Archive for Startups & Technology

Google, MasterCard, and Citigroup: Why NFC is such a pain

The WSJ posted an article this morning on the big NFC story for mobile payments via Google, Mastercard and Citigroup. NFC has been a promising technology, poised to change the game in mobile payments for the better part of the last decade. I recall back when I consulted to the credit card industry, that there were numerous schemes designed to enable merchants to engage their customers in a more personalized shopping experience – with applications across retail environments, namely from the grocery store to high-end luxury goods.

Alas there has always been a major snag in bringing these ideas to fruition. No, it wasn’t a technology gap, as the NFC chip has been inexpensive for years, nor has it been the credit card terminals, which began adding NFC technology to their devices over 5 years ago. The culprit has been greed and a changing of the merchant fee formula, which will still likely hamper this iteration of NFC thought leadership.

Merchant Economics
Merchants generally pay between 1-4% of a typical transaction for processing. This generally gets broken down between the:

  • Merchant Acquirer (used to be independent regional firms, but now mostly the large retail banks) who connects the merchant with their processing channel and may be the merchant’s formal bank partner
  • Card Network (American Express, MasterCard, Visa, or Discover) which connects the merchant bank with the customer’s issuing bank.
  • Card Issuer (bank that issued the card to the customer) who is either taking on the risk of a credit transaction, or processing a debit transaction.

These three participants have had a fairly cosy and clear relationship which is managed in a cartel-like manner, to ensure their rates (and subsequently their steady merchant income) do not change.

The most prominent example of this activity can be found in debates throughout the last few years around debit rates, both in the form of heavy campaigning and ultimately acquisition of the PIN debit competitors who offered a cheaper and more secure product that threatened this group, and in the tremendous battles these folks have waged against retailers interested in decoupling fees for debit and credit transactions (or in the case of American Express, the decoupling of credit and charge card transactions, which are seemingly from different types of customers).

Additionally, through M&A, many of these pies are now owned by one big bank, namely American Express, Citigroup, Chase, BoA or Wells Fargo. These folks are not adept to sharing…

The Problem with NFC
In the NFC scenario, there are several new players who muddy the equation, specifically the mobile operator and mobile manufacturer.

The operator sees mobile payments as an emerging income generator, despite their lack of knowledge or appetite for running a meaningful credit business. Many operators have already tried (and mostly failed) at mobile app stores to generate additional revenues, only to get their clocks cleaned by competitors (think Android Market, Amazon Marketplace and MP3 store, etc). From these dynamics, one would think the mobile operator at best would assume a small license or revenue share, but unfortunately not – in most models I’ve seen, operators think they’re entitled to a portion in line with the merchant acquirer. The result is either having a larger merchant fee, which hampers adoption, or the other parties sharing the fees.

The mobile manufacturer has also attempted on several occasions to step in, with the most active being Nokia. Again here, it’s an attempt to build a new revenue stream by an I’ll-prepared and generally distant participant in the transaction. With the exception of Apple, manufacturer-based app stores have not had tremendous success, nor have mobile to mobile payments managed by the manufacturer been exciting outside specific developing markets. Thus, there is little reason for these folks, with the exception of Apple, to even participate, let alone get a sizable share of transaction. However, once again, the demands and naivety of these carriers are outsized.

A Partnership That Can Work?

The situation that Google finds itself in is unique, as they are the software provider for a growing population of smartphones, and are building an app store that is generating revenues. The uniqueness of their position involves their underlying business model, which might allow for them to not care much about this transaction fee component – they sell data and advertising placement based on that data. As we’ve seen over time, Google has figured out how to extract higher ad revenue from advertisers for highly targeted placements. Transaction-level data would only help them make targeting that much more lucrative and specific.

Hence, Google partnering with Citigroup and MasterCard is a win-win situation for all parties. Google gets it’s data and enables the traditional transaction model to stay in mobile payments. Citi and MasterCard win because the merchant will likely agree to this payment form. It’s a big win all around.

The Big Losers
The big losers here are the phone operators and manufacturers, who will likely have to concede this business as a software play that fits into their Android strategy (much like Google Maps with navigation messed up their lucrative turn by turn navigation business on smartphones). Additionally, by setting precedent with Android being a “free” software play, both Microsoft and Apple will struggle to be a part of the equation. Phone manufacturers, namely Nokia, Motorola, HTC, etc, will likely lose out as well, as they are even further away and will have a difficult time convincing folks that they are indeed worthy of a piece of the pie.

