Russian Rehearsal September 13, 2022
Posted by Bernard Lunn in Globalization.add a comment
My grandfather wrote a book called Spanish Rehearsal: An Eyewitness in Spain During the Civil War, 1936-1939. He correctly saw the Spanish Civil War as a rehearsal for a bigger war between fascism and communism that we now know as World War 2.
The winner of World War 2 was democracy in a temporary alliance with communism.
Biden seems to understand that the war with Russia is a rehearsal for a bigger war between autocracy and democracy. What is amazing is that Biden seems to be winning this war using money without putting any American lives on the line. Both Russia and China are facing huge financial difficulties and – to channelCaptain Obvious – you need money to win wars.
Now Biden needs to win the November mid term elections by translating the autocracy vs democracy to Women’s Right to choose and to arresting the coup leaders from January 6. I think he will.
There is a fundamental flaw in the Substack power law business model December 8, 2021
Posted by Bernard Lunn in Uncategorized.add a comment
The fundamental flaw is that sovereign writers who make it to the top of the power law can easily switch from Substack to Stripe. If you already know something about online media paywalls & data barter economics, power law & sovereign writers, Substack & Stripe, algos and attention hacking, …that is your TLDR summary. If not, read on while I break it down for you.
I am a media entrepreneur who chose to focus on one niche – Fintech. So I am qualified to write about this subject.
Online media paywalls & data barter economics
If you increasingly hit paywalls as you look for information, you are seeing how the concentration of media power in a few behemoths like Google and Facebook is impacting all of of us. They set the price of advertising and we all give them content.
That is why I replace the word “content” with “information”. Content implies fodder for the behemoth’s ad beast and implies that it is not worth much. By contrast, “information” implies something valuable.
Media behemoths like Google and Facebook get free content. As Gillian Tett at FT tells us, this is a form of barter economics; we give our data in return for free information.
Power law & sovereign writers
I believe the term sovereign writer was coined by Ben Thompson of Strachery who certainly qualifies as a sovereign writer. My definition is that a sovereign writer is a brand in their own right that sits atop a power law graph and does not need work for big media brand (which has to pay them well to keep them).
They can easily switch to Stripe and cut out Substack’s 10% fee.
Substack & Stripe.
Sub-stack enables writers to sell subscriptions, taking a 10% cut for their business plus another 3% via Stripe to credit card networks.
Stripe manages credit card payments for your site. It is easy enough to use and integrates with blogging, newsletter and subscription management tools.
Substack makes their money (quite a lot, it is a successful business) from millions who individually sell very little but in aggregate sell a lot (a million writers who each make $100 per year is $10m in revenue to Substack).
Here is the problem. Those million writers in the long tail of the power law may only make $100 per year but they aspire to make $1m per year. Substack points them to those sovereign writers. If those sovereign writers ditch Substack and use Stripe directly, Substack revenue takes two hits
- they lose the revenue of the sovereign writers who leave Substack and that can add up – 100 sovereign writers making $1m pa is the same as 1m writers making $100 pa.
- They lose some of the long tail aspiring writers who see the sovereign writers (who they aspire to be) leaving Substack.
They are trying to stem this tide with Substack Pro, by making advance payments (as much as $250,000) which they recoup by charging 15% up to a defined amount and then their take is down to 10% again).
Algos and attention hacking
So what Substack needs to do is deliver attention from people who will buy a subscription which they are trying to do with their leaderboards, but their algos will have to beat Google and Facebook who are masters at this game.
Maaxi taxi sharing could be real competition for Uber September 30, 2014
Posted by Bernard Lunn in Uncategorized.add a comment
I love free market competition, but something about Uber makes me queasy.
It is not the bare knuckles competition against Lyft. That is just how the game is played. Asking Uber to be more gentle on Lyft would be like the prop in a rugby scrum being told he should be gentle on his opposite number. Break the rules and the ref will call you out, but otherwise it’s ok.
What makes me queasy is the implicit assumption that the customer is King, Queen, Judge and Executioner.
