BitCoin vs PayPal: a 100X+ difference

Both BitCoin and PayPal allow parties who don't trust each other's identity to exchange money electronically. The big difference is transaction costs. Because PayPal uses the existing system for electronic payments, it extracts high fees from the seller; the smaller the transaction, the larger the percentage of the fee. In short, PayPal doesn't scale down.

In contrast, BitCoin transactions are almost free. Moreover, they scale down as computing power (thanks to the Moore's law) becomes cheaper over time. The adoption of BitCoin or any similar monetary transaction system should stimulate development of businesses that involve high-volume payments. If posting on Twitter is free, BitCoin transactions should also be free.

Companies that will make Bitcoin payments reliable and secure are going to reap huge benefits in the mobile and financial markets.

tags: money, deontic, payload, control, machine1, machine2, finance, commerce, 10x, innovation

Lab Notebook: the meaning of Bitcoin

Money has been around for thousands of years. Amazingly, people keep reinventing it over and over again. Money innovation (not invention!) is always a telltale sign of a deep, underlying change in large-scale commercial systems. It serves two vitally important tasks: value exchange and information diffusion. The growing acceptance of Bitcoin sends a loud and clear message:

Dear Government, we the People, no longer trust your ability to manage our money (The Fed). We also don't trust your shameless handling of our privacy (NSA). Therefore, we are going to create an alternative mechanism for commercial transactions and sharing information about them. The new computing and communication technologies give us the power to do so. 

In the 6th century BC, Lydians developed silver and gold coinage, which made them incredibly rich and powerful. In the 21st century AD, the first respectable government that will support a new trusted currency will have a once-in-a-thousand-years chance to create an economic miracle out of, practically, nothing. I hope it will be an American government.

tags: invention, innovation, deontic, payload, problem, money, solution, growth, economics, commerce

Mobile payments are in trouble (in the US)

Retail shops seem to be further away from adopting new types of mobile payments than we thought. It'll probably take another generation of technology to get them over their technological inertia. By that time, online retailers we'll be in an even stronger position to compete.

Jan 25, 2012. VBeat -- Because today’s retail systems are so inflexible, the integration of any third-party systems will result in a huge IT expense for implementation. The customization required so that all components of the point of sale system (including inventory management and payment processing) interact with a new mobile payment platform without disrupting the operation of the existing systems is cumbersome and expensive due to complex software integration.

The retailer’s cost to add even one type of mobile payment technology (such as Google Wallet) is currently very high, and since the market is so fragmented, adopting just one of the mobile payment platforms will only address a tiny portion of the market.

 A possible solution to the problem could be a partnership between online and brick-and-mortar retailers. In many ways, Amazon marketplace is this type of a distributed physical store, where a variety of retailers use Amazon's IT resources to sell their goods. The retail industry as a whole is at the end of their S-curve; therefore, transplanting it to a new payment technology is a big organizational challenge.

Google: Let's Do Some Evil!

VBeat complains about Google using its dominance in the search market to promote Google+. When Microsoft used a similar market dominance tactic to promote Office and other products on Windows, a lot of people in the developer community thought them to be evil. Now we see how corporate logic takes over good intentions on the Internet.

Jan 14, 2012. VBeat -- Google’s introduction of Google+ links into its search results is a big departure from the company’s previous more neutral approach to search, and it exposes the company to a huge risk.

By offering us only Google+ results, Google is forcing us to go outside of Google to find a fair representation for social results competitors like Facebook or Twitter. Those companies have larger usage, and therefore they have more relevant results.

Twitter is open, Facebook is semi-open, therefore, Google will be able to dominate search, including its social component. Will Facebook go the way Yahoo Maps went when Google started favoring its own mapping service? I don't think so. But the gloves are off in the social networking market. First, Google ripped off Facebook user interface, now they start favoring Google+ in search results. I won't be surprised if Android comes with Google+ as the default social option. Somehow they need to pay for this $12.5B Motorola acquisition. For all intents and purposes, Google is the new Microsoft.

