Canadian digital economy report card

How is Canada doing on the digital front? We score three passes and three fails
By Trevor Marshall
September 9, 2010

Canada’s continued prosperity depends on the successful integration of digital content and technologies with how we learn, how we work and how we live. That was the message delivered by the Government of Canada in May when it unveiled a digital-economy consultation paper. It was also the message heard loud and clear that same month at the Canada 3.0 conference.

This two-day gathering in Stratford, Ont., attracted more than 2,000 people from all walks of life. Tellingly, those directly involved in information and communications technology (ICT) sectors may have been in the minority, which only emphasized the underlying importance of ICT and the need for a long-term digital strategy. Attendees ran the gamut: students, artists, librarians, health-care professionals, lawyers, cabinet ministers and other policy-makers, content creators, members of the media (including a three-person team from Backbone), financiers, entrepreneurs, network operators, scientists, computer and software engineers, and others. Ideas were shared and issues debated, and by the end organizers compiled a set of recommendations and action items.

This is not a report on the event: for that visit www.canada30.ca. But over the course of the conference, two themes became clear: First, Canada is doing some things really well, but we need to ensure those successes continue. Second, Canada is falling behind in some important areas, and there’s some heavy lifting ahead.

Those themes formed the basis of the following report card on Canada’s strengths and weaknesses.

Digitizing Canadian content

Canadian content creators need to get their work online. Fortunately, we have an example of how to do it: The National Film Board of Canada (NFB). Through decades of fostering Canadian talent and distributing the results, the NFB has been instrumental in establishing Canada as a global centre of excellence for animation and documentary production. Now, the NFB is embracing the digital world and providing some great lessons for other Canadian content creators to follow.

Deborah Drisdell, director general of accessibility and digital enterprises at the NFB, said the board’s online presence is relatively new. Planning began three years ago and its first major foray—an online screening room at www.nfb.ca featuring 600 films from its collection—launched in January 2009. Since then, the NFB has expanded the screening room to include more than 1,800 films, and has added other distribution channels including an iPhone app, a professional online screening room for TV buyers, and partnerships with YouTube, Daily Mobile and others.

The NFB is also exploring the creation side of the equation. This includes interactive productions such as Waterlife, an examination of the Great Lakes and an online documentary on the Canadian economic crisis called GDP.

That’s a lot of new content and channels in a relatively short time. But Drisdell said it didn’t all happen at once and, based on the NFB’s experience, her advice to content creators and distributors is to start with a manageable piece and build up. “I think if we look at the big picture we can get paralyzed,” Drisdell said. “It’s not like a television program that’s going to cost $2 million. Creators can take small steps and do a digital creation right now, and test things with their audience.”

That certainly worked for the NFB, which started with a modest goal of digitizing a slice of the board’s collection. “For us, it was really about creating a conversation again,” Drisdell said. “Now, we’re moving forward and having more engaged conversations with our audience, which digital allows.”

Electronic game design

Put this in your PlayStation and blast it: Canada is a gaming powerhouse.

“We’re punching way above our weight, and our growth rate is something that’s really remarkable,” said Interactive Ontario president and CEO Ian Kelso, quoting figures from the Entertainment Software Association of Canada. This country is third in the world for digital game development and we’re expected to grow 29 per cent over the next few years. “We’re growing way faster than pretty much every other sector of the Canadian economy.”

The credit goes to early investments in the sector by some 500lb gorillas of entertainment software such as Ubisoft and Electronic Arts, coupled with savvy provincial governments that offered economic incentives to promote investment and jobs. Throw in strong college-level training programs, both on the technology and creative side, and it’s a recipe for success.

Still, Kelso said that doesn’t mean we should haul out the game console and put our feet up. To boost its high score, Kelso said the games industry needs continued access to talent—and that’s not easy given the sector’s growth rate. More collaboration would help. “The leading schools have developed very good advisory boards and there’s good flow of information. The trick is to be able to pull out those values and priorities and communicate those to all schools,” he said. “Anything we can do to aggregate that information is something I think is valuable.”

The other education issue is on the research side. “I think we’re just starting to do a better job of identifying where those collaborations can be,” Kelso said, “especially in terms of creating technologies that have commercialization potential within the games industry.”

