Australia Needs to Be More Complex to Survive

Last week there was an uproar about how dumb our economy is.

According to a group of Harvard academics, Australia is rich because we are fortunate. We rely on selling simple things like the minerals in our land to make us wealthy.

This has certainly worked well for us so far, but according to the Harvard brains, also puts us at risk.

We lack ‘complexity’ in their view. That is, we don’t have a propensity to develop or innovate new goods to sell.

So, logically, if the rocks and dirt we sell become less desirable or run out — we’d be in a bit of a pickle.

Yet, it appears we’re ignorant to this. More than that, we’re actively pursuing an even simpler future. According to the data, we’re heading in the wrong direction.

Or, as the AFR notes:

Put simply, Australia is rich and dumb, and getting dumber.

Now I’m not a super patriotic person, but even I admit that hurts to hear. But, I also would agree with the conclusion…to an extent.

I am firmly of the belief that innovation isn’t valued enough in this country. It is one of our least prized and utilised traits. Whether we are poorer because of this deficiency though, is hard to say.

The Harvard data, suggests this may be the case. Or, that it will be when the rocks stop selling.

However, as a follow-up article points out, goods aren’t the be all and end all. Services are just as if not more important to Australia’s economic mix. And there is little to no service data for Harvard to analyse.

So, perhaps we’re not so dumb after all…

Perhaps services are where the future of our economy lies.

US–China trade tensions have actually created some incredible opportunities for Aussie investors. Click here to discover three unique plays on the US–China trade war.

Ownership is overrated

The other day I was having a chat in the office with my colleague Ryan Dinse. We were joking around about buzzwords and technobabble.

It was then that he commented about an idea that he saw recently. An automated machine that would make and cook French fries. A tongue-in-cheek pitch that was quickly dubbed ‘fries as a service’ by some sarcastic internet poster.

This joke was poking fun at the ever expanding roster of ‘as a service’ businesses nowadays. Or the ‘aaS’ strategy if you will.

Beginning with Software as a Service (SaaS), this sales model has become incredibly popular. Namely because it allows for ongoing monetisation rather than one-off purchases.

See, typically software used to be bought and sold like a good. You’d give a company some money and get the product in return.

Microsoft Office is a great example. You used to pay about $100 and get a CD with the latest edition of Office. A simple, typical transaction.

But, then a year or two later, Microsoft would release a new version of Office…

They’d refined the programs. Adding new features and ironing out old bugs. Now you had to pay another $100 for another CD.

On and on the cycle went. Year in, year out.

That all changed in 2011, though. Microsoft decided to shift Office to a SaaS model.

Now, instead of paying $100 for a one-off purchase, you can pay for a subscription. It’s roughly the same cost, but instead of having to install a new version each year, the software just gets regular updates.

Rather than owning the software, you’re just owning a license to use it. A small distinction, but an important one.

Anyway, the point is, thanks to SaaS all kinds of new services started popping up. Businesses like DropBox, MailChimp, and Atlassian.

Furthermore, the ‘as a service’ motto spread to new industries too.

Platforms like Netflix and Spotify offer entertainment as a service. You don’t actually own any of the shows or music, you’re just borrowing them.

Not to mention perhaps the most famous aaS company of them all: Uber. If they had their way, people would never need to own a car ever again.

aMore aaS needed in Australia

Now, of the examples I’ve given you’ll note only one Australian example. Atlassian is perhaps our most well-known, homegrown startup.

There are others out there though.

Companies like Xero Ltd [ASX:XRO] and WiseTech Global Ltd [ASX:WTC] are quickly making names for themselves. They are the first of what will hopefully, one day, be many.

See, what our economy really needs, if it wants to be more complex, is to leverage our service capabilities.

We all know we can’t just keep selling rocks and dirt forever. Our nation has far more value to offer than just that. Which is why we need to broaden our expertise.

I’ve focused almost exclusively on software in this article too, but it doesn’t stop there. The aaS paradigm can be used across a range of industries.

Take another popular example, Afterpay Touch Group Ltd [ASX:APT].

It doesn’t label itself with some goofy ‘as a service’ moniker, but it certainly borrows ideas from it. Their ‘buy now, pay later’ platform is built on a similar foundation.

Trying to underpin or define this foundation, though, isn’t easy. It’s why a lot of critics can’t see or comprehend the value these companies provide.

Unless you delve into the backend infrastructure and data, you might view aaS as a hollow.

For instance, it would be easy to dub Afterpay a glorified layby app. An old idea repackaged in a new digital channel.

However, this shallow understanding overlooks the nuance behind the app. It is their ability to reduce the friction of a transaction — both financially and psychologically — that is valuable.

Layby never had the kind of cult following that Afterpay does.

My point, dear reader, is that Australia has room for good ideas. Our economy isn’t limited to selling just rocks and animals.

Services are a key part of how we made our wealth. Now our next challenge is to take these services to the next level. To bring them up to speed with 21st century thinking.

It doesn’t end with aaS, but it’s certainly a good place to start.

After all, we don’t want to become the dumbass economy of the world.

Regards,

Ryan Clarkson-Ledward,
Editor, Money Weekend

PS: Three ASX fintech stocks taking on the banks (and winning). Click here to find out more.


Ryan Clarkson-Ledward is one of Money Morning’s junior analysts. Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects. Ryan’s primary focus is assisting Sam Volkering with background research and insight for readers by dissecting the latest events affecting the world. Working closely with Sam, they explore the latest in small-cap and technology stocks as well as cryptocurrency opportunities. You can find Ryan’s contributing research, developments, and supporting information across several e-letters, including:


Leave a Reply

Your email address will not be published. Required fields are marked *

Money Morning Australia