The Australian Financial Review - Nick Abrahams

Sydney partner Nick Abrahams discusses the threats and opportunities of disruption in his new book. The following article was originally published by The Australian Financial Review and is reproduced with permission.

The changes Australia must make in the digitally disrupted world

Not all companies will survive the wave of digital disruption, and Australia could do more to prepare and embrace the changing world. 

by Nick Abrahams

I have been criticised for using the term "digital disruption" in the title of my new book*. People ask "why don't you call it 'digital transformation'?"

The answer is simple: transformation suggests everyone will survive, and that is not going to be the case. Look at WeightWatchers, its share price has dropped 95 per cent in three years due to its inability to respond to wearable disruptors such as Fitbit.

Navman, a former leader in GPS solutions, saw its business model blown out the water almost overnight with the introduction of Google Maps. To quote Mike Tyson: "Everyone has a plan 'til they get punched in the mouth."

In Australia, stockbroker BBY went out of business recently. The dominance of online broking has decimated its traditional business model. Even Sydney's live music promoters have claimed hook-up apps such as Tinder and Grindr have disrupted their business as people opt for the convenience of swiping right over listening to pub rock in the hope of finding love.

Clear trends

For the book, I analysed 500 tech-related M&A/investment deals in Australia to identify clustering of transactions around specific disruption themes. This is not crystal-ball gazing, this is real disruption, happening here and now, and it showed a number of themes.

The remarkable success of companies such as Xero, Bigcommerce, Campaign Monitor and Invoice2Go has shown it is possible to create world-leading businesses from our part of the world. The common theme is cloud-based offerings that help small and medium businesses globally.

Invoice2Go is especially impressive as the entrepreneur built a $100 million business from the central coast of NSW.

We are now seeing a local version of a trend from the US known as the "unbundling of Craigslist", with the success of very specific marketplaces such as Tidy Me (home cleaning), Expert360 (consulting) and LawPath** (legal services).

Thriving new players

Marketplaces are thriving, and are attracting investment. Sites such as 99designs, hipages,ServiceSeeking, Oneflare, Freelancer and Airtasker are among the leaders.

The most remarkable exit ever in Australian tech was the recent sale of takeaway food site Menulog to global player Just Eat for 371 times EBITDA.

Other information monopolies will face similar perils. Journalists have been massively affected by social media. As a result, media companies have attempted to diversify, sometimes successfully (Trade Me, Stayz) and sometimes not (group-buying). A great opportunity for Australian entrepreneurs is that media companies will pay handsomely for specific audiences, for example, News' acquisitions of KidSpot and Alan Kohler's Business Spectator Group.

All the big professional services firms are buying tech-related businesses. A PWC report opines that "nearly 100 per cent of tasks performed by accountants today will be automated by 2035".

Lawyers will face similar pressure. About the only professions to really thrive will be actuaries (now sexily rebranded as "data scientists") as companies focus on big data.

Other trends include: HR/recruitment disruptors, fintech, massive disintermediation opportunities and new funding sources such as the ASX and US venture capital.

Changes needed

Companies must embrace innovation through empowered internal teams and by alliances with forward-thinking companies (even competitors). Creativity will be a much sought-after characteristic in employees. CBA, Telstra and Westfield Labs are among our most innovative companies.

The government has supported the R&D tax concession and changed the absurd ESOP [employee share option plans] tax regime, and the appointment of successful physicist-businessman Larry Marshall to head up CSIRO is great, but more can be done.

Australia should follow the UK on tax reform for venture investing, prioritising STEM [science, technology, engineering and mathematics] education, supporting entrepreneurial academics and immigration reform around 457s for developers.

It is important the country shows it embraces innovation, so liberal crowdfunding rules and removing the GST on cryptocurrency transactions would be good.

Companies with a great user experience will ultimately triumph over adverse regulations due to the political impact of massive public support – as Uber, Airbnb and Bitcoin have done.

If we are to keep up in the new world, I think Australia needs to change. We are besotted with the "corridor of comfort" – we don't like tall poppies and distrust bankrupts – we like the middle too much.

We need to celebrate our successes and support those who fail. In the words of Winston Churchill: "Success is stumbling from failure to failure with no loss of enthusiasm."

Nick Abrahams is the Asia Pacific technology practice leader at law firm, Norton Rose Fulbright and is a non-executive director of Integrated Research Limited.

* His book Digital Disruption in Australia: A guide for Entrepreneurs, Investors and Corporates was released on September 7 on Amazon at a special launch price for this week of 99¢. All proceeds go to Alzheimer's Australia.

** The author's family company group own shares in LawPath.