Ver. 1.4 Book Release, Apple’s Victory, Cable Guy Google, & Mobile Payments Galore – The Week in Geek™ – Aug. 28, 2012
Version 1.4 of “Information Systems: A Manager’s Guide to Harnessing Technology” is out! The text is meant to offer to technology & business what “A Random Walk Down Wall Street” does for finance – enduring concepts wrapped around current and interesting examples. Look for updates throughout the book that include new material on Facebook and Google, a brief managerial intro to the big data technologies of Hadoop, and much more. Updates will keep material current, but the book’s structure & theory remains consistent from version to version. As always, the award-winning book is free via the browser and also available in low-cost print versions. Contact Flat World Knowledge for details. And sincerest thanks to all of you who have written with encouragement, adopted the text, and helped spread the word with colleagues. Please continue to let me know how you’re using the text, and do share with others. All the best!
Apple’s Samsung Victory and the Future of Innovation
The world’s most valuable company claimed that Korea’s Samsung, which sells more mobile phones than any other firm in the world, infringed on Apple’s patents, and it took a nine-person panel just three days of deliberation to pretty-much agree. The panel found that Samsung infringed on all but one of the seven contested Apple patents presented (Cupertino lost a claim on the physical design of the iPad – it seems the color black is tough to patent). The panel, however, didn’t support any of Samsung’s claims that Apple infringed on their work. The Wall Street Journal offers a nice scorecard showing the jury rulings for utility, design, standards, and feature patents. Also for those keeping score, while Samsung outsells Apple two-to-one in mobile phone units, Apple takes home three out of every four dollars in mobile industry profits.
The panel awarded Apple $1.05 billion in damages – about half of what it was asking for, but still enough to rank as the fourth largest ruling in US history. In the coming weeks, a judge will consider blocking the sale of Samsung products that infringe on Apple patents – a potentially devastating blow if it occurs. Of course, the case is far from over. Samsung will appeal and the case will likely take months, if not years to fully shake out.
While Apple targeted Samsung, this was really about going after Google. Experts think the indirect war against Google, targeting firms that use Android is most effective in chilling the Android market. But some also wonder if the ruling might actually help Microsoft and it’s Windows Phone, “which looks almost nothing like the Apple software for iPhones and iPads” but has garnered substantial praise from the press, even though it’s so far a sales dud.
There are strong arguments on both sides praising and deriding the verdict. On one hand this ruling protects the rights of true innovators from blatant copycats. It’s tough to argue that Apple’s designs haven’t radically rebooted what we consider a ‘phone’, setting ease-of-use standards in the process. If pioneers can be ripped off without protection or punishment, then this could lower the incentive to lead with innovation. On the other hand, tech firms face a “minefield” of patents held by competing entities, causing many to second-guess whether they can even bring a product to market. The need to cross-license patents prompted several otherwise-rivals (including Apple, Microsoft, RIM, and Sony) to pay billions to secure and share Nortel’s patents last Fall. But the patent issue is particularly chilling for startups, which begin life with cash constraints that’d torpedo most young firms if faced with a well-funded, lawyered-up rival with a stack of patents (the average patent case can cost $5 million). Some claim the scales were tipped away from startups last Fall by the passing of the “America Invents Act”, which is scheduled to take effect next March. The current US patent system relies on “first to invent” principles, where rulings establishing invention date are based on things such as “lab notebooks, e-mails, and early prototypes”. The new regime will switch to “first to file”, awarding patents to the first to submit their ideas to the US Patent and Trademark Office. A lone techie in a garage and with no law background is further disadvantaged when competing against well-resourced firms that become patent filing machines. Big companies automatically submit the musings of their engineering team, raising the hurdle for the creative little guy who may actually have started first. Critics also contend that the “America Invents Act” gained wide bipartisan support, largely because of massive lobbying efforts by deep-pocketed firms eager to further tip the scales in their favor – yet another way the system is stacked against startups.
Google’s Audacious Bet of Fiber
Kansas City (Missouri and Kansas) rejoiced when Google announced they were coming to town, and towing high-bandwidth, glass cables with them. Larry & Sergei’s firm is offering up 1 gigabit Internet (about 500x faster than what much of the country can get from cable providers) for $70 a month, and all with no bandwidth caps. Another $50 gets you dozens of high-def cable channels. Under Cable-guy-Google, a consumer can record up to eight shows simultaneously, and download a single high-def movie in seven seconds (versus 22 minutes for a 5mbps connection). Google gives you a free terabyte of cloud storage, and even throws in a Nexus tablet as the remote control. Just one week into the offering, Google signed up more than 5% of eligible homes. Three weeks in, some neighborhoods had nearly 40% of residents opting for Google (noteworthy, given many residents are likely tied up in existing contracts with other providers).
