Will Skype Minutes Become Fungible?
Not now ... but it will get there. Last week, Skype launched the long rumored/ expected/ in development Skype Prime service(via TechCrunch). Using Skype Prime, users can charge to recieve a call.
Even before the skype acquisition, (aug 2005) I recognized the impact of Skype on payments, but this development was headed off by the acquisition (Paypal was a huge benfitiary of the acquisition eventhough Wall Street did not recognize it). This development, however, could potentially be more revolutionary.
The key to the why Skype Prime is so much more than a “1-900″ service. It is the product strategy of useing Skype Credits as the payment mechanism:
your Skype Credit is deducted by the appropriate amount that then goes to the receiver’s account. The provider does not get the call fees directly as Skype Credit — rather, they go into a special holding “box”. The provider then receives the revenue via PayPal.
As is, skype credits are associated directly to the funding currency and thus are automatically converted into real money for the reciever. However for cross currency conversions, (Jasmin live caller bought skype credits in US$ and reciver is charging Euros) it does not appear that this transaction could be consumated.
Because skype credits are essentially pegged to a local currency AND there is no cross border transactions, Skype credits are only fungible as part of a transaction. However if Skype begins to enable cross currency calls, and begin denominating Skype Credits in MINUTES, a liquid market for trading these minutes will likely occur. Skype will have essentially created a virtual currency/economy. (I pay you in skype minute and you charge using skype minutes, and convert them to local currency in an as needed basis)
Of course, for a Skype economy to appear, there need to be a market for skype minutes. There are one very obvious applications: Sex. And second even more brilliant suggestion by Tom Evslin - as a method to self-monetize leads.
Of course, given the rise (and probably proliferation of virtual economies like 2nd life) , Skype Minutes could easily become the currecy of choice for these smaller vitual worlds. (and as any gamer will tell you, Skype is the best thing (IM + Voice) to ever happen to a raiding party.
Deciphering The Future of Mobile Payments
I dont write about payments much since lots of my work and research are somewhat confidential (for my job) and; more importantly, I’m really a student of the industry than a guru (not that it ever stopped me from BS’ing before) ... However as I read and talked more to people in the industry it was clear to me that the future of mobile payments in the US is in somewhat of a holding pattern.
There are several architectural issues that needs to be resolved before wide spread adoption by consumers can take place. Even more importantly, without the emergence of a dominant architecture, the current consumer experience for mobile payments is not a marked improvement over what is the current “NON-MOBILE” payment experience ... without a magnitude imrpovement in convenience or a catalyst (aka killer app), mobile payment adoption will be hard to realize.
What many entrepreneurs and VC’s fail to realize is that EXISTING payment methods are already “mobile.” What Mobile Payments really should stand for is MOBILE PHONE PAYMENTS as well as what happens to digital payments when ubiquitous real-time connectivity becomes a reality. IP connection and the browser used to tether computer users to the desktop, but not anymore with advent of IP/browser/applications on mobile phone. This is a quantum leap improvement in accessibility and context. However, cold hard cash as well as the good old Visa/MasterCard never tethered the live sex chat user to anything in the first place. The wallet is as mobile as it get! ... Mobile payment’s value proposition will never be mobility, but the increase value through better acceptance, authentication, and control.
There are really two major mobile payment architectures in competition for the future. (Hybrids are possible but harder analyze.)
Scenario One
NFC technology matures (its very close). The payment card (Visa/Master) merges into the cell phone at the physical layer - ie your payment card sim chip is in the mobile phone.
1. Customers buys something
2. Customer “waves” his phone at a terminal
3. terminal asks customer to type in PIN at terminal (or not)
4. terminal uses its existing connection to association rails to authenticate and authorize payment
5. payment complete/fail
This is almost embarassingly simple. Besides step 2, there is almost no difference between this use case and the existing use case for payment cards. And there lies why this architecture will gain the most traction DESPITE the fact that it got a late start. The incremental value proposition is simply speed ... and the incremental disruption to existing pratices & infrastructure are almost none. And thus the barrier to adoption are the lowest - new terminals and new cards needs to be distributed but the associations have allocated huge budgets to make this happen. Under this architecture, the opportunity for startups to disrupt incumbents are low. The banks, associations, and merchant networks will retain most of the value created.
The only evolution I can see is that Carriers gets in the game and create applications and sofwares that integrate the sim chip at the system and application layer, not just the physical layer. Thus, you can check your balance/credit limit in real time, keep a history of your transactions, etc.