Only Apple, with it’s unique placement in the market as the center of their ecosystem, with a software, hardware and app store under one umbrella, could potentially create a new paradigm on it’s own. I wouldn’t be shocked if they were able to break the paradigm, because they’ve got a track record of breaking up cartels (think music and video), but it may be years before that happens…

When 1+1 = 1; Why the marriage of AT&T and T-Mobile will not turn out well…

I recently went on a tech buying binge which put me squarely at the bleeding edge of mobile technology, albeit for a week or so until the next big thing comes along. I was recently pick-pocketed in February and had to replace my beloved Droid 2 with a new model at full retail price (I just got it in August). When looking at price lists that started at $499 for what seemed to be the equivalent of a refurbished Motorola RAZR from 2003

with the new Android and iOS phones starting around $599, I quickly decided to buy the best phone available. Given that I’m a Verizon user, I decided to pre-order the HTC Thunderbolt, which I picked up (finally) last week (in the meantime, the Droid X served me well). This is the first 4G LTE smartphone on Verizon, and has been a great phone thusfar, with better audio quality for calls and ridiculously fast internet (it’s actually just a hair slower than my FIOS connection at home).

Additionally, while I was at SXSW with the StockTwits crew, I caved and picked up two iPads (one for the wife) at the SXSW pop-up store, which made acquiring an iPad on opening weekend a total breeze… When offered the option of getting the 3G model, I declined immediately – whenever I’d use the device, i’ll have wifi, particularly thanks to Terminal 5 at JFK’s free wifi access (Thanks JetBlue).

The Changing Landscape

As our fearless leader, Howard Lindzon, has stated in his succinct post, the world has changed around the mobile phone carriers. Innovation is no longer expected from these companies. In fact, all we want is enablement of technology coming from elsewhere, with limited hassle from these folk. With my Thunderbolt, all I wanted was the raw device from HTC, none of the preloaded garbage software that Verizon put on the SIM, and the ability to use the 4G network to download useful mobile apps like Skype and others.

I’ve reviewed my spend per month over the last few, as well as my wife, and i find an interesting pattern. We both spend a very limited amount of time on voice calls each month. Blame it on Skype at the office, which I use for at least 4 hours a day, and you realize just how little the cellphone is needed for phone service. My wife and I are heavy text messagers, but we’re both slowly replacing texting with free alternatives like Twitter DM, Facebook messaging and even GChat (to be fair she’s still missing BBM, which would incidentally be a great app for Android ;-) ).

On the app side, I prefer Google Maps and their automated free navigation to Verizon’s equivalent for $3 a month. I rarely use Voicemail, so I dont see a value in their visual voicemail for additional bucks. I even avoided buying Verizon’s sloppy extended warranty, in favor of the no-nonsense Best Buy policy.

Long story short – We use Verizon for as little as possible, despite it being the best carrier in the US by a long shot. I doubt we are the exception…

The Lure of 4G

Over the last few weeks, i’ve spent a sizable amount of time at Best Buy with their mobile team, and have figured out what’s been going on (and frankly, why T-Mobile is still acquiring customers). Despite poor coverage in essential areas (Scoble covers this nicely), T-Mobile’s low cost plans and promise of “4G coverage” have made it a hot network, particularly for salespeople at Best Buy. I recall from my time as a consultant looking at the SPIFF business, particularly for the mobile phone industry – salespeople are paid a fortune to promote particular handsets and plans from specific carriers at particular points in time. I’ve noticed that Best Buy was selling T-Mobile 4G phones like the EVO like hotcakes, to a generally smart and reasonably wealthy community on the Upper West Side of Manhattan.

4G can be appealing, particularly if it is faster than traditional 3G coverage. However, both AT&T and T-Mobile have relatively poor 4G networks, particularly when compared to Verizon’s network, in terms of speed and coverage. Given that Verizon has now rolled out 4G phones, I wonder how long those T-Mobile incentives will excite the smartphone user going forward…

The arrival of true 4G also furthers the move away from voice to data plans, where smart carriers actually provide good Skype access for international calls and cheap VOIP alternatives to otherwise expensive landline and cell calls. Much like the development of cheap bandwidth capacity by Global Crossing and MCI on the backs of huge investor losses through bankrupcy, I’d expect the 4G developers to slowly lose their shirts to innovators like Google, Apple, and dare I say it Microsoft, RIM, and HP, as the value shifts from the pipe owners to the intelligent software managing those pipes and the content carried across them most efficiently.

Merging Losers Isn’t A Winning Strategy

A quick browse of the library of Harvard Business School case studies will give you a pretty good sense of the odds of success for a merger of two loser companies, attempting to beat a smart market leader. We could point to several attempts in the market, such Sony-Bertelsmann, Kmart-Sears, BA-Iberia, Delta-NWA, etc.

The primary purpose of a merger of losers is to shed dead weight and attempt to better compete with the market leader. Of course, in many cases, the brands themselves struggle to create a compelling reason for ordinary people to give any new credibility to the new combined entity. Additionally, bureaucracy, coupled with slow moving management, entrenched in job security and generally lacking great creativity are hard to move.