Go 49ers!

tags: business, model, domination, commerce, platform, google, microsoft, social, networking

Online video – learning 24/7

Broadband creates new opportunities in the service economy. Music lessons are going virtual on Skype.

January 10, 2012. NYT -- Skype and other videochat programs have transformed the simple phone call, but the technology is venturing into a new frontier: it is upending and democratizing the world of music lessons.


Students who used to limit the pool of potential teachers to those within a 20-mile radius from their homes now take lessons from teachers — some with world-class credentials — on other coasts or continents.

Parents are also driving the shift to webcam music lessons. After Susan Patterson grew tired of taking her 13-year-old daughter, Taylor, 45 minutes each way for violin lessons, she e-mailed 15 violin teachers with Web sites.

What e-Bay did for physical goods, social video is going to do to services, including education.

¡Touchdown 49ers!

tags: commerce, service, social, distribution, business, information, education

Holiday shopping, 21st century style.

Sears and KMart are closing stores, while e-commerce is booming. According to the latest numbers from Comscore (via Cnet), US online holiday spending is up 15%, reaching $35.3B.

I find particularly interesting that

Digital content accounted for more than 20 percent of all online sales on Christmas, compared with just 2.8 percent on an average day during the holiday season.

Social networking in combination with mobile devices are going to accelerate this trend (mostly due ubiquitous ads and instant gratification.)  Shopping with a tablet and even a smartphone is better than with a PC. Moreover, making a last minute digital content purchase is way faster than running to a physical store. You get the best of both worlds: a faster/cheaper purchase and greater selection.

tags: commerce, information, business, social, networking

End-to-End Analysis of the Spam Value Chain

A fascinating paper analyzing spam as a business model. Here's a picture showing how a typical Viagra spam transaction works:

With all its complexity, the spam business has a choke point: bank transactions. According to the study, only three banks clear the vast majority of high-risk transfers.

...it is the banking component of the spam value chain that is both the least studied and, we believe, the most critical. Without an effective mechanism to transfer consumer payments, it would be difficult to finance the rest of the spam ecosystem. Moreover, there are only two networks—Visa and Mastercard—that have the consumer footprint in Western countries to reach spam’s principal customers. While there are thousands of banks, the number who are willing to knowingly process what the industry calls “high-risk” transactions is far smaller. This situation is dramatically reflected in Figure 5, which shows that just three banks provide the payment servicing for over 95% of the spam-advertised goods in our study.

via MTR

Source: Levchenko, K., et. al. "Click Trajectories: End-to-End Analysis of the Spam Value Chain," Security and Privacy (SP), 2011 IEEE Symposium on , vol., no., pp.431-446, 22-25 May 2011

tags: business, model, deontic, information, commerce

Information asymmetries in the internet garden of Eden.

In 2001, George Akerlof, Michael Spence, and Joseph E. Stiglitz were awarded a Nobel Prize in economics for their work on the economic implications of information asymmetry. (information asymmetry is a situation in the market when one party of the transaction knows much more about the transaction than the other party. For example, you doctor, lawyer, accountant, and other service providers know more about you than you wish to admit. Similarly, the seller of a used car knows more about it than the buyer.)

Here's an excerpt from Akerlof's Nobel Lecture,

I discovered that the informational problems that exist in the used car market were potentially present to some degree in all markets. In some markets, asymmetric information is fair- ly easily soluble by repeat sale and by reputation. In other markets, such as insurance markets, credit markets, and the market for labor, asymmetric information between buyers and sellers is not easily soluble and results in serious market breakdowns.

The rise of Google, Facebook, Amazon, Zynga,  and other information aggregators creates a situation where they have an overwhelming informational advantage over both, the buyer (consumer) and the seller (advertiser). Not only they have access to more data about you and the seller, but also they have infinitely greater capabilities to make sense out of this data.

