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cash cow cashing in

September 17, 2008
 

So this is the end of the road. We’ve finished our new media course, and while I love this blog to bits, I’m also glad that e-commerce is out of my system. I learned an incredible amount during the process and discovered just how all-encompassing e-commerce is. I mean, it’s used by millions of people around the world to handle different transactions. It’s also wonderfully convenient, although there are some definite downsides, ranging from security problems, scamming and protection issues to lack of guarantees for quality of service. There are loads of products and services out there, so here’s my last tip of the year: SHOP AROUND. After all, the information is right on your fingertips. As long as you can access a computer with internet connection, you cannot feign ignorance.

As we branch into a new era of banking, financial management, asset control and portfolio development, make sure to keep your finger on the pulse and your money in a safe place. Keeping up with the latest technologies is within your capacity, so explore your equipment’s utility and find out what value developers have added to even your cellphone. There’s so much more to come.

KACHING!!!!!

KACHING!!!!!

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Sick of qeueing? Just press a button.

September 4, 2008

Just discovered the MWallet and it’s just the most brilliant shopping and life administration mechanism. I could potentially avoid paying my electricity bill at the Municipality offices (which has horribly early closing hours) and pay from the comfort of my home. I have to admit I’m excited about this development.

Working in academic circles,you start to feel the need to define everything, even the MWallet.  Online mobile software and games shop, Handango defines the MWallet as “an electronic wallet to store your confidential information related to Bank Accounts, Credit Cards, Insurance Policies, Memberships, passwords and more, securely”. The MWallet  is able to do transactions for Visa, Mastercard, American Express,Discover Novus, JCB and Thawte cardholders. So whether it’s paying your bill, sending money to your child in university in another province or receiving your salary, now you can pick up  your phone and at the touch of a button (literally) manage your money. With %50 of the population using mobile phones it’s easy to justify developing this technology, especially in countries in Asia, where electronic shopping has become a feature of every day life. No more counting notes.

Now you don't have to count piles of money, just press a button on your phone

Now you don't have to count piles of money, just press a button on your phone

I’m a little hesitant about the MWallet though. Earlier this year, I wrote about security problems with online media – a topic that’s obviously applicable here. What’s even more worrying is that cellphone theft happens so often (in fact I’ve had over 5 cellphones stolen in the past 6 years), that the idea of someone gaining access to your bank account simultaneously is horrifying. With the South African market just coming to grips with cellphone banking, is it really necessary to own an MWallet? What transactions does the MWallet offer that cellphone banking does not? Well, the MWallet offers inproved security features and can only be used on cellphones with 3GClearly, there are a few kinks in the system which may have to be worked out.

Several companies have invested in developing the MWallet including FujitsuEskadanis and Obopay. In the UK, the MWallet is available from Handango at the price of 6.50€ (R71.5). The program is also available in the US, for the Blackberry and Samsung phones. US-based Obopay is the most affordable option. It only costs 10c to transfer money, and it’s free to withdraw or receive money.  This is much cheaper than bank rates, especially in South Africa where an organisation which investigates consumer demands, the National Consumer Forum, is investigating claims that South Africa has the highest bank charges in the world.

Other than security issues, I’m  hesitant about the viability of this technology in South Africa because of the limited market. 2004 statistics indicate that 18.7 million South Africans have (and use) their cellphones. However, a sizeable number of the population is illiterate and is unable to use the cellphon, for more advanced uses like banking transactions. In fact, in the small South AFrican town of Grahamstown, older people have trouble using an ATM never mind sophisticated technology like the MWallet, resulting in long qeues on payday. Is cellphone technology like the Mwallet a viable option for these sectors of the population?

The new media buzz is unavoidable. Almost every organisation and person has used a computer, communicated via e-mail or heard of some new gizmo or application that running the rounds. This is happening again the e-commerce world, with annual conferences developing internationally, such as the Verifone Retail Payments Conference.  In this IT world, every thing is the new big thing. While the MWallet may not plan to revolutionise electronic payment methods, it’s a handy tool to have (provided you can afford it, and if your country allows you to access the service). Like most technology.

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Can you survive America’s economic slump?