In the case of AT&T and T-Mobile, you find a good marketing engine potentially, along with assets in building credibility with both Apple and HTC for some of the most innovative phones. Unfortunately, their infrastructure needs drastic improvement, and the combination may put them farther behind than closer together, as there’s a ton of overlap.

In a market where a duopoloy has been created between Verizon and this new AT&T-T-Mobile, I find it difficult to not be bullish on Verizon in gaining further market share. The only question is whether the overall market will grow or stagnate…

Why Mobile Smartphones are still in their infancy, or why I wouldn’t bet against $MSFT and $NOK

Seems like the entire universe laughed when Microsoft and Nokia announced a partnership to create smartphones to compete with the Apple iPhone and the various Google Android devices. How could two turkeys make an eagle, anyways? Our CEO Howard Lindzon talks all the time about how the social web is still in its infancy, and how difficult it is to gauge if any of the players have solid positions going into the future. Why then is mobile set in stone, after only a few years of Apple dominance (and less than 18 months of remotely interesting Android phones)…

So its with that in mind that I talk about two of the most interesting firms in this whole mix, Nokia and Microsoft. Both have been stockpiling cash ($MSFT has $56Bn in current assets, or roughly $37Bn in cash and marketable securities, while $NOK has $34Bn in current assets, or roughly $13Bn in cash and marketable securities), and both have held lead positions in smartphones in the last few years. Additionally, both have a massive chip on their shoulders, as they’ve lost their lead to Apple and Google… However, this is easily remedied.

It begins with Windows Phone 7, which many reviews are calling good or even polished, particularly relative to Android. Microsoft has the capability to grow that universe by enticing the developer community and manufacturers with cash and customization. Nokia on the other hand had a major void in OS, as their attempts to compete with Android and iOS were ill-thought out. With the exception of Blackberry or WebOS, which wouldn’t have been strategically appropriate for Nokia, there really were only two choices, namely Android (dominated by HTC, Samsung and Motorola at this point, with plenty of 2nd tier manufacturers also pushing new models all the time) and Windows Phone, which seems to still be a greenfield. Whereas in the Android universe, Nokia would look and feel like a has-been behind the 8-ball, on Windows Phone, Nokia can still be a pioneer… Coupled with support that $MSFT offered for $NOK apps that might be displaced by standard Google apps, the move seems like a no-brainer…

Which brings the big question from the skeptic community – How will $MSFT compete if the developers are living on iOS and Android. Where’s the incentive? If they want a business community, the developers can also target Blackberry, or god-forbid WebOS, so how does Windows Phone 7 stay relevant? Great question, and even greater answer. $MSFT has made a conscious effort to intertwine development for PC applications with mobile applications – this was their underlying architecture since the old Windows CE devices (remember the beloved Compaq iPAQ). This allows for one underlying architecture for PC and mobile/web apps, which surprisingly fits dev cycles at many potential partners. The addition of Nokia, still the largest manufacturer and firm with the largest footprint across the globe, $MSFT by default stays relevant. Win-win that likely closes the gap for business apps, at the very least…

The challenge is convincing users to try the devices, with all the other Operation Systems out there. $MSFT should be able to sell those PC and Exchange synegies to the business community, but it might be tougher than any other $MSFT corporate sale since the early 80′s. With $NOK by its side though, $MSFT will probably take some market share from Blackberry and others. Underestimating $MSFT and $NOK at this point in time seems premature, particularly when thinking about the green-field that is smartphone sales…

This world just got more interesting and $MSFT / $NOK look like they’re here to stay (and play)…

Tweetdeck Acquisition: The Battle Lines are set?

The TweetDeck acquisition hit the airwaves late yesterday, but has not yet been analyzed fully by the pros, so I figured there might an opening for discussion. On the face of it, TweetDeck, which raised less than $5m over the last two years getting an exit of $25-30, as reported by TechCrunch, is a big win – most likely a 3x return for the last investors in and good money for the founders. Ubermedia, Bill Gross’s Twitter-app firm, has acquired TweetDeck, in what seems like an attempt to draw battle lines with Twitter itself, over who controls and can profit from the Twitter ecosystem. TweetDeck actually took the first step in that direction with the introduction of Deck.ly, which strongly encourages users to move beyond the 140 character limit and have their messages hosted independently of Twitter.

To me there are three interesting areas to explore, namely what might Twitter have been thinking on this deal, what does this mean for Ubermedia, and what implications are there for the rest of the twitter community?

Twitter

What is most interesting is how Twitter seems to have not cared about TweetDeck from the get-go, given that they likely had several opportunities to purchase them, and define their product trajectory. Since its introduction, TweetDeck has had several pivots – initially it aimed to the best Twitter app, then it started adding other social networks, primarily Facebook, LinkedIn, and Foursquare, then it added Deck.ly, in effect building its own independent social network. During that time, the product built a userbase of somewhere between 5-25m users (25m downloads, likely 5-10m actual users and 10% of those active).

