In running clusters, we can see two basic models. One is strongly business oriented, where a cluster is almost like a holding company with central leadership. It has its own business department. Individual cluster members are rather like branches of this holding company, responsible for specific parts of a well-defined business deal.

The second model is more like an ad hoc network of independent organizations, where members cooperate on various projects. Not all members have to collaborate in all running projects. I should point out that in the Czech Republic, this second model is supported by structural funding.

I also support the second model, which is closer to the cluster idea as I understand it. To have equal status of all members, open access to all cluster information by each member without any restriction (or superior rights of some members) is essential for the long term running of every cluster. How close the cooperation of individual companies will be, has to depend on those company’s priorities and policies, and not based on any strict cluster rules like it should be at the first model of hierarchical structure.

The activities like gatherings, publishing newsletters, workshops, seminars, etc. are very good for building trust, personal relationships and opening new ways of cooperation among cluster members. Some of these activities may be open to public just to present cluster, its members and welcome a new ones… Anyway, the good business plan has to cover all these activities and each cluster member and possible new members has to clearly see, how the cluster will increase their revenues, profit, expansion of market share, entry into new markets, access to resources, etc.

It’s always exciting to see like something new is formatting. I wish a lot of strength and wisdom to CITT initiative to building this international cluster!

The problem was described in the Commission’s 14^th implementation progress report, published in March this year. Among other benchmarks, it used an OECD basket of mobile usage and calculated the cost in various EU countries – in October 2007 and October 2008. The results are what Robert mentions: a drop of around 50% for Austria, of 10% for the EU average – but an increase of 24% for the Czech Republic.

This struck me too, so in March I looked more deeply into the issue and wrote an article about it (available here, but only in Czech). My findings can be summarized as follows:

• Half of the increase for the Czech Republic (12% out of 24%) can be attributed to variations of the exchange rate between the Czech crown and the Euro. The two currencies did change accordingly between October 2007 and 2008, when the benchmark was evaluated. But there is also a strong contra-argument: other comparisons in the same Commission’s report do not reflect the change in exchange rates at all. Maybe because different parts of the report were produced by different people using different methodologies.
• The other half of the increase (the remaining 12%) can be attributed mainly to the changes in call charging. Between 2007 and 2008 our mobile operators silently completed their switch to variants that maximize their revenues. Mainly to 60+60, which is now the standard for national mobile calls, and also for roaming.

A little background: 1+1 means that the consumer pays for each second of his/her call, starting with the first second. If the call lasts only 15 seconds, he/she pays only for these 15 second, a quarter of the per-minute price.

With a 60+60 strategy, the consumer always pays the first whole minute (60 seconds), regardless of how short the call is, and then pays another full minute for each minute, even started. Therefore, for a 15 seconds call, he/she pays four times as much as with the 1+1 strategy – even if the per-minute is exactly the same. For a 65 seconds (60+5) call, he/she  pays for 2 whole minutes (60+60) etc.

The overall effect is obvious: even if the per-minute price remains the same or even drops a little, “increasing” the charging intervals increases the amount of money that consumers pay – for the same amount of service.  It is an incarnation of one of the most fundamental laws of the telco sector, stating that “it is not relevant how much the customer consumes. What’s important is how much he is billed …”.

To precisely evaluate the effect is impossible if you do not have the relevant data about consumer behavior. But there are some indications.

For example in 2008, the European Regulators Group published a report, describing the difference between actually used and billed minutes within the Eurotariff (the regulated roaming tariff for the EU). In billing roaming minutes between operators, a 1+1 strategy is used – so this amounts to actually used minutes. But in the Czech Republic, mobile operators charge their consumers on a 60+60 basis.   And the ERG report shows that this amounts to a difference of almost 30%.

Another source (ProTel, a Czech company doing tariff optimization), acknowledges the “around 30%” difference between 1+1 and 60+60 strategies, and gives a more detailed evaluation of the effects for different charging strategies:

So, coming back to the main question: why did the basket price in the Czech Republic increase so much? Just the change from 60+1, which was the standard previously, to 60+60 (the current standard) would amount to a 14% increase in the price that end-users pay.

