Wal-Mart ‘Disc to Digital’ Poised for Failure

It’s amazing to see everyone trying to mimic Apple’s success in one form or another, often with a boneheaded twist – Wal-Mart is the latest in that long line of bozos


‘Disc to Digital’ is a brilliant concept that few companies can effectively tackle better than Wal-Mart. The underlying issue of transferring previously purchased content from physical to cloud storage is a problem anyone over the age of 10 is dealing with – after all, if I want to read a book I bought physically in 2005 on my Kindle, better be willing to pony up for a new copy – Amazon has not yet figured out a way to verify consumer’s physical book ownership to add it to their Kindle library, but no doubt they’re thinking about it. On video/DVD its actually much more complex – consumers are not copying them to their local hard drives like they did with Music CDs, and a consumer’s full DVD catalog can require massive cloud storage.

But Apple offered a solution for music with iTunes Match- a smart music cloud-based locker system that keeps a copy of your collection (often in better quality than your original) for $25/year. True, using iTunes Match further locks you into the iTunes/iOS ecosystem, but its a small price to pay for a clean and easy interface to consume music across devices (although it sucks that I cannot use iTunes Match on my PS3, XBOX 360 or Android devices).

Seemingly, Wal-Mart could build a similar offering, identifying the movies you own in digital or DVD format, and instantly add them to your collection on Vudu. If they made the process simple and easy, Vudu could lock-in with anyone who converts their collection.


As Dorothy Pomerantz notes in the Forbes piece, there are tremendous problems with the Wal-Mart approach here.

Verification Process – Few people back up DVDs onto storage devices (I did a few years back for my Windows Media Center, but the storage requirement, 6 TB, is nothing to sneeze at), but there’s still must be a way to automate the verification process of DVD ownership. Wal-mart’s approach involves the consumer bringing in the physical DVD, having it verified in a store by a client service rep, and then having it manually added to their Vudu account. Cumbersome process, difficult to scale on both the consumer and business side, and in essence designed to fail.

Again, in context of iTunes Match, the Wal-Mart approach is much more akin to the pain on using the Amazon Music locker service. Given the proliferation of DVD types (for older popular films, there were 10-15 different versions of the movie sold at retail outlets, as part of bundles, with or without directors commentary, etc), the task of verification by Wal-Mart employees will be extremely mistake-prone and customer-service weak (especially for consumers who didn’t keep the original DVD boxes).

Clearly, there’s got to be a better way to verify DVD ownership. Given the complexity and time consuming nature of checking each DVD for legitimacy, the industry may allow some latitude in claimed ownership, particularly for DVDs purchased before digital versions were included (about 2009) – maybe allowing users to claim ownership, but have to verify 10 or 20% of the collection with the physical DVDs, ideally scanned on a local PC.

A combination of automated tools a consumer can manage on their own and a solution consumers would go through once (a la “iTunes Match”) would work and give Vudu a big win here.

Business Model – iTunes Match is brilliant because it allows people to take their current collection, ripped over the course of the last 15 years at various levels of quality, metadata, etc. and get a fresh collection at a low fixed cost. The consumer thus doesn’t think about which tracks to add based on price, but rather puts it all in the queue for match/upload.

Apple can do this, because they know the lock-in to iTunes will lead to more music sales, iOS devices, etc. down the road. Walmart by contrast is charging $2-5 per disc, making the consumer make the tough call on which movies are worth ‘re-buying’ or adding to this new collection.

Fighting to get revenues from consumers through the horrible verification process in place will be a losing proposition. They’ve got to model the ramifications of a consumer household storing their purchased DVDs on Vudu, and how that impacts the ARPU over time – my guess is Wal-Mart can afford to eat the conversion costs for the bigger pie over time.

Re-Imagining Finance: Consumer Credit (cont.)


Thanks for all the feedback from yesterday’s post. The post was not intended to be an end-all be-all, but the opening of a discussion that turned out to be fairly interesting over Twitter and e-mail.

Regardless, I wanted to address two specific issues that were not discussed in the original post, namely Mobile and Post-Transaction Customer Servicing.


The mobile phone has truly become the most essential banking interface for many consumers. With the ability to quickly check your bank balance and transaction history, enter a check image, pay a bill, etc the mobile experience has really made the banking branch and the teller (both human and automated)  less relevant to our daily lives. Where these apps and technologies need to be furthered is in handling transactions.

In the context of the discussion yesterday, and particularly relating to mobile wallet and mobile payments, it seems that we’re finally getting closer to that reality. I’ve discussed the issues around NFC previously on this blog (sadly, they are still the same despite the elapsed time), but there are inklings of hope that NFC will be in mobile phones, enabled for use by phone applications. Independent of technology platform though (Square has gotten around NFC with their dongle, after all) , mobile will likely become the standard for consumer transactions, with merchants and p2p, as the proliferation of smart phones expands.

Now, I have had the chance to see first-hand, some of the more exciting examples that are taking shape in the 3rd world, using non-smart phones, such as the innovative work done by Tagattitude and Obopay across Africa. I’ve also had the chance to play with Jibun Bank‘s mobile-only experience in Japan. I’ve also spent time looking at Paypal X and their new payment infrastructure for mobile. I’m not sure any of these solutions truly covers the ‘Apple of Consumer Credit’ model, which i’ll outline below.

Apple of Consumer Credit: Mobile Edition

Leveraging the premises from yesterday’s post, we can assume that this new “Apple of Consumer Credit” has a direct relationship with both merchants and consumers, and is providing services to help the merchant build and understand their business, while encouraging the consumer to interface through an engaging UX.

Mobile would be a natural extension of that approach, specifically acting as the entire POS, or at least a part of the authentication process. Think of the following scenario

You’re at the Apple store buying a laptop. The customer service rep offers to ring you up right there (as they do today). They open up the application, instantly have your ID and account information load up (Bluetooth or NFC), and enter the bill information. Using NFC, the bill is instantly transferred to the consumer’s mobile phone, where the consumer is prompted with a few options – pay now using your mobile wallet, consider a promotion (from the Apple Store, or potentially another partner the consumer has a relationship with prior to the transaction – think Verizon FIOS is giving a $100 discount on a Macbook to new subscribers), apply for a credit line, or cancel the transaction.