The speculation here, mentioned by our friend Loic at Seesmic, is that Ubermedia, with Tweetdeck, originates up 20% of total Twitter volume – we’d need to assume at least 10% of Twitter volume is coming from Tweetdeck alone. That is a massive percentage and likely a sizable portion of the ‘active Twitter community’. So it begs the question – with tons of cash on the books and a huge valuation (now north of $6Bn apparently), why didn’t Twitter find it interesting enough to throw $25-30m at Tweetdeck, as a method of securing at least a segment of their most important, most active users?

I guess Twitter didn’t see value in Tweetdeck and the network they’ve built, particularly in lieu of the success of the new Twitter.com and mobile apps. Alternatively, one could look at Twitter and see a more aggressive approach, particularly with app developers (as we saw on Friday with Twitter’s closing of the free dev platform). It’s possible that the Tweetdeck snub by Twitter is a powerplay between Twitter and the dev community, implying that the days of free API access and leverage of their protocol is coming to an abrupt end (e.g. if TweetDeck was going to die anyways, due to massive API fees, there was no reason to buy it at this point in time).

Needless to say, Twitter’s silence on TweetDeck is deafening – particularly due to the acquisition by Ubermedia.

Ubermedia

Bill Gross has built an interesting thesis around the Twitter sphere and believes that he’s got a powerhouse in twitter apps, with Twitdroyd, UberTwitter, Echofon, and UberCurrent. With over 3m Twitter users, and some of the best mobile Twitter apps, Ubermedia is positioned as a major enabler of Twitter usage, but also majorly dependent. With the acquisition of Tweetdeck, Ubermedia picks up a much larger userbase, and the opportunity to siphon off users to 3rd party platforms, like Deck.ly, which are app-based and owned by Ubermedia. This threat provides Ubermedia with the chance to push Twitter around a bit, particularly in sharing the wealth on in-stream and in-app advertising.

At this point, Ubermedia has tremendous risk and opportunity in front of it, entirely based on how they dance with Twitter. While i personally find it hard to believe that Twitter is a big fan of Ubermedia properties, it is possible that they’ll be embraced and maybe ultimately acquired by the behemoth. More likely however, this acquisition will be looked at as a declaration of war, the protocol (twitter) vs. the tools that users use – its almost as if a cell phone maker (apple) is waging war with the cell phone carrier (at&t) for the hearts and minds of the user.

I wonder how that will turn out and whether Ubermedia is smart enough to wage that war- if anything, Twitter has proven incredibly flexible to newcomers and innovation in the Twitterverse, although that has been slowly stopping recently.

Twitterverse

The Twitterverse seems quite positive by another acquisition – bullish signs everywhere. Seems that firms like Seesmic, Hootsuite and others offering Twitter clients benefit from this acquisition, as they have all differentiated away from Twitter and built businesses in greenfields (think corporate) that Twitter doesn’t seem to be concerned with. The outcome of this acquisition will likely mean more of the same, with maybe some additional support from Twitter in setting battle lines with Ubermedia. Wonder who might be the big winner there…

Others in the sphere have been reading the writing on the wall for some time, focusing on maximizing the push from their platforms to Twitter, as apposed to the other way around (think StockTwits, Facebook, LinkedIn, etc). This is true of all the photosharing sites/apps as well. I believe the communities who create the largest set of twitter messages (and limit their pulls from Twitter) will be in the best shape.

Folks like Klout who depend on the Twitter dataset to create a set of user influence stats, will likely need to further increase the value of 3rd party datasets outside Twitter, as well as the value of the aggregation of those stats over time.

Sites like Twittercounter / Ad.ly , that spit out Twitter API data in a different format or add adversarial ads on top of twitter, seem in trouble, but frankly they always have to me. There’s just not enough value creation, and frankly, Twitter is getting there…

Firms like bit.ly and other stats oriented social media monitoring sites will likely benefit from this acquisition, as it opens the conversation for their own acquisition. Shorteners will always be needed in a 140 world, but why bit.ly or awe.sm or t.co will be the big winner is unclear. The same can be said for chartbeat and several other firms that build stats on top of twitter (why twitter didnt do this, i’ll never understand). It will be interesting to see which of these firms get acquired over the next 6 months and which whither away…

We’re not out of the woods yet, but i believe this is a landscape changing deal. Twitter, with its newfound business focus, might move to attack its dev community in specific areas or just embrace it – if they push too much on the former, they risk killing good will, but if they relax and follow the latter, they risk becoming a protocol with all viable businesses taken by its developer community…

It’s hip to be Square? Why TechCrunch is out of its element

Erick Schonfeld and John Biggs are good guys, and often give reasonable startup analysis on TechCrunch, but i’ve got  beef with their review of Square on Fly Or Die this week. It seems that they think Square will be a formidable competitor to traditional payment networks (Visa, Mastercard, American Express, Discover) and banks (BofA, Citi, etc), because they’re faster and more nimble. They also brushed off the effect that NFC might have in changing the landscape for mobile payments. Alas, this is not only a poor assessment, but one based solely on a lack of knowledge of the payment space. While it is possible that Square could be acquired by any one of these guys, I find it hard to believe that they will get a sizable valuation (relative to investment).