But perhaps the most important point: this is only a technical explanation, describing how operator revenues can be raised without raising nominal (per-minute) prices and without increasing the consumption of services. In other words, it answers only the HOW question.

We should also ask the WHY question: why are operators able to use such “revenue maximizing” techniques, without giving any additional benefit to the customer? And here the answer is quite obvious: it’s the result of the status of the whole telco market in each country, its competitiveness and the strength and will of the national regulator.

I first met Mike Simon when he was running a small Hungarian company called Ablaksoft. Mike’s company took on the task of porting a little-known (at the time) ERM software called Scala to the Windows platform. He then turned Ablaksoft into Scala’s software development center. During the dotcom era, Mike built one of the first online gaming companies, Uproar, which he later sold to Vivendi not long before the dotcom crash. LogMeIn started as a side business developed by Uproar’s chief technology guru, Marton Anka.

Mike Simon and LogMeIn are a good example of Juri Kaljundi’s prescription for success in CEE markets: Western management, sales and marketing skills teamed up with Eastern software developers.

Two key findings from the event:

1. Even Scandinavian startups struggle with breaking out to the world, having much better technical and production than sales and marketing talent there. The few that do, often have US people or previous experience from US as part of the team.
2. The Scandinavians still view CEE countries as something strange and distant, even when we do a lot of cross-border business together. What’s more, even Finland and Sweden are very distant from each other and there is almost no cooperation.

If someone would like to hear more about Baltic startup web and product development opportunities, feel free to get back to me. Besides our company there are tens of great software development companies, small and large, and hundreds of great private developers available.

My Background

I’m a very old man, in Internet years that is. I started with web development and online marketing 15 years ago, back in ‘94, designing the first commercial websites in Estonia.

Since then, half of the years I have been working focused on the local market of my home country, half regionally either across the three Baltic states or ten countries in Central and Eastern Europe.

Half of the time I have been dealing with boring old enterprise IT services, pure corporate & B2B stuff, half with consumer-oriented online services.

Corporate vs Consumer

One thing I have learned is that for startups, depending on what type of person you are, this is a choice each founder and startup has to make: what type of business you want to run.

Servicing the corporate clients has its advantages. In many cases the target groups and customers are easier to identify, market and sell to. The business model and revenue side are easier to be defined, and that can turn into significant revenues already from smaller number of customers. Then again, it does not have the sexiness of telling your friends what you do, having each of them use your services, being well-known on the market, having hundreds of thousands or millions of customers.

For those sexy consumer services, the revenue formula can be non-existent – well, may be not in these times anymore – and target groups hard to market to, as they are just too big. At the same time, many founders do have the urge to service consumers and absolutely hate serving the corporate customers.

Trust your inner feelings and act accordingly. You might be married to your startup for 5-10 years and you don’t want to be doing things you don’t enjoy, at least most of the day.

While many B2B or corporate tech services can be sustainable in smaller countries – not huge, but profitable – it is not so for most consumer services. The markets and revenue streams are just too small. Which brings us to the Baltics.

The Small Baltics

To describe the Baltic attitude, we have to look at what the Baltics are.

Our total population for three countries together is just 7m people, a bit less than Sweden and more than Finland. But each of the countries on its own has a population of just 1-3 million people, which is tiny.

The total GDP of the largest Baltic country, Lithuania, is a third of Finland. Even the total GDP for the three of us is less than in Finland. Besides, the business cultures, nationalities and economies are pretty diverse.

That makes it quite hard for smart people to realise their dreams in our countries, just because of size.

Looking at the online advertising markets in Baltic countries, these are nearing €10 million per year, per country, 90% of which goes to large, stagnant media companies and newspapers, leaving very little online advertising revenues for the startups. The market share of ad networks is tiny as well, most of the money going from top brand advertisers to a few top five sites.

The Baltic Success

At the same time, looking at the technology startup scene, we have done pretty well, especially if you measure the success by exits.

We have had a few large international exits, where the local founding or very early shareholders have made sums of over $50 million each. Most notably these have been two companies, Skype and one of world’s leading casino and online gambling software developers Playtech. I will talk about their models of success and connection to our countries later.