We are all producers before we are consumers. If we are not producers, we have no money to be consumers (leaving alone for now the twin poles of trust fund inheritors and welfare recipients).
So the consumer King must be balanced with the producer Queen.
When producers who have been protected by regulation call “no fair” I am unsympathetic. Producers need to face competition head on. Regulating Uber out of the game is no answer.
That is why the Maaxi launch today caught my eye. This story has three pieces you don’t normally see together:
1. A “red in tooth and claw” capitalist (Nate Rothschild).
2. The legacy protected producer (Black Cab drivers in London).
3. A disruptive proposition. This is disrupting the disrupters. The proposition is to share a ride with somebody going the same way. Given how expensive taxis are in London, this is a big deal.
Tube/Subway fares have risen as well. I read this on a Tube ride costing me nearly $5. If three of us shared a taxi costing $15….
I am rooting for Maaxi.
#InternetOfThings can leave my fridge alone but I would love it to manage my overly complicated light bulbs #SensorInsights August 12, 2014
Posted by Bernard Lunn in internet of things, Uncategorized.Tags: internet of things, iot, sensor insights
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The fridge alerting the grocery store that my milk is low or old does not excite me, but if somebody figured out a service to manage those now overly complex light bulbs, I would be a “customer-in-waiting” and I suspect there would be others like me.
Warning, curmudgeon alert. Do you remember when light bulbs were one kind only? You just kept a few in a cupboard and replaced when needed. Now there are so many variants that I would need a whole lightbulb store in my house to do the same; believe me I have tried.
For an #InternetOfThings entrepreneur, this is easy stuff. The lightbulb that is nearing the end of its life sends an order to the store (based on a mandate I have given as a consumer to do this) and the right bulb arrives with a little map showing where it goes and I replace the bulb.
For wealthy people, vacation homes and offices, you could layer on a service for somebody to replace the bulb.
The emerging market for mobile-powered enterprise rainmakers July 31, 2014
Posted by Bernard Lunn in Enterprise Web 2.0, internet of things, Salestech.add a comment
Mobile is clearly a big disruptive force in technology, but what markets will it disrupt and how?
Although most of us already have smartphones (in the West), a lot of what we do on those smartphones, such as surfing and email, is like talking heads on early TV. What are the mobile-native use cases that will disrupt major markets?
An early mobile-native use case made the headlines when Facebook acquired WhatsApp; this was mobile messaging replacing a lot of emails and browser based social networking. Facebook has spent $19bn to declare this “game over”. They may be right (I don’t think they are, but that’s another story), but entrepreneurs certainly want to go after markets where they don’t face a tough, agile behemoth like Facebook.
Fortunately there are still plenty of other mobile opportunities where you don’t need to deal with Facebook as a competitor. One of these “blue ocean” opportunities is “enabling enterprise rainmakers”. Outside Sales is one example of enterprise rainmakers; they are critical to making the transition from brilliant product to great company. These folks tend to not follow rigid processes; they innovate every day, using Big Data and Social Media to figure out what to do next. The good ones spend most of their time out of the office, so they live on their mobile devices.
One of the most interesting companies in this space is Clari. They were still in stealth mode when I was reviewing Salestech innovators here and here on ReadWrite. Since that time they raised a $20m Series B and are clearly on a roll and the market they are in is hot. Within days of Clari’s funding announcement was the news that Salesforce had snapped up RelateIQ and the CEO of Clari was writing a blog post entitled Did RelateIQ Sell to Salesforce Too Soon?
For RelateIQ, the answer was no, their timing was good. I am sure they could see Clari coming in their rearview mirror. In Enterprise-land, the second best technology with the best distribution often wins and in the CRM market, Salesforce has distribution nailed.
My assumption when I first saw Clari was that CRM was simply their market entry strategy to a much broader market of enterprise rainmakers who make a big difference mainly because they spend more time away from their desk than at their desk.
My work is teaching sales organizations the forgotten art of thought-leadership selling, which is another way of saying teaching how to be an enterprise rainmaker. This is an outside sales world. This world is not interesting to CRM vendors because the unit numbers are tiny. One rainmaker may transform the fortunes of a start-up but how many rainmakers are there and does it matter what CRM system they use?