  • If the consumer chooses to pay now, they choose which credit/debit account to use, authorizes the transaction with a thumbprint or a signature. The amount is prepared for transfer to Apple Store’s merchant account, with an authorization code transferred to the Apple Store representative’s phone. When s/he clicks on the authorization, the money is transferred from the customer’s account to the merchant’s account.
  • If the consumer chooses an offer, the amount is changed to reflect the discount, and the consumer is prompted to pay or apply for a line of credit.
  • If the consumer chooses to apply for a line of credit, the system would transmit information to the merchant and display the response (approval, interest rate, terms). The consumer can then accept the credit line and move forward with the transaction – the approval is sent to the account rep who can then approve the transaction and hand the customer the new laptop.

In all cases, the transaction is fairly effortless, enables the consumer to have a full understanding of outstanding offers available at the time of purchase, and the ability to review the items purchased post-transaction (not just the total amount). This helps during tax time (hello unreimbursed Business Expense), and in tracking spend at a more granular level.

For the merchant, its a stronger user experience that enables customized deals at the POS, and greater transparency on user purchases. With partnerships with other retailers, the merchant might get a better sense of your spending habits, outside of their stores directly, enabling them to customize deals in partnership with your favorite merchant (think Apple Store offering a ‘Thank You” for buying a MacBook, say a voucher for $50 at Staples for office supplies, or a voucher for your favorite restaurant).

Post-Purchase Customer Service

This “Apple of Consumer Credit” having ownership of consumer and merchant data enables it to do some amazing things, particularly on the post-purchase side of things.

  • Warranty cards are painful sometimes – the “Apple of Consumer Credit” can offer you a painless warranty card fill-out process at the time of purchase. This allows merchants to know instantaneously when items are purchased, and be able to send consumers key notes on upgrades, customer service, and warranty periods.
  • Returns are a pain in the neck at stores that do not keep electronic receipts effectively – if they use the “Apple of Consumer Credit”, the consumer always has all their receipts, so there will be fewer disputes.
  • When an item is recalled by a manufacturer, they can go to the “Apple of Consumer Credit” and know exactly who needs to be refunded and/or who needs to be told about the recall.
  •  For consumers who are over-returning items, “Apple of Consumer Credit” can manage such customers and give them a score across merchants, which will help limit that activity.
  • As a service to customers, the “Apple of Consumer Credit” could offer extended returns, extended warranties, and buy backs, either in partnership with or secondary to the merchants. These are great credit card services that can be managed at the individual purchased item level.

Who’s Best Situated to Handle This

I still believe that the vendors discussed in the previous post are appropriately positioned to offer this level of service to merchants and clients.


Thanks for all the feedback.

Re-imagining Finance: The Apple of Consumer Credit


I was recently watching Sean Park’s excellent talk at the Lift12 conference (definitely worth a watch here). One thing that got me thinking was his comment on trying to ‘invest in the Apple Inc’s of Finance”. The line got me thinking about ‘Re-imagining Finance’ through a series of thought pieces, based on the sole premise of building an Apple, Inc in finance.

First – we need to define Apple, Inc as a business concept that can be applied broadly to other markets. To me, Apple’s magic formula rests on the following elements:

  • Simplification – Task complexity need not be displayed in the user experience; The user should feel that they can leverage the tool ‘out of the box’ with no training, as if intuitively driven.
  • Pristine Environment – Apple’s hardware and software ownership allows it to own the user experience, and more narrowly define the way in which third parties can build applications to work with their system.
  • Addition by Subtraction – For Apple, it’s what’s not in the box that sets it apart – no extra ports, no removable parts, no stylus – WYSIWYG literally.
  • Network of Increasing Value – Apple has built several verticals out in which the vendor can directly connect with the user with Apple shepherding the process to ensure a delightful user experience. Think Music, Video, and Apps, where Apple’s brand and engagement with the content or app creators has ensured the user have a great experience, while also enabling the user and vendor to engage within that controlled environment. Each additional vendor adds to the user’s rich experience, and further proliferates the value of Apple’s ownership of the ecosystem.

Consumer Credit

Consumer Credit today has several layers of complexity that leads to a garbled user experience and a trying relationship between the user and the various counter-parties involved. Here’s a few workflows to consider within this paradigm:

Consumer Lending – Consumer goes to a financial institution and applies for a loan or credit card for a particular amount/duration/service level. The bank will take a selection of data points, primarily the consumer’s 3rd party credit scores and their history with the bank, and assuming acceptance, output the terms (timeframe, interest rate, payment schedule, etc). The consumer would then need to fill in a variety of forms, then receive the funds in their account and/or a credit card in the mail.

In the credit card example, there may be a 3rd party issuing bank that would need to create a new account for the user. The account would also need to be appropriated to the payment network, namely Visa, Mastercard, Discover, American Express, etc. who will act as the switch between the merchant and the user’s banks.

Consumer Transactions – Once the consumer gets a credit line or traditional loan, the consumer wants to leverage that cash for consumption – say to buy a laptop. The consumer then travels to a local shop (or online), browses for the product of choice, and selects one for purchase.

At the point of sale (POS), the store clerk scans the laptop (allowing his colleagues to track inventory and sales statistics for that transaction), may ask the user to swipe a loyalty card (again, managed on an internal merchant system), then asks the consumer to swipe their card. The consumer then swipes their card, enters a PIN or signs the receipt, and then is told the card is being authorized. During that time, the merchant’s payment processor is relaying the transaction via the Payment Network to the consumer’s issuing bank, to determine if there’s money there and that the transaction seems kosher. The issuing bank responds instantaneously with an answer of yes/no, sends it back through the Payment Network to the merchant’s payment processor, who relays the response at the POS. (see below).

Later on, the merchant reviews the transaction through the automated ‘settlement’ process, trying to remove any fraudulent/erroneous transactions, then requests a ‘fund capture’ through their payment processor via the Payment Network to the customer’s issuing bank, which then sends electronic funds back through the Payment Network to the payment processor who then sends it to the merchant’s bank.

More details can be found here.

