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