The unit numbers today are at the intersection of Marketing Automation and Inside Sales, which is growing according to this expert on inside sales writing in Forbes:
“Over the past three years, inside sales grew at a fifteen times higher rate (7.5% versus .5% annually) over outside sales, to the tune of 800,000 new jobs.”
Inside Sales is all about big scalable processes, the world of CRM, Marketing Automation and Call Centers. If you price per seat (as most CRM vendors do), Inside Sales is much more interesting than Outside Sales.
Inside Sales is not really a mobile play; these folks work in the office at big screens.
However Outside Sales are only one example of Enterprise Rainmaker. Think of M&A bankers and VCs. Or think of the senior executives guiding the company; the best ones are out talking to employees, customers, partners and investors.
It might be better to call all these folks “difference-makers”. They are the ones who make a difference to your business. It is the rainmakers who do their work outside the office who will drive this. They can choose their own tools because they are rainmakers. They choose mobile tools because they do most of their work outside their office.
These rainmakers do not work alone. This is where Mobile intersects with Big Data/Data Science and becomes an enterprise story. The rainmakers are out there interacting with people in the market, but they are in touch with support teams “back at base”. In the case of outside sales people, they maybe working with a sales manager who can provide “just in time coaching” because the manager can see precisely where they are in a sales cycle and when they are available to talk after a meeting. Or they may work with sales operations folks, who rustle up the precise support they need at that point in time (such as collateral, data, demo, contact).
Clari has this nailed for sales teams. However I want to explore the broader market opportunity beyond sales teams.
The concept of a point-person with a back-up team is like a surgeon who is supported by nurses, anesthetists and others. The same is true for M&A bankers and VCs, who have analysts crunching data and assistants making contact requests happen.
These rainmakers and their backup teams are the key enterprise “resource”, so it is possible to think of these systems as the next generation of ERP.
The concept of enterprise rainmaker goes much further than today’s well-paid enterprise professionals. This is where the market intersects with other disruptions such as Internet of Things and Quantified Self.
This is more speculative. The actual implementations are not yet visible (I would love to hear from entrepreneurs working in this area).
In Healthcare, think of the market of personal trainers, nurses, caregivers, emergency response workers and physiotherapists who come to your home. Let’s call them health-makers. The market is strong due to the demographics of ageing populations.
The health-makers back-up team is critical. The health-makers can assess the patient using good old-fashioned analog tools known as the four senses (eyes, ears, smell, touch). This old-fashioned “data” can be augmented by data from devices attached to the patient (“quantified self”) and analyzed on the spot by experts across the globe; The back-up team has access to Big Data to compare this patient with millions of similar patients. This will be real time healthcare in action, not waiting weeks for results and another appointment. This will happen first in markets where the regulation allows skilled practitioners such as nurses to perform tasks that today can only be done by doctors (who are too important to come to you unless you are really rich).
The Health-Maker opportunity is much bigger on a user unit basis than Enterprise Rainmakers. It may also disrupt one of the biggest markets out there – Healthcare. However there may be an even bigger market. We all need help getting our bodies fixed (aka Healthcare) but what about our homes and all the stuff in our homes? As our homes become more wired and digitized with sensors sending data, the person who comes to fix something may come equipped with a smartphone linked back to Big Data systems – and may come before you have even noticed the problem. This will create a whole new generation of services and, now that service is the new marketing, create significant new revenues for many consumer products companies.
These front line people will become the new rainmakers. They are the brand experience as far as consumers are concerned. How well empowered they are by data will be key to enterprise competitiveness in future.
Enabling these new kinds of services will not need great mobile user experiences that are linked to cloud-based data systems and applications. This will need a new generation of application platforms that deliver context aware data just in time to the front line “rainmaker”.
The Content Quality Dilemma in the Media Business July 28, 2014
Posted by Bernard Lunn in Uncategorized.add a comment
Software is eating the world….one bite at the time. Are you Softzilla or are you Softzilla’s lunch?
The first bite was the media business. I was there when it happened. It hurt.