August 19, 2008

I’ll admit from the outset that this is a really global post, but one that I’ve been itching to write for a few weeks now. The internet and profit: is it a possibility? In SA circles this topic isn’t as hotly debated as the Telkom’s anti-bandwidth maneouvers. Local businesses tend to use their websites as a marketing tool rather than an international business centre. There are a few tortoise websites, still based on web 1.0, which just present information to their consumers without allowing them any interactive features or improved revenue-generating capabilities. The US however is another story… a world where corporate giants flourish. The big names: Google, Amazon and Yahoo! aren’t just search directories or search engines, but corporations specialising in filtering buying out, buying in and maximising profit. 

Critics argue that it’s difficult to profit from online activity.  Initially, the concern was whether the internet could allow companies to profit in any way. Google countered this with their magic formula and keyword-targeted marketing schemes which charge on a cost-per-click basis and increase the visibility of webpages with every search. The net was cast wide to include additional revenue-seeking businesses in specific regions with opportunities to profit from Google’s search tools.

Google’s 2005 revenue reports paint a pretty picture: “The Internet bellwether on Thursday posted a net income of $381.2 million (R 2 667, 4 billion)… on record revenue of $1.58 billion (R 11.06 billion), up 96 percent from a year earlier on strong global advertising… Excluding $530 million (almost R 4 billion) in traffic acquisition costs, the portion of revenue shared with partners, Google posted revenue of $1.05 billion. (R 7,35 billion)” Most of this revenue comes from ads on Web sites (56%) and 43% was generated from the company’s AdSense program. I’m sure Google CEO Eric Schmidt, who’s worth well over $4 billion (R 21 billion) is sitting pretty in his yacht of a private island somewhere smiling smugly. Here’s what he has to say: Google CEO Eric Schmidt talks about Google’s quarterly earnings.

 

The Google Guys are laughing all the way to the bank. (Eric Schmidt smiles smugly in the centre)

The Google Guys are laughing all the way to the bank. (Eric Schmidt smiles smugly in the centre)

 

In that same year,  Yahoo! also reported an increase in revenue: “Revenue was $1.33 billion (R 9,31 billion), up 47 percent from $907 million (R 6.349 billion) for the same period a year ago. Excluding traffic acquisition costs, revenue was $932 million (R 6.524 billion).” Clearly every click counts. 

 

Which is a huge problem when the clicks just are counting up. As of March 2008, Marketwatch reported that Google shares ahve fallen about 15% due to a slowdown in the number of “paid clicks” on Google’s search advertisements. The Google’s president of North America advertising and commerce, Tim Armstrong, argues that this is an intentional move, one that would was part of their long-term plan. Google also reported a 7% decrease on share price from this Monday. A good look at Google’s 2006 second quarter report shows slight decreases in several areas of the company’s business: operating income, net income and operating income. Is this also part of the plan Tim? Could it be linked to the American recession?

What’s happening in the real world

One of my favourite American bloggers, Stanley Bing, puts a humorous yet realistic tone on the American recession. He gives a few indications of the effects of the recession in a post on the lack of traffic in LA (which by the way, is a virtual miracle). Here’s a snippet:

 ·         I went to the supermarket and there was no pensioner in front of me on line with 10,000 coupons;

·         I took a rush-hour subway in New York yesterday and a group of thugs got up to give an old lady a seat;

·         I went to a Paris boutique last week and they were very friendly in spite of the fact that I didn’t buy anything;

·         I had lunch at a midtown restaurant last Tuesday, and they didn’t offer me $16-per-bottle water five times until I finally relented and bought some;

Two weeks later, Bing is still in shock as he tries to come to tems with a less materialistic world:

 ·         “People are eating less. This is partially because food is more expensive but also because, as a nation, we are physically fat…

·         People are drinking less… It’s hard to see how this is helping the economy any, but it certainly fits in any omnibus of stuff that’s on the decline to no good effect.

·         People are investing less. That’s because many have less to invest. Those who DO invest are earning less from their investments, which gives them less to invest going forward. This is called a “vicious circle,” and we’re in it, although it’s far less vicious for those who refuse to be in the circle at all and put their money in something other than financial instruments, like a mattress or a coffee can.  

·         People are reading less, writing less, advertising their products less, using social networks less, ordering from the prix fixe menu less often, shorting perfectly decent stocks less, laughing all the way to the bank far less…

Clearly, Bing’s world has changed drastically and he’s forgotten that sometimes less is more. Back in SA, the humour is few and far between as consumers pinch their pennies and try to buy a loaf of bread and a little petrol.If that’s not enough, we’re living with the constant drill noise from new stadiums and wondering if our car will be repossessed anytime soon.