And we have had a multitude of local exits in the range of €10-50 million, mostly to Scandinavian media companies in the field of classifieds, car, real estate and job ads or auctions.

How so?

The Good

The Baltic countries (and this applies to most of Eastern Europe) have a long history of strong real sciences, cybernetics and electronics. Our educational system in these areas has been pretty good, especially in fundamentals like mathematics and physics, which has turned out great for technological problem solving skills.

This is the advantage of the Baltics and Central & Eastern Europe: having IT people and software developers with strong creative skills, coming up with new solutions, innovating. Especially when faced with well-defined problems, the Baltic tech people take a very strong role in how to solve any problem. You define the problem or goal – our people find new or uncharted ways to solve them. That’s the key difference with, for example, many Asian outsourced software developers, where quite often you have to tell them how to solve the problem. This is no selling of programmng hours.

Our creative and imaginative designers, analysts and developers are our greatest asset. So what’s the problem?

The Bad and the Ugly

Let’s say your car engine breaks down. How many of you know how to fix it? Or you have a piece of land and you have to build a house, stone by stone, wood on wood. How long would it take until you learn it?

Each one of us can learn to fix car engines or build a house. The problem is, it takes time, you make mistakes and you learn much faster among people who have fixed cars or built houses. Doing it on your own, only learning from mistakes, can take years and not turn out a very good result. And if there is competition with existing skills, you fail.

Baltic and Eastern European missing skills are the international sales and marketing skills. We build great products. Exceptional products, in many cases. The thing is, we have no idea, how to sell or market them outside our home country, especially in US and Western Europe. Learning international sales and marketing is a cultural and emotional thing and can take years to master. Because of our Soviet heritage, we have none of those skills. Our Estonian top marketing people who have moved from Estonia to run UK or US to run marketing programs for tech companies, say that they have had to learn everything basically from zero. In sales and marketing, we are in a situation like you would need to build a house or fix a car, but have to start learning only from your own mistakes.

This doubles our problems. Our own countries are too small to do anything significant. And going outside is hard, very hard – especially if you have no sales and marketing culture (in addition to no existing contacts) to do that.

Expansion

One of our topics here today is local markets vs international expansion. We all want to go international, not just from the Baltics, but also from the Nordics. But it is very hard to market outside one’s home country.

Back in 2000, I tried to expand my online recruitment company in Estonia simultaneously to around ten countries in Central and Eastern Europe. Big mistake! The idea was great, the execution sucked. It is so easy to stretch yourself thin and lose focus. I would have been much better off and actually making something by choosing two or three key markets and dealt with them. A European country, either small or big, needs a huge amount of focus for an online startup. In many cases you have to do local marketing, local face to face sales, partnerships, customise the product etc. There are only a few exceptions, which can be managed from a distance with little local physical presence. That’s the reason we have very little regional online service chains in Europe.

There’s also a question, where to expand. In Europe you might be much better off risk-wise to choose a few EU countries instead of world dominance. Decreasing risks at the same time decreases rewards.

Cooperation model

How can Baltic and Eastern European startups be successful on world markets? One thing: cooperation with Westerners from day one. We doing product development, people from Western Europe or US handling the sales, marketing and business development side of things.

This has been the model to most success stories in our region: Skype, Playtech, Indextools (acquired by Yahoo), LogMeIn in Hungary, various others. One joint feature for them: East/West partnership from almost day one, both local developers and Western (or Israeli) managers shareholders from very early stage.

For tech startups, remember what I said earlier about the role of developers in our region. This is no outsourced software development. People in our region are the product, in many cases they are the ones defining the product or service with just a little help on defining the customer problem, goals and targets. You all use Skype and I am pretty sure most are happy with an Estonian product.

Here today, I urge all of you to consider this. We need to join forces, taking best bits from each country. Product people go and employ good Nordic sales and marketing people, with international experience. Those people at the same time should come to the Baltics to develop their products.

Baltic VC’s and Investors

From the financing side, I would say the Baltics are in good shape. Our key tech investor is Ambient Sound Investments, the four Estonian Skype founding engineers, now having over €100 million of their own money to invest. We also have MTVP/MartinsonTrigon, with three exited and six existing portfolio companies. Most of this activity is focused in Estonia, with also over 50% of Baltic startups coming from Estonia.

