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Wired Wellington

Wednesday 6th September 2000

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As head offices bail out of Wellington, the capital is rediscovering its entrepreneurial heart. Russell Brown plugs into the most wired city in the world to uncover the new Wellingtonians

If Wellington were a business, and all its citizens customers, there was a time when a complaint to the Commerce Commission would have been in order. Or Fair Go, at least. While many of its inhabitants dwelt there of their own volition, countless others were essentially captive customers. They worked for the government, or for corporate head offices and had little option to leave - a clear case of market dominance.

Not everything has changed. Wellington is still the capital, with everything that implies. The university still sits on a godforsaken hilltop. And the wind still blows.

But an intriguing transition is under way. Old, institutional Wellington and new, funky Wellington - the cafés and the arts scene - are feeding into a new city economy where small companies, especially in information technology and communications, are displacing the big oil companies and banks as the engines of economic growth.

Take Cyberelves, the one-year-old Web development firm with a team of 30 in Wellington, an office and clients in New York and an expected $6 million turnover this year (see "While the shoemaker sleeps"). Why Wellington? Co-founder Philip Carden cites the skilled IT staff available. One of Carden's senior developers, Stephen Judd, pays tribute to the "bohemian atmosphere" of its Wellington location, adjacent to Courtenay Place, which he says helps define Cyber-elves' go-ahead company culture.

Or take the Souchez project, a multimedia "interactive discovery centre" at the site of World War I battles in Souchez, northern France. The $10 million contract to build the centre, the first project of its kind awarded to non-French companies, was won by a consortium of Wellington software designers, artists, producers, landscapers and architects put together by TV production house the Gibson Group from a city council-sponsored business cluster.

Encouraged by the cluster-model success, more than 100 local companies - from the likes of KPMG to owner-operators - have signed up to be grouped into clusters covering film, creative industries, software development and earthquake engineering - the last an understandable Wellington expertise.

Wellington has already shed its image as the grey, bureaucratic seat of government to become New Zealand's artistic and caffeine capital. Could it now earn the reputation for being the country's best entrepreneurial village, too?

A move down to the village isn't compulsory, of course. Catalyst IT has stuck close to its founders' roots in traditional govern-ment and corporate IT practice by setting up on The Terrace. Much of its work - notably on building the electronic results system for the last general election - is still for public sector clients.

But the three year-old company is playing a part in Wellington's new city economy, too. It has a close partnership with the ground-breaking news service NewsRoom (see "Capital stoush")- on the basis of which it has wooed NewsRoom away from its Microsoft platform to a site built on the open-source Linux operating system so beloved of geeks.

"We realised commercial potential of Linux about two years ago," says Catalyst IT managing director Don Christie. "It's stable and there's a big overlap with the Internet - and we've been able to explore solutions for WAP [wireless application protocol] and Internet broadcasting without paying big licence fees to Microsoft."

Gutting head office

It wouldn't be before time. For all the absolutely positively slogan-eering, Wellington has been grappling with a decade of economic dissipation. Wellington is no longer the Head Office City. In the past couple of years alone, all but one of the "baby" ECNZs (created when the electricity industry was restructured) left town. Trade NZ moved to Auckland to be near its clients. Among large financial institutions, Southpac was merged out of existence and Prudential Insurance moved to Auckland (to be run from a head office in Sydney). Other banks and financial institutions have restructured, sending marketing departments to Auckland, operations to Sydney and shedding jobs in Wellington. Although the region's unemployment rate of 5.8% is below the national average of 6.4%, job growth has been both slow and fragile. A short boom in building activity and employment was halted by the Asian Crisis in 1998 and in the year to June 1999, one in 12 working Wellingtonians lost their jobs. Wellington City contributed most to a 7% fall in the number of jobs in the region.

But just this July a new set of statistics showed Wellington on a turn. An update to the Wellington Regional Council's "Regional Outlook" (citing Infometrics figures) shows that the region's flat spell for employment may be ending. Information technology - which initially helped facilitate the institutional exodus from Wellington - is being identified (along with government) as the sector with the most robust employment intentions.

In part, that's because the departure of some of the bigger businesses has exposed a curiously healthy second tier. A regional council survey last year turned up many more established software businesses than expected. Around 65% of the 43 respondent businesses had been in business for six years or more. They cited work on e-commerce as their biggest growth area, along with Web design, financial asset management and knowledge management.