Could Google really become a legitimate player in home broadband? The firm has deep pockets (over $43 billion in cash), which it’d need given Verizon’s claims that rolling out FiOS has cost it $23 billion (reports claim the KC experiment is costing Google $500 million). Cable firms also have entrenched relationships with content providers, and Comcast outright owns NBC and Universal. Existing firms aren’t likely to make it easy for their content to show up on a rival Google pipe if the search sovereign threatens their lucrative, existing relationships and revenue streams.
But imagine what Google could do if it became your cable provider. A chunk of TV advertising might be streamed and targeted per user. Ads could become more interactive (“answer this survey and watch a movie for free, or the rest of the show commercial-free”). As owner of Motorola, Google-owned boxes power more cable than anyone else – most boxes don’t yet have GoogleTV software, but that could change. And if Google’s cloud might become your default storage location for all of your media (photos, music, app documents, PC backups, and more), that’d create a hammer-lock switching cost others would struggle to beat. This isn’t something that’ll emerge overnight, but Google, a firm that’s working on all sorts of future-fodder from Internet glasses to self-driving cars, has the cash, patience, and willingness to experiment to be a credible rival to today’s ISPs.
Starbucks Schools Other Retailers in Mobile Payments
The Seattle coffee giant launched it’s iPhone mobile payment app in January of 2011 and it’s been a huge success. Now available on a variety of platforms, the app allows customers to wave their phone at the register and pay instantly. The phone replaces a conventional Starbucks card and can be reloaded from the phone or automatically. Users see loyalty points accrue as stars tumble into a Starbucks cup, and deals keep customers coming back. It’s estimated that Starbucks customers will make over a quarter of a billion dollars in mobile payments this year. That’s only about two percent of revenues, but it’s growing rapidly and has other benefits, as well. The app’s speed checkout, making store lines move 10-20% faster during high-traffic hours, and that can boost revenue by up to 1%. Our students were privileged to meet the app and loyalty teams at Starbucks HQ earlier this year – something made easier since one of our MBA program alumni is one of the Starbucks mobile app geniuses.
Starbucks has also invested $25 million in San Francisco startup Square, a firm that also offers a card-free mobile payment system (as well as a fob that allows smartphones to accept credit card payments from others). Square processes about a million transactions as week, and Starbucks may be rocket fuel to propel the firm’s platform to be adopted by even more merchants,
One of the major reasons to go-mobile is the prospect of lowering merchant credit card interchange fees. Stores can pay 2% or more in fees for every credit card transaction. But firms that consolidate credit card payments using apps can pay a lower rate. Square claims it can process Starbucks payments at a lower rate than some other payment networks. Those sorts of savings have prompted Target, Best Buy, and Wal-Mart to team up and create their own mobile payment app. Wal-Mart’s margins are only around 6%, so cutting credit card fees while speeding lines could substantially push profits north.
LevelUp Offers Merchants Zero-Interchange Fees on Mobile Payments
The boldest move in lowering processing fees may be coming from Boston-based SCVNGR. The firm’s LevelUp app allows consumers to link their phones to a credit card and pay by waving their phones at thousands of vendors in cities nation-wide. The app has a built-in reward system, so users save money by returning to merchants (bonus: check in the app’s settings for a “Give $5, Get $5” promo where everyone wins through viral marketing – here’s my code if you haven’t yet signed up). LevelUp claims customers are saving an average of about $37.50 a month using the app.
Payment systems are two-sided markets (a critical mass of ‘buyers’ and ‘vendors’ are needed for success) and merchants have big reasons to love LevelUp, too. This summer the firm announced it was eliminating the credit card interchange fees for any purchases made through LevelUp. LevelUp claims its growing scale allows bundling transactions that lower rates for merchants, so it is willing to effectively give back the cut retailers pay credit card firms (provided, of course, that the payment was made through TheLevelUp app).
