When is a sale not a sale? a user not a user?

Interesting chat today with the guys at @UK.

@UK provides an e-procurement service aimed mainly at the NHS and local government. So, first of all, they have to sell the service. And they did all right at that, signing up over 60 users. (My guess is they have 10-15% market share in local authorities, not bad for a fairly new business.)

The problem though is that flogging the e-procurement service doesn't really generate revenues. Those only come when transaction flow starts. The council has to link its suppliers up - and integrate e-procurement into the workflow. And this just wasn't happening.

Fortunately @uk has realised the problem and is now sending consultants into existing customers' operations to revitalise the concept and bed down the new processes. It's also focusing on low hanging fruit such as savings on taxi fares (a big area of spend for some rural councils) and temporary staff recruitment.

The problems aren't even technological. They're about just getting the clients to start using the process, finding the right areas to target, getting the paperwork done.

The programme is already starting to bring benefits. @UK will keep bringing on new clients, but the real opportunity isn't about winning new deals, in the short term - it's about getting the existing signed up users to exploit e-procurement properly.

Now so far of course this is only of interest if you're following the public sector software sector in the UK. But in fact, it's very relevant to social networking sites, which have a real problem with inactive users.

I'm a good example. I maintain a vestigial profile on Facebook, Friends Reunited and a few other sites - but I hardly ever use them. I don't really have time and they're not an integral part of my business.

I imagine this is the same for a lot of their users. So that a few million 'registered users' may come down to just a couple of hundred thousand active ones.

Now social networking has become a little boomlet - "Dotcom Boom 2.0" if you like. I think the social networking sites really need to show how they are keeping their users loyal - how many of those users are coming back. And if they don't have a strategy for encouraging more active usership, then they may well come unstuck as soon as new user growth starts to slacken.

The unknown tax break!

VCTs have attracted a lot of interest because of the tax break against other income in the year you buy them. True, Gordon Brown has reduced the break from 40% to 30% - but it's still sizable.

However, that only applies to new subscriptions. But there's another tax break which is stunningly simple and yet practically unknown.

Dividends from VCTs are exempt from tax. And apparently you don't have to subscribe (ie buying new shares) to get this tax relief - you can buy second hand shares on the market from any stockbroker.

Now, yields on VCTs can be 6 to 9%. One of the reasons for this is that they tend to recirculate capital gain as yield in order to make use of the tax break - so basically, you're looking at an investment which, like a bond, should be worth zero when it reaches the end of its life. Of course you don't have bond-style security, since some investments may be high risk (though in the case of the many AIM trusts now available that's less the case).

Why is there no stockbroker looking to exploit this loophole? As a higher rate taxpayer, with significant investment income, I could probably save about four grand a year if I bought AIM VCTs instead of regular unit trusts to get my yield up. The right due diligence, and I should minimise the risks.

Okay, these aren't liquid investments. (Well, nor are buy to let properties. But there's a whole industry serving those!) But while brokers invest in coverage of smaller companies, no one is really offering an aftersales service for VCTs. Brokers are only interested in the low hanging fruit of initial subscriptions.

Yet again, financial advisers aren't earning their money.

Oh yes, and I got someone offering me a wonderful break on Inheritance Tax the other day. Hm. I'm over forty and have no kids. Why can't he manage to save me the higher rate tax I'm paying now, instead of saving me theoretical money when I've snuffed it?

Why doesn't the City get the internet?

The Daily Telegraph doesn't seem to be alone in not understanding the net.

I've just had an email from an investment house telling me they've added an entry to their blog.

Do they not understand that RSS means I know this already?

I'm afraid all the interesting conversations I've had with PR firms about new media are in trade PR. For instance Ashton Billige in property PR have some good podcasting and portal clients, and know their stuff when it comes to new media. And Eulogy!, which has mainly media clients, is really ahead of the curve on blogging and search engines.

City PR firms on the other hand, with limited exceptions, seem to think their job is done if they get the regular regulatory news out. Few of them put out much beyond that and as far as I know, none of them are really blogging or podcasting.

Then we have the example of Stock Market TV, which is a show that goes out at 11 am. On a web site. It's not on Youtube. It's longer than 20 minutes. You have no way of navigating through the streaming media or downloading it. It seems to me to be driven predominantly by a linear programming, television focused model. The content might be okay but a TV programme on a website is, er, very Web 1.0.

I'm not sure why the City doesn't get it. Wall Street does. But in the UK, despite the immense amount of wealth possessed by reasonably youthful web, IT and telecoms entrepreneurs, the City seems still to be driven by the needs of fifty and sixty year olds if you look at much of the advertising. I may be wrong, but I just get the idea that innovation is not happening in the City.

Fractional ownership?

Fractional ownership is making waves in the world of overseas property.

We've had timeshare. A good idea in essence but much diluted by spivvery. Now fractional ownership looks more interesting - smaller groups of investors each holding a share in the property directly.

I've been talking to my boatyard and we've decided a similar ownership structure might work nicely for my poor old boat. At £17k she's a big mouthful for an individual - and she's wood, so the maintenance bill is quite large, even though being a cheapskate I do the varnishing and painting myself.

Split the costs into five though and she becomes pretty affordable. And who spends more than three months a year on the Norfolk Broads?

Even better, if it works, I get to take out most of my money but still have a share in the boat. That I could live with.

