Four cyberspace stars you cannot afford to overlook

The internet revolution began more than 20 years ago. And yet not a month goes by without news of new internet-based businesses threatening to disrupt traditional business models. Turning my telescope back towards the firmament of cyberspace, I perceive a small cluster of twinkling stars – and the presence of a possible black hole…

Micro Focus – “British upstart”

This is a star formed even before the internet was born but which is thriving in the current technology boom. In the late 1970s Brian Reynolds and Paul O’Grady set up what we would now call a “tech company” in Notting Hill, London. They found a way by which companies could run their old, giant “mainframe” computers on the newer “microcomputers” that had just been delivered by companies such as Hewlett Packard and IBM.

By last month the company they founded, Micro Focus (LON:MCRO), was turning over nearly £1 billion a year and was able to buy the software arm of computer giant Hewlett Packard Enterprises (NYSE:HPE) for £6.6 billion. (HP Enterprises was hived off from Hewlett Packard in 2015 after HP’s disastrous 2011 takeover of Autonomy.)

Micro Focus has unwaveringly focused on creating software to help computers run faster and better. Now headquartered in Berkshire, it employs 4,500 people across 80 sites and has a market cap of well over £5 billion.

This British upstart has been on a buying spree in the USA of late. In March this year it bought Serena Software for £405 million. In 2014 it bought Texas-based Attachmate Group for £900 million. The key is that, as businesses upgrade their systems with new software, they still need to sustain legacy systems with the new ones – and this is where Micro Focus’s products come in, permitting different computer systems to communicate with one another.

Some readers might take issue with me that Micro Focus is a software company rather than an internet company. But I would argue that the difference between the two has faded to nothing. Virtually all software is delivered to customers online now. Sage Group (LON:SGE) has not been sending disks through the post for over two years now – its payroll and accounting platforms update themselves automatically and seamlessly on an almost continuous basis. This has huge cost advantages but makes them more vulnerable to threats to cyber-security (see below).

The company’s share price jumped by nearly 15 percent when the HP Enterprises deal was announced on 08 September and has remained steady at just above 2,200 pence since then.  Major institutional shareholders include Fidelity Management, Old Mutual and M&G Investments.

Doctaly – “The Uber of medicine”

Doctaly aims to become the Uber of medicine. If you want a doctor’s appointment in a hurry then go to Doctaly’s site, punch in your postcode and click. And hey presto, a page of smiling doctors pops up with details of when they are available.

Choose your preferred doctor and appointment time, pay the fee (from £39.99 to £69.99) – and then all you have to do is to make your way to the surgery in question for your 15 minute consultation. Doctaly’s doctors also offer private blood tests, STI tests and a broad range of medical investigations at extra cost, plus private prescriptions, referral letters and fit-for-work notes.

All the general practitioners available on Doctaly – they come complete with CVs and details of their specialisms – are employed by the NHS but work privately at their own practice in their own time.

Critics are already saying that the service is “unfair” since it enables people with cash in their pocket “to jump the queue”. Doctaly’s defence is that it will actually reduce queues and waiting times at doctors’ surgeries by allocating appointments more efficiently. Moreover, it will help take the strain off of our overloaded hospital A&E departments.

After a trial run in central and north London, the service will be available across the capital by the end of this year. The plan is that it will be available across the UK by the end of 2018. As far as I can see the portal does not offer the possibility of an online consultation via Skype or the ability to monitor one’s health as does Babylon Health which I wrote about in June.  That said, it could come in very useful for overseas visitors to London who are not registered with a GP. Perhaps the major hotels could push it.

Doctaly is the trading name of BDM Medical which is owned by Dr Dinesh Silva and Benjamin Teichman.

Ososim – “Emotionally intelligent”

This is one for those, like me, who are watching the development and commercialisation of Artificial Intelligence (AI) with great interest. This Cambridge-based technology outfit has recently poached Toby Simpson from DeepMind Technology – the firm founded by the computer genius Demis Hassibis which he sold to Google (NASDAQ:GOOGL) in 2014.

Mr Simpson, now Chief Technology Officer, is a leading expert in biologically inspired artificial intelligence which is intended to make computers interact with humans in a more emotionally intelligent way. Such systems could be deployed, for example, in driverless cars. Already AI-type devices available include the iPhone Siri virtual assistant and the new Amazon (NASDAQ:AMZN) Echo voice-controlled “home helper” which was launched recently in the UK.

AI and “machine learning” is not really one thing but a set of technologies that enable computers to solve ever more complex problems. It’s not really about creating an artificial human brain (not yet, at least). I recently wrote in these pages about the mind-boggling prospects of Quantum Computing (QC), especially insofar as it could be applied to data mining in healthcare, enabling doctors to reach speedier and more accurate diagnoses and to target treatments more effectively.