The software companies' major problem was staff shortages due to the drift of skilled employees overseas for more lucrative pay. Those IT employees who do choose to stay in the city can expect good salaries (most Wellington software developers earn over $65,000 a year, with 9% pulling in more than $150,000) and, increasingly, work with export-oriented companies like Cyberelves.

"Wellington tends to have more people who have experience on large projects via the banks and government departments," says Cyberelves director Philip Carden. "We're targeting complex sites, so that's significant for us."

But if it's old Wellington that provides the skill base, it's new Wellington that has the best chance of keeping it. John Stanley of commercial real estate agency CB Richard Ellis agrees it's significant that Courtenay Place, already stacked with cafés, bars and theatres, is to be the site of a $55 million cinema multiplex and shopping development. "The Te Aro area is a people place," says Stanley. "The faster technology wants to run, the more we're having to offer in leisure, whether it's cafés or whatever."

Running like mad is Mark Cubey, the "creative motivator" at the media venture Loop, publisher of both a large-format glossy magazine that comes with a hybrid audio/CD-ROM disc and a Web site hosting MP3 tracks. To Cubey, Wellington's village atmosphere was born for the new technology and communications businesses. He describes the Felix café bar, on the corner of Cuba and Wakefield, as "almost my office" and believes Wellington is developing a mobile, out-and-about business culture. Loop magazine has even defined the new Wellingtonian that crowds the cafés all afternoon: YETI, for Young Entrepreneurial Tech-based Individual.

It's precisely the kind of thing you'd expect Cubey, the perennial imp of the café quarter, to say. Thing is, Stanley, the besuited real estate agent, agrees. "The clustering in a relatively tight environment suits IT workers," says Stanley. "The coffee houses are quite useful, because you get a number of small firms - and there are a lot of start-ups here - who share their information over coffee. There is a transition going on."

City living

Another element of that transition is that more Wellingtonians are living where they work. The population of Wellington City is growing faster than any other part of the region, barring the Kapiti Coast. The vacancy rate for commercial real estate is, at more than 10%, no worse than Auckland's, but, says Stanley, the contained nature of the city tends to make the impact of any empty-out more dramatic. Things are flat in the commercial sector, but a trend toward residential conversions is changing the shape of the city. "It's happening," chirps Cubey. "A year ago it was all offices down Lambton Quay - now it's apartments going in every second block."

And it's not only residents moving in. Victoria University has taken the opportunity to come down from its perch, with its business and legal school now occupying the former ECNZ building.

As if to underscore the importance of Wellington as an entrepreneurial village, a fledgling tech-business cluster has taken its name from a local café. The Illy Group - some of whose founders, including Web development and strategy companies Shift, Hyperactive and The Bridge, are already punching above their weight in Auckland and abroad - held its first meeting in July.

"We invited people we thought were in the investor/entrepreneur/consulting group, and we had a few others gatecrash, which was fine," says Shift's Selwyn Feary. "And the phone has rung ever since then, so as a networking device, it was extraordinarily successful."

The original aim was to bring the UK-based First Tuesday venture capital concept to Wellington. The idea is to run events where venture capitalists meet entrepreneurs in a deal-friendly environment. First Tuesday itself, applied here, proved to have "too many strings attached" so the Illy Group came up with a Plan B and called it, logically enough, Plan B.

"What we want to do is open up within Wellington awareness of what's going on," says Feary. "This is a space where that will occur and I think there will be enough content and interesting things evolving from the Plan B group for it to be picked up and noticed."

Feary says there is so much work available for these new software and Web development businesses internationally that competition has not been a problem. If anything, cooperation to create global business is the problem. "We're very conscious of the fact that we've got [the ultra high-speed local fibre network] CityLink - how do we exploit and differentiate that from what's on offer in the rest of the world? You go to Sydney and you wait five months to get ISDN in, for goodness sake. Why bother? You can walk in here and have CityLink up in 24 hours. We're so bloody lucky to have it."

CityLink is another example of how an entrepreneurial village can work. It emerged in 1995 from Wellington City Council's InfoCity initiative and forms part of a culture of economic activism from the council that is still going strong today (see "Local loop"). Another example is the council's Capital Development Agency (CDA), which runs "venture units" - modest commercial premises let out at market rates, but on flexible leases that can be quit without penalty. It liaises with the business incubator run by Victoria University's VicLink unit and it organises clusters - 100 to be precise.