The key takeaway is that there’s an open network here where there are loose relationships between financial institutions, their customers and merchants, which result in inefficiency and increased fraud risk. Clearly there’s room to improve – here’s a stab at a theoretical model that could work:

The Apple Consumer Credit / Payments Model

  1. Apple reaches out to merchants and provides them with a simple, easy to use POS tool. At first the tool links to existing payment networks and seems to be designed to make the POS easy to use by sales clerks, and easy to monitor for management (both local and at the corporate level). Merchants buy for the simplicity of the hardware/software combination.
  2. 3rd party app developers begin building applications on top of the POS, to enable merchants to track inventory, run loyalty programs, and target sales to consumers. The most critical applications that best fit with Apple’s philosophies are either acquired or deeply integrated into the core offering to further push standards from which to build 3rd party apps.
  3. With the merchants using the service and 3rd party vendors building niche services around the Apple POS, Apple can now go after the biggest part of the equation – the consumer banking/credit offering. Working hand in hand with a few major merchants (think Wal-Mart), Apple builds infrastructure on top of loyalty programs that enable merchants to issue credit to their customers – credit terms would be defined by the customer’s purchase behavior at the merchant and outside (via Apple merchants), their loyalty, demographics, time/place, and the purchase at that moment. Merchants like it because it allows them to increase revenues through credit services, without relying on a bank, while also removing much of the transaction cost that payment networks and issuing banks charge for their old indirect transactions. Consumer’s like it because they get the loan from the merchant they are buying from, not an indirect market participant (their bank or a 3rd party), and because they get a better rate from the merchant. Apple benefits because it now gets consumer credit data across its merchant network (and is able to build a new age version of the credit score).
  4. Apple then sends an e-mail to 100,000 consumers who are buying products and services through merchants on Apple’s network – it reaches out and offers them the ability to ‘bank directly’ with Apple, and get better transparency on their transactions (archive of their line item purchases), credit lines, and now their assets. In a matter of a few steps, Apple has circumvented the traditional inefficient ecosystem for both credit authorization and payment processing – and it’s enhancing the consumer’s experience and the merchant’s relationship with their consumer at the same time. Within a short period of time, Apple becomes the largest bank in terms of AUM, with a completely ‘closed loop’ of merchants and consumers with intelligence built in and around the ecosystem to add value as needed.

Wrapping Up

Who’s best positioned to be the “Apple” of Consumer Credit?

  1. American Express – Already a merchant acquirer (albeit a small one), a processor, a Network, and an issuing bank, Amex is best positioned to own the space. Their new Serve platform and investments in mobile payments and other services put them in a good position to lead. However, they have several difficulties, particularly the size of their merchant network (and a small emphasis on growing it internally) and a strategy to add 3rd party issuers to their network (USAA, Fidelity, Bank of America), which further muddies their place in the equation.
  2. Square – Square has become the POS of choice for many small businesses across the country, particularly for those traditionally under-served by the biggest merchant acquirers. They are starting to branch into mainstream retail and services, because they’ve built a phenomenal user experience and strong applications that cover both basic transaction management and loyalty. However, they’ll need to prove enough value to larger retailers/service providers to make a dent in the space, will likely need to link up with or build a smart inventory management and analytics platform for those merchants, and build a merchant acquisition network with boots on the ground (as apposed to relying on Apple Stores and the web for merchant sign ups) which seems outside their underlying DNA.
  3. Groupon / LivingSocial – Dark horses on some level, as they are clearly in the daily deal space at the moment. They have both built impressive merchant networks (large and small shops included) and are processing transactions on their behalf. Additionally, they are offering some form of backend analytics engine that merchants are interested in. For them to succeed, they’d need to focus more heavily on merchant services, particularly loyalty and inventory management, to get them to consider switching out their old POS for a Groupon-owned service layer, but its not outside the realm of possibility.
  4. No One – There are firms like CardSpring and others that are building smarter tools and features to enable merchants to build greater relationships with their customers, while also leveraging existing payment infrastructure. Not sure whether its a good play at this point, but I am curious to see how they evolve.

What do you think?

A Call for Quality Content in 2012: Investment Research Must Evolve

I’ve been off the grid for the last two weeks, out in Fuerteventura, one of the Canary Islands off the coast of Africa. During my time, I had the chance to catch up on some reading, specifically Michael Lewis’s Boomerang. What can I say, Lewis has been an incredible writer, telling the story in a way that is both entertaining and educational, with a morality check to boot. Interesting read for anyone who’s missed it.

One of the themes that came out both in “Boomerang” and “The Big Short” involved the negligence of the ratings agencies and the analysts and managers of CDO portfolios who willfully bet on the music not stopping. Lewis argued that many of these folks were just mismatched and didn’t remotely understand the securities they were reviewing or investing in – the others were just out to manipulate the markets (and probably should be put in prison). Lewis also notes that the market was fairly aware that the market was frothy and that analysts were probably putting out reports that were overly optimistic.

Why Research is Needed

The fact is, the research and analysis market is still very robust for one very specific reason – due diligence is hard to do in a vacuum and expertise is always valued in making investments (as my dad used to say “its important to ‘buy a little brain’ from time to time).

As a VC at Greylock, we relied heavily on the greater Greylock network to better understand the startup’s team, the market, competitors, potential acquirers, and the quality of the product. Since our investments were in the private markets, and often in new industries, our ‘experts’ were bloggers, executives from potential acquirers and related firms, and technical experts. We rarely used investment bankers, as valuation was loosely structured on industry comps (from VentureSource or some equivalent service). We always included legal advisors in constructing the right term sheets for the investments once we agreed to move forward.

The same approach is applied in the PE world and the public markets, but with different data sources. In the PE world and Public Markets, buy-side firms have hard-data to construct valuations in a smarter way, resulting in a heavier emphasis on internal and external analysis on that front (think investment bankers on the PE side and sales traders on the public side providing pricing guidance). Additionally, there is a larger market of information and comps to draw insights from, namely the company’s executives (think investor relations / corporate access), market research analysts from the likes of Gartner and Forrester, experts from the likes of GLG and professional analysts from large investment firms (sell-side) and independent shops.