Ososim has the potential to devise powerful new algorithms to be applied to, amongst other things, analysing MRI scans in hospitals. For now, Ososim’s products and services support learning, recruitment and assessment programmes. Clients include financial institutions such as BNP Paribas, UBS, AXA, Lloyds and Deloittes; business schools including London Business School; technology firms such as Cisco; the UK Government and the World Economic Forum.

On 12 October the House of Commons’ Science and Technology Committee issued a report on AI. The report concluded that advances in AI hold the potential fundamentally to change the way we live and work. Yet the Government does not have a strategy for developing the new skills citizens will need to flourish in an AI world.

Professor Stephen Hawking took the opportunity to remind us that, once AI is entrenched, the machines will be able to redesign and recalibrate themselves at dizzying speed. Very soon they might decide that we are redundant.

I don’t think we need worry about Professor Hawking’s nightmare of robot Armageddon quite yet. Ososim’s simulation technology generates business scenarios which senior management can use to make better business decisions and to train managers. I am itching to get hold of their simulation of the global financial system (though I doubt if I could afford the subscriptions).

According to its Company House returns, Ososim’s ten main shareholders are mostly directors, with Eliza Alabaster, Head of Design and Development, owning about 25 percent of the company. Demis Hassibis is a member of the Advisory Board. We shall be hearing more about this outfit, I don’t doubt.

UpGuard & Others – “Much in demand”

UpGuard, based in Silicon Valley California is one of the global leaders in internet security. It has developed software which can assess whether websites are “safe” or vulnerable to cyber-attack. Its clients include US computer manufacturer Cisco, German insurer Allianz and brokerage firm e-trade.

In April this year the Financial Times asked UpGuard to assess the security of the large British retailers’ websites[i]. UpGuard’s analysis showed that some sites were more secure than others. The best score was obtained by Aldi UK which scored 846 out of 1,000. Other high scorers were Amazon and Morrison’s (see below). The lowest score recorded was by Matalan with 352.

Another US private company, Bit-Sight, a rival, can verify whether website security certificates are up-to-date or not. In the FT study, Bit-Sight found that, of 19 British retailers, 13 had “good” security certificates in place. However, five had no security certificates at all.

Internet security is now a major issue and the services of firms that protect businesses and their customers against information theft or worse are much in demand. We are already living in the first phase of an international undeclared cyber-war (you know of whom I speak). So I am surprised that there are not more listed entities in this increasingly important sub-sector.

Remember, however, that a lot of the major technology firms are active in cyber-security such as Intel (NASDAQ:INTC) and IBM (NYSE:IBM). Less well known are Japan’s Trend Micro Inc. (TYO:4704) or Sophos Group PLC (LON:SOPH) located in Abingdon, UK whose shares have risen by 40 percent since mid-June.

The top 4 UK supermarkets – “Away from bricks and more towards clicks?”

Talking of UK retailers, the big supermarkets are a good example of how established retailers have attempted to diversify their offer away from bricks and more towards clicks. They all have portals from which housebound customers can order their groceries for home delivery or for “click and collect”.

But, according to the global retail consultants Kurt Salmon[ii], they are losing between £5 and £7 on every order. In fact, supermarket food deliveries are loss-leaders on a massive scale.

Apparently, the big supermarkets persuaded themselves that they had to have an online offer without running through the cost implications. Logistics costs (refrigerated wagons and so forth) have been rising at precisely the time that food margins are under pressure due to stiff competition from the discounters.

Moreover, while Amazon can fulfil orders for books and consumer items in fully robotised warehouses, the picking and packing of perishable goods is more labour-intensive. In-store customers can be steered through the store towards promotions and high margin impulse purchases. Online customers tend to stick to their favourite staples, so actually spend less.

All this is causing headaches for TESCO (LON:TSCO), Sainsbury’s (LON:SBRY), ASDA (owned by Walmart (NYSE:WMT) of the USA) and Morrison’s (LON:MRW). Between them they are losing about £300 million a year on internet deliveries. Ocado Group (LON:OCDO), which has been an internet-only grocer since it was founded in 2000, only turned a (very modest) profit in 2015. The impending arrival of Amazon Fresh is giving them further reason to lose sleep.

What can we learn from this? Internet-only retail models like Amazon have built up a phenomenal market presence – and the bricks and mortar retailers have sought to emulate them by creating an online offer alongside their big-surface stores. In so doing they are actually entering a completely different market place with different price and cost parameters. Most of us, for now, still prefer to do our shopping for daily goods in a physical store. There are still limits to cyberspace, it seems.

Excuse me. I’ve got to pop down to Tesco on the bicycle to get some Marmite.

[i] Stores invest millions to combat cyber crime but experts fear it is not enough, by Nicholas Megaw, Murad Ahmed and Mark Vandevelde, Financial Times 13 April 2016, page 3.

[ii] See: Deliveries hit the “Big 4” supermarkets for £500m, by Neil Craven, Mail on Sunday, 09 October 2016, page 87.