As you’ll find in a prior post from Dec 31, 2009, I have been fairly critical of Square since it was launched, as it does not actually solve the problem of simplicity for small business, particularly when considering the rest of the landscape.

Scott Loftesness over at PaymentsViews (and a real expert on the space) had a monumental post on the subject on 12/1/2009 and a recent, more positive update here. Scott points out some of the issues with the business model, namely the dependence that Square has on existing payment networks (payments from/to traditional Debit/Credit networks unlike Bling Nation), paradigms created by others (namely micro-merchant accounts, designed and built by Paypal in the 2000′s), and a dependency on a neat technology that will likely become obsolete with the introduction of NFC (Jack’s co-founder patented the dongle concept, and was the impetus for the creation of the business). Add to the mix two larger ‘incumbent’ firms who are focused on disruption/innovation, namely Intuit and Paypal, and you’ve got yourself a problem.

The truth is, Square is a neat concept and is a great front-end interface for acquisition by Paypal, one of the payment networks (most likely AXP) or maybe a large bank with a small business banking focus. Regardless, the likelihood of this getting a ‘huge exit’, particularly given the size of investment to date (~$40M), is difficult to see.

Frankly, it reminds me tremendously of Revolution Money, which raised $92M and was sold for $300M to American Express. While one could argue that this was a 3x exit on invested capital, I’d be shocked if investors in the last round got anything beyond their initial investment back. Why did Revolution Money get such a low valuation – frankly, because it did not get the traction worthy of an independent company and was acquired for technology, namely their open API architecture, to allow AXP to compete with Paypal.

Where the two differ here, is that the cost of building the open API to AXP (a feat completed at great cost and time by Paypal X) probably made an acquisition of $300M, including a bunch of engaged employees and goodwill, seem sane. In the case of Square, both Paypal, Intuit, and now several banks, including AXP, are attempting to offer mobile payment solutions on their own, proving that the problem is not nearly as complex. Thus, it would simply constitute a UI acquisition, which cannot possibly cover costs.

Here’s hoping Square can get to critical mass before they get into this kind of situation, but realistically, knowing how complex this business is, and how fierce the competition is (and will be), I have strong doubts… What say you?

On Creative Destruction (or What I Learned from Modu)

With a heavy heart I write this post today in dedication and admiration of Dov Moran, entrepreneur extraordinaire and Israeli business legend who seems to be shuttering Modu after roughly 4 years. The company was at one time the biggest story in Israel, as Dov attempted to build a massive B2B2C business in the cellular phone manufacturing business, based on the novel concept of a tiny phone, simple UI, and additional functionality/apps coming from hardware jackets, built both by the team and by the best external manufacturers. The concept was revolutionary, and at one time seemed like a serious challenge for Nokia, Motorola, Siemens, LG and Sony Ericsson. For anyone who did not know of these guys, or forgot – take a walk down memory lane to this post on Engadget.

For a bit of context, remember that the original iPhone (not the iPhone 3G) launched in late 3Q07, so the world was still very much wide open at that moment. Modu’s appeal was for users seeking a simple phone with basic functionality, but with expansion possibilities, which was frankly not available at the time – remember the most popular cellphone in 2007 was still made by Nokia.

Modu represented something larger than just a cellphone upstart, having been one of the first Israeli tech firms focused on building a mainstream consumer product and brand – it also captured the imaginations of the country, with many of the top executives and leaders across technology, sales, marketing and logistics signing up to take the fight to Nokia. Dov Moran, the CEO and founder had done this before with M-Systems, one of Israel’s largest tech companies which went public and was ultimately acquired by SanDisk. Like many brand name startups in the US (Microsoft, Yahoo!, eBay, Paypal, etc), M-Systems created a large alumni community that built a generation of excellent and revolutionary Israeli startups, so obviously Dov had tremendous clout in raising funds and capturing the hearts and minds of the best talent in Israel.