The firm needs to make money somehow, and that happens when LevelUp takes a cut of the loyalty programs it offers vendors. Sure the vendors are paying for promotion, but the firm claims every $1 invested by its business customers through LevelUp results in an average of $18 in additional revenue. Programs are trackable in real-time, so vendors can see the level of engagement they get through the app, and LevelUp only gets paid when it brings in new or repeat business. Like Google’s AdSense, LevelUp delivers immediate ROI – no results, no payment.
LevelUp has been growing like gangbusters, hiring over 100 this past year, growth well out-pacing the firm’s first offering, the mobile location-based gaming platform, SCVNGR. Founded by the now 23-year-old Princeton dropout Seth Priebatsch, the firm has raised over $40 million, with backers including Highland Capital, Google Ventures, Balderton Capital, and the founders of Discover Card. Priebatsch, who delivered the keynote at the 2011 South by Southwest conference will be the closing speaker for BC’s Entrepreneurship Week on Friday, Sept. 21st, 3pm, in Fulton 250. Want to hear from Seth now? Check out the video from Bloomberg where he discusses the firm’s role as payment and loyalty revolutionary.
Watch Out PayPal, WePay Drops Prices & Rolls Out White Label API
Last year Bill Clerico and Rich Aberman, the BC alums behind PayPal competitor WePay, were named to BusinessWeek’s list of Young Tech Entrepreneurs of the Year, and since then the Y-Combinator alums have continued their rocket-ride growth. WePay has now raised nearly $20 million in capital and TechCrunch reports the firm is processing “hundreds of millions of dollars” annually.
Credit WePay’s API as a key to growth. The API allows websites to easily integrate WePay services into their offerings. It accounts for about 25% of WePay business and is the firm’s fastest growing revenue contributor. Over 1,000 firms are using the tools to bake WePay payments into their sites (WePay is especially popular with crowdfunding efforts, including GoFundMe and Fundable, as well as small businesses seeking a PayPal alternative).
This summer WePay introduced improved API tools that allow firms to create a “white label” service, meaning WePay expertise & security can power a site’s payments, but the entire experience looks like it’s coming from the vendor you’re buying from. Need another incentive? Rates have dropped from 3.5% to 2.9% + $0.30.
CEO Clerico (who is a TechTrek alumnus and also co-founded the Boston College Venture Competition) will be featured in two BC talks in September: “Silicon Valley Comes to The Heights” (also featuring Peter Bell of Highland Capital Partners and Pat Grady of Sequoia Capital), Thu. Sept. 20, 6:30pm, in the Fulton Honors Library. And Bill will be the 9am speaker on our final day of Entrepreneurship Week, Fri. Sept. 21, 9am, Fulton 250.
Eagles in the House as TechStars Boston Announces Fall 2012 Class
The digerati know TechStars as one of the nation’s leading accelerator programs. Based in Boston, Boulder, and NYC, TechStars firms have raised an average of $1 million in funding per company. 90 of the 104 firms that have gone through the program are still active, and 9 have been acquired. That’s a pretty sweet success rate given the brutal reality and low success of entrepreneurship overall. Firms receive modest funding for giving up a 6% stake in the firm, but the real benefit comes from mentorship. TechStars mentors include Dennis Crowley (Foursquare), Fred Wilson (Union Square Ventures), Bijan Sabet (Spark Capital), Dharmesh Shah (HubSpot), Wendy Lea (GetSatisfaction), and scores more. “Demo Days” have become the hot ticket for the startup set, with teams presenting like rock stars in major venues (e.g. the Wilber Theater in Boston, Webster Hall in NYC) to hundreds of potential investors (students in BC’s Information Systems Academy were thrilled to attend last May’s Boston event, where we saw my former student, Mike Nugent pitch BISON Alternatives to rave reviews).
Boston College entrepreneurship has even more to celebrate. Two of the thirteen teams admitted to the Fall TechStars Boston class have BC pedigrees. NBD Nano, winner of the 2012 Boston College Venture Competition announced they’d also raised some $200k total this year. They’re joined by the stealthy Wymsee, launched by a tech-talented team of 2011 BC graduates. Congratulations to our young alumni as BC’s continued success prove the school, programs, alumni involvement, and unique offerings create steroids for accelerating quality student entrepreneurship.
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Boston: A Capital of Innovation
Hardworking NewTV intern Nick Klein put together a documentary on tech entrepreneurship in Boston. It’s a nice overview featuring a bunch of insightful comments on the red-hot local startup scene. Feel free to check it out, if you can endure the comments from a particular bald & bearded professor 🙂