 This month, The Rand Today reported that the SA currency was suffering “extended losses against the dollar to more than three percent on Friday (8 August), as the greenback staged a strong rally across the board… The rand has weakened almost 10% to the dollar since hitting a 6-month high of R7.1820 on Monday (4 August).” A 10% decrease in 5 days. Since then, the rand has been increasing in market value, but of course that trend hasn’t weaved it’s way down to the citizens yet. Hey, it’s a dog eat dog world out there. 

This seen clearest in the Google-Yahoo war. Who’s buying whom and for how many billions of dollars is the talk trend for e-traders. A few months ago, the “chew up the competition” strategy saw a huge move in the online sector: Microsoft bought Yahoo for a mammoth $47.2 billion (R  336 billion). But hey, Google’s not being left behind, it’s moving onto bigger and better things… mobile.
No-one seems sure if a Google phone may be in the horizon (especially since US consumers are buying fewer cellphones) but the company is dipping their toe in the handset software puddle with an Open Handset Alliance. Android™ will “deliver a complete set of software for mobile devices: an operating system, middleware and key mobile applications.”  From destop to laptop to mobile, when it comes to media strategy, Google’s got the dog’s share of the pie. Maybe Tim’s got a point.

 

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Save the world – a laptop at a time

August 13, 2008
I’m fourth year full-time new media student. I’m am educated, middle-upper class and form part of the 11% of South Africans who have access to the internt. But I don’t have a laptop. This minor detail really disturbed me at the beginning of the year. How am I supposed to become a new media mogul (and nerd) without the required accessories? So for a while I entered a panicked frenzy in a vain hope for a laptop. The woman behind the desk at the IT Department looked at me as if I were a cockroach, “Well, you need to pay R 6,000 upfront.” Pause. “In cash.” Well, that wasn’t going to happen.

So I opted for an external disk. She savoured the tense look of fear on my face before crushing my compromised wish, “It’s R 1,000. Cash.”

So I landed up with a flashstick, which is fast running out of memory because we produce online videos, podcasts, audioslideshows and have a few thousand readings.

The plight of those who seek education in a digitised environment is a challenge. So what happens when the whole world is increasingly digitised? Well, a few of us get left behind. Or a whole continent – like Africa.

Sonaike’s study of the dilemma of Africa’s internet development shows that technology’s ability to transform  lives, while useful, would still prove futile without considering the different limitations of progress in Africa. Sonaike questions the utopian view of advocates who argue that technology could help alleviate social disparities. He writes, “the concern is that the telecommunication revolution may widen existing social gaps, creating two distinct classes of information haves and information have-nots. This concern is far from trivial.”

The money factor simply can’t be ignored, especially on a continent where finding clean water, food and shelter are a struggle for the majority of citizens. These marginalised people miss out on social development and are excluded from socio-economic progress . This disadvantage is most apparent  African schools. In a world where pupils struggle to get textbooks and uniform, is a laptop really a necessity?

 

Qudsiya Karrim

Phumyeza Mnymana (left) & Chenne Botha from Grahamstown, South Africa, MXitng it up | Photo: Qudsiya Karrim

How can this situation be improved?

The commerce sector has been contributing to social development through the distribution of technology in underpriviledged education institutions. Public-private initiative have proved useful in underdeveloped sectors such as health, education and infrastructure. 

In Grahamstown, a terribly poverty-stricken town where schools have extensive water shortage and infrastructural problems, a company called eKhaya ICTand a US NGO, the Solar Electric Light Fund, opened the first solar powered computer laboratory in the Eastern Cape. “The lab consists of 25 laptop computers, sponsored by Dell South Africa Development Fund, a local video streaming server, Internet access and a wireless network… all powered by solar energy,” reported Grocotts Mail. Project co-ordinators have also provided training and a digital curriculum to teachers. This is just one of several examples that shows the power of a private-public collaboration for digitising Africa. This helps both the pupils and the company establish a humanitarian brand. Often these initiatives are headed and funded by technogiant in the business sector – digital buiness impacting reality.

