Over the past few years, the term “information technology” has appeared to become increasingly out of vogue within the Federal Government, with Australia’s IT sector having to divide its attentions between the communications and innovation portfolios when it came to pushing the cause for its own industry development.
The elevation of Kevin Rudd’s Labor team in November 2007 brought a new term to the table — “the digital economy”. And it’s one that has become increasingly prevalent in the debate about how Australia’s technology sector might grow stronger, especially as Labor pushes its case that its flagship National Broadband Network project will have a broad productivity effect on the wider economy.
“The digital economy will ultimately encompass the entire economy and almost all facets of our society and the Gillard Government is ensuring it has the infrastructure in place to take advantage of the opportunities it will present,” said Communications Minister Stephen Conroy last week as he announced a partnership with chip giant Intel on the NBN.
The pot has also been stirred further by Conroy’s appointment to advise Prime Minister Julia Gillard directly on how the implementation of the NBN can boost the entire economy.
But is it dangerous to view the development of Australia’s entire technology sector through the lens of the infrastructure-based NBN? Following last week’s announcement, we asked two innovative technology companies — one big and one small — what they thought.
“I hope not,” says Intel Australia chief Philip Cronin, speaking from Melbourne in an interview.
Cronin’s view is that the NBN is a stepping stone to greater things for Australia — he claims that the infrastructure rollout would not just deliver fast broadband, but that it could also act as a lure for foreign investors to help kickstart Australia’s technology sector.
“You have to have a reason to attract capital investment,” he says. Part of the MoU with the Government is that Intel’s capital arm will look at opportunities to invest in Australia. Intel invested $37 million in local wireless telco Unwired in August 2005 — but is not known to have made a substantial investment in an Australian company since that time.
Cronin says he wants to get Intel’s capital investment team to Australia on a regular basis to investigate opportunities — “based here, if possible”. “If you’re venture capital guy sitting wherever, we’ve got to give them a reason to look at Australia. Let’s get on with that job of giving them reasons,” he says.
The chip executive compares the potential development curve of Australia’s technology sector to that of the successful film industry, which has been able to attract blockbusters like The Matrix to Australia for filming and production, for example.
The NBN — and Intel’s partnership with the project — is about taking the reins, Cronin says: “If you’ve got a leadership position, you’d better get out and lead.”
For example, one aspect of Intel’s NBN partnership will see it experiment with the new telecommunications capability to see what new possibilities will open up through universal fibre access. Cronin says those lessons can then highlighted to the world as examples of Australian innovation.
“Part of what we’re trying to say is that there is a lot of stuff to happen now,” he says, noting Intel wanted to look at what were the real benefits across a number of different areas of industry and life.
Mick Liubinskas, the co-founder of Australian startup incubator Pollenizer — which has grown like a weed over the past few years and co-founded more than 15 online companies — is broadly positive about Labor’s project, but says the difficulty with putting all of your eggs in the basket of the NBN is the lag factor.
“We’ve got to build the NBN — roll it out — and get people used to using it. Then the supply will come,” he says.
In short, Liubinskas says, it will take NBN Co a while to actually build the NBN — more than half a decade to achieve any significant scale. And then it will also take a while for Australians to work out what they can do with the fibre and start to build new business models around universal fast broadband.
“Businesssses are always in advance trying these things, but in depth it takes a while,” he says.
Liubinskas — like Cronin — believes part of the path forward to develop Australia’s technology sector into an innovative powerhouse is to attract more capital to fuel the growth of fledgling technology ventures. However, where the pair differ is that Liubinskas wants that money now — because he can see businesses that could use it productively.
Pollenizer sees about 20 startups a month that only require between $10,000 and $500,000 to get them off the ground, he says. But the Government’s tax incentive schemes aren’t geared to motivate investors to fund that size of company.
There is a capital structure — the Early Stage Venture Capital Limited Partnership (ESVCLP) which does help investors investing larger amounts — higher than $500,000. And there are at least two known funds already using that structure to target venture capital investment in Australia — the Sydney Angels Side-Car fund which recently launched, and another group in Melbourne called Aurelius Digital. Another group led by online veteran Domenic Carosa is also targeting early stage investment through a separate structure.
But Liubinskas says this doesn’t help the minnows — who need much less money than most of the funds want to dole out.
To solve this problem, Pollenizer itself has pledged to invest in 10 web startups this year. And a number of other angel investors are pooling their resources in a new seed fund dubbed ‘Startmate’.
But the startup veteran says the Government should make those kind of early stage ‘angel’ investments tax-deductible — that way, Australians would stop parking their money in “olive trees and macadamia” nuts and fund technology startups instead.
Taking this sort of action could accelerate the industry’s growth as part of the NBN vision. “If you want to grease the tracks a little bit, you need to make some changes to the investment environment,” he says.