But Research has Changed

Sadly, for our friends in Investment Research, the last 15 years have seen major changes. During the dot com bubble, a variety of analysts became superstars on CNBC, including folks like Henry Blodget, Mary Meeker, and Jack Grubman – these guys and many of their colleagues were incentivized to be bullish on securities that were issued by firms doing lucrative investment banking business with their firms – e.g. in exchange for a positive rating, the firm got larger allocations of IB fees. After the bubble burst, Spitzer went after the Sell-Side Research firms, and made several key changes to the industry, namely:

  1. Institutionalized a chinese wall between Investment Banking and Research to ensure that analysts were more objective
  2. Create pools of resources for these firms to allocate and promote independent research content, coming from firms who did not have investment banking or a broker-dealer in-house, again ensuring a wider array of opinions and objective analysis
Investment Research, generally a ‘soft dollar’ or ‘loss leader’ business, conducted to induce investment banking and trading revenues, now would be forced to either go ‘hard dollar’ (charge a fee for research directly) or rely on the latter only.
A few years later in 2006, ‘best execution’ requirements further solidified the shift to ‘hard dollars’ in mid-market and smaller shops, as it forced the buy-side to conduct the most efficient trade at the given moment, not the right trade within a ‘soft dollar’ arrangement (e.g. trading off a few bp in exchange for the research that induced the trade). This further decoupled research as a stand-alone offering, ideally situated as a hard-dollar business line.
These changes  came precisely during the decade of exponential information sharing and growth – retail investors on retail sites were getting access to real-time research and ideas shared from numerous sources. Consensus data, analyst projections,  and research reports were openly available or passed around with relative ease across historical and newfound communications channels (think of the big Lazard report for Carl Icahn that became a web sensation in February 2006, and still shared all over the web).
During the same time, traditional publishers had their content tested by the general and financial public to determine its value – certain brands thrived (think WSJ, FT, NYTimes, The Economist, and several smaller, leaner web-based offerings) while others struggled heavily or fell apart (think nearly everyone else). Clearly, people were willing to pay for the best available content, but the bar had risen to determine who would succeed in this new information-rich world.

Value In Information

In the publishing world, firms like the NYTimes and organizations like Dow Jones were able to win the digital dollars by creating a lucrative new model in cyberspace – giving away a portion of content for free and supplementing such services with advertising. Their best writers leverage social media to build notoriety to encourage more eyeballs to look at the content to drive those two business models (subscribers and ad traffic).
In the research world, firms on the sell-side push their research reports to both clients and potential clients (basically the bulk of the buy-side) for free, with the hope that clients will reach out to their analysts for both corporate access (opportunities to meet management) and analysts access (opportunities to pick the brains of the analyst over the phone or in person).
Today, most top-tier sell-side shops, who can ensure ‘best execution’ via their trading desks, can still afford to manage their research business via soft-dollars, but the rest of the sell-side and the independents make all of their money through hard-dollar arrangements. To be successful in a hard-dollar environment, analyst insights need to be considered highly valuable and essential to investment decisions – it can no longer be reliant on ‘relationships’ or some intangible connection for other business.

Selling Valuable Content

Again looking to the publishing business for answers, we can see a variety of approaches, namely the freemium model vs. the walled garden approach. In the freemium model, a taste of the content is shared with the potential customer to entice them to buy – sites actively push their best writers and content to be accessible to this audience, as it will encourage subscription and ad dollars rolling in. Alternatively, in the walled-garden model, the firm relies on its existing reputation to sell their content, generally sight unseen – this requires the very strongest of brand names in the market.
In the research world, a large amount of content is produced and shared through a variety of private channels (e-mail, databases, brokerage firms, and through financial news agencies), with the intent of building brand with existing and potential clients. The goal is to build enough credibility around specific securities, industries and macroeconomic areas to be worthy of client research budgets, which can easily be in the seven or eight figures for the larger firms.

Social as a Distribution Channel

Again, the publishing industry has largely embraced Twitter to push content to the masses and establish/extend the brand of the firms and their individual writers. It has been able to expand empires (think Thomas Friedman) and build new ones (think Mashable, HuffPo and BusinessInsider), particularly in the smaller and less-established firms.
On the research side, embracing StockTwits as a distribution channel is a modern alternative to the traditional research freemium model of database and dissemination through the news agencies – allowing the firm and their analysts to own the content being shared, how it gets shared, and follow the engagement from the community. With the research community sharing their basic thesis and analysis with the greater investment community on StockTwits, they will ensure attribution with the firm and analyst, and enabling fully-trackable engagement from both market influencers and potential clients. The result is a highly effective, yet simple way to be a part of the more transparent information market (actively, as apposed to being dragged into it, kicking and screaming), building clout and brand with the right audience who can be long-term clients.

Seems like a smart approach to me.

Look for it in 2012…

Social Media 2.0 – The Need to Remove Contextual Spam

Back in 1999 when I entered college, I gradually gave up my @AOL.com address in lieu of my shiny new @cornell.edu address – the main reason was spam – after several years of active use, e-mail boxes become unwieldy and full of spam. When I was an 11th grader, it surely made sense for me to sign up for SAT prep, University Admissions, Financial Aid, and high school sports mailing lists, but nearly all that content, 18 months later was useless to me, but still showing up each day. Sure, I could remove myself from each list and/or flag it all as spam, but it was an annoying ongoing task, worthy of a complete overhaul.

The same pattern has gone on for the last 12+ years – corporate, educational, and personal e-mail start out clean, but ultimately become havens for “contextual spam”, e.g. content that I willfully signed up for in the past, which is now irrelevant to my daily life.

I’m currently sitting in sunny Fuerteventura, one of the Canary Islands off the coast of Morocco, enjoying a much-needed vacation with my wife’s immediate family. When we got here, I got a SIM card nearby, and opted for the e-mail package, so as to be able to see what was coming through my inbox and be available to respond if need be at a few points during the day. As you can probably guess from the location, high speed internet access providers have not focused too heavily on the Canary Islands, and its offered me a 2 week period off the grid for the most part (in fact, just to send this post, i am sitting in the Convention Center, where I have a third of a bar of wifi connection).

Regardless, each day, I get about 50-60 e-mails, despite my “Out of Office” note, with nearly 80% coming from mailing lists, applications and related spots which are no longer relevant to my life – my G-Mail still seems to get notes from MBA admissions offices about deadlines and exciting happenings, despite having been through b-school in 2008. While I’ve flagged the content a dozen times or so in G-Mail, its still coming through.

My corporate e-mail at StockTwits, now with almost 2 years under my belt, is also chock full of spam, starting with LinkedIN group e-mails coming daily or weekly, Twitter updates, and a variety of newsletters that are often just irrelevant to my day to day. Talking to my colleagues (and family members), I see this as a recurring problem.