Unfortunately, after years of product delays and rapid advancement of competing firms, Modu is closing its doors. There was little knowledge at the time of development that both Apple and Google would be building smartphone operating systems that would properly work, provide a great experience, and allow 3rd party developers to build software tools that could leverage the improving hardware on the devices. While Modu focused on solving the same problems and user interests that had been the focus of the industry for years (simplicity & size), Apple and Google were looking for larger and more complex devices, albeit with simple UI. Who could have known?

My Key Takeaways

  1. There is no ‘can’t lose’ team – Wealth, extensive networks, and the right investors does not ensure success in the short or medium term. Modu ruled the Mobile World Congress in February 2008, with excellent execution of a marketing strategy and an innovative product led by a charismatic and established management team, but was mostly irrelevant by the end of that year. - Modu @ Mobile World Congress 2008; The same could be seen from Plastic Logic, which built the sexiest eReader than never made it to production a few years back.
  2. Paranoia is the key to survival – Large companies with capital, like Microsoft, Facebook, and Google, have followed the Andy Grove path. Better for them to make a bunch of talented entrepreneurs cash rich than to be buried by the little guys in the future. In the case of Modu, the team was extremely confident and consistent on the module phone, and would not deviate in the face of competition moving in the software direction, despite several key indicators over the last few years. Singular focus is good at times, but can be the death of your business if you don’t consider shifts or ‘pivots’ based on competitive moves.
  3. Sometimes good ideas should fail – Modu raised an enormous amount of money over the years, particularly after its initial investment rounds of ~$85m (as per Crunchbase) – the total reported is between $110 – 130m. One of the things we’ve seen in the shift to web businesses is the ability for investors/entrepreneurs to cut their losses early and with minimal blood lost, particularly in relation to hardware plays. In this case, however, the company seems to have raised some $40+ million after it became clear that the focus of the business was on the 2G market (namely Africa, and parts of Asia, Eastern Europe and Latin America). Without too much thought, investors should have appreciated how difficult it would be for an upstart to compete with low-cost producers in these countries, where upselling at a medium-high price point would be difficult – and that ultimately, valuation expectations would need to be lowered substantially.
  4. Miracle Exits don’t always happen – Just because anecdotally it seemed that Motorola would be a good acquirer of at least the technology, given its portfolio a few years back (think about the gap between RAZR and Droid), clearly Motorola never did come to the rescue here – in today’s day and age, companies, however successful, do not need to be acquired by larger companies. In the Twitter-verse, you see many companies who seem to be dependent on a Twitter acquisition, but none seems to be on its way (remember, Twitter has been tight on acquisitions thus far, but who knows what new funds will do with their M&A Activities). The point is, businesses need to be built with the intent of being independent and interesting – not to be a great addition to a specific acquirer. The reality is that there is no guarantee.

To close, I have been a big fan of Dov Moran and the team at Modu. I only wished they had a bit more runway or foresight to handle some of the waves that came their way over the last few years. Their new handset, which ran Android, looked like a great product, but by then their partners who were excited to build jackets for the initial modu, seemed tired and ready to sit it out this time around. Regardless, I wish the team well, and hope to see new and exciting innovations coming from the concepts developed at Modu over these last few years.

Twiddle me this… On the Twitter protocol, ecosystem and the company’s business

First, a must-read – Twitter CEO Dick Costolo’s interview with the WSJ this wknd –> http://stk.ly/i8IerR… The Twitter ecosystem has really exploded over these last 12-18 months, with numerous companies building interesting tools, functions and adaptations of Twitter’s underlying architecture. Many of these companies have even built robust and sustainable business models as well, which bodes well for the future of the communication platform. For a reasonable snippet (but by no means the entire list) check out this TwitterVerse graphic from Jesse & Brian Solis:

The eye opener from the Dick Costolo interview, and their actions over the last few months with ‘the new Twitter’ clearly indicates the battle lines that Twitter seems to be setting for many of these ‘ecosystem’ participants.

The key to the puzzle is business model – Twitter believes that it has a very robust advertising business, in which a sponsored tweet, sponsored ‘trending hashtag’ and sponsored username will support a company with a $2Bn+ valuation. Given the investors and the intelligence of Dick, I’m sure they have made a very conscious decision on this front, and they probably do have a bright future in this business model.