Softzilla (my shorthand for software, digitization, mobile, big data, etc etc) first bit into the print business. At the time I was running a startup that saw this coming and was helping traditional media firms to restructure, take out costs and become “online-first” firms.
In the print to online transformation, the mantra was that “$1 of print revenue becomes 10c of online revenue.” So, yes, you had to make the transformation, staying in print only was certain death, but you had to cut costs (translation: fire lots of people) to go online. Everybody had read Innovator’s Dilemma; it was obvious what had to be done. Online, with tose 10c of revenue, you could not afford lots of editors and people doing fact checking and research. So you cut into the muscle and fired the people who ensured that content was high quality, those well-paid journalists and editors, fact checkers etc. The content quality then, predictably, suffered and the audience clicked away.
Cut too slowly and you died fast. Cut too fast and you died slowly. This is what I call the Content Quality Dilemma.
The next startup was smaller but better known; it was ReadWriteWeb (now ReadWrite) where I was COO in 2009.
There was no Innovator’s Dilemma in ReadWrite. This was a pure-play online venture with low overheads (a global team all working remotely). However the dilemma was the same – how do you make enough money to pay for quality content?
In ReadWrite my COO job translated to a simple mission – sell enough advertising so that writers could get paid. That was where I saw the Content Quality Dilemma up close and personal.
The problem is very simple. It is that giant software only media firms like Google and Facebook set the rates for online advertising and with their scale and 100% automation (no messy journalists, editors and fact checkers who want to get paid) they can make huge profits on very low advertising rates. Those ad rates are too low to pay for lots of good journalists, editors and fact checkers.
In the tech blogging space it is easy to run this as an experiment. Take 15 days on a post with serious investigative journalism and analysis. Then take 15 minutes to dash off a post about a celebrity and use some pop-tech angle to make it tech relevant (the story is that the celebrity did something on Twitter or Facebook). The return on investment on that 15-minute post was stratospheric and the quality post was a financial disaster. Rupert Murdoch, when interviewed for this article, remarked, “what’s new buddy?”
This is now well understood. We are at the bottom of the Slough of Despond in the Media Business. It’s not just the old pre web firms, it’s also the early web firms; look at the share price and derision hurled at AOL and Yahoo. They are both run by super-smart, driven CEOs who had big success at Google, but they are “rolling a rock up a hill”.
Most of the entrepreneurs who got early into the blogging game already exited, took the cash and left the owners figuring out how to climb up to the Plateau of Productivity – which some of them will do. There is a demand for Quality Content. The only job is figuring out how to get paid properly for Quality Content.
If you work as a journalist or editor, you have probably seen that Content Marketing is where the jobs are headed. In other words, you work directly for the advertisers, cutting out those intermediaries (aka Media firms) with their old fashioned rules about Church vs State (aka Editorial vs Advertising). However what about the folks who are running Media Firms? How do they create both quality content and quality profits?
I decided to look at who is making quality content as well as quality profits. In those stories might be clues to show how to climb up that tough slope to the Plateau of Productivity (to see which of these are replicable and scalable).
- Wired. This is one for irony aficionados, a glossy and profitable print magazine for the folks helping Softzilla to eat the world. My takeaway, we all need a pixel break, but I don’t expect many media firms to be able to emulate this. It has to be really, really good (and that costs money) and consumers only want one in their chosen domain. Not easily replicable, could translate to a few other domains.
- AVC. This is Fred Wilson’s blog (he is a top tier VC). The content is daily and it is great. The takeaway, first make sure you are a good host to your community and then find a way other than advertising to make money. Not easily replicable.
- Techmeme. Gabe Rivera bootstrapped a profitable online media business by first using Softzilla to find content and then hiring some old fashioned humans to help filter out the junk and float the good stuff to the top. I assume he tweaks his code to learn from what the humans do. This 95% code and 5% human model might be a mainstream model. Possibly replicable.
- Bloggers Selling Expertise. Why do smart people blog/write for free? It is the same reason that smart developers contribute to open source – their fee rate and utilization goes up because customers can see how smart they are. The economics of blogging for attention are simple. This is powering lots of tiny micro-multinationals in lots of niche markets. Possibly replicable.