The Death of E-mail

I cannot remember the last time I anticipated anything coming through the USPS -Sad to say, but with electronic billing and magazines on my iPad, I just don’t need it anymore…

But don’t tell LL Bean and Bloomingdales. A few errant holiday and wedding gifts over the last 2 years have led to at least 6 catalogs hitting my mailbox each month, not to mention all the affiliate companies that are sending me ‘related spam’. Finally, as if the credit crisis had not happened, it seems like my wife and I are eligible for millions of dollars in new credit lines through Capital ONE and Discover, despite never having a relationship with either firm at our current address (and living outside the US for a few years prior to that).

E-mail has supposedly killed snail mail, but it suffers from the same underlying mismanagement – a physical address or e-mail address is just a small data point in a large dataset that is sold for fractions of a cent per name in our world to advertisers. E-mail and Direct Mail Marketing are still a phenomenally large business, profitable even when only a small fraction of a percent or recipients act on the message. Hence, spam and the increasing irrelevance of e-mail in the communications suite…

Social Media’s Problem

Which brings us to social media… Facebook is a site I can no longer use actively – why? Because the folks I knew and cared about in 2004 are not the same as the people I care about today.

  • In 2004, I was in my first job in New York, single, and hanging out with Management Consultants, Bankers, and Cornellians (to be fair, most of whom were Management Consultants or Bankers)
  • In 2007 I went to INSEAD for business school. All of a sudden I added another 500+ friends from a variety of countries who were with me in Singapore and France for 10 months.
  • In 2008, I moved to Tel Aviv and began befriending folks in the startup scene across Israel and Europe
  • Today, I work in the New York startup scene, and have added friends here as well

As you can imagine, I’ve got almost 8 years of relationships from very different circles that are all being updated in my Facebook interface. It’s rare to not get a facebook message from a friend from 5-6 years ago, about something they’re doing that is now far away from my life – yes, the voyeur effect allows me to peer in and see what they’re up to and reconnect with a ‘like’, but most of the time I’m just frustrated to be seeing it at all.

And its not all that different on the other big networks – When I first used Twitter in 2009, I was a VC in Israel, and built several lists of VCs and Startup founders that I followed in Tweetdeck. Today, half the young VCs are in startups across Europe and several of the founders are working for larger companies (as part of acquisitions) – sure their content is still good, but its less relevant to my day to day.

LinkedIN too has big problems with this, particularly around groups – I love groups as it adds context to your profile and adds affiliations that were not formalized several years ago (they are trying to adjust this through relationships with specific credential services, and through new fields like ‘skills’). Regardless, I don’t want to drop off the VC lists, as I still do work with Social Leverage on investments, but I also don’t want to get bombarded with spam conversation. I don’t want to drop a name off the rolodex from college, but I do want e-mails from my classmates in 2002 to be prioritized lower than correspondence from newer relationships.

But Twitter and LinkedIN, like Facebook, do not solve the ‘contextual spam’ issue for me by organizing the people I follow (and my followers) into buckets and/or recommending I unfollow people – if they did that, they’d have less ‘contextual spam’ but their users and brands would have fewer followers and less reach.

Social Media 2.0

What is happening across the board as a result of all this information being shared across e-mail, RSS, and social media, is a new need for curation tools that contextualize the conversations you’ve opted in to. What will come next is a series of tools that contextualize the conversations you ‘ought to be in’, based on more intelligent usage of your social graph.

  • You may have been on JDate 4 years ago, but are now married with kids, you probably don’t want to be hit up with news and information about dating tips and wedding venues – despite what you may have opted into 4 years ago.
  • You may have been a huge fan of an indie band 4 years ago, but clearly have distaste for their new stuff, now that they went mainstream.
  • You might have loved penny stocks 3 years ago, but now care about your investment dollar (and are investing in the StockTwits50 exclusively).

The tools and the networks we use, particularly as they become more verticalized (and thus deeper), will need to be smart enough to first and foremost know who you were, know who you are today, and know who you are likely to be in the future.

At StockTwits, we have always taken the philosophy that the context of a message at its given point in time is essential, but not the ongoing ‘zombie following’ mentality of Twitter or Facebook – we want our users to actively follow and unfollow tickers and people, as their preferences change and their needs change.

For companies and institutions who use StockTwits to communicate their message to the investor community, we emphasize engagement statistics and monitoring efforts, focused more on context at individual points in time, rather than aggregated follower statistics – we believe that its more important to know your ‘true reach’, namely how many people viewed and engaged with your content or ticker at a given time, rather than how many people clicked the follow button over the lifetime of the platform.

Clearly there’s room for improvement in enhancing the value of our communications tools, and delighting the user.

Simplicity: How the Key Design Element in Consumer will drive the Enterprise

This morning I made an interesting observation – while riding the 2 train to the office, I noticed 3 women sitting in front of me with Blackberry phones, but the iPod white earphones in their ears, listening to an iPod that was nestled away in a pocket, only to show its face when the user didn’t love the shuffled song selection. It’s an observation that many of us could trace back 10 years, to the beginning of the iPod revolution, when the simple music player became all the rage. What was so interesting to me here though was the fact that these girls were carrying newer Blackberry phones, which carried MP3 music software, and enabled them to use a single device, instead of the two – and yet they preferred using the two devices separately.

I recall making a similar decision while at Greylock a few years back, lugging a Blackberry Bold along with my iPod to listen to music – I wouldn’t want to use the Blackberry’s clunky music interface or even pretend to concern myself with cutting its battery life short. My wife made a similar choice last year when we were carrying Droid 2’s, worried that listening to music drained the battery, and the music player was still horrific.

I also noticed a recent report from ChangeWave Research about the iPhone’s remarkable customer satisfaction – see link here. With 77% very satisfied and 19% somewhat satisfied, that leaves only 4% unhappy on some level – astonishing numbers.

When we look at comparable studies with Android and other handheld devices, we see a staggering difference:

So why the affinity to Apple iOS devices? The most commonly offered response is the intuitive interface and sleek design. The device just works, and doesn’t require a brilliant operator to get through all the kinks (see Android). And now, iOS is competing seriously for the enterprise – why else would $RIM and $MSFT support iOS at the Enterprise level?


The focus on complexity has always been part and parcel to the WinTel universe. Whole IT consulting firms with legions of IT professionals were employed with the sole goal of taking basic Windows building blocks and developing custom apps and tools to spec. Clearly many of these tools have been extremely successful and helped push firms to higher levels of efficiency and competitiveness. These tools grew and grew and grew, often long beyond their natural scale and shelf-life. Their great sales staffs then pushed their clients to extend the tools further and further, to extend lock-in…

However, the new buzz word is ‘simplicity’. Everyone who’s read Steve Jobs knows this well – “Simplicity is the ultimate sophistication.” In fact, Isaacson devotes the entirety of Chapter 26 to the design simplicity – here’s my favorite quote via Johnny Ive:

Why do we assume that simple is good?