The MIT institute has established a social development intiative that could revolutionise how children are educated:  “One Laptop per Child (OLPC) is a non-profit association dedicated to research to develop a $100 laptop”. Earlier this year, Mail and Guardian reported that children in Kliptown – which has no libraries or schools – received an educational facelift by OLPC. M&G reports that OLPC has distributed 100 000 laptops to schoolchildren in Uruguat which cost about $100 (R780) to manufacture. “They are the size of a textbook and lighter than a lunchbox. They can operate using different power sources, such as car batteries where electricity is not available; they can also be solar- or foot-powered… The laptops come pre-loaded with educational software, such as South African textbooks and matric set works…”

The $100 laptop could transform the lives of millions of underpriviledged children

The $100 laptop could transform the lives of millions of underpriviledged children

Scientists have even been toying around with the idea of mobile education for pupils, using cellphones, iPods, laptops and digital cameras to learn in the classroom. Grocott’s Mailreported that some innovative uses of technology by some South African teachers. For example, Abdullah Sujee taught his students about themes in Cry the Beloved Country “by interviewing anti-apartheid activists using their cellphones and video cameras. The footage was then played in class.” With a little original thinking, the possibilities of using mobile technology to compliment school curriculum could be a reality. At least in some schools.

Qudsiya Karrim

A scientist gives a lecture on mobile learning during Scifest 2008, Grahamstown | Photo: Qudsiya Karrim

 The initiative is admirable and the project’s benefits are already appreciated by thousands of children around the world and businesses. A potential market gap to be exploited would be dogital text books and class resources, class assignment submission programs and homework assessors. Then we would really have entered a digital education age. But are we looking through rose-tinted glasses?

Left in the dust?

If school was a soccer field and technology the ball, would the playing field be even? One in every few thousand kids in a poverty stricken area gets a laptop. Great. How is this performance compared to the middle and upper class learners for whom a cellphone is a necessity and not having a laptop is unthinkable? How would the Department of Education standardise the  curriculum with such huge disparities in access to technology? How do we ensure that all pupils’ education is standardised, especially without regular class assessments? Or would technology simply allow us to avoid the whole education system and make home-learning preferable.

Mobile and digital learning is certainly progressive and it could be useful, it could not and should not replace and physical (and disciplinary) presence of teachers and principals. Moreover, we should be careful not to allow class and economic inequalities more power over the opportunities for future employment and quality of education. If we consider additional practical issues like the lack of face-to-face interaction with peers, learner self-discipline, and interpersonal social skills, it’s clear we need to step into the digital education future with a little caution.

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Create Brand You!

August 13, 2008
I had the incredible priviledge of toying around with an Apple iPhone this weekend at a cocktail party. We were sitting around a small fire, when an associate, Mike, forked out his gadget, “I was in America over the holidays, so I got the iPhone. It’s neat isn’t it?”

I admit. I succumed to the temptation and squealed gleefully as a pushed the menu in different directions, “Oh look at this. The video’s great. Oh the menu’s so sleek! Ooooh. Aaaah. What does this button do?” I understand the cartoon Dee Dee’s fascination with her brother’s sanctuary, Dexter’s Lab.

 Apple's iPhone is a pleasure to toy with.

 
Apple’s iPhone is a pleasure to toy with.

The iPhone’s proud owner, Mike, was more than willing to give me a guided tour of the tools and show me a few fancy tricks. I don’t blame him. The iPhone is nifty, incredibly light and has a plethora of applications and activities. iPhone’s home page announces its arrival  as the do-it-all mobile magnum.

“Introducing iPhone 3G. With fast 3G wireless technology, GPS mapping, support for enterprise features like Microsoft Exchange, and the new App Store, iPhone 3G puts even more features at your fingertips. And like the original iPhone, it combines three products in one — a revolutionary phone, a widescreen iPod, and a breakthrough Internet device with rich HTML email and a desktop-class web browser. iPhone 3G. It redefines what a mobile phone can do — again.”

I must admit. I’m impressed. The price will burn a hole in your pocket. The 16GB phone is available for $299 ( ZAR 1800) (early upgrade for $499 – ZAR 3500). If you’re an America,  you’ll need to have  a two year contract with communication provider AT&T. This is just the beginning. There are so many requirements to get the iPhone, that the company has created an iReady document for prospective purchasers. For starters, you’ll need your credit card, social security number, valid photo ID and wireless account number (with password and PIN). Sheesh, for a phone!