Image credit: Michal Ufniak, royalty free
“The pot has also been stirred further by Conroy’s appointment to advise Prime Minister Julia Gillard directly on how the implementation of the NBN can boost the entire economy”
In other news, Peter Garrett has been appointed Minister for Follicular Regeneration.
Thank you for that insightful comment ;)
Ok, I hold my hands up to that one but beneath my facetious comment there is a valid point. This government, and it’s not unique in this, ignores the real talent they have and appoints the terminally clueless into various positions of responsibility. You only have to look at the two Kates to see this amply demonstrated. We now have Conroy doing IT and Arbib doing sport. I mean, wtf were they thinking?
I entirely agree. Not to mention Gary Gray, who despite overseeing AGIMO, the Federal Government’s peak IT strategist group, appears to have no technology experience at all. But then that has always been the way ministers were appointed — politically, rather than in terms of how much experience and knowledge they have of a portfolio. If they were specialists, they wouldn’t be generalist politicians …
It’s not the ministers I worry about, so much as those advising them. While there’s a limited talent pool when it comes to the ministries, there’s no excuse for not hiring thoughtful and connected IT people as advisors.
‘Over the past few years, the term “information technology” has appeared to become increasingly out of vogue within the Federal Government,’
In my time Australia has never had a competent Communications minister, Labor or Liberal, remember Alston ?
Saying its getting worse is like saying hospitals are in crisis. Its not news, everyone knows, they just dont and wont care until its too late.
To be honest, I thought Coonan was fairly credible, and the telecommunications industry certainly thought so. She underestimated the demand for faster broadband though, to her peril. But at a base level she understood the issues in far greater detail than Conroy does.
Coonan was better than Alston – (not altogether difficult) – but neither had the guts to make really seriously policy. Conroy – (love him or hate him) – has thrown up some new things.
Some of them are worthy of “throwing up” and others are worthy of “throwing up”… ;)
“But the startup veteran says the Government should make those kind of early stage ‘angel’ investments tax-deductible — that way, Australians would stop parking their money in “olive trees and macadamia” nuts and fund technology startups instead.”
I reckon that comment is probably one of the most useful and incisive comments I have seen on the state of Australian economic priorities and capital investment and what is wrong.
Imagine if instead of all the rich doctors and lawyers wasting their money on vineyards, forests, “olive trees and macadamia nuts” and, for that matter, speculating on the residential property market, they had a positive tax incentive to invest in innovative technology and business. Yes there would be waste and rorts, but they couldn’t be any worse than the current situation but out of it would come a flowering of new economic activity not based on mining or farming.
Couldn’t agree more. I think the way this needs to happen is for there to be more knowledge and structure in the industry so that this type of investor knows how to make these sorts of investments. Personally, even though I am a former Financial Review journalist and cover IT startups all the time, I still find the angel investment structure a little hard to understand — and the whole system is a bit inaccessible for most.
More information, more formality, more above the board dealings and less clandestine lunches, and you’d probably get more interest.
“In short, Liubinskas says, it will take NBN Co a while to actually build the NBN — more than half a decade to achieve any significant scale. And then it will also take a while for Australians to work out what they can do with the fibre and start to build new business models around universal fast broadband.”
Ok so half a decade from now and THEN Australians will work out what they can do with the fibre and build new business models around it.
Here’s a heads up:
IT moves fast, damn fast. Business models based on fast internet (ie. faster than ADSL – like FTTN and HFC) are being developed now in countries who are lucky enough to have FTTN and HFC now). Cloud computing is exploding NOW… In 5 years time there won’t be any chance of Australian companies making any new ‘business models’ based on high speed broadband. That ship would have already sailed and Australia won’t be on it.
The only business models we’ll be adopting in 5 years time are the ones developed in other countries with their 30-60mbps connections via FTTN or HFC or to a lesser extent FTTH.
What we need is something that roles out fast to help us at least catch up with the world in the next 12-18 months. Anything that involves the massive infrastructure build like the NBN’s draconian Fiber to the Home strategy is doomed to cost usually intuitive, smart Aussie IT companies $billions in lost opportunities.
Instead of the NBN being the saviour that proponents claim it will be I say that its 5 year time scale means there’ll be nothing left to save. Think of what has happened on the internet in the last 5 years. Imagine 5 years from now before we have fiber implementation to the right scale. The show will be over folks… the fat lady would have sung and we’ll all be using web apps and business models developed in other countries who have FTTN and HFC now….
NBN = high speed, high expense and not ready until it’s too late.
Just get us something that at least gives us world standard FTTN speeds soon so that we can at least catch up with the world in the next year and a half. I’ve been in IT for 20 years and I know that 5 years in IT is like 100 human years.
“I’m on a horse”
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