Rolling black outs today in LA so I’m gonna take sometime for a link dump from the The Underbanked Financial Services Forum. The underbanked market represent close to 20% of all households in the United States. For many, especially in the Bay Area, it is an almost invisible part of the economy. Here in LA, with check cashing & pay day loan “financial centers” prominent in almost every city in every other strip mall, the potential and the opportunities in this market is actually quite obvious. Furthermore, many in the underbanked market participate only in the cash economy. With the internet’s heavy reliance on digital payments (such as credit cards), many in the underbanked segment are precluded from participating fully in the web economy (much less web 2.0!).

For the majority financial services providers (banks) and retailers (gorcery, general merchandizer etc) creating products and services for this market is actually a top 5 strategic initiative. With the growth slowing due to law of large numbers, they are looking at this market as the next major driver of revenue growth.

Below is presentations from the conference that was left up for the public to pour through.

Conference Presentations

Some of the more interesting ones. . .

Walmart Important just because its Walmart.

Experian Credit bureaus are really the arbiters of consumer finance.

Fair Isaac Even more extensive intro to the credit industry.

from Pacific Epoch

Tencent’s (0700.HK) QQ.com has surpassed incumbent Sina (Nasdaq: SINA) as the China’s most popular Internet portal, according to data from online traffic statistics site Alexa.com. The two-year old QQ.com has shot to success on the back of Tencent’s immensely popular instant messaging service QQ, which boasts over 200 million active users. According to Alexa, QQ.com is the fifth most trafficked site in the world, with Sina stuck at number seven. Sohu follows at number eleven. Baidu.com remains the most popular Chinese website, coming in at fourth on Alexa.

. . . 2 years! . . . .

I wonder if people is still questioning the stickiness of IM ( Meebo).

I wonder if Skype is thinking “big” in Chinese (and in all sort of foreign languages)

I wonder if Google is looking hard at this

I wonder if AOL is ready for their comeback

I wonder if MySpace IM will be even more sticky

I wonder if MSFT is trying to integrate Office with MSN Messenger (and MSN)

I wonder if in the persistent presence world of mobile desktop . . . portals are just an accessories to IM/SMS killer apps

Pardon my rant, please skip this post. . .

I dont know where else to vent so I’m gonna do it on my blog and perhaps save some people from falling for one of their “deals” which I’m embarassed to say I did. (or hope it get indexed by Google so when someone searches on Wirefly they land here . . . and cause them to lose a couple of sales. . . thats see if thats worth trying to screw me over for a few hundred dollars).

Over a year back I bought a ROKR from them (again I’m embarassed to say I’m one out of the 100 people that actually bought one). At the time I thought, hey just like Amazon, after rebates the phone is free. . . . I should have read the disclaimer they put in 8 point font.

Well, once I recieved the handset I realized I could not send in the rebates until 180 to 210 days after activation. I knew I was tricked and tried to refund the phone but they asked for a fucking re-stocking fee. I was stuck and thought I’ll just have to be diligent and remember to send the rebate within the 30 days freaking window that they give you after a whole 6 month of waiting. (pardon my french).

Its kinda of obvious the game of slippage they are trying to play. . . not exactly the most ethical business practice already . . . and probably illegal with their lack of visible disclaimer and re-stocking fees.

The worst part came when I diligently saved all the boxes, cutouts & reciepts and sent in the rebate forms (BTW why are there 2 rebates in 2 envelopes for the same damn purchase? Why are they called “customer loyalty rebates” . . . they are just pissing on my grave at this point) and patiently waited. I got an email from them saying that they are processing the forms a few weeks after I mailed it in. After that. . . dead silence. . . again they are betting that I would forget about the rebate. Unfortunately for them, I’m a cheap bastard and keeped on emailing and calling them.