Finally, Canadians need to make sure that successful sectors of the digital economy aren’t ignored while we concentrate on seemingly more pressing issues. “It’s important that we don’t just look at infrastructure and accessibility as the only aspect of our digital strategy,” Kelso said. “Keeping our talent here and growing big companies in Canada should be priorities, and the dividends that it could pay later are potentially quite huge.”

Collaboration between academic institutions and programs

Statistics Canada figures tell an alarming tale of declining university enrollment in traditional ICT sector programs like computer and information sciences, applied mathematics and software engineering. But that doesn’t mean our institutions of higher learning are out of touch with the digital society. In fact, many programs not normally associated with ICT are embracing digital technology and fostering collaborations between students from diverse academic streams.

The Ontario College of Art and Design (recently renamed OCAD University) has no traditional IT programs of its own, so the university collaborates closely with engineering and computer science schools at institutions such as the University of Waterloo and the University of Toronto. “We realize that all of the creative skills we can bring to new industries—or even traditional IT industries—need to be enhanced by real hands-on technical and engineering understanding,” said Martha Ladly, OCAD’s director of the interdisciplinary master’s in art, media and design.

The tech sector benefits, too. “We bring a unique perspective to this kind of work,” Ladly said. “When we’re designing something we’re designing it for people. We need to figure out how they’re going to use it, how it’s going to fit into their lives, how it’s going to enhance their lives and how it can be delightful for them. That’s a real strength we have and we’re now trying to figure out the best ways to apply this knowledge to technology.”

That collaboration is also happening in university-established digital media incubators and accelerators, such as Ryerson’s Digital Media Zone (DMZ). “The market draw of digital media capabilities is huge. But doing anything with digital media requires four cornerstones working together: the technology aspect, the business aspect, the user experience and the content that goes into it,” said DMZ’s director Valerie Fox.

Institutions are still exploring new ways to foster this collaboration. “We have to make sure our graduates have deep skills in particular areas like technology, but that they also have the breadth so they understand they will be working with others–so they understand the business or management of projects, and how to work with others to produce something that’s successful,” Fox said.

While we’re on the right track, there are steps Canada could take to promote collaboration. For Fox, getting the private sector involved is important. “Industries need a boost—through tax credits or some other mechanism—to enable them to be less risk-averse so they can play more in the innovation space, work more closely with academic institutions and really cultivate the use-driven innovation that’s so required,” she said.

Also key, according to Ladly, is fair treatment for all pursuits. “Governments need to recognize that the value of educating an artist or a designer is equal to the value of educating someone in the medical field, an engineering field or a computer science field. And today that’s not the case. Our skills are not considered as important,” she said. “But the fact is, we have real skills to bring to the table that are of enormous benefit to people, and these skills are rarely found in the IT sector. Through collaboration we can come up with more innovative products, build better designs and commercialize more of this innovation that we do so well in Canada.”

Angel and venture capital for tech start-ups

Canada’s relatively conservative financial sector was good news during 2008’s economic meltdown, but it’s making life tough for start-up companies seeking money for research and development. “If you look at North America, and how we measure up to the United States in terms of angel investment and venture capital investment, the answer is ‘not very well,’” said Mark Henderson, managing editor of Research Money, an Ottawa-based newsletter covering innovation and knowledge-based economic development.

Henderson said matters are especially grim in the venture capital area. Unlike the United States, Canada’s VC community has not recovered from the double-whammy of the telecom and dot-com meltdowns of 2000. “If you look at the numbers from that point until now, we went into somewhat of a recovery but it has slipped to the point where venture capital investment in Canada is at its lowest point since 1996, which was basically the ramp-up to the kind of funding hysteria we saw just before the dot-com bubble burst,” he said.

The problem is returns on venture capital: they’ve been really bad over the past 15 years and that’s made VC firms refocus on follow-on investments, rather than taking a chance on innovative up-and-coming companies. “Venture capital firms have become risk-averse–more so than in the United States,” Henderson said.

Henderson expects the angel community is investing more than the venture capital community in Canadian tech companies now, and while he said that works well for start-ups in the ICT space, it only helps to a point. “Once a company ramps up to a certain size it needs larger amounts of funding, which the angel community is really not geared to provide. Yet venture capital is loath to step into the breach.”

What’s a growing technology innovator to do? Over the past few years, several new funds have been established to address the problem. These are government-backed private sector-led funds; by putting up seed money, governments are trying to entice private investors to team with them.