Scenario Two
Almost all independent mobile payment companies are taking this route (Paypal, OboPay, MobileLime etc). Instead of relying on merchants, their terminals, and thus the existing VISA/MC association rails for authentication and payment, they route the transaction through the mobile phone, OTA IP connection, and the Carrier back onto their own merchant processing network (circumventing the association).
Here is the customer experience
1. Customer buys something
2. Phone recieves merchant ID via a few possible methods
- text message using merchant phone # as ID
- NFC gathers merchant ID from a passive terminal (no connectivity whatsoever)
- customer enters ID via an application interface
3. Phone requests/customer PIN
- dial back
- text message
- application prompt
4. The mobile uses its IP connection to authenticate and process the transaction
There are a huge amount of infrastructure that needs to built here. BUT even more important, the change in customer behavior is HUGE... . The odds of this architecture winning in the short term are low ...
BUT I can see why this is a much more exciting vision of the future and a broader set of value can be created. For one, payment connectivity is no longer enaslaved to the merchant. Anyone with a mobile phone can accept payments. ACCEPTANCE (not payment) mobililty for digital money moves from “store to store” to “people to people” (Its like payment cards finally became like cash , ie it is fungible at the people level) Furthermore, the integration of the authentication through the phone opens up live jasmin applications for controling spending, savings, and any financial activities.
EVEN MORE IMPORTANTLY from the business model perspective, this architecture gives startups an opportunity to disrupt the incumbents and create/launch their own merchant network where they can make 50-200bps on the transaction volume. Who wouldnt want to be the Visa/MC/Amex of the next millennium?
Eventhough the 2nd architecture has gain a lot of funding and publicity, I believe the first architecture will be the first to gain adoption. It is certainly not ground breaking, but its the neccessary next step. A version 2nd architecture (which enables breakthrough accpetance and ubiquity) will come but only with the blessing of the existing payment associations and not in its current form as implemented by the existing slew of startups. Paypal is the only player with an outside shot of pulling this off because of their existing merchant relationships and consumer adoption. All others needs to revaluate their architecture and give up the hope to create a merchant network. (atleast not in the first 5 years). Instead, they need to learn to play better with the payment associations, embrace NFC, focus on building mobile applications, and earn the trust of carriers. They need to learn to leverage the hundreds of millions Visa/MC/Amex have earmarked to upgrade its terminal, network, and cards instead of fighting an uphill battle.
In that model, a modified scenerio 2. Mobile phone will become payment as well as a acceptance tool ... it will be able to act as a terminal as well as a authorization ID. (through NFC/RFID/Infared/bluetooth or whatever communication device method is out there between two phones). Visa/MC/Amex etal will not go away, but a startup might gain enough traction (Paypal) to join them. Their rails/processing systems will migrate to the handset with the help of Carriers who controls the physical layer (mobile phone hardware + airwaves). Applications will be written for the mobile phone to transform “mobile phone + payments cards” beyond simple identification tools (what is a credit card if you take out the plastic?) into innovative method for controlling spend, evaluating credit, managing savings, and whatever entrepreneurs can think of next...
Whats eBay to do with StumbleUpon?
The blogosphere likes to report rumors as facts and edit post title accodingly in real-time as information changes. Om has some coverage (with the required hedging) while techcrunch is not hedging at all.
I have some random thoughts, not very coherent at all, but all pertaining to the transaction.
First of all, I love stumbleupon. I installed it about 4 years ago when I read about it in PC Mag, and I sincerely believe “browsing” is beginning to take shares away from search (more here and here) as a discovery methodology. So I say this is a smart move.
However, I did hear from my Yahoo buddies that they took a look at StumbleUpon (for an acquisition) and found that the active user base to be much lower than downloads. (sour grapes? ) For whatever its worth, I would think 3-6M users would be a $xxxM transaction but the rumored price is a little bit lower.
I also talked to some smaller websites and they have been telling me that StumbleUpon has been increasingly becoming a major source of traffic. (biggest ramp was 6 month ago, and now its a little flat). However, the traffic themselves are not very sticky (just stumbling through).
As Om mentioned, eBay beat out Google for the the acquisition. I wasnt surprised at all. Josh K. of First Round Capital is an eBay alumni (Half.com founder) and the driving force behind StumbleUpon’s board. David Feller (co-worker and friend from eBay) is StumbleUpon’s VP of Marketing and is also an eBay & Half alumni. Josh and Dave knows eBay inside out and have access to the very top of the company as well as the very buttom. Transaction among friends are usually more honest and straight forward ... who wants to deal with Google’s cocksure M&A team? and un-certain integration strategy? :)
Ok so lastly, what can eBay do with StumbleUpon ...