Implications of the model are quite clear:

  1. 3rd Party Clients / Communication Management / Mobile Applications- Advertising will either need to be ‘passed through’ to 3rd party platforms, e.g. sending sponsored Tweets through the Twitter API, or Twitter will need to make a very strong effort to get people to experience Twitter on Twitter.com (or Twitter-developed mobile apps). While the former is really a good stop-gap solution, that they will probably be able to push through quickly because of their immense influence, the latter is easier for them to model, as they seemingly have unlimited resources at their disposal as well as access and significant influence over some excellent engagement models built by 3rd parties (think Tweetdeck, Seesmic, Hootsuite, etc.). Twitter has the ability to build/enhance the best features from these platforms in their new Twitter.com experience, if they so choose, enhancing their user engagement (and ultimately advertising impressions) as they do it. The question will be whether they choose to build or buy, as i’m sure they’ve considered both.
  2. URL Shorteners – I stand in awe of the brilliant execution of the small team at bit.ly that built a powerhouse out a simple consumer-facing idea that solved a problem (giving us a few characters back in that limited 140), an immense backend capturing nearly every detail of the link and its history, and the insights that only come from aggregation. There are many companies that were built, based on the basic premise of collecting data, then selling intelligence on top – think Hoovers (company data), Bloomberg (bond data), Facebook (personal interests), Linkedin (personal resumes), etc. – Bit.ly has done it remarkably well, offering a ‘relevancy-based’ web search by topic that is just phenomenal. Unfortunately for Bit.ly and the other shorteners, Twitter has realized the power of this data and is actively pushing users to use their own tool. Once again, much like #1 above, Twitter seems interested in actively competing with their ecosystem players, instead of buying them.
  3. Trends and Analysis / Twitter Marketing Tools / Search – Lots of companies in this space, many with questionable business models. As Twitter becomes more aggressive on the ad side, these will be critical core competencies of Twitter. I’d be shocked if they do not build through acquisition here, simply because I do not see any independent companies in this space, and frankly, i’m not sure I see any other logical buyer here. If you need a guide to how this will all happen, take a look at Google’s acquisitions around the Adwords/Adsense/Doubleclick ecosystem.
  4. Influence – I find it hard to believe that Twitter won’t actively pursue an acquisition or build here, since Influence is a very critical measure on the platform – as an advertiser, I want to get impressions and in front of the right people, but I also care where the message comes from. Tracking which messages are being sent by whom will better granulate ‘impressions’ by quality, which allows for more focused campaigns.
  5. Relationship Management - Tools that are further away from the Twitter core, and frankly compliment it, will likely survive and be given the chance the flourish. Of course, larger relationship management tools, like Salesforce.com and other CRM tools will add more and more Twitter connectivity, and may pick of some of the guys in this category.
  6. Message Origination - Tools that encourage more messages on twitter will continue to thrive, particularly places like Facebook, LinkedIn, Yelp, OpenTable, the geo services like Foursquare and Gowalla, and firms like StockTwits. Firms that encourage their users to push messages to Twitter help the Twitter equation, as they make Twitter’s message platform more robust, and allow Twitter to generate revenues from advertising based on the content of those messages from within the Twitter.com (and Twitter mobile platforms). Obviously, not all companies in this broad category will survive for various reasons, but by and large, i’d expect Twitter to be comfortable with the existing arrangement…

2011 will be a massive year for the Twitterverse, and I do expect that many of these 6 categories will look dramatically different by year end…

App Stores and Dinosaurs: Why Some App Stores Thrive and Others Dive

Interesting read yesterday from Jason Kincaid @ TechCrunch about the Google Chrome App Store going through a slow sales period. It begs the question – What does it take for a web app store to be successful? What are the common pitfalls that we find storekeepers doing in both large and small enterprise that make or break adoption? I’m not the biggest expert here, but I’d like to present a couple of ideas here:

  1. Brand Promise – Many sites out there are touting the freemium model these days, which allows users to get a product for free, while knowing that any expansion or excitement about the site will likely lead to spending of some kind. This runs counter to business models run in the earlier parts of the 2000′s, when many sites lived on web advertising, selling their user lists, and/or via 3rd party routes (e.g. indirect sales). Organizations built on this premise have an extraordinarily difficult time getting users who had consumed their content and their UI for free, to start paying for additions. There are countless examples of this, with Chrome being the latest – Chrome has always been perceived as a free product, aimed at giving Google default search traffic. This is the reason why Google’s consumer product suite of Mail, Docs, etc. will likely continue to expand storage to the point that users will never have to consider taking out their wallets to use it. It’s also manifested itself on the opposite side – CRM tools like Salesforce have robust app stores, as does Apple’s iTunes store, and the financial terminal business (Bloomberg, Reuters Eikon, eSignal, etc) – each of these examples have baked in expectations that the user will open their wallets on the site.
  2. Functionality Fit - Many early adaptations of app stores were really glorified affiliate marketing sites, aimed at getting users/subscribers/etc to buy a 3rd party product in an affiliated industry, but not necessarily providing value to the underlying product. The Google Chrome store is an interesting question on this front, as most apps i’ve interacted with there are HTML5 websites, glorified with an icon (think Tweetdeck), without many providing added functionality to the browser itself. I might be splitting hairs here, but I feel like there is a significant distinction here. When Apple adds an item to its app store, it leverages Apple APIs to enhance existing phone functionality. When Bloomberg adds products to its app suite, it allows them to fully integrate into the Bloomberg experience, leveraging existing market data feeds and tools to provide a more comprehensive experience. App stores that focus on integration and enhancing the underlying tool have been more successful than the glorified affiliate model.
  3. Pace/Scrutiny – In line with #2, its quite critical to only add tools/apps that are of high quality to the user, and to overly scrutinize app adds over time. Why is that? There are a few examples of open stores doing reasonably well (think Google Android), but that is an exception, as it is not particularly strong for ‘paid apps’. By and large, scarcity and quality matter a lot, as users assess the value of the store by the products it sells – if its hard to find the good stuff, b/c there’s too much noise, its a problem. Might seem ridiculous, but sadly, its not a practice that everyone follows.