After quite a few non-responses, they told me that my rebate was dated 11 days too late. . . after waiting 6+ months, they are telling me that I’m 11 days too late? I’ve been 11 days late on my credit card bill and not get charged interest because I’m a long time customer !!! So now the only way to get my rebate is to send it “proof” of mailing date. Who the fuck mails rebates in certified mail? ARGH . . . the worst part is I have no idea if I am 11 days too late . . . I’m pretty sure I wasnt, but

So there you go, I’m out close to $300 bucks. . . (yes, I’m a dumb fuck, I could have just straight out bough the phone $100 but I tried to get it for free . . . not withstanding “time value of money”) . . . now that I’m worked up again, I’m going to call them and complain again. . . I promise to use up atleast $300 worth of customer service cost

On a more serious note, I dont think these guys understand that on average customer retention cost is significantly lower than acquisition cost for a new customer. To make me jump through hoops like that is a definite a drain on my satisfaction and loyalty. They will have to rely on new cusotmer acquisition for revenue growth rather than repeat customers. Furthermore, given that they are an online company reliant on search marketing as the key driver of their business, it is not wise to piss off customers who can just write a post on a blog or BBS and complain. When someone types in “ROKR Wirefly”, they will eventually be served up organic results with the title “Wirefly Sucks” along with their ad on the right hand side . . . at that point, who is going to buy more phones from them?

to think of it. . . hmm . . . I’m gonna make my money back by shorting their stock . . .

From a New.com article, Google exec challenges Berners-Lee

“What I get a lot is: ‘Why are you against the Semantic Web?’ I am not against the Semantic Web. But from Google’s point of view, there are a few things you need to overcome, incompetence being the first,” Norvig said. Norvig clarified that it was not Berners-Lee or his group that he was referring to as incompetent, but the general user.

“We deal with millions of Web masters who can’t configure a server, can’t write HTML. It’s hard for them to go to the next step. The second problem is competition. Some commercial providers say, ‘I’m the leader. Why should I standardize?’ The third problem is one of deception. We deal every day with people who try to rank higher in the results and then try to sell someone Viagra when that’s not what they are looking for. With less human oversight with the Semantic Web, we are worried about it being easier to be deceptive,” Norvig said.

I’m certainly not in the level of Norvig or TBL to be participating in this discussion intelligently. But I think the point Norvig is trying to make is that the semantic web will eventually appear, but not the way TBL envisioned it. There will be a lot of “fuzziness” to the way webmasters adhere to the RDF (whatever standards/standard that will emerge). In the end, there will always be a need for an intelligent normalization layer that “attempts” to find pattern, context, and meaning out of all the loseness of the data that is on the web. A simple parser will not be able to “absorb” or read the semantic web (or atleast the entire semantic web). The Google search engine is probably in the best position out of all the EXISTING technologies out there to be that layer, it kind of is for humans. The unfortunate ramification (that TBL would be sad to admit) is that SOMEONE will own the semantic web, not as a standards body or content owner, but as the normalization/extraction layer. If Google is able to garner monopolitic growth without a naturally monopolitic product or business model (search engine), it is not without a huge leap of faith that in the future a player (maybe google) will be able to exact a toll for being the de facto router/translator of data on the web. . . this is a scary thought . . . the end of the open web? (and these guys are freaked out about net neutrality?)

As much as everyone rags on Google for their shot gun approach to product development, Google is actually showing signs of growing up and building a much needed product development/maketing process & infrastructure. Business Week spend some time pointing out google’s questionable track record. John Battelle has also pointed out multiple times in the past that Google needs to do a better job of integrating product development, management, and marketing - or so he calls it “product marketing.”

Google circa 2000 approach - build it they will come . . . cause we are google and you love us not being evil . . . we in fact hate marketing
(I heard they let go an interim VP of Marketing back in the day for recommending a TV compaign)

Google circa 2003 approach - leverage the huge amount of search traffic to send traffic to new products . . . but I still wont pick up a phone call or answer an email to market the damn thing cause you come to me. . . I’m google

Google Checkout 2006 approach -

1) code complete doesnt mean time to launch, infact build some business momentum first before launching
2) get some named accounts to proof value propsition as well as write some marketing case studies before opening up the kimono
3) leverage google traffic, userbase, strategy etc
4) oh ya, make sure the damn thing scales first

In fact, it looked to me that Google Checkout was incredibly well coordinated from PR, branding, business development, release, strategy, and general marketing perspective. I think a few things has contributed to this. From what I know, the Google Checkout team is not just bunch of 20 some odd year olds, it is actually one of the older (read more experienced) team at Google with people who learned product management/marketing at a diverse set of companies before landing at google. Also, a friend told me that Google hired a consultant who used to be an executive at eBay to revamp it Product Development Life Cycle and model it similar to eBay’s clockwork like process. (Ironic isnt it? that as eBay tries to losen up its processes, Google is doing the opposite). If Google checkout becomes successful, it will be held up at Google as a best practice example of how to manage the PDLC. All the more headaches for the rest of the valley. . . smart, innovative, risk seeking, AND process driven . . . now they just have to work on that ego thing . . .