- Financial Time and Wall Street Journal with Paywalls. It works for them because “time is money” for their readers. I don’t see this as a mainstream strategy, because only the best of the best can get away with a paywall. Not easily replicable but has to be part of the solution.
- Vice Media. They started as an underground low cost fanzine type of operation and have over time built a valuable business that had Rupert Murdoch swinging by with his checkbook. The model seems to be lots of stringers out where the news is being made plus a few editors back at base. It’s an old model re-enabled by mobile technology (the stringer is no longer waiting in line for the telex machine in the lobby of the hotel). Possibly replicable, but needs skill, style and technology.
There are a few experiments with peer rating rather than popular rating. Popular rating is simple Page Views, the currency of the web that is controlled by Google and Facebook, it’s a game you cannot win. The two experiments with peer rating are Reddit and Hacker News. It is too early to see how these experiments turn out because neither has yet tried seriously to monetize their audience. If they adopt a mass-market page view strategy, their audience will click away and we will be writing Myspace like epitaphs.
However if they can find a way to charge based on influence rather than views they will show the way to lots of other media firms. This could be the yellow brick road for media. Recall that tech blog experiment:
“Take 15 days on a post with serious investigative journalism and analysis. Then take 15 minutes to dash off a post about a celebrity and use some pop-tech angle to make it tech relevant (they did something on Twitter or Facebook). The return on investment on that 15 minute post was stratospheric and the quality post was a financial disaster.”
Let’s say the 15 minute post got 100,000 page views and the 15 day post got 100 views. Case closed? No, not if 10 of those 100 views were partners in VC funds controlling $10 billion in aggregate funds and another 10 were CXO level in enterprises controlling $10 billion in aggregate budgets. How on earth do you monetize that without seriously invading privacy? If you have that one figured out, please contact me so that we can become disgustingly rich.
When Did Big Data Become Data Science And Does Anybody Care? July 26, 2014
Posted by Bernard Lunn in Uncategorized.1 comment so far
I promise to keep this brief, it’s just an out take from another post I am working on. I have stopped seeing pitches for Big Data. They are now pitches for Data Science. Ho, hum, what’s the game? I think it is simply the realization that the “Big Data” roller-coaster is careening down towards the Slough of Despond. So you want to re-name it.
I think Big Data is an enabler for Mobile, which is a real disruptive wave of change. Unless Big Data is delivered within context to what consumers need right now, it is just another “digital land-fill”. This will need major innovation at the mobile UX layer and at the back end computer science layer.
How Telecom carriers are fighting the “dumb pipes” narrative with their own OTT services June 6, 2014
Posted by Bernard Lunn in Telco.Tags: dumb pipes, orange, ott, swisscom, telco, tmobile, whatsapp
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Facebook’s $19 billion acquisition of WhatsApp put the spotlight on the competition that OTT (Over The Top) ventures pose to Telecom carriers. Consumers love WhatsApp pricing at $1 a year and have no love for Goliath Telecom carriers, so we tend to cheer for upstart David vs Telecom Goliath. However, some Telecom operators have been quietly creating their own OTT services and, since WhatsApp is now owned by Facebook and Skype is owned by Microsoft, the story is really now Goliath vs Goliath.
ReadWrite has already covered 5 alternative messaging services to WhatsApp from start-ups (Kik Telegram, Tango, Line and Wickr).
This post covers three more from Telecom operators – Orange with Libon, T-Mobile with Bobsled and Swisscom with io.
Each of these Telecom operators has its own unique story to tell and a shot at winning over a lot of consumers. They need to do this. Whatsapp with its 200M base has moved more messages in the last 12 months than all the operators in both US and China combined. Battle has been joined. The Telecom carriers cannot afford to be “dumb pipes” that are used by other companies that reap the value. This has been going on for a while; the Facebook WhatsApp deal just put the issue on the front page and top of the agenda for Telecoms carriers.