Because with physical products, we have to feel we can dominate them. As you bring order to complexity, you find a way to make the product defer to you. Simplicity isn’t just a visual style. It’s not just minimalism or the absence of clutter. It involves digging through the depth of the complexity. To be truly simple, you have to go really deep. For example, to have no screws on something, you can end up having a product that is so convoluted and so complex. The better way is to go deeper with the simplicity, to understand everything about it and how it’s manufactured. You have to deeply understand the essence of a product in order to be able to get rid of the parts that are not essential.”

Source: Isaacson, Walter (2011-10-24). Steve Jobs (Kindle Locations 6006-6011). Simon & Schuster, Inc.. Kindle Edition.

There is an inherent philosophy here that is embraced by many innovators in the enterprise – simplicity is the art of saying no to complexities, while focusing on the essential. 37signals follows this approach with their SaaS products – limited customization and a requirement of your team adapting to the 37Signals workflow and conventions, but the product is a pleasure when you accept those limitations. But it also requires a philosophy that folks like 37Signals might know what you need better than you do – just as we trust Apple to figure out what features and services we need before we need them.

I remember when StockTwits first started with CRM, we went to 37Signals first for HighRise. The product worked, but we felt we were missing features we’d probably want to use, namely Social Media integration, E-Mail integration, and some customized reporting features. We then took a 6 month stroll testing other CRM tools (we actually loved BantamLive, but it was shut down this summer), before finally landing in Salesforce.com. The reasoning behind the decision was the expectation of an expanded feature set in the future, the inevitability of using Salesforce.com as we scale our sales team, and a casual forgiveness for Salesforce.com’s complexity in prior engagement with the tool. Not surprisingly, unlike our sales rep at 37Signals, who tried to convince us that we didn’t need these more complex features, his counterpart at Salesforce.com encouraged heavy customization, and even recommended a handful of consultants to build our application to our own customized needs. Now, several months into Salesforce.com, I frankly long for the time when we had fewer, simpler features to deal with – simpler tools that just did the essentials. The brilliance of simplicity…

The Coming Explosion

The iPhone and iPad have really shaken the enterprise. Firms like $MSFT and $RIM who in tandem ensured that mobile devices connected to legacy e-mail systems, prolonging their shelf-life in a world of cloud computing, are now seeing their worlds turned upside down. The truth is, while we all loved our Treos and our early Blackberry’s, most people today want something more from their mobile devices – iPhone. In an even clearer manner, the iPad has grown to complete domination of the tablet market, despite $MSFT having a 10 year head start and a multitude of vendors selling Android devices. More and more enterprise folks come to work and laugh about their old-world desktops and devices (in fact, you see firms reluctantly supporting iPad because employees show up to work with them to enhance productivity, outside of IT mandate). This trend will continue to blossom, encouraging a wholesale review of business tools at the enterprise level.

As mentioned in my post yesterday, I expect there will be several firms who will come in and replace (or redefine) the biggest enterprise software firms, namely $MSFT, $ORCL, $RIM, $SAP, etc. The very best of breed will likely have an Apple-like approach, with more rigid customization capabilities in exchange for a tremendously better user experience and ROI for the company. Obviously, we’re hoping StockTwits will be one of those SaaS vendors for the finance vertical – and we’re working hard to make that a reality.

Of course, there will be a silver lining for all the old-world IT pros though – there will be tons of migration work in the near-term…

¡Viva la Revolución!: Why Enterprise Software Needs A Refresh

I had the opportunity to talk with my Mom last night about the computerization of her health care facility. It’s amazing to me that she can have an iPhone, iPad, and Macbook Pro at home, which are generally easy to use devices that she’s picked up over the last few months, and still be dealing with a trainwreck at the office – old desktop PCs with CRT monitors, databases built on Lotus Notes, and local storage. In essence, when she goes to work, she steps back to a simpler time, roughly 10-15 years ago, when Windows XP was all the rage, blue screens were a fact of life, and a laptop was roughly 9 lbs and up…

Why the disconnect? Legacy enterprise software, e.g. corporate commitments to infrastructure, frozen in time with an iterative enhancement process that only further solidifies the legacy infrastructure. A few years back, someone at the firm thought they needed PCs in her department, bought specific hardware and software solutions based on what might be available back then, hired a consultant to configure the software, and kept that consultant on the payroll over the last decade, slowly iterating the software…

This same cycle has occurred across large enterprise over the last ten years. Bloated IT operations, focused on supporting and enhancing tools built on legacy software, have become extremely powerful and extremely entrenched. Software tools in categories like ERP and CRM, are now offered as best-in-class solutions on the cloud – essentially allowing a team to convert legacy systems to more efficient cloud solutions. In the immediate term it creates a huge flow of work for experienced IT folk converting legacy to cloud-based systems, but ultimately, this move will likely simplify IT departments and requirements…

A revolution is brewing here, and the winners will be cloud-based, simple/intuitive, delightful, open solutions focused on user adoption and customer value-add. One of the firms who will lead this movement is Box.net, led by Aaron Levie – I recommend reviewing his video from the GigaOM conference last week here. His singular focus on delighting his customer base of corporate users, by offering simple and elegant alternatives to Sharepoint that his customers are actively seeking out on their own, often before IT admins gets involved. Others like Marc Benioff from Salesforce.com and Tony Zingale from Jive have also prescribed a similar approach.

At StockTwits, we’ve begun working with the enterprise to better enable investor-focused communications. In our vertical, many legacy software solutions have been adopted over the years, resulting in a world often frozen in a Windows XP, Internet Explorer 6 world, with tons of internally developed and proprietary infrastructure holding it all together. Our platform, by contrast, was natively built in the cloud, with simplicity and usability at the top of the priority list, resulting in a delightful, easy to use, and valuable user experience that is leading to strong adoption. Our clients find the platform to be a breathe of fresh air, both in its simplicity and the flexibility of our architecture.

While we’re still at the beginning of this revolution in enterprise software, I’m extremely hopeful that we’re on the right path – ¡Viva la Revolución!