There are also organisations nurturing and connecting startups and entrepreneurs, like Connect Estonia (I am a board member). Both Tallinn and Vilnius have OpenCoffee Club networks.

Baltic Startups

Estonia

Fits.me – biorobotics for fashion, allowing you to take a picture of yourself and a webshop will show a real clothes fit on a biorobot for you – no more ill-fitting clothes! They won the Itechlaw.org pitch contest in Estonia yesterday.

Fortumo – mobile payments, allowing anyone to launch revenue-generating SMS services in 5 minutes in many countries, being also well developed in Scandinavia.

Programeter- analytical information and report automation for controlling and managing software projects.

The whole ASI portfolio.

Please also check out Tigerprises, a blog covering Estonian startups.

Latvia

Relenta- business collaboration Saas or even research chemicals Molport.

Lithuania

GetJar - the world’s most popular mobile application distribution and developer community, funded by Accel Partners.

Conclusion

To sum it up: our product development and financing are well in shape, if we would know how to sell and market, we would be in heaven!

Visit us, talk to us, let’s do things together!

In the short term, I believe non-Euro CEE countries will benefit from their weaker currencies as this (accompanied with key reforms) can stimulate investment inflows and support exports. However, this also raises questions. Does the Euro present an opportunity or a threat to CEE economies -  from the short and long term perspectives?

Internet advertising
Czech advertisers spent roughly CZK 5 billion (€190 mil.) on the Internet last year. That represents about 10% of the country’s total advertising spend. According to the Factum Invenio research, advertisers spent CZK 3.3 billion on web banners, CZK 1 billion on search ads, and CZK 0.75 billion on directories.

Internet access in households
According to the Czech Telecommunication Office, 52% of inhabitants have Internet access at home. 44% of the households use Wi-Fi (twice as much as the EU average), 21% cable, 18% ADSL, 10% mobile phones, 5% traditional dial-up and 4% ISDN.

Broadband
According to the Czech Statistical Office there were 1.9 million broadband lines at the end of 2008. That represents an annual growth of 15%. The technology with the highest share is ADSL (681K users). 572k users prefer Wi-Fi and other wireless technologies, 360K use cable.

Mobile phone users
In 2008, the number of the mobile phone numbers increased by 500,000 to 13.57 million. Vodafone posted the highest growth (in total 2.89 million subscribers) while T-Mobile remained the operator with the highest number of active SIM cards (5.42 million) and the national incumbent Telefónica O2 5.26 mil.

WEF Global IT Report
According to the Global Information Technology Report 2008–2009 (published annually) by the World Economic Forum there are 27 personal computers, 43 internet users, 16 broadband subscribers and 128 active SIM cards per 100 inhabitants. That puts the Czech Republic in 32nd place among 134 countries after Austria (16th) and before Hungary (41st) and Slovakia (43rd). The ranking is led by Denmark, Sweden and the USA. The research was based on nine indexes evaluating environment (market, political, regulatory  and infrastructure), readiness (individual, corporate, government) and usage (individual, corporate, government).

Following Ivo’s call to action, I started paying more attention to Twitter. I set up my Tumblr page to feed into my personal Twitter account. I also created a Twitter account for nowEurope, and set up an automated feed from this blog. Even still, I confess to you all – I don’t really like Twitter-ing. Maybe I’m missing something?

What about you, gentle reader? I set up this poll way back then to collect statistics on your Twitter usage. Only a handful of you have taken part. Okay, maybe the problem is that the poll sits halfway down the page on the right-hand column. So let me put it in your face.

In 2000, a report stunned the medical community. It showed that medical errors are one of the nation’s (US) leading causes of death and injury. The report, To Err is Human: Building a Safer Health System, estimated that as many as 44,000 to 98,000 people die in U.S. hospitals each year as the result of medical errors. This means that more people die from medical errors than from motor vehicle accidents, breast cancer, or AIDS.