Here at StockTwits, we have focused on adding only the highest quality tools and providers to our platform. Our goal has been to add products that can enhance the underlying platform for our userbase, and help foster more trade ideas. Without giving away too much – I expect 2011 will be a very exciting year, as we expand our offerings on the StockTwits Marketplace, with an eye towards offering the best a la carte configurations for each and every user. Needless to say, if you’re not yet on StockTwits, its time to come aboard…

Time for M&A in Location/Yellow Page-type sites?

I just passed a restaurant on the upper west side of Manhattan, where the owners wanted their patrons to find them on the web…

Lets see here…

Restaurant Reviews

  • Yelp
  • Zagats
  • Eats.com
  • Citysearch
  • MyUpperWest

Delivery/Menus

  • SeamlessWeb
  • Delivery.com
  • Menupages

Kosher

  • Kmenus.com
  • Koshertopia
  • Jdeal

Web Search

  • Bing
  • Google

Web Browser

  • Firefox
  • Internet Explorer

Portals/Social Networks/Comm Platforms

  • MSN
  • Yahoo!
  • Twitter
  • Facebook
  • Foursquare
  • Google Maps

Might be time for $GOOG, $AOL, $MSFT and $YHOO to make some moves and make it easier for our local shopkeepers to keep a simple web presence…

Apocalypse Now: Google Style

I’m not sure you read about it yet, but Silicon Alley Insider is calling Google the next Yahoo! Thats a big statement, given $GOOG share of the search market in the US, and the monolithic business they’ve built in advertising across search, display and offline advertising:

More stats can be found here. If you recall, prior to Google, the market share was similar (1999), with Yahoo! in the driver’s seat…

Now that is really where the comparison ends… Google’s search engine is flawed and the SEO game has been exploited by all kinds of businesses, but this is a company that seems to be far more shrewd that Yahoo! was back in 1999. Google has been moving from strength to strength, enhancing its cloud offerings for both consumer and business, building the Android mobile phone platform, and building proprietary database assets like Google Maps, News. Analytics. The company also seems to have a smart growth engine, based on acquisition of top-quality talent through the startup scene, resulting in interested tie-in products, like Google Voice.

Additionally, the market has been frothy around Google killers for some time now – anyone remember Cuil?

Google is default on the Android platform (which is set to explode in 2011) and on a large portion of desktops and laptops these days. As Microsoft is well-aware, that control at the OEM level is hard to beat. That same sort of dominance can also be attributed to Internet Explorer over the last 10 years – a browser that was clearly not as innovative as Mozilla/Opera/Chrome/Safari still dominated the market each quarter and each year.

The big concern for Google is a double-whammy, namely Microsoft Bing making a technology jump and leveraging $MSFT cash to push Bing to default on devices across the world – as they did with IE. Bing has made some serious moves on the innovation side, taking the Google playbook for ‘search apps’ like Finance, Amazon or Twitter, within search results, but going after interesting verticals using proprietary technology (think Travel, which leverages Farecast technology). They’ve got the muscle and cash to compete, but its hard to see that happen.

Of course, the market is looking for another Google to pop out a garage in Palo Alto (or a loft in New York or Austin). Alas, that seems very unlikely, given the stacked nature of the game – $GOOG and $MSFT cash on hand, its unlikely that private cash can move the next big thing past these behemoths .

Finally, is the need actually as real as TechCrunch would like to think it is? Remember, when Google came onto the scene, there was legitimate anger over the inaccuracy of search engines (I used to use at least 3 engines in doing any search, and the results varied greatly). Today, a user generally uses Google or Bing for web search, and that’s it – Facebook and Twitter search are also becoming more common, but neither claim to cover the entire web. When we think about Hunch or Quora, they are also attempting to build social graph tools that cover a portion, but not the entirety of the web. Blekko is the only site I’ve heard of as a legitimate threat, but after some use this wknd, i’m just not sure its there yet…

Will TechCrunch and Silicon Alley Insider be right on this one, or are they overhyping an issue that may not actually be there, to make a bold prediction for the new year? Needless to say, it’ll make for an interesting 2011…