Steve Jobs: The Importance of Process and Succession

Steve Jobs retired from his day-to-day activities at $AAPL yesterday, and the world has been up in arms over the future of this company. After all, the last time Steve Jobs left Apple formally, the firm seemed to have lost its way during a decade of pain for Mac fans everywhere. Regardless, this time around is clearly different, and here are some thoughts/values we can discern from the situation:

Industry Dynamics

When Steve Jobs left Apple during the dispute with John Sculley in 1985, the market was slipping beneath Apple – IBM had put a serious dent into Apple’s personal computer market share and Microsoft was already starting their ascension. Additionally, Apple couldn’t get their game plan straight, as the Lisa was a massive flop and the Macintosh was not innovating as fast as the IBM (and its clones). There were many holes in Apple’s armor at the time, and there certainly was no indication of Apple’s domination of the innovation circuit.

In 2011, the world is a bit different – Apple holds innovation firmly in its hands. Major consumer electronics (think Sony, Sansung), software (nearly all web applications), mobile (Nokia, Motorola, HTC, Samsung, RIM) and even enterprise firms hold their model up as the innovation ‘team to beat’. While there is real competition across all these sectors, its amazing how much of a lead Apple has created for itself.

  • Samsung and HTC have built strong competing phones, but still don’t have anywhere near the #s Apple does, nor the draw of their product launches
  • There has yet to be a serious tablet competitor, period.
  • Despite several exciting alternatives, Apple iTunes is still the music store to beat across the globe, and seems poised to further strengthen that position with their new iCloud and Match services.
  • Speaking about Cloud, without any real background, nor a live product yet, Apple is already considered a real alternative to the backup and cloud storage tools that have built strong reputations over the last few years.
  • Oh yeah, the Macbook has become the best and most profitable laptop on the market, surpassing Dell, HP, and all the other dominant forces on the Windows side of the world – And that Macbook Air is being copied by anyone with a hope of keeping market share.
A lot will be said about Steve Jobs single handedly building these products to his own specifications, and one cannot dismiss his great design mind. However, to build a business like this, with the complex infrastructure required across functions like design, engineering, operations, marketing, and client service, one can start to realize just how great his management team truly is/was. While several of his team members have left the firm, it seems clear that they’ve instilled extremely tight controls and processes that have allowed the firm to execute to near perfection over the last decade – and I doubt that is something that will fall apart in the near term.
Succession also plays a role in this, and Steve Jobs has really groomed Tim Cook to lead this organization – additionally, he’s pretty much had a trial run for the better part of the year. Seems to be working out well. I’ve personally spent a lot of time studying succession, particularly the poor succession models that ruined Sandy Weill’s legacy at Citigroup, where there are a lot of parallels.
Steve Jobs, not unlike Sandy Weill, had a grand vision and insisted on being involved in intimate details of the business from nearly all angles. Unlike Sandy, Steve’s attention to detail and interest in building from within were a strong asset – Sandy preferred to acquire and place his top lieutenants into clean-up mode time and again, testing them with the jobs of running business units, but never the business as a whole. Both models worked for a while, and both CEOs had outsized egos around their own accomplishments and legacy.
However, unlike Sandy, Steve was willing to hand the reigns over to Tim Cook on numerous occasions, test his ability to lead, and ultimately set succession plans ahead of his departure. Sandy swept Jamie Dimon out of the business and ultimately into the waiting arms of Bank One, now JP Morgan – the result was Sandy retiring without true succession plans. As we know from the last decade, Citigroup has had year after year of poor news, as Sandy’s vision was picked apart (along with his legacy).
Lots of targets on their back
The departure of Jobs is an opportunity for Apple to prove that it deserves the role in the industry it has settled into. More specifically:
  • With new Android phones coming out on a cycle of 3-6 months (particularly with new technology, like 4G networks), can Apple sustain the once a year upgrade? Will anyone but the geeky IT guy in the elevator use a Windows Mobile phone, and should Apple care? How does Apple plan to play in the Mobile Payments space?
  • Will anyone emerge as a true competitor to the iPad? Will Apple be able to continue innovation and bring us the next big leap on this device?
  • Will iPad destroy the Macbook business, and/or will they merge at some point?
  • Will iCloud be able to beat Google, Amazon, Salesforce, and emerging competitors in the cloud space?
Lots of tough strategic questions that will likely be answered in the next 3-5 years. How Apple handles these issues will determine whether they will repeat the mistakes of their lost decade or whether they will continue to be an unstoppable force. Hopefully Tim Cook is a strong enough leader to navigate these key strategic questions without the crystal ball of Steve Jobs…
Health Update: Lost 10 pounds since my birthday, about a month ago, but more importantly, changed my behavior. That FitBit is a phenomenal device – keeps you motivated and reminds you that you’ve sat on your butt all day.

Evolving the Social Graph: Why Google+ is on to something

What a difference a day makes – up to last week, $GOOG seemed like a dinosaur that was on its way to becoming $MSFT – a ‘one or two phenomenal hit wonder’ that had not been able to figure out social media, or the new internet. Like Lycos, Excite, Altavista, Microsoft Search, and AskJeeves the last time around, Google has been blindsided by social networks like Twitter and Facebook who observed the information overload created by Google’s organization of the web, and unleashed a curation model, in which trusted people share relevant content with friends and admirers… As has been discussed at length, Facebook or Twitter now provide a better, albeit different, search and discovery experience than Google ever could do.

There are however, several key flaws with Twitter and Facebook, which have been documented well – the former’s achilles heal is its focus on building protocol – not destination site, its heavy dependence on 3rd party applications to push the bulk of the content to the stream, and its lack of curation tools to avoid spam. On Facebook, the main issues seem to stem from privacy concerns, sparked by the evolution of the product from a closed network of friends and family to an open network. Additionally, neither platform is all that great at search, with Twitter relying on 3rd party tools for the best user filtering tools, and Facebook relying on Bing for comingling their content with traditional search.