- eBay auction toolbar is one of the stickiest applications eBay has. This could potentially give the functionalities in the eBay toolbar some distribution on the SU toolbar. (wanna stumble on some auctions?)
- Phishing is THE reason user trust on eBay and PayPal is so hard to improve. Paypal and eBay are working overtime on creating industry working groups and blacklist databases to solve this problem. SU is the missing link to the end user to allow for distribution of the warning systems to the browser.
- Skype + SU toolbar are ways with which Paypal can creat a persistent wallet on the “browser-top” which would be significantly more convinient than hunting down the wallet. (as always I believe Paypal is the main benefitiary of most eBay acquistions)
- eBay can exert more leverage in the search game . Firefox generates $100M+ in revenue a year simply because google is the default homepage. Having the search box on the toolbar makes eBay in control of the user relationship while making search engines depend on it (for once!) for traffic. (there is some HBS case study in this... I think its called the “judo strategy”)
- I wonder how the Skype ToolBar is doing. Maybe its doing really well and StumbleUpon would be a good source of distribution for its functionalities too.
- I’m unsure what eBay is planning to do with SU’s small but growing advertising inventory. But maybe eBay does have grand ambitions on running its own ad network.
How Adsense kicked DoubleClick’s Ass and bought the carcass for $3B
Google’s acquisition of DoubleClick for $3+ Billion was a homecoming of sorts.
DoubleClick was the original ad network. During the dot com boom, they were the pride of silicon alley and king of web advertising (outside of Yahoo! which was captive at the time).
Yet something happened between 2001-2005 ... . DoubleClick lost it mojo... and its marketcap went from $15 BILLION to around $500M. And finally went private for around $1B in 2005.
Yes, $3B is an ungodly sum, but DoubleClick could have been Google; or atleast Google Adsense. But it didnt, so what happened?
Adsense kicked its ass ... thats what...
DoubleClick was way too close to Madison avenue (physically and figuratively). It looked at the online advertising market with the same mindset as offline (TV, Print) advertising.
-It relied way too much on the sales force, deciding against investing in a self serve model which prevented it from scaling. Even more importantly, while the model worked in 1999 when traffic was centered around major portals and destination, as the web “long tail” proliferated, doubleclick lost a huge portion of its traffic monopoly as they were not able to serve that segment through its sales force.
Just as important. DoubleClick looked at web targeting on purely offline terms. HH income, age, ethnicity, etc. Google, on the other hand, looked at it from an algorithmic angle and figured out that RELEVANCY was the variable which loaded the highest for click through rather than all the traditional targeting attribute. And ofcourse, relevancy and content are intricably linked. (and thus text).
MOST IMPORTANTLY. DoubleClick made a huge strategic blunder. They saw their adserving technology as something to be sold modularly rather than bundled with their ad network. They became a provider of commoditized technology and lost its ability to insert itself between the buyer and seller of advertising. It no longer controlled pricing and placement of ads. It quickly failed to become a NETWORK (with network effects) but became an ASP. There was no network based relationship ... simply a licensing contract.
Adsense was/is brilliant in this regard. Its a black box; buyers really has very little say (until recently when Adsense has scaled significantly already) on where to place their advertising. Publishers on the other hand, has very little say in their rate card ... EVEN MORE SO ... both sides simply allowed Google to determine Adsense’s cut as it wishes. So long as both sides get what they want (clicks & $), the network effects kept both party from dis-intermediating Adsense AND switching to a different provider. People complain about the black box nature of the Adsense system and as a result, startups try to bring transparency to the ad network game. What they fail to realize is that the black box is the secret sauce; it gives Google the ability to increase optimization, monetization, and placement at its whim (usually for the better). The black box might seem draconian at first... but ultimately benefits both sides if all they care about is the all mighty dollar.
It looks like the secret sauce is going to get applied to DoubleClick soon ...
Getting My Hands Dirty on Search Engine Marketing (& Prepaid Cards)
Last week, I hacked (I repeat, hack!) together a pilot/test website to explore the online acquisition channel for what traditionally has been a retail sold product. Green Dot (my company) sells Prepaid Visa and MasterCard to the underbanked community. The product is commonly called (however a misnomer) a “prepaid credit card” or “secured credit card” ... The card is mainly targeted at immigrants, teens, and people with bad credit records. (So its not really for you so please dont click on anything!