When Google promises not to do evil, they assume  god-like powers of knowing the difference between the good and evil. Which begs the question,  Are they playing God or the Serpent? In either case we have a three party information asymmetry: Eve (the seller) - Adam (the buyer) - God/Serpent (the knower.) If Akerlof is right, there's a serious market breakdown lurking somewhere inside this setup.

tags: economics, information, control, commerce, science

What's good for shopping is good for Amazon.

VBeat has an interview with Thomas Kelly, enterprise architect for cloud services at Best Buy:

(November 30, 2011) - Today, Best Buy runs a hybrid cloud with best-of-breed applications and IT governance in place. It also leverages the entire suite of Amazon data products, and even encourages programmers to experiment with new technologies

“Anything without governance becomes a failure potential,” Kelly said. Best Buy manages enormous amounts of data, undertakes hundreds of new IT projects each year and is responsible for continuous lifecycle management, which makes governance a must, he said.

 Amazon is essentially a "shopping cloud" with Kindle Fire as a front end. Soon, no matter where you shop, the chances are your order will be executed by Amazon's servers.

tags: cloud, source, tool, system, commerce, control, synthesis, platform

Siri, the Siren of commerce.

An interesting opinion in SpiegelOnline about Siri, Apple's new voice interface:

(11/29/11). Mit Siri hat Apple gleichzeitig einen Grund und ein Instrument geschaffen, um persönliche Informationen abzufragen und zur Profilierung zu verwenden.

Es handelt sich auch um einen großen Vorteil bei der Vermarktung von Werbung...
Apple ist es gelungen, bei der letzten großen Interface-Revolution, dem Touchscreen, alle Maßstäbe zu setzen. Wenn das mit Siri wieder gelänge, würden soziale Netzwerke nicht mehr benötigt, um aus dem Internet persönliche Informationen kommerziell verwertbar herauszuwringen. Es ergäben sich per Spracheingabe von den Nutzern selbst gepflegte Echtzeitprofile mit den Wünschen und Bedürfnissen der Zielgruppe.

 You can get a decent translation at Google Translate. Just paste the text into the box.

The main idea is that Siri prompts users to interact with the device more often, enter important context, and correct mistakes in human-computer interactions. All this provides an incredible wealth of information about the person and can be used for targeted advertisement.

tags: commerce, information, interaction, interface, 10X

Trade-off of the Day: business opportunity vs privacy.

After watching yesterday's Lunch Talk video, where Jeremy Bailenson warned against posting high resolution personal pictures on the net, I find this trade-off described in a recent NYT article lacking in imagination:

But facial recognition is proliferating so quickly that some regulators in the United States and Europe are playing catch-up. On the one hand, they say, the technology has great business potential. On the other, because facial recognition works by analyzing and storing people’s unique facial measurements, it also entails serious privacy risks.

The trade-off is false. You may not lose your privacy in a lopsided commercial exchange, but you will definitely lose your money. For example, according to Bailenson, once advertisers know your unique facial measurements they can construct a highly convincing social networking ad that dramatically increases the probability of you buying their product or service. It's very concrete money in your wallet that are at risk, not some abstract privacy rights. Having access to private information is one thing. Manipulating the information to gain psychological and business advantage is another.

tags: privacy, commerce, control, detection

Groupon timeline: from startup to IPO

Groupon infografic from www.sigfig.com (via VBeat). Note valuations:

early 2010. Series C financing. $1.3B
late 2010. Google offer to buy. $6B
early 2011. Series D financing. $4.75B
early 2011. Initial IPO discussions. $15B
mid 2011. IPO talks. $25B
late 2011. Release of earnings. $10B
late 2011. opening price $20 @IPO. $12.7B
late 2011. max market price @IPO. $25B
today. @market price. $XXXB.

Comparing apples to amazons.