Two major European carriers have adopted the same fundamental strategy. France Telecom created the Orange brand to go after global markets and Deutsche Telecom created T- Mobile to do the same thing. Both have an OTT play.
The Orange OTT service is called Libon. It has a free ad-supported and a Premium paid service. That was conventional Freemium wisdom in SaaS, but may not work so well in consumer communications services. Ads interrupting us when we are communicating are unpopular and at $1 per year who would not choose the paid option? The WhatsApp $1 per year price with no ads or stickers or gimmicks may be the communications equivalent of the Google price or China price, too low to undercut.
What is clever about Libon is that in their recently released 3.0 version, you don’t need to download an app to use it. There is only one thing worse than high costs for roaming, texting and international calls and that is not being able to communicate with people outside your walled garden. The telephone system,for all it’s faults, connects anybody via their unique number. Multiple apps that only communicate with each other would be a seriously retrograde step. Facebook is betting that this won’t matter because all 7 billion folks on this planet will use WhatsApp. You cannot fault Mr. Zuckerberg for lack of ambition! With Libon you can message somebody using their phone number. They get an SMS message that links them automatically to Libon’s cloud based service, without any need to register. It’s disruptive because it avoids the friction created by having to download an app. The app game tends to winner takes all, and the Telecom carriers cannot win that.
Deutsche Telekom may be the incumbent Goliath in Germany, but in America T-Mobile is seen as David challenging the AT&T and Verizon Goliaths on their home turf. Back in 2009 I covered how T-Mobile was challenging the incumbents using their WiFi phone, so they clearly view disruptive technology as their friend rather than their enemy. T-Mobile is the carrier for people who don’t like carriers.
The current T-Mobile OTT service is called Bobsled. It is a free service and if works on most devices but favors Android for more advanced features such as group messaging. T- Mobile is an innovative company, but they don’t appear to have cracked the code with Bobsled, there is simply not enough differentiation.
The Swisscom io strategy looks different. Swisscom did NOT launch a separate brand to go after global markets. It is very clearly branded Swiss. Why would anybody use Swisscom outside of Switzerland? One reason is simply friends and family of people living in Switzerland, but with such a tiny population (about 8 million) that is hardly an exciting story. The two other reasons are a) voice calling and b) privacy.
As I do a lot of international business and have friends and family all over the world, I have been a huge Skype fan for a long time. My perception is that Skype call quality is now declining (no data on that but I am hearing this anecdotally from others). It is certainly true that the mobile user experience of Skype is a bit clunky compared to born-mobile services such as Swisscom io. This is the other part of this story. WhatsApp maybe the leader in texting but they are playing catchup in voice (it’s coming we are told).
The other Swisscom story is about privacy. Many people do not trust Facebook with privacy. The question is, how much do consumers really care about privacy? We may say that we care about privacy and make a fuss occasionally when Facebook changes the rules, but when faced with even the smallest inconveniences or cost to get privacy, most people choose easy and free and forget about privacy. A messaging service like Telegram should do well if people are worried about privacy and they did see an uptick when Facebook bought WhatsApp. Telegram has the most rigorous approach to privacy and as is a non-profit there is no amount of money that will change their minds. It is significant that Telegram comes from Germany where memories of both Fascism and Communism make people guard their privacy more zealously than people in America who have not suffered in the same way.
The reason that OTT messaging apps take off like a rocket is simple – they get access to our mobile contacts. That makes them easy to use. To give a service access to your contacts you have to either not care at all about privacy or you have to trust that service. Swisscom io also accesses your contact data. The privacy angle relates to a) trust that Swisscom has no business model linked to selling your data (as Facebook does) and b) the Swiss legal protection for privacy. America may be the last place where Swisscom io gets traction as fewer Amercans care about privacy; it is possible that it will get traction in Germany first.
None of these services has yet leveraged the real strategic advantage that Telco carriers have, their subscriber and billing relationship with consumers. We are entering a period of disillusionment with the app economy; the degree of control exerted by Apple for example and the % of revenue going to app stores and the winner takes all nature of these stores are aggravating a lot of people. This is a window of opportunity for Telcos.