(ok you caught me, I’m just trying to redirect some of my rank juice to increase my natural search results for the pilot site...
The point of the post is actually to compare google and yahoo’s search engine advertising efforts. I tested Yahoo and Google’s system a few month back and now again. The Yahoo CTR is definitely better. Furthermore, my conversion rate is also better on Yahoo (new click fraud algo?)... However Google is still driving 3x the traffic that Yahoo has been able too...
Another gripe against Yahoo. It appears to me that Yahoo has gone way too Web2.0/Ajax happy... to the point of decreasing the customer experience. At first glance, the advertiser’s interface is really really slick ...but dammit its just way too slow (like most ajax apps) and not very intuitive. because the huge amount of data flowing between the browser and the server in the background, there is a half second delay on almost every thing I click on. People expect page refreshes to take some time ... but not ajax elements ... if you want to be like the desktop, you better BE like the desktop...
It also has Ajax pop-ups everywhere ... even places where it shouldnt (for example, show me my ad copy right on the page, not in a popups). 3 years ago, popups (browser based) almost compeletly disappeared because of pop-up blockers and because people hate them. Now I see them everywhere ... as if just because its a Ajax popup its suppose to be any less annoying or less disjointed than before ... please, someone invent a ajax popup blocker ...
Anyways, just a cautionary tale for UI designers to not to get Ajax happy ...
What I learned about building communities while watching Mean Girls
I was partaking in the “two screen” experience yesterday - surfing and watching TV at the same time (30% of young adults between 16-28 does this regularly according to a presentation I attended by AOL/TIME Warner VP of Market Research). On my TV was E! True Hollywood Story (”THS”) on the making of Mean Girls (you know, Lindsay Lohan & Rachel McAdams!). On my laptop I was reading Jeremy Liew’s Game Mechanics which led me to spend the rest of the show googling Amy Jo Kim. It was about 15 minutes into this experience that I realized that what Amy Jo Kim was talking about is not so different than re-creating high school (or the first year of MBA) online (ie Mean Girls). I had called it Vanity Marketing about a year ago. She merely called it “social design” or “game mechanics” for online communities.
Here is a good summary of what Amy teaches. The women has been at it since 1996! ... a whole 10 years before all this became so hot ... a pure genius.
Thinking back ten years ago... software product design was all about value proposition, ROI, defining pain points, identifying catalysts for change, finding stakeholders, and many many more boring adult stuff... all really coming back to money. As such when websites (esp web apps) were sprouting up every where in 1998, product managers/designers/entrepreneurs simply followed the paradigm borrowed from the software development world where interactions where focused between an application and its user (rather than user to user). Ease of use, “information architecture,” features, funtionality, workflow, integration . .. etc etc ...
eBay changed all that. (I’m not kidding, Amy Jo Kim really believe eBay is one of the best designed communities out there . . and obviously the first to ever scale). Today, the emotional aspect of product strategy is not something that can be ignored any longer. Drawing a parallel, behavioral finance has fundamentally changed the way economists and wall-street view the markets for financial instruments . . so will this discipline.
Building products catering to the psychology of user is a completely orthogonal discipline than what is traditionally considered product management. Today, its just as important ... especially in this web 2.0 world. (eck I said it again)
Instead of regurgitating her research (which you should read yourself) this is my take.
Online, we are all 16 year old teenage girls. Put your self in the shoes of your users. This is your first day of high school. You are new, you dont know any one. How do you know who are the cool kids and who are the crowd to stay away from? (feedback or rating system, leveling) How do you become popular? (participation, collecting, flaunting - good ole online materialism) . How do you fit in while standing out? (completing a set, virtual scarcity, customization) . How do you achieve your status and let everyone know about it (leader board, stars, feedbacks again). How do you curry the favor of the in-crowd? (exchanges, gifting). How do you find a sense belonging? (groups, social networks) How do you fight back? (foums, comments). How do you know what to wear (customization, widgets). What activities and clubs to joing? (games, puzzles, treasure hunts, ... and MMOG!)
How do you become the Queen Bee? The one all the girls want to be and all the guys want to be with? ... give your user a way to become the Queen Bee and flaunt it!
Exploiting Leveraging insecurity and vanity of the user is key to building a vibrant and succesful online community. The line between e-commerce and community has already been blurred. The line between web app and community will go next. Pretty soon community and MMOG will blur itself too ... and websites will become one big goo of cat-fighting teenage girls.