Beyond that, Henderson said, Canadian funds need to relax their conservative investment mindset. “In the United States, failure is not something to be ashamed of in tech circles,” he said. “But in Canada, we still haven’t gotten over the hurdle that if you were with a failed company it’s a stigma. The financial industry is attuned to that. It’s a cultural difference and a lot of people in Canada have tried to change it at the policy level but haven’t been terribly successful at it.”

Commercializing Canadian R&D

Innovative Canadian technology companies could do themselves a favour by taking a closer look at toothpaste. Or spaghetti sauce. Or fabric softener. Or any of the thousands of other consumer products on the market. More importantly, have a look at how their makers introduce innovations to their products.

The issue, according to Branham Group president and CEO Wayne Gudbranson, is that Canadian ICT firms are great at product innovation but lousy at sales and marketing innovation. “We don’t understand that one of the real risks in any enterprise is the sales and marketing,” he said. “The industry has done things inverted for many, many years. Companies will build a product and then go looking for a customer to buy it.”

The flipside is organizations that focus on building products for consumers. “They don’t make any investment in product innovation R&D until they absolutely know, for example, that people are going to buy a new peppermint toothpaste with red coloured stars in it for $2.69 a tube,” Gudbranson said. “They invest first in market research.”

That means we’re unable to capitalize on our considerable prowess at ICT innovation. “In my opinion, we are, per capita in Canada, exceptional embedded software or non-embedded software engineers. We can build just about anything. The problem is, we don’t understand—or do understand but don’t execute—the commercialization process. We don’t do the pre-product innovation market research and positioning and testing that we need to do.”

Gudbranson advocates two measures to address the problem.

First, governments need to rethink where they focus public policy and funding to promote ICT opportunities. He cites the public money invested to rescue General Motors as an example. “Those are difficult decisions and I understand the dynamics…but we could’ve used that $6 billion differently,” he said. “We could have put $2 billion into GM and $1 billion into electric car manufacturing and owned a leadership position. Then we could have put $2 billion into saving a company like Nortel to refresh our broadband capability. This is something we had leadership in five to seven years ago and we’re no longer the leader. And we could’ve put the last $1 billion into health-care technology and taken that sector by storm.”

Second, ICT companies need to address the important areas of sales and marketing. Gudbranson said compensation structures in the U.S. provide better incentives for sales teams to hustle, and investment is higher. “Before the downturn in 2009, successful IT companies in the U.S. that have a compound annual growth rate of 30 per cent or higher invested two dollars in sales and marketing for every dollar they invested in R&D,” he said. “Here in Canada, even the most successful operations do it one to one.”

Ubiquitous affordable broadband

Not only is there a gap between the quality and cost of broadband access in urban versus rural Canada, but the head of a broadband infrastructure deployment and management consultancy warns it’s getting worse. Laura Bradley, principal at Actionable Intelligence, said 10 years ago rural users were on dial-up while urban users could expect 1 to 1.5 Mbps broadband speeds.

“It is not difficult for urban users to purchase advertised speeds of 10 Mbps today, where rural users are paying the same in some cases for 1.5 Mbps. In some instances the local providers cannot even offer an affordable service of 3 Mbps, and many fixed wireless providers cannot support speeds greater than 3 Mbps to rural users with existing technology,” Bradley said. “I think, realistically, our targets should be to try to get 10 Mbps to the home.”

She also said that in some cases rural telecom equipment is more than 50 years old. “To put in technology that allows for high speed, all that underlying infrastructure has to be changed as well. And what happens is the cost per user goes up but the revenue per user remains the same.

“The concern is that the gap is widening,” Bradley said. “And as long as it continues to widen the economic case isn’t going to get any better.”

The lack of affordable high speed in rural areas is much more than an inconvenience for farm kids who want to update their Facebook status or post a few YouTube videos. It’s affecting the ability of rural Canadians to attract investment and create jobs. “We’ve been seeing for years a variety of communities in which development has only occurred because the developer has been able to get high speed,” Bradley said. “There are a lot of companies looking to invest in rural places, but they can’t get the quality of capacity of broadband access that they need. Yet they don’t want to locate in urban areas because it costs more.”

The solution, she said, involves commitment. “If we want to be competitive in a global environment we need to take a serious look at how we compare to other places like Australia, where there are policies and very specific programs with very specific objectives,” Bradley said. “We need to get down to work and say, ‘Yes, we do want policies’ and then we need to do things within a decent timeframe.”


Photo: Jonah Hu
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