If your enterprise software brings revenue it is worth a lot more than if it just cuts costs – the revenue model shift from Subscriptions to Transactions June 4, 2014
Posted by Bernard Lunn in Corporate Strategy, Enterprise Sales, SAAS, start-ups, Strategy Workshop.Tags: b2b2c, crossing the chasm, revenue sharing partnerships
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Historically, the objective of enterprise software was to make employees more efficient by automating tasks. The software industry moved from cutting G&A costs to making people at the front line more efficient through software such as CRM, Marketing Automation, Business Process Management and Collaboration.
In all cases, the business model was licensing. The licensing model moved from perpetual to periodic (monthly or annual). Seen in this context, SAAS is just an evolution of the old licensing model (plus bundling the hardware into the price). Consumerization of software is a natural response to the risk/reward shift of periodic pricing in SAAS. When vendors got all the money upfront, they could afford an expensive sales process. SAAS shifted the risk to the vendor who got investors to fund the cash flow gap. Investors were happy funding that cash flow gap because periodic SAAS revenue is more predictable and therefore more valuable. To reduce the cost of sale and therefore minimize dilution, entrepreneurs created consumerized services and Freemium.
That about brings us up to date.
So, what’s next?
What’s next is usually an evolution when it comes to enterprise. There may be a disruptive 10x technology shift driving the change, but big companies tend not to make big disruptive shifts. There are exceptions of course, the most famous being Intel’s shift into semiconductors under Andy Grove. That is such a compelling story (told in Only The Paranoid Survive) and so many enterprise executives reference it in glowing terms that we can easily believe that it is the norm. It is not the norm; it is “more honored in the breach then the observance”. Enterprises have built-in inertia, because senior managers are incentivized to optimize short-term profits.
The next iteration will continue the risk/reward shift that was started by SAAS. This will change the revenue model from licensing to % of transaction/revenue (in any shift we see hybrids of old and new so many ventures will mix subscriptions with transaction revenue). I am observing a few innovators who are combining digital consumer marketing techniques with selling a partnership model to enterprise. This is where the puck is going. These ventures get their revenue from a % of the transaction/revenue. This is obviously highly scalable. These ventures take on more risk and have to generate more value before they get paid, but if they can get there they have great scalability and moat.
The idea is simple. You create a consumer service and get enough users that you prove the proposition. Then you scale by partnering with enterprises. One way to look at this is as a technique for crossing the chasm. You can easily find early adopters online. (I say easily, it is of course not easy, but the techniques for doing so are well understood and documented). However, scaling beyond that is hard. Only a tiny % of ventures, blessed with great virality and addictiveness, cross the consumer chasm. As always exceptions (such as Facebook) prove the rule while blinding us to the rule with their brilliance. Many other ventures will cross the chasm by partnering with enterprises. One reason that enterprises are so big is that mainstream consumers trust these large enterprises.
If you prove the proposition directly with consumers you have created a lot of value. You can exit at that point. You can sell to a company that can cross the chasm to the mainstream consumer. Or you can partner with the enterprises that have access to those mainstream consumers in a shared revenue model and scale to become a large enterprise. You will typically be making one or more of these propositions:
- Get more revenue from their existing customers. You are accessing their customer base and they are using your service to get extra revenue from those customers.
- Bring them new customers. This is where the big $$$ prize lies. If these new customers represent the early adopters, the enterprise will be worried that eventually their mainstream customers will “see the light” and want to switch to your model. If they see that they will buy you for a big premium or partner on terms that are more advantageous to you; in this situation you have real clout.
You can create these partnerships on a white label or co-branding basis. Obviously you get higher margins if you get co-branding. There is a spectrum of co-branding. The more traction you have with consumers, the more clout you will have in those co-branding negotiations. Once again, Intel was the thought-leader, with their Intel inside campaign. These negotiations are fundamentally about “how big is my logo vs your logo?” Screen real estate is precious, so this matters. If you have 1 million consumers and the enterprise has 1 billion consumers you have reasonable clout if your 1 million represent early adopters and they can see their 1 billion moving to your model at some point. If you have only 1 thousand consumers, you will be limited to offering a white label service.
