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BusinessMarch 8, 2024

Spark has given up on being Netflix. Can it be Microsoft instead?


The foundation of our communications infrastructure is on its third crack at a big technology strategy. Has CEO Jolie Hodson finally figured out Spark’s best identity?

To understand the gap between what Spark is and what it wants to be, head to the eastern limits of Lake Rotoiti. Some mornings you’ll find a jet ski, beyond mobile coverage, driven by Dr Kēpa Morgan – a very hands-on engineer – using some heavily adapted water quality testing equipment.

After last summer’s heavy rains, much of the lake was closed to swimming due to a cyanobacteria which can cause visual impairments, skin rashes and upset stomachs. But closing Rotoiti has major social and cultural implications for local residents and iwi, and Morgan had a suspicion that there were parts of the lake less impacted. “We went out with our mobile gear,” he says. “We were able to test for the algal blooms instantaneously. So we were able to say, well, you could reopen this aspect of the lake right now.”

Morgan is Ngāti Pikiao of Te Arawa, an iwi with a deep connection to Rotoiti. He’s an academic and researcher, and also Pou Hautū at Mahi Maioro Professionals, who provide te ao Māori-centred engineering conultancy. This means he has a layered interest in both protecting the lake and ensuring it’s available for all the various functions it performs for those who use it. Where Spark came in was through its internet of things (IoT) subsidiary Adroit, which sells equipment to provide feeds of water quality data. It is installing a number of fixed sensors, typically mounted on poles nestled in the lake – but Morgan wanted a mobile unit for more remote locations. 

Kēpa Morgan, on dry land, with Blair Stewart watching (image: supplied)

“Kēpa came along just a couple of years ago,” recalls Adroit’s CEO Blair Stewart. “He said ‘I love what you’re doing, but I want to be able to move around with them. Can you put this on a jet ski?’” Adroit took on the challenge, and now its equipment roves around the hard-to-reach parts of Rotoiti. 

A little bit of a Spark

This might seem a very niche part of Spark’s business, and it is. Spark wants test cases like this to scale nationally, but for now the vast bulk of its income comes from a few enormous buckets: mobile connections and data, broadband connections to business and residential and wireless broadband delivered through its 4G and 5G networks. These safely deliver billions in revenue and hundreds of million in profits to Spark, and are undeniably the core of its business. But they’re fiercely contested markets, with One NZ and 2 Degrees offering very similar services. 

To understand what Spark is, think about where it came from. It started life decades ago as Telecom, a wholly state-owned telephone company sold off during the frenzied changes in late 80s New Zealand. It listed on the NZX, and has been one of New Zealand’s most valuable and important companies ever since. Yet while it has successfully navigated the rise of mobile and internet, and the cleaving away of lines company Chorus in the 00s, it has struggled to figure out a substantial business beyond its core. 

It’s not alone in this – the story of giant telecommunications firms the world over is littered with similar quandaries, which have an almost philosophical dimension for the likes of Spark, AT&T in the US or BT in the UK. Essentially, these giant businesses had to ask themselves a profound question as they moved from monopoly to competition, and to the transmission of voice to the internet: What are we? And what should we be?

Spark’s answer for a long time was dominated by pitching new products to its huge customer base. It tried its hand with e-commerce with Ferrit in 2005, a kind of Amazon for Aotearoa. It was a big swing that likely came too early, and was ignominiously shuttered by 2009. 

That did not quell its digital ambitions, though. It changed its name to Spark in 2014 as part of an effort to move its public perception from a telco, engaging only in connections, to something more complex and sophisticated. It sought to be understood as a “digital services provider”. Which is to say that it could be the pipe, sure, but also provide stuff to go through it. 

For a few years there, under then-CEO Simon Moutter, the biggest bets came on the consumer side. It saw Netflix rising around the world, and started the TV streamer Lightbox (an aside: without Lightbox, The Spinoff would not exist; it was our foundation client). Then it doubled down on streaming, with the founding of the Spark Sport platform. 

When Moutter was succeeded by current CEO Jolie Hodson, it prompted a fresh look at those ventures. Before long Lightbox was sold to Sky, and Spark Sport’s rights deals to TVNZ. Those transactions signalled the end of one era at Spark, and demanded another rise in its place. A couple of weeks ago, Hodson presided over an event which attempted to present that to media, staff and customers.

Lightbox was the first local subscription streaming service to arrive.

Visions of the future

Spark’s headquarters are among the grandest in corporate New Zealand, four large buildings linked by a vast light-filled atrium. They’re the place where its ambitions as a technology company are made flesh, but also invariably somewhat haunted by ghosts of tech dreams past. 

Morgan and Stewart are pitching alongside the rooms where Lightbox and Spark Sport were located. Those brands are part of a group which includes home security brand Morepork and job posting site WeDo – all of which are now sold or closed, and exist in the corporate memory as monuments to a different conception of the future.

It is possible to view those projects, each of which drew millions in investment, as failures. To look at its highly successful low-price mobile brand Skinny as the core of its business and more emblematic of what the company should focus on. But a company without a growth story becomes a basic utility, and Spark will keep trying to figure out its function for this country. Today is about a new conception of itself, under Hodson, who has now been in the role for four years and has had a chance to remake the company to fit her vision.

Spark now largely leaves consumer-focussed product innovation to giant tech companies like Netflix and Spotify, with whom it aims to partner rather than compete. The big innovation opportunity it sees is with its business customers, rather than individuals. It’s in helping organisations deal with the new era of technology hurtling toward us, one defined by big data and artificial intelligence.