We'll see if it works. It's good for the boatyard, because they get to keep the mooring fees and maintenance jobs. And it's good for me. I just hope we can find four other people who think it's good for them.

I wonder what other areas are open to fractional ownership schemes? Anyone want a half share in a charming Frenchman, only slightly used? :-)

"getting" the internet

The Daily Telegraph's idea of being the 'number one' UK web newspaper is good copy. But it falls down on audit figures. It falls down even more severely when you try and get in touch with a journalist.

The web site doesn't have a number for the switchboard. It has a single email address for an outsourced press office, and I know from experience that they don't reply.

It suggests that readers might care to "write a letter" to the newspaper.

That's just amazing. I thought they were a "news" site. Instead, you can imagine - "Here is the olds - three days ago Tony Blair resigned and we have just got the press release, courtesy of the Royal Mail."

Well of course that wouldn't happen. But I do wonder if the people who are trying to give the Telegraph into a decent website actually understand that the organisation is behaving like a dinosaur as far as newsgathering and press relations are concerned?

I wanted so much to talk to them. They have an integrated newsroom. Apparently. And I'm doing an article on the integrated newsroom for InCirculation.

But they don't have an integrated internet policy.

And I just think they don't really "get" the net.

Testing, testing, one two three

I chatted to testing group SQS today on their results. They're growing rather nicely - organic growth at 18%, well ahead of the IT market as a whole (5-6%). They're paying a dividend, something of which I heartily approve. And they seem to be quite lowly valued, so this could be a nice choice for a growth portfolio.

What I found interesting though was their approach to offshoring. They've decided to go for South Africa rather than India, but they're still coming in with day rates about a third of what you might get in the UK or Germany.

And apparently, if you don't offer offshore facilities nowadays, no one is going to take you seriously. They've actually found that by offering offshoring, they're getting more onshore business too.

Where the problems come is with staff attrition. They reckon churn rates in India are 25% or more - that's one heck of a management problem for a software company. Not so bad for McDonald's or All Bar One, but not good where you need continuity on projects and a high level of technical knowledge. South Africa, apparently, is a lot better in that regard - and because consultants aren't job hopping so much, wage inflation is also low, another contrast with India.

I'd hate to predict that the glory days of Indian outsourced services are over. I think they'll carry on growing - and companies like Wipro have shown they are nimble and clever.

But there is certainly room for growth in other countries too and I'd love to see some South African, Bulgarian or Vietnamese outsourcers coming to AIM. (Vietnam is big in computer graphics - an interesting niche; Bulgaria used to be very big in optical systems and web development.)

Meanwhile, SQS seems to be capturing business as more and more companies see the value of an independent testing regime - putting them half way between computer consultants and auditors. With corporate systems scrambling to keep up with change, and Vista on the way, that doesn't look like stopping any time soon.

IXE Europe and the price of power

An interesting chat to IXE Europe today about their results for last year.

Their business is growing pretty well after investing in expansion of data centres. Not enough to please the market this morning, though. But there are two interesting trends underneath the surface.

First, the power requirements of the data centres are continuing to increase. That's a substantial slug of revenue now and because, during the year, IXE saw its costs rise substantially, margins were slimmed. They're now rewriting contracts to pass through any change in the price.

Secondly, though, they're moving to bigger data centres with better economies of scale. The number of centres increased by 40% - the amount of space by 57%. That should help margins over the longer term as economies of scale come through.

Business must be doing well, as there's one new constraint on the company. So far, it's been able to pick up distressed assets for ten cents on the dollar - such as the data centre in Munich built by KPNQwest. As other companies begin to notice that the market's making money again, assets are getting bid up - which means IXE may have to build its own in future on greenfield sites.

I rather like the stock though at 22x 2008 earnings it's not cheap. But it's not got the risk of 'pure tech' - it doesn't buy the servers, it just provides industrial grade power and connectivity. Clients are responsible for the quick-obsolescence stuff that sits in the datacentre. Yet it has the high growth of tech stocks. And because it's a recurring income play, once it hits profit, margins and earnings should grow fast.

Migration from legacy

Maxima has done well by assisting the consolidation of the computer services sector - buying up companies and putting them together.

But it's been rather open to the accusation that it's got a lot of legacy software in the mix. The kind of stuff that really isn't up to adapting to new systems - not web capable, not fully Microsoft compliant, tricky to integrate.

What's interesting is that now, Maxima seems to be migrating its 1,000 customers to Microsoft Dynamics and Sharepoint. If you like, it has a captive market for the Microsoft products.

And it's reporting a very much greater interest in Microsoft CRM, which is coming through to the sales figures.

I'm not a Microsoft fan. My relationship with Microsoft is a bit like my relationship with the National Westminster Bank. Once upon a time they had all my business; now, I've moved my savings accounts, credit card, current account, share dealing account to other banks, and I have a tiny US dollar account with NatWest. Same with Microsoft - I have XP, but the rest has gone to Mozilla, Thunderbird, Open Office, Media Jukebox.

But Microsoft is getting something very right with business software right now and I have to put my own desktop prejudices aside. Integration with Outlook is absolutely crucial, for instance, enabling businesses to tie together the CRM software and the email system. And having started in SME/SOHO, Microsoft has taken the step up to the midmarket with real credibility.

Maxima looks as if it's going to continue well. My only worry would be its manufacturing/construction bias - these aren't necessarily the most creditworthy clients right now. But then again, it does have enough clients that any one or two collapsing wouldn't do so much damage.