The earthquake cluster is, not surprisingly, a Wellington strength. Companies brought together via the cluster are making their second pitch for a World Bank contract to rebuild parts of Ankara, the Turkish city devastated by earthquake last year.

The most successful example of clusters at work has been Gibson Group's contract with the French. Although it is better known as a TV production house, Gibson has a growing multimedia business, creating installations for the Porirua Museum of Arts and Culture and the Tea Kanake culture centre in Noumea. In pitching for the Souchez job, Gibson put together a consortium from the council-spawned creative cluster to which it belongs.

"Once you start getting into total exhibition design and content over a whole visitors centre or museum, it's a whole different kettle of fish. You need skills ranging from architecture to landscaping. You just don't have those skills in any one company, so the cluster approach actually allowed us to put up a credible case to the French. They really bought the content concept, but having the cluster group there as consultant backup worked well," says Gibson Group producer Allan Smith.

Grandstand

The council's role in such ventures, says the CDA's Shanne Morrissey, is to "try to act as the glue in the middle - we provide help with access and tender lists, and helping businesses get to government grants. We provide resources, not funds to market. And businesses have bought into it. It wouldn't work if they didn't."

The latest iteration of the civic enablement project is Smart Wellington, a Web site that extols the city's charms and advantages. Saatchi & Saatchi and Telstra Saturn both lent weight to the launch - to which invites came in the form of a QuickTime movie starring mayor Mark Blumsky.

The mayor's grandstanding is wearing a bit thin among some of his citizens, but most businesses seem to genuinely value the council's role. Even NewsRoom's Peter Fowler, who claims to have "given up on officialdom" and scorns the supposedly wired council's inability to email its press releases, concedes it's not doing any harm.

So, Wellington's a giant Internet café party and everyone's invited? It won't be quite that simple. As this feature was being researched, a conference company staged a reprise of the hugely successful Internet marketing conference it had held in Auckland. Only about a dozen delegates turned up - and half of them were Aucklanders who'd missed out on the first one.

There are still empty buildings, and one or two wins doesn't necessarily prove the cluster concept is the answer. But Wellington's journey of reinvention is, at the least, one of the better city-survival stories around.

Russell Brown is an Unlimited contributing editor whose email address is russell_brown@unlimited.net.nz


Capital stoush

Fissure sparks online news diversity

It's hard to believe that Peter Fowler and Alastair Thompson were ever in the same room together, let alone the same business venture. The plump, sharply dressed Fowler has a volcanic air about him, and pauses in conversation to take great gulps of air, like a man on the verge of a coronary. Thompson, in his baggy old jersey and leather jacket, looks like a student.

But they are in unison on three points: their inexhaustible sense of grievance against each other; their contempt for the Internet offerings of the established media companies; and their belief in the importance of the online news business they started.

That business, NewsRoom, is probably the great Wellington Internet story. Launched in August 1996, after Fowler left his job as a Radio New Zealand reporter, it had two main precepts: it would break news fast, like radio, and it would run, as well as news reports, unaltered press releases, initially mostly from Parliament. At NewsRoom's urging, parties began publishing their statements electronically. "We turned the government into e-government," says Thompson.

But last year, it blew up. Thompson and the other shareholders walked out on Fowler, claiming they hadn't been paid and taking the NewsRoom server with them to run their new venture, Scoop. Fowler scorned his partners for their lack of belief, and forged on with NewsRoom.

Scoop has become a platform for regular opinion pieces for a range of New Zealanders - from Richard Prebble and Simon Upton to economist Keith Rankin. "The principle is that if it's not defamatory we'll run it," says Thompson. "That means running the Libertarianz and Christian Heritage Party slagging each other off. And they all enjoy it!" It has also partnered with the groovers at multimedia magazine Loop and the fans at TheOneRing.net, an alliance which delivered world-first pictures from the Lord of the Rings movie locations. Scoop racks up more than 330,000 page accesses a month - about as many as INL's Stuff and half as many as Nzoom.