That’s why it has commissioned a major new report from NZIER, launched at an event within that vast atrium. Parts of it have been temporarily transformed into little facsimiles of a hospital, a port, a lake and an eroding slip, among other things. These are all areas in which Spark now has a product, selling hardware, software or both. The report and event are built around the belief that its best business opportunity is now in helping its business customers grapple with technology, and in so doing step-change the output of New Zealand organisations. 

Jolie Hodson addresses the future (image: supplied)

This is the core of a new company-wide ambition, according to Hodson. “Our technology, our skills, is what we do to support New Zealand – then if our customers are successful, we will be successful.” Whisper it, but Spark seems to be starting to imagine itself as something more akin to Aotearoa’s Microsoft.

On the face of it, this is absurd. Microsoft regularly flirts with being the biggest company, by market capitalisation, on the planet. It has baked its vast product suite into the bedrock of millions of the biggest companies in the world, built out an enormous cloud computing business called Azure, and its strategic investment into OpenAI has been the decade’s most deft business play by far. 

Yet to hear Hodson tell it, New Zealand could benefit from the kind of future vision Microsoft is engineering at a global scale, and Spark, with its deep relationships with most of our business community, is positioned to bring technology solutions which map to this country’s particular challenges. The kind of technology that Spark subsidiaries like Adroit and data and AI firm Qrious are busy building out. Microsoft itself is also operating locally, and its Auckland headquarters are only a few hundred metres away. But Spark is game enough to try and take it on, to build something precisely tailored for this market.

Verticals and horizontals

It’s easy for all this data and AI talk to get lost in the macro, amazing technology which stubbornly resists application to a specific business. That’s why these product demonstration stands were a useful device for the audience – around 70 or so, a mixture of staff and media – to understand how the technology might be practically applied in a New Zealand context. 

The medical station was, of all the demos we saw, the one that begged the most obvious and immediate mass application, thanks to our hyper-stressed health sector – a Papamoa clinic servicing 6,000 patients announcing its closure just today. At Spark HQ we saw South Auckland GP Karl Cole conduct a mock consultation with a patient, while AI listened in. At the end, it summarised the doctor’s instructions, which were duly checked by the GP and the aftercare instructions were with the patient within minutes.

Cole was clearly moved, talking about the vast increase in paperwork since he joined the profession, leading to burnout as doctors had to see the same volume of patients despite the increase in compliance. It’s “a great example of copilots,” says Hodson. “Anyone who has knowledge workers or people that have to delve into products and services to be able to solve problems for customers – anything that can assimilate a lot of information and quickly summarise it.” A horizontal, and a vertical.

Karl Cole imagines a different kind of consult (image: supplied)

Part of this event is also to launch a large piece of research from NZIER, focusing on what greater investment into technology might do for New Zealand’s economic outlook. Large corporations do this kind of work with economic consultancies over and over, sometimes as a one-off, at other times annualised. It’s always rigorous, there are always some fascinating nuggets, it’s almost always released as a PDF with a very short period when it might ever be opened. 

One more always: the productivity gap. We just disestablished the Productivity Commission, which has spent over a decade dutifully telling us the same thing as these reports, namely that New Zealanders work longer hours for lower pay than most other countries to which we tend to compare ourselves.

Spark’s NZIER report did too, obviously. Yet as well as the problem, its pitch is that Spark has a solution. By deploying high tech hardware, absorbing big data and advanced AI, there are plenty of manual jobs that can be streamlined – if a doctor can cut out a half hour of paperwork per patient, as was suggested, can they see more patients each day? If so, it might allow that troublesome productivity gap to close.

A corporate can dream

Part of the issue is recognising the real barriers to productivity improvement. New Zealand is a long way from anywhere, sparsely populated, a nation of primary industries and small-medium businesses. Hodson wants to position Spark as a hub which has the scale to invest in technology and is well-placed to distribute it out through our organisations. 

Hodson told me about looking for “modular pieces, so they can be repeatable and scalable”, along with “verticals and horizontals”. A vertical might be ports, where technology could be sold throughout the country’s operators; a horizontal might be health and safety, with wide application among manual workforces. For it to become a significant earner, they need to move beyond test cases (like jet skis) and into mass adoption. Right now these are still nascent businesses for Spark. $35m here, $42m there – nothing compared to the $510m it earned from mobile services. 

For all the emphasis it places on high tech and AI, its bet on 5G is far larger – and the use cases (private networks, emergency services) often remain aspirational and not much different from when the tech launched almost five years ago. The knock on the network technology has long been that it’s a “solution in search of a problem”, but Hodson still defends its application. 

“The one thing to remember about 5G is that it offers significantly greater capacity than we have under the 4G network. And if you think about a world of exponential data growth, we would need to be investing, whether it was in four or five [G].” When she says that, she’s refreshingly open. Many CEOs get defensive around this this kind of engagement, with laypeople who can’t hope to understand the complex inter-relationship of finance, technology, demand and competition which drives these enormous investments. 

Instead Hodson is grinning, talking a mile a minute, clearly enjoying her job immensely. She’s approaching five years as CEO, long enough to feel like the company and its strategy is hers; not long enough to be jaded by it. This report and event, the opportunity and plausible role for Spark to play has her amped up. “What we’re doing here is working not on theoretical issues, but real issues that are facing New Zealand today,” she says. “That’s helped us, I think, to frame up where we want to be.” 

Given Spark’s record with technology investments, it’s understandable why some might be sceptical about its ability to move beyond its core business in selling communications. But few other institutions in New Zealand have such a long and broad connection to this country’s businesses. The NZIER report says that a 20% increase in technology investment could have a $26bn increase in economic output over the next decade. 

Given the scale of the productivity problem, and the prize for solving it, who can blame another CEO for giving it another shot? “At the end of the day, we’re an enabling company,” says Hodson. “On that journey, from a telco to digital services provider, we’ve come a long way in understanding the roles we should play.”

Keep going!