? ;)

Image credit: Krystle Fleming, royalty free. Opinion/analysis by Renai LeMay

Offshore cloud providers popular in Australia

Asha Jacob, Chillibreeze — Tue, 03 Apr 2012 00:56:58 +0000

news A study has found that two-thirds of Australian enterprises which utilise cloud computing services, do so from offshore providers whose servers are located outside Australia rather than opting for a local provider.

The Telsyte Australian Infrastructure and Cloud Computing Market Study (2012) conducted by Telsyte, an independent Australian technology analyst firm, this week revealed this trend among a large number of Australian businesses and enterprises that are hosting websites and applications on cloud service platforms overseas.

According to the company, a lack of specialist Australian cloud providers has forced organisations to continue operating IT service infrastructure (servers, storage systems, etc) in different locations world-wide. This includes server rooms, branch offices and private data centres.

The research revealed that large multi-national cloud computing providers like Amazon Web Services and Microsoft are making considerable progress in the Australian market with two-thirds of local enterprises that use infrastructure-as-a-service (IaaS) already using their services in some way. As more and more enterprises seek these services from abroad, there exists tremendous potential for expert IaaS and platform-as-a-service (PaaS) cloud service providers to build cloud business and make their presence felt in the Australian market.

As part of the research, Telsyte interacted with 260 chief information officers. Rodney Gedda, senior analyst at Telsyte said: “Public cloud services are being used for production and testing of server and storage environments, to development, testing and deployment of applications.” He observed that for many Australian CIOs the availability of on-demand cloud computing services even though located overseas is still an attractive option for service delivery without the requirement of having to manage physical infrastructure.

Gedda remarked that global cloud providers are able to co-exist with local operators in Australia since 36 per cent of enterprises have no restrictions on data being sent offshore. They opt for an overseas cloud provider due to the perceived benefit of this trend. However, a significant number of CIOs (29%) say their organisation’s data cannot leave Australia. Many in this category were not comfortable relying on public cloud services, citing a number of concerns including reliability and data location restrictions.

A positive trend brought to light from Telsyte’s research is that development and investment in on-premise infrastructure and private clouds continues to be resilient and is an ongoing process with 19 per cent of Australian organisations building a private cloud and a further 35 per cent considering a private cloud. Additionally, more than 50 per cent of Australian enterprises use server virtualisation technology.

As companies constantly seek ways to manage complex IT infrastructure and reduce data management costs, there is potential for an increase in Australia’s investment in IT infrastructure, clearly offering an opportunity for local providers to fill the gap in local cloud hosting services.