NewsRoom has signed up to take the Radio New Zealand news service and partnered with the rising corporate and government developer Catalyst IT. NewsRoom's full-service news and information offering is available by email subscription and produces Intra-News: customisable access to NewsRoom wires, plus the tools for corporates to integrate and publish their own internal news. It's very smart.

Fowler, who has a sideline as a consultant, says he's earning more than he was as a radio journalist, albeit for an 80-hour week. He says he pays his staff well and plans, before too long, to relocate to a lifestyle block in the Hawke's Bay and run the business from there for four days a week. His staff reporter, Glen Crofskey, is already working from Waiheke Island. NewsRoom pulls 80,000 unique visits a week. Scoop collects 30,000.

"It's always been a business proposition," says Fowler. "You're a fool if you think you're just going to do it for the love of it. I'm not in it for an ego trip - I'm there to make a buck. In the past I'd succumb to pressure to do something just because it was funky. Well, let's see how many people are doing funky things in three years' time."


While the shoemaker sleeps ...

Capital start-up adds new twist to old fairy tale

Cyberelves co-founder Philip Carden describes his company's culture as "almost actively chaotic". One of his contemporaries says his company is scary. Let's just say Cyberelves doesn't muck about.

It's less than a year since No.8 Capital, the firm founded by Carden and his New York-based partner Dave Jefferds (and not to be confused with Wellington-based venture capital company No.8 Ventures), put up seed funding for a Web development company specialising in "the hard, back-end stuff". Now the company has revenues of around $6 million, employs 40 full-time staff in Wellington, Auckland, New York and London and offers more money and opportunities to smart young things than many of the old-economy giants on The Terrace.

The two founders met in New York, where Carden, an Auckland engineering and business graduate, set up the New York practice of the global consulting firm Renaissance Worldwide, providing strategic advice to the likes of IBM, Cisco and Lucent. Jefferds is a start-up specialist and a vice-president at Wall Street investment company Lehman Brothers.

You might guess from the company name that the original strategy was to exploit the time difference between New Zealand and New York to offer 24-hour Web development - that is, work while the shoemaker slept. "In fact, we've managed to achieve that only fairly recently on two of our large projects," remarks the affable Carden. "What's actually turned out to be the real reason we're successful is that clients get to talk to intelligent people. There's a higher calibre of people available here than they're used to talking to.

"In New York I would have interviewed about 500 people over three years and managed to hire about 20, because there just aren't good people available. In New Zealand you could do the same thing and get maybe one in four. There are better people available here - that's what it comes down to."

While many New Zealand Web developers are obliged to hire "straight from school", Cyberelves' employment proposition - good money, interesting projects, foreign postings - means it can attract staff in the 25 to 35 age range, where emotional intelligence is likely to be better developed. What it doesn't offer is glitz (the Wellington office is no more than tidy) or a head-office culture. There is in fact no head office and, with Carden officially only a director, no chief executive.

There is, however, a plan.

"Where we are today is that we've proven the concept," says Carden. "We're about to go into three months of serious fund-raising and that will give us the equity to basically replicate what we've done fivefold, to take us to the size we need to be to go public somewhere other than New Zealand."

And, no, that doesn't necessarily mean Nasdaq: "It's probably more likely to be London," says Carden. "London's a bit short of interesting investments in this area."

Meanwhile, the clients keep rolling in. Out of New York has come the development of a big US property management portal, and work with IBM on the architecture of a major telco's billing and accounts system. Cyberelves also recently shipped team members to the UK to design systems for Egg, the high-profile online financial services firm, which is into everything from credit cards to mortgages. Back home, it has been working with Wellington Web designer Shift to built automatic Japanese language support into the Tourism Board's 100% Pure New Zealand site.

Now there's an export idea.


Shift up

Local sticklers hone interface design

It was only last year, but oh, how it seems like history now: Jenny Shipley, Kevin Roberts, Murray McCully, the Tourism Board. Golden handshakes, dinner dates and daftness. Along the way the plot got lost. And along with it went Saatchi & Saatchi's grandiose plan for a

$3 million Web site - the most expensive local site ever - to market the concept of "New Zealand on the Edge".

By the time the Tourism Board had devised its new slogan - 100% Pure New Zealand - building the accompanying Web site was looking like a perilous job: client in turmoil, no time, thin concept, critics poised.