So what does this say about e-commerce? Apple has considered all aspects in it’s high-tech business: user functionality, sexy interface, sleek design, available application (even one for WordPress), extended product ranges. Even the retail store is a beautiful glass concoction which shows that you have arrived at the future. This is what a lot of technological businesses are missing. They need to consider the users experience from the moment of hearing of the product to walking home with it in their back pocket (as is the case with most products).

For example, page designs for online banking  aren’t exciting or stimulating so they are an area of potential improvement. They need to draw the user’s attentiont to the type of products to expect. This requires a little creativity on the part of website designers.

For example, if a user sees FNB South Africa’s homepage, they should get a feeling of patriotism. The interface should show that this is a bank that is concerned about it South African families.The cater for people who will actually apply for the million-a-month account and have faith they’ll win the prize. 

Nedbank‘s clientelle on the other hand, are more upmarket. The business is more geared for business enterprises and corporations with high income.  They don’t need a million-a-month account. Although Nedbank provide personal financing accounts, they aim for upmarket, middle to high class, educated clientelle. Could the average fifteen year old tell you what debt capital markets and equities and Trade CFD’s are?

Absa is for young, zesty clients. Their market strategy has shown this by their adverts tailored for teens and youth on TV programmes such as YOTV. Absa also holds competitions for this agegroup which encourages them to apply for debits cards and open savings accounts, with giveaways for account holders. Even their bank card is bright red, orange or blue. Each bank has a ‘personality’, a unique branding strategy, just like most businesses.

When I think of someone using an Apple laptop, I instantly think they may work in a creative field. If it’s a Window’s computer, I think they’re working for a company. If they drive a slow skoro koro (scrapyard worthy car), I assume they are lacking in the finance department. If it’s a Volkswagen family vehicle they’re carting around town, I believe they probably have a few kids. Whether it’s cars, laptops or houses, what you own and how you look is part of creating Brand You.

What is Brand You?

There are many definitions for brands, but the most succincts and simple I’ve found is provided be the University of Ottawa :

“A brand communicates specific information about an organization, product or service, distinguishing it from others in the marketplace. A brand carries a “promise”: a promise regarding the qualities and particularities that make the organization, product or service special and unique.”

We do this every day. We make an impression on every person that we make. Even before a single word is spoken, the person has already decided what age we are, what career we work in, an estimation of our income, what we generally spend our money on and the roles that we could fill in our lives. For example, a woman with a flabby tummy walks into a store wearing a faded pair of jeans with a child clinging to her back pocket. I’m sure you pictured someone middle aged, middle class and a little chubby. You probably also assumed the child was probably aged 4-7. What if I told you her jeans were Levis and she had stepped out of a Porsche. The picture doesn’t quite fit does it? This is part of branding. It creates a coherent, complete picture of the woman and the lifestyle she leads. Whether you are a business person or a farm worker, what you look like conveys a lot about who you are.

Fast company.com’s writer, Tom Peters writes that, “Regardless of age, regardless of position, regardless of the business we happen to be in, all of us need to understand the importance of branding. We are CEOs of our own companies: Me Inc. To be in business today, our most important job is to be head marketer for the brand called You.”

This should be understood by any good designer, especially in the industries of fashion and print. Website designers have a lot of catching up to do. They also have a lot of tools at their disposal. The New York Times Online seems to have some idea of this. Their front page, even their reader, carries the same brand logo and page design and allows the user to experience the look and feel of the newspaper on screen. The stories are still as in-depthand easy to read as the print edition, even though they are carried online. This is the essence of branding.

If e-commerce and online designers could grasp this information as well as bloggers can, I’m sure their pageviews would increase exponentially. And with it, their advertising revenue because we all love a good-looking site, so we share it with our friends. Facebook has shown this already. Combined with utility and quality products and services, generating revenue would be a little easier. Add a few security features and commercial success is just on the brink of happening. This is the secret of online e-commerce success. It’s about giving a company personality. E-commerce locally or internationally, need not be as dry and boring as it’s become. If a few creative heads could get to grips with their company’s ‘personality’, I wouldn’t be surprised to see some great webpages and products created. They may even get your attention.

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Who’s your online target market?

July 30, 2008

My younger brother’s digital prowess is absolutely astounding. At the ripe age of 14, Segomoco a.k.a. Zo, is already mobile savvy. He can identify the specs of his Samsung D900 while chatting to a friend on MXit and viewing Facebook on his little sleek technological monster.