To compound this fact, errors in health care have been estimated to cost more than $5 million per year in a large teaching hospital, and preventable healthcare-related errors cost the economy from $17 to $29 billion each year (Translating Research into Practice. Reducing Errors in Health Care). An editorial in the BMJ extrapolates from a pilot UK study which showed that in England and Wales adverse events lead to an extra three million bed days at a minimum cost of £1bn per year (BMJ 2001)). The good news is that many medical errors are preventable. For example, research suggests that over half of all adverse drug reactions are preventable through alerting systems, controls on administration and ordering.

The message is clear. Providing the necessary information, when and where it is needed, can save lifes and cut costs.

Two tools needed to master information:

• A method of being alerted to new information (foraging)
• A tool for finding the information again when you need it. (hunting)

Clinicians are flocking to PDAs and they are pulling their institutions with them – forcing them to keep pace and support mobile technology. PDAs, along with properly structured content, can positively affect how clinicians care for their patients.

Physicians say PDA use at the point of care cuts medical errors and provides vital decision support. Nevertheless, just one in five can link their PDAs to the larger hospital IT enterprise, according to research by Skyscape.

High quality, integrated clinical information is at the crossroad of clinical research, evidence-based health care and the clinical application research.

Consequently, a coherent clinical information framework is required. The inability to deal effectively at the point-of-care with clinical information is a key limitation to using informatics to support safe, evidence-based healthcare and to gather the information needed to deliver clinical governance.

We are trying to address some of these challenges by launching a project (Mobilmed) to develop a software solution for mobile devices connecting to hospital information systems and decision supporting tools.

It would be interesting to see where the Centrope region is at the moment, and how much resources are dedicated to issue these problems.

In Austria, the consumer price for medium mobile usage  dropped from €16.36 per month in 2008 to as low as €7.31. This is the third lowest mobile rate in the EU. At the same time in the Czech Republic, the price rose by more than 20% (from € 21.99 to € 27.24), while in Slovakia and Hungary the prices remained the same as previous year (€ 25.97 and € 15.02 respectively).

I wonder what is the reason for this difference. How could the same multinational telecom company cut prices by more than 50% in Austria, while keeping the same price in HU and SK and increasing prices in CZ ?

1. Talking about stakeholders: the easiest definition of “stakeholder” is someone who has interest and influence on a certain process and especially its outcome (although it is very common to call anybody “stakeholder” who is just interested). So it must be clear for what they are stakeholders and in relation to whom and what. Should they help with financing, are they customers, future business or research partners, are they subcontractors or cluster managers? Or do we invite them to some kind of brokerage, matchmaking or cooperation event?

2. Concerning the development of a cluster strategy it would maybe lead us a few steps backward just to invite a bunch of people from all sorts of organisations (private, public agencies, clusters, companies). This is how CITT started in 2006, when we invited all interested persons. After discussing these cluster concepts for a while, we should now think about how and where we incorporate such an open workshop within our work in progress. Who do we ask about what, whose opinion is nice to hear, who should be given which responsibility? What can external persons contribute to certain parts of our concepts?

3. Conclusion: I suggest we distinguish between different sorts of contexts and stakeholders. For example we can invite potential customers, when it comes to adapting services to their demands. We can invite public organisations for discussions about their interests and contributions regarding our cluster. We could (in my opinion not yet) invite other clusters regarding their contributions to a “loose” cluster (the first step/ basic level). If we want to bridge several gaps between the countries, public and private organisations etc. this should in my opinion happen not now, but in within a future cluster/network. If we invite all people known to us (business, public org. etc) for a discussion about a cluster strategy the meeting should have a very concrete topic and very structured setting. It should provide opportunity to the guests to articulate their opinions.

So to summarize my statement: If we establish such a working group (or a series), let us define the context, purpose and target group in advance (e.g. one workshop with IT companies, one with sponsors, one with public organisations, etc). Otherwise we have too “many cooks discussing the soup…”
Another practical possibility would be to organize a cooperation/brokerage event together with EEN/FFG as starting point of a cross border network/Centrope cluster at the end of the CITT project. They have a very good online matching tool, mailing lists (of course including other EEN offices) and experience with general cooperation events.