Comparing Apple's and Amazon's hardware/content strategies, people tend to forget that Kindle Fire is a general purpose shopping device, not just e-book reader. Content purchases, though not to be ignored, is one of many categories of products sold through Amazon's superstore. On top of that, Amazon provides cloud services, which means developers will have an end-to-end solution for all their smartphone/tablet application needs.

(11/10/11. VBeat) Amazon CEO Jeff Bezos has made the bet that getting low-cost hardware into hands of consumers will pay off immensely when they buy more digital content to make up for hardware losses. That’s the exact opposite approach of Apple, which makes its money on hardware sales and not as nearly much on content.

(11/10/11. VBeat) - E-book sales as a whole for book publishing are still minuscule compared to print, but e-books are becoming more popular. In 2009, e-book sales accounted for 3.2% of the industry’s sales, but in 2010, they accounted for a much larger 8.3% percent. Forrester Research thinks e-books could reach $3 billion by 2015, compared to $441 million in 2010.

tags: 10X, content, information, strategy, business, tool, source, commerce

Human brains as spare parts.

Having an infinite pool of qualified networked workers, i.e. the crowd, allows applications to use them as interchangeable parts. Humanoid, a new cloud-based crowdsourcing service, enforces performance standards among anonymous brain "suppliers".

Nov 2, 2011. VBeat. ”We launched SpeakerText, and it took us about a year and a half to get actual quality results from Mechanical Turk,” Mireles told VentureBeat. The problem, Mireles said, is that it was extremely difficult to ensure the quality of an anonymous, distributed workforce. For every dollar the team spent on labor on Mechanical Turk, it had to spend two dollars on quality assurance and cleanup.

Using statistics to predict how accurately a task will be completed based on a worker’s past performance, Humanoid is able to judge whether a worker is showing signs of fatigue, or if other factors could be interfering with the completion of a task. When these warning signs arise, the job is rerouted to another distributed worker who can meet the company’s standards, so no time is lost fixing work that is not up to snuff.

 The system would make Frederick W. Taylor very proud.

tags: control, cloud, information, commerce, 10X, problem, solution

Mobile text vs Web

VentureBeat has a remarkable infographic about world-wide impact of mobile phone texting (click to enlarge).

tags: mobile, commerce, communications

The web is dead. Implications for e-commerce.

The low quality of recommendations was one of the problems we looked into during my Summer '11 BUS 74 Principles of Invention class. The class did not select it for the problem-solving session, but I felt the topic was important to the next generation of e-commerce. My intuition was that the traditional web-page + links + search approach was not going to work in the social networking space (the web is a dying media). Here's more evidence for that.

Gallup published a study that, in their opinion, debunks what they call Social Media Myths. One such myth is that consumers can be moved to purchasing decisions by brand-sponsored campaigns.

 

I can see that young unmarried people, i.e. the most desired target demographic, is mostly influenced by parents, friends, and experts. In the social world it boils down to just friends. Therefore, any effective ad campaign should target "circles", getting one or two members of the circle evaluate the promoted stuff. Having a campaign page or twitter account is a waste of effort.

In contrast, I think a product page [or reference application] on Amazon is a great promotional tool because it captures practically everybody in top influencer categories.  Getting people to cross-post their reviews ("Like", +1, etc) to Facebook or Google+ would be an excellent way to influence purchasing decisions. You may even want to create a dedicated "Shopping" circle so that your friends don't get mad at your spamming. Thinking along similar lines, Google's purchase of Zagat also makes sense.

Conclusion: web page promotions, created either through the traditional web, Facebook, twitter, or Google+ are ineffective. Consumers prefer accounts of immediate experience to product descriptions developed by an interested party.

For the philosophical logic behind this thinking, you can further read Bertrand Russell's The Problems of Philosophy, published in 1912. Chapter 5 talks about the difference between what he calls acquaintance and description.

tags: social, networking, commerce, internet, control, facebook, course, detection

Why building cars is not fun?

NY Times recently pointed out the vast difference in jobs and market value between information and manufacturing companies

Facebook has about 2,000 employees worldwide. Google has about 29,000. Even in its new, slimmed-down state, General Motors, a decidedly less valuable company, has about 200,000 employees.