The sexy Samsung D900's capabilities place the online world in the palm of your hand

The sexy Samsung D900's capabilities place the online world in the palm of your hand

In a (very) short conversation over the phone, I asked, “Zo, tell me what are your phone’s specs?”

He responded as if saying “duh, moron”. “Well it has 60 megabites of memory although you can add a memory card to improve the capacity. The camera’s 3 mega pixels and zooms to 4 times the image your photograph,” he continued, “It also has internet connectivity and bluetooth, but it’s quite expensive. That’s why I stick to MXit. I use it primarily for its MP3 sound although the video camera quality is very poor. When it comes to the video capability, the LG K510 kicks it out of the ballpark. That’s my next phone, right Dad?”

Zo really speaks this way, and believes that normal people can understand him. I checked the Samsung D900’s specifications website to confirm. He’s right. While he’s dabbling in his phone’s interactivity, I’m stuck with my Nokia um something or other, which is able to sms. Each time I make a phonecall, the battery dies.

An era when age = ignorance

The digital divide is widening, with technological innovations making age and ignorance synonymous. Internet World Statistics estimates that SA’s online population is 11.6% of the population, which amounts to 5.1 million users. Of these, only 165000 have access to broadband internet subscribers (as of Setpember 2007). This implies that technology savvy individuals will primarily be within the middle to class spectrum. Great news for any e-commerce initiatives: a medium that targets only the rich sectors of a country.

This is not an isolated analysis when education statistics are taken into account.”Apartheid policies have left their legacy in terms of the educational achievement of adult South Africans,”reports the 1996 Report of South African Education Statistics. As of 1996 23% of South Africans older that 26% had not attended school and only 3% had achieved a qualification higher than matric. In 2006, the head of Statistics South Africa, Pali Lehohla states that 10.7% of people age 20 and older have no formal education. This means that the educated population members are primarily youth and young adults. Unfortunately for local e-commerce initiatives this limits the available population sector.

This is why traditional media like tv, print and radio are still dominant advertising mechanisms in SA. TV advertising can target youth and adults alike, whereas online media is limited to a younger generation. (For more on this check out Kid’s for sale article on TV vs the Internet). Although online marketing has no regulation, the online sector has trouble establishing a consistent market.

Is anyone getting it right?

How do we tap into the e-commerce market and make profit when the people most likely to extra income are just trying to get by? Sylivie tries to get to the core problems with online business models because online business needs revision and experimentation. Investors wary to sow funds into a volatile and unpredictable online market, as evidenced by the 2001 dotcom crash. Local online newspapers reach minimal audiences because of lack of users, resources, skills and innovative thinking. A measure of success has been achieved with online banking and online shopping, but South Africa’s online shopping market is still minimal and exclusive.

The entertainment industry trides ahead in digital technologies and generating revenue because it has teenagers hooked to their cellphones updating ringtones daily to impress their peers. Commercial musicians have tapped into the youth market with simple ringtones, videos, facebook and prepackaged romantic messages for shy pimple-faced teenaged boys chatting on MXIt.

How do we cater to adult users who don’t care about the latest Britney Spears ringtone. Well, other than mobile porn. We need useful, convenient technology that applies to everyday lives – at an affordable price and preferably, generates or saves income. This is why the South Afrian market for technology products is so limited. It’s just not useful, so it’s not viable for investors. Barely three generations ago, the majority of (black) South Africans were illiterate and low-quality, race-based Bantu education was the norm. This has left a legacy of illiteracy, unemployment and lack of skills in technologically dependent industrial sectors. Added with contemporary bandwidth issues this is a e-commercial recipe for (almost) disaster. The technological development flag will have to be hoisted with South African youth. There is hope yet for digital media in this society.

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How do you lose R7 billion in a day?

July 23, 2008

In a world where time is money, how much is six hours worth in trading terms?

Recently, a computer glitch that hit the JSE cost the market an estimated R 7 billion. A journalist from The Times, Robert Laing reported that the problem was picked up at 6h30am and was resolved at 3h10pm. What kind of system glitch takes nine hours to fix? One that should not be repeated.