Since almost no one covers the industry in the blogosphere, I might as well start for my own edification.

Today, Cash America International, a publically traded provider of payday advance loans, just acquired CashNetUSA for around $35M. I cant seem to find whether CashNetUSA is venture funded, which might explain that the $35M price tag. It is a good lump of cash for the owners/entrepreneurs, but as far as a VC investment is concerned, this is not exactly a homerun. What the acquisition does potentially signal is a turning point in the industry where bricks and mortar players are seeing some sort of inflection point in share shift towards upstarts in the industry trying to leverage technology to increase efficiency in either distribution or customer service.

The industry as a whole is known to be a little bit shady, but with hightened interest in the segment, competition is driving increased visibility and accountability. Sequoia has in fact made a series of bets in the underbanked sector. One of which in the payday loan space is called PayDay One. Another called Xoom for Money Transfer. And ofcourse Green Dot in financial services. Another VC firm that is also very active in the segment is Oak Investment Partners . . . but in the later stages. Given how large the opportunity is, I’m surprised how many VC’s are chasing after the latest web 2.0 play but not really playing actively in this industry. . . you invest in what you know I guess . . . the old Buffet adage . ..

Learn more about Green Dot here at our Prepaid Visa web site.

Vinod Kholsa is a legend for a reason, look at returns he has gotten on the fund he is running by himself. (via Infectious Greed)

I know rounds of <1$M in the seed phase is getting more and more popular especially for web 2.0 startups that launches via the Techcrunch method. (recently profiled by business 2.0 as a how to pull out. . . only if it was that easy I would be “independently wealthy” by now.) All things equal, I would not have raised $50M in 24 month at my last startup and settled for a more gradual $15M over 2 years. And probably a round of $1M or so for seed. All the reasons to do so has been blogged to death (less dilution, more discipline, smaller egos, more control etc.) But these is a negative side to all of this that no one is talking about. . . that is

1) Raising $1M versus $5M doesnt mean your pre-money stays the same. This is the screwed up part. For $5M you are probably giving up 35%-45% of your company. For $1M you are probably giving up 15%-25% for the company. The scale is not even close to linear. You have to make the choice whether that extra $4M is worth another 20% in dilution . . .

2) This is the part that I hate the most. Putting in less money means VC’s are taking less risk. This is not the case for entreprenuers. Quiting a job and relying on your wife’s salaries to feed the kids is extremely risky when you only have 12 months of burn in the company bank account. Put it another way, VC’s only have variable cost when they invest in the startup, entrepreneurs have a huge fixed cost they have to cover before the rewards are worthy. For each dollar a VC invests, there is an dollar he/she could lose. The entrepreneur, on the other hand, is not just betting with sweat equity but with his career, family, (and baby food?) VC’s can now dull out investments in smaller chunks pending milestones and market condition. (this is a huge risk mitigator for them)

The other positive externality for VC’s is that any entrepreneur that is doing this must be extremely committed/confident of his concept or financially independent w/ a succesfull startup under his/her belt. Which helps with positive self-selection.

3) The last point has to do with recruiting. How do you recruit employees when all you have is 1M bucks in the bank? Its really really hard to do so unless you give inflated titles and/or inflated equity (and perhaps that would not work either). And of course the equity comes out of the employee pool which dilutes the common share holders (founders) and not VC’s (remember, the pool is usually allocated BEFORE an investment so the dilution is to founder/employees not VC’s). In which case, the dilution you hoped to save by raising a little money might go down the drain.

Good news of course is that its easier to start and scale a company than ever. So easy, infact, that people can do it as a side gig until certain milestones are met and negotiation leverage returns to the entrepreneur not the VC.