Friday, August 31, 2007

Emissions trading in Australia and Climate Change and Business Conference

I am a huge supporter of a carbon trading system. Without capturing the external costs of carbon dioxide, the full value of cleantech products cannot be realized. I just returned from the Climate Change and Business conference, held in Brisbane this year, and it was very worrying and informational.

It was worrying because many people reported on data from the Intergovernmental Panel on Climate Change, which basically states that we need to make massive changes to peak our per capita emissions of CO2 within the next few years or we risk catastrophic changes to the Earth. I'll talk about this more in a later post.

However, it was informational because I learned a little more about the emissions trading scheme that Australia is considering. Both parties now claim to support such a scheme (with, of course, no real details available until after the election!) However, both parties plan for a roll-out in the next 5 years (2012 for Liberals, 2011 for Labour). I think this is great, because once capital markets can influence things, they can be a tremendous force for change. However, this highlights the slow pace of change - 5 years before an emissions trading scheme is active!? If we take decades to make changes, and we only have a little over a decade to start moving the needle, we need to get away from the "environment or the economy" discussion which many politicians use to frame the debate, and quickly recognize the Stern Report conclusion, which is that the "pro-economy" policies are ones which mitigate the damage of climate change. It is the policies which allow greater climate change damage to occur that will truly destroy the world's economy.

More to come...

Wednesday, August 01, 2007

The Power of Network Effects and Harry Potter

As part of my continuing series of posts on exciting business strategies, this time I would like to talk about the power of network effects. Network effects can have multiple fantastic properties, including simultaneously providing rapid adoption rates as well as erecting barriers to entry.

A network effect takes place when the value someone places on something increases with the number of people who use that thing. If I enjoy taking a taxi to work rather than walking in the rain, I don't value that taxi any more if other people also are taking taxis to work. However, if I use a certain operating system, I will get more value out of it if everyone else also uses that operating system - there will be more software, support will be more readily available, and costs will go down. This is how Microsoft has managed to maintain its lock with Windows, now that it is the dominant system. This is why VHS finally won out over Beta, DVDs over Div-X, and this explains the various successes and failures of the console gaming systems. Whichever system managed to establish a lead ended up dominating the market.

What does this have to do with Harry Potter? Well, after the release of the final book in the series I have been reading a flurry of posts on the book. However, one of the most interesting (I've looked for it, but I can't find the link) was a post describing one of the reasons for Harry Potter's success and this was due to the fact that the book had become popular enough to benefit from a network effect. Most books are enjoyed by the reader, independent of what other people are reading, yet because Harry Potter was so huge, the experience of reading could be shared with other Harry Potter readers. Harry Potter became more exciting because many other people were reading Harry Potter. Woe to the child who shows up in the schoolyard not knowing what happened in the latest Harry Potter installment!

So, if you are developing a business, if the business strategy can include a network effect, allowing for the value of your product/service to improve as the number of installed users increases, then you can be included in the same list as Microsoft, Nintendo, Sony, and J.K. Rowling, which is a pretty good list indeed.