What escapes this analysis is that hundreds of millions of people work for Facebook and Google for free. That is, Facebook is built around users creating its content; Google is built around people searching free content created by others. Gaming is another area where millions of users spend innumerable hours on building free stuff: virtual farms, cities, worlds. Sometimes they even pay their own money for doing that. But nobody wants to design or build cars for General Motors for free. The next breakthrough in social networking will probably come when we get the online community to produce sellable electronic stuff beyond virtual gold. Just 1% of the total effort could produce huge value.

VBeat: :

Game publishing company Electronic Arts‘ newest social game, The Sims Social, has passed social gaming supergiant Zynga’s Farmville and now has 36 million monthly active users just under a month after its launch,

Electronic Arts is now the second top Facebook app developer with 77.8 million monthly active users. Its well behind Zynga’s 273 million monthly active users, but it’s much further than the next closest social game maker Wooga, which has nearly 40 million monthly active users across all its games.  Before The Sims Social launched, Electronic Arts had around 29 million monthly active users, according to AppData.

tags: games, social, networking, commerce, economics, market, technology

Creativity is no longer an option.

The Economist (Sep 10, 2011) has an interesting article on the relationship between global trends and unemployment in the US. This paragraph in particular attracted my attention:

Michael Spence, another Nobel prize-winning economist, in a recent article in Foreign Affairs agrees that technology is hitting jobs in America and other rich countries, but argues that globalisation is the more potent factor. Some 98% of the 27m net new jobs created in America between 1990 and 2008 were in the non-tradable sector of the economy, which remains relatively untouched by globalisation, and especially in government and health care—the first of which, at least, seems unlikely to generate many new jobs in the foreseeable future. At the same time, says Mr Spence, the mix of jobs available to Americans in the tradable sector (including manufacturing) that serves global markets is shifting rapidly, with a growing share of the positions suitable only for skilled and educated people.

If you look at the "Creative Crowd" chart below, you can see that mass manufacturing processes (upper left corner) simply moved overseas where pay rates for routine labor are lower. First, the creation of a highly effective shipping industry that started in the 1950s, and then the addition of inexpensive communications in the early 2000s, lead to a situation where exchanges between the right and left parts of the chart became very easy. The housing bubble of the 2000s masked the fact that in the US not being entrepreneurial and/or creative  means competing with people who live on $100/month.

tags: creativity, business, model, process, scale, 10X, commerce

Google's secret weapon discovered: Copy-Paste.

Here's the latest from the social networking battlefield.

In an attempt to find the difference between Google+ and Facebook, a consumer tracking study discovered that Google+ innovators did an excellent copy-paste job:

During their research, EyeTrackShop found that both social networking sites work almost exactly the same.

The pictures below show how user eyes scan the page. Looks like one of those "Find the difference" puzzles in children books.

Facebook

Google

2025 business headlines: Wal-Mart files for bankruptcy protection

WSJ reports:

...surveys by retail consultants, analysts and brand experts now find that Wal-Mart's aura of price leadership has faded since the recession, because customers who searched for better deals sometimes found them at competitors such as Dollar General Corp., Aldi Inc. and Amazon.com Inc.

As I wrote two years ago, Amazon had become Wal-Mart on steroids because it can aggregate consumer demand in real time. Probably, they can even optimize delivery costs, since their model does not involve inefficient consumer driving to and from the store. Add to the battle new shopping technologies and brick-and-mortar model looks increasingly vulnerable, unless the government steps in and prolongs the agony by imposing online sales taxes. Fundamentally, Amazon shop is open 24x7 and it can deliver in the most convenient form, physically or digitally.

P.S. it is also interesting that, for example, Google can rip off Apple, but Wal-Mart cannot rip off Amazon. 

tags: innovation, information, commerce, business, model, control, s-curve, efficiency, aggregation