As an advocate for online commerce and the joys of digital dollars, the crash of Africa’s economic stock-trading powerhouse came as a serious loophole in my argument for e-trade. While e-commerce has tangible trade benefits, for example instant exchange with international traders, immediate access to information regarding market changes and a convenient means of raising revenue in a short-term period, there are also tangible difficulties. For example, a single system glitch can bring the country’s trading share tumbling down, somewhat like a house of cards.

If the biggest trading house in Africa can lose over R 7-billion (from an average of R12 billion to R5 billion) in a day despite extending office hours to 7pm, how can the investors recoup the losses? Unless, they have a few millions sitting around to invest in shares and buy international stocks – they don’t.

Potential stock traders may be put off by the high risk involved in trading, market volatility and trading jargon. Investors sceptical about JSE trading may revert to lower risk investment likes such as property, business assets and government stocks and bonds. But the JSE’s draw card is potentially fast returns on short-term investments. Technical glitches are the last thing our economy needs.

The link between economic power and digital communication could be our greatest advantage but also our biggest shackle. The world trade system could not exist were it not for developments in Information and Communicaton Technologies (ICT’s). However, the stock market is as volatile as the network on which it hinges. The implications for traders could be greater hesitance in investing on the market, considering South Africa’s increasing inflation, plummeting bank stocks and low all share index.

Several notable points spring from the crash.

  1. We live in a very small world. The US economic plunge has affected the international economic arena and increased global inflation. The Times reported that a Johannes burg based trader said, “The market is growing more and more nervous that problems in the US mortgage sector are going to trouble the global economy.” Two US mortgage financiers Fannie Mae and Freddie Mac have been tapping into international investor potential to create a safety net for the US mortgage market. They’ve been greeted with scepticism because investors are hesitant to dedicate more funds to the US economy.
  2. A glitch in one part of the system may send shockwaves into the world. The global capitalist economy is structured so that trading is highly competitive, but countries form an interdependent network. On the 15th July, the day of the JSE crash, The Times reported that the world markets fell 1.32% by 11h25am. By the end of the day, “Anglo American was up 3.4 percent and BHP Billiton was up 4%,” says a source from Nedbank Securities. The global market is highly volatile and most market, especially those of developing countries, are sensitive to market changes. The big (capitalist) dogs still reap from trade movements – positive or negative.
  3. Learning from disaster is a key success strategy. Chief executive officer of JSE Limited, Russell Loubser, says the JSE crash was caused by network failure, not the exchange’s trading system. He added, “I suppose we have to realise that even the best systems can go wrong. Nasa lost a space shuttle or two and they are the best.” Loubser is right. The National Aeronautics and Space Administration (Nasa) lost a seven-member crew in Space Shuttle Columbia in 2003 and Space Shuttle Challenger in 1986. But in both cases, engineers discovered where the problems lay. The post-mortem anaysis revealed Space Shuttle Columbia crashed because a wing broke and Space Shuttle Challenger, exploded because of booster failure. The precise technicalities of the JSE system failure are still unknown. One similarity between the incidents is learning the lessons of disaster management. Econarch Data Centre Services operational director, Craig Jones says “Disaster recovery is always a learning experience. There is no way to foresee every eventuality.” The JSE will have to review its impact assessment, and decide whether this kind of failure is now worth the cost.
  4. Don’t crack your eggs too soon. In international trade relations, caution is key. The JSE network crash came two weeks after a JSE fee-reduction of 7.5% because of growing trading volumes. Traders, who were probably delighted at the initial decision, said the surplus value could have been used to improve the computer system.
  5. Don’t put all your eggs in one basket – try three baskets. In late 2007, the JSE brought its IT function back in-house after two years of outsourcing to Accenture. Analysts say the decision had no bearing on therecent crash as the bourse’s CIO, Riaan van Bamelen, was well equipped to deal with the issue at hand. General Manager for service delivery at Continuity SA, Mark Beverly, argues that the JSE would have done a risk mitigation exercise. Had inspectors identified its network as a risk area they would have built in extra surety features. He says: “To reduce their risk, they should [now] do some kind of duplication of their network infrastructure, which is where their DR site comes in. They can triangulate to it, or they can have multiple [data] feeds into their production site [the JSE itself].”

    The last time a crash took place in the JSE was in 1996 (twelve years ago) – not a bad track record considering trading withstood Eskom’s loadshedding and xenophobic attacks in Johannesburg. Still, it would be wise to invest in an alternative safety net plan.