Enter Google

Google has always been about one mission – to organize the universe of information. While they have been missing the ‘social boat’, Google was smart enough to build or buy key applications for content creation, including Blogger, Docs/Apps, Youtube, Picasa, Gmail, Maps, Voice and most recently Music. These products were all offered with the main goal in mind – namely, to collect and organize information – these tools helped them crowdsource much of it, with social schemes in each of these seemingly independent applications. The addition of Google+ to the marketplace is actually quite intuitive as a logical next step, taking the independent social experiences and combining them in one central place, with privacy and ease of use as the key success drivers…

I, like nearly all the press, was quite skeptical about Google+ when I launched it last evening, having been on the Google Wave bandwagon years ago, but been sadly underwhelmed by the experience (or lack of use case). This experience however, is actually the exact opposite – despite having few folks on the platform thusfar, I found that the interface encouraged me to set up my social network quickly and efficiently, leveraging existing Google contacts from Gmail, Picasa, etc. It’s as if all those networks of people from the various Google social applications are on Google+ (or will be shortly).

The integrated tools for group chat, videoconferencing and ‘wall’ were intuitive and easy to use (another post on how these tools could be best in class, to come shortly). It does not have the incredible amount of noise that I find immediately upon entering Facebook, with 5+ years of weirdo apps downloaded, and countless ‘friends’ added, who need to be removed or silenced from the ‘wall’.

The Brilliance of Circles

The construct of circles allows me to bucket my contacts quickly and efficiently, and do so from the get-go, which ensures that I have a place to add everybody, whether they’re work colleagues, clients, family, friends, or otherwise. That is a killer feature that I do not have on Facebook, LinkedIn or Twitter (unless I choose to have multiple accounts or spend hours configuring Facebook appropriately). Additionally, the drag and drop interface is simple and mac-like, with really good suggestions. Its a huge win for me, and something that will entice me to use the service.

The Upshot

Long story short – Google+ is a winner for me, and has the opportunity to really be a game-changer in social media. Ironic, I know, but if Google simply integrated Google+ into those Google applications we all know and love (which you know they’ll be doing), its a matter of time before it becomes mainstream. Frankly, Facebook’s 700m users probably pale in comparison (or at least are on par with) Google’s massive userbase of folks using GMail, Picasa, Youtube, and even Search with a login – its a formidable competitor, with a stockpile of category-leading in-house apps, and a sizable and growing army of 3rd party developers working in and around these apps.

Needless to say, I’m happy to be holding some $GOOG stock these days…

Rethinking Expertise, or Why Expert Incentives Can Create Chaos

Maybe i’m easily shocked. Like many of you, I’ve been spending the better part of the last year and a half reading and learning about the underpinnings of our most recent financial crisis, trying to make some sense of it all. Most recently, I’ve read Too Big to Fail, A Colossal Failure of Common Sense, and No One Would Listen (Markopolis on the Madoff Scandal). I’ve also had the chance to watch Inside Job, the documentary on the crisis narrated by Matt Damon (whom I have trouble taking seriously).

In nearly all the key elements of the crisis and the Madoff scandal, one can find a deluge of experts from top business schools, top think tanks and the highest institutions in the world (including non-profit and government thinkers) rallying behind some of the most wrong-headed, short-sighted, and dangerous positions we’ve ever held. What lead them astray?

Let’s start out by clearly pointing out that experts are not always going to be right, and often we pay for the vision and insight they can provide on a topic, whether the outcome matches their predictions or not. Clearly, predictions for nearly anything are difficult to put together with any reasonable accuracy, and its easy to look back and identify flaws in the underlying argument.

However, there is also a growing inclination by the expert class to take cash payouts to help determine which side of a position they lean towards. At this point, ‘expertise’ is not really expertise, but rather a ‘paid for endorsement’, no more reputable than George Foreman selling cooking equipment or Katy Perry touting acne medication. The irony is, George and Katy actually need to clearly state that they’re paid to tout their products on those infomercials, while experts in situations with much higher stakes, do not need to do so.

The Blow Up

This week, there’s been lots of talk about Quaddafi’s consultants from Michael Porter’s Monitor Group, to help clean his image around the world. As BusinessWeek reports, over $3m exchanged hands in this deal, involving the design of a massive marketing and advertising effort, intended to encourage world governments and large corporations to look at Libya differently. However, the ‘experts’ hired to build this marketing effort were very outspoken in the media about their feelings on how Libya had turned around and become a moderate and friendly place to do business.

Benjamin Barber, a professor from the University of Maryland, wrote an op-ed piece in the Washington Post in 2007, titled “Qaddafi’s Libya: An Ally for America?“, claiming that we might have been to harsh with the guy. Unfortunately, his ‘about the author’ section only states this:

Benjamin R. Barber, the author of “Jihad vs. McWorld” and “Consumed,” is a senior fellow at Demos, a New York-based think tank focused on the theory and practice of democracy.

Glad to see he left out the Libya and Monitor Group-sponsored trips that helped sway his ‘opinion’.

How Do We Solve This: A Look to Finance

How do we as a society solve this problem? Perhaps with a quick look to finance…

When you watch any financial broadcast, particularly on CNBC, Bloomberg, and Fox Business, you’ll find a very clear list of disclosures when a guest commentator comes onto the program. This is used to help investors understand the agenda of the individual sharing their idea at that given moment.

Much like George Foreman, Jim Cramer’s Mad Money show literally mentions his material relationships with any security Jim chooses to discuss in a given show (can easily be more than 50+) which allows the watcher to know his incentives. The irony is, Jim Cramer is still a big deal and a champion of the retail investor, even when his advice is far from perfect – part of that has to do with the transparency he provides (which is actually required by the SEC and FINRA).

In the business sphere, white papers and research are often written on behalf or with funding from individual companies. These documents are still incredibly useful, even if they have an underlying bias within them. Why can’t this level of transparency be applied across the board?

In the political realm, this same concept should apply. I’d like to see CSPAN list the ‘material contributions’ the speaker at any given point has received from lobbyists and institutions, so that the voters and general public can take that into context.

In the consulting and think-tank universe, it’s about time for proper disclosures on who’s paying the bills. It would’ve helped us better understand the testimony these ‘independent folks’ might be giving to Congress, to students in a classroom, or to other influential bodies. Much like Mr. Cramer and the white-paper business, I’d expect their expertise to be duly noted and leveraged accordingly.

Robert Rubin, Larry Summers and Hank Paulson are still experts in Finance, even if they have clear biases. The Monitor Group is filled with smart people who have studied the science of business, and can provide some thought and guidance to the rest of us at times, but within the context of their biases. It’s time we all accept that biases are out there, make them more visible, and give the people the chance to make a decision with that information.

It will surely help us make better decisions in the future.