What emerged last August was a tribute to the style and composure of the developer, Shift. The tourism site was very good. Its palette of earthy, organic colours backed up the branding and its clean, consistent pages led to dozens of destinations without ever looking cluttered. It was a great example of portal design.

But not good enough, according to Shift's managing director, Selwyn Feary. One of the big jobs this year for his "perfectionist" creative director, Che Tamahori, is fixing it. Shift has also taken over content management for the site.

Feary, who recognised Tamahori's contribution to the company recently by cutting him a 20% stake, pays tribute to his partner's "scientific, academic approach to interface" as the company's competitive edge. The pair met when both worked at TVNZ's rather stranded multimedia division, Planet Go - Tamahori on a break from Wanganui Polytechnic and Feary a TVNZ veteran. After Feary left television to start his Web design company - then under the name SFX - Tamahori joined him.

The company designed WeatherNow!, the Met Service site that had the distinction of being New Zealand's first commercial Web service and first substantial work in Java. Since then, Shift clients have included the Alcoholic Liquor Advisory Council, the Land Transport Safety Authority, Consumer magazine and the Ministries of Health and Justice.

Shift had so much local work last year that it actually passed up on further work in Europe, where it had completed work for the Red Cross, the World Health Organisation and Energiser UK. But by the end of the year, staff will have reached about 30 - "the limit for a working group or unit" - and Feary expects to have at least one foreign office. That will probably be in the US, but Feary is also interested in Canada - the rather surprising home, he says, of the leading edge in interface design.

An international presence will also help with recruitment. Feary says the quality of design students is "possibly as good as it can be, because the medium is changing so fast", but students take a year to train up and can be hard to hang on to after that. On the other hand, he's starting to get emails from Americans interested in working for him in Wellington.

"The analogy I've been giving lately is that we're on a surfboard, looking at the foam up front, trying to make a call on where it's going ... and we're staying on the board."


Local loop

CityLink pipes IT to the people

"We're not special," insists Neil De Wit, managing director of CityLink. "We're just a utility - just something people need, like the water and the gas and the power. We're the Internet pipe."

CityLink's "pipe" is more than 50km of fibre-optic cable looped around the Wellington CBD, offering access speeds of up to one billion bits per second to every building it passes, at a fraction of what your friendly giant telco would charge you. If gigabit ethernet means nothing to you, be assured that your IT person will drool.

In a city already blessed with bandwidth, thanks to telco competition from Telstra Saturn and its partner ISP Chello, CityLink is one of the most tangible reasons anyone might want to set up a New Economy business in Wellington.

It is also evidence that feel-good city council initiatives can actually translate into something concrete. CityLink emerged from Wellington's InfoCity initiative in 1995, with the council as a foundation shareholder alongside several private companies, including DeWit's own FibreNet.

The council sold out its holding last year, as did Asia Online (although that ISP's former owner, Melco managing director Ron Woodward, bought in and remains as a director). Clear Communications, on the other hand, ramped up its holding from 15.6% to 22.5%, and has indicated it regards CityLink as a strategic investment. Also among the 13 shareholders is Telstra Saturn, which holds 1.2%, down from 2.6% last year.

For a company that delivers such fast connectivity, CityLink has endured relatively slow growth. It has about 300 customers - most using it to connect to the Internet, a few to connect directly to each other - and earned revenues of around $2 million last year. But its dedicated IP (Internet protocol) network is something that the boffins at Telecom can presently only dream about. There is actually nothing quite like it in any city in the world.

Although elements of the CityLink model can only be found in Wellington (its fibre cable has been able to piggyback on the CBD's trolleybus wires, for instance), Auckland has already had a small taste of it. The Wellington Internet Exchange (WIX), the part of CityLink's network where ISPs connect and pass traffic between each other, has been replicated as the Auckland Peering Exchange (APE), easing the perennial roadblocks in passing traffic between carriers. De Wit won't confirm or deny, but the next step is surely an accompanying fibre loop in Auckland.

"The proposition in the future is that there will be a CityLink-style network in every metro in the world. The telcos are all reinventing themselves and wanting to get into that space, but who knows when they'll get there?"

Yet if the concept is great, the marketing has been far less so, De Wit admits. "Local businesses should be taking maximum advantage of our infrastructure and by and large they're not. So that's the challenge."

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