Back in the days of the Dot Com Boom/Bust era we saw the concept of B2B2C. Like many concepts from that era, it is easy to ridicule this one, because it did not happen then. That may simply be related to the % of people online. Now that more than 50% of the global population have mobile phones, the concept of tiny ventures getting millions of consumers directly is no longer a pipedream. However it is not wise to ignore the power of the incumbent enterprises. Rather one should get enough traction with consumers to have some clout when negotiating revenue sharing partnerships with those enterprises.
Who will create the Netscape of the Blockchain era? May 27, 2014
Posted by Bernard Lunn in capital markets, Fintech, Globalization, India.Tags: bitcoin, blockchain, globalization, M-Pesa, marc andreessen
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This is one of a series called Explorations down the BItcoin rabbit hole.
The Blockchain is exciting because The Perfect Copy Machine has its flaws.
Let me unpick that, starting with an anecdote.
In 1992, somebody showed me the Internet (thanks Charles Rawls). I ignored him. Silly me! The reason I ignored it was that I am not a developer and could not see how to use it.
The next time I saw the Internet was in 1996. I was in India and needed to use email in an Internet cafe. A developer showed me Hotmail.
The rest, as they say, is History.
In between those two events, a student at University of Illinois at Urbana–Champaign co-wrote the first browser for the Internet (thanks Marc Andreessen).
The Blockchain does not need a browser, but it needs something like a browser that makes it accessible to ordinary people. Today we only know the Blockchain because of Bitcoin. Now I will play the Long/Short game that FT journalists use in interviews:
Blockchain: Long
Bitcoin: Short (it’s primary value is to teach us that Fiat currency is like Winston Churchill’s description of democracy “lousy but better than any of the alternatives that have been tried”).
My inner editor is saying, get to the lede (thanks Owen Thomas). What is wrong with The Perfect Copy Machine of the Internet? Simple: I cannot value something because it can be copied for free. That has been a dream opportunity for developers to make fortunes by offering ways to navigate the oceans of freely-created digital data. It has been a nightmare challenge for creative people, who had over time learned how to control of the analog copy machine, but then lost control of the digital copy machine.
However that is not where the Blockchain is needed. Creative people will finally find ways to make a living using The Perfect Copy Machine (as musicians are finding with iTunes and Spotify and writers with Createspace).
That is a First World problem and it is being solved.
I think the Blockchain will find use in the Rest of the World. Then it will come back to the West.
This is a “First the Rest then the West” story. To think about this, travel to Kenya and see where a digital currency/mobile wallet accounts for 30% of GDP. No, it is NOT Bitcoin. It is M-Pesa, derided by techies as utterly simplistic but massively useful to the billions emerging into a global middle class (which is the biggest story of the 21st century). One reason that M-Pesa works is because individuals can prove who they are using the most basic mobile phone. Yes, that is right your mobile number is your identity!
Like the other 7 billion people on the planet, I am unique. That is scientifically true, check my DNA. But my identity can be copied and my work can be copied. Again that’s a Western World problem and I can live with it. What if the title to my house or the access to my bank account could be copied? That is not fanciful; anything that has access to the Internet is accessible to criminals who can steal any of my assets that are recorded digitally (stealing is another way of saying copy it without my permission).
What if there was a way to protect the uniqueness of assets (creative or land or financial or whatever) that was not controlled by anybody other than you? That would be a powerful enabler for the billions emerging out of poverty who will then buy the products and services that our children and grandchildren in the West will be creating in order to make a living.
The Blockchain could give me the same control over all my assets as WordPress gives me for over my scribbling.
That is why I am excited about the Blockchain. Other people share this excitement, but it strikes me that it is like the excitement for the Internet around 1992 before the browser made it accessible. Making the Blockchain accessible to the 7 billion people who will soon have mobile phones (it is over 5 billion today) will create a seismic shift.
If you are building something like that, I would love to hear about it.
This is one of a series called Explorations down the BItcoin rabbit hole.
Emergent Business Networks 