This is a familiar story. . . you work at a consumer internet or software company and you are trying to figure out the important features for a product you are launching. You go out and survey a large number of your target customer base and comes back with a top 10 list. Given the scarce development resources, you decided to build the product with the top 5 most important features.

you built it . . . and no one stuck around . . . despite a mentions in all the cool blogs and tens of thousands of dollars in google adword spending . . .

So what went wrong?

Its because competition ALWAYS occur at the margins.

In many industries, espcially online given the low barriers to entry, hyper competition has commoditized almost any “idea” that one can come up with. (how many social network for high school sports can there be?). There are so much competition, only the good one sticks around in the first place. EVERYONE will have the 5 features your customers said they wanted. As such all products and websites begin to look the same to the end user . . . until you dig a little bit deeper . . .

The littles things are what matters. At the margin is where the winner and loser are determined.
The marginal features will determine the success and failure of a product: a simple registration process, a neat little feature, the ability to customize workflow . . . whatever it might be . . . It is the things that are ranked 20+ in importance (and sometimes not even mentioned at all) that will drive true differentiation. But there are so much noise and variance once you get down to the end of that list that it is almost impossible to know whether the data is significant or driven by random chance.

And this is why it is such a crap shoot to build a winning product. EVERYONE will tell you that good breaks are needed for a car . . . but close to NO ONE will tell you the 20 little things you need to outsell BMW.

A product manager’s job is becoming less of a science but an art. Experience matters, gut matters . . . . a holistic approach to understanding the customer experience matters . . . Knowing how to crunch numbers is a BASIC requirement to become a product manager . . . it takes so much more to be “good” than it used too. Ironically, we too are competing at the margins.

For centuries (ok fine, atleast a decade) people (especially non-users) has been complaining bitterly about the way eBay looks (circa 1994) and works (pages of scrolling, no javascript what-so-ever). In the last 3 years as the web world went “2.0″ ga-ga the complaints has only gotten louder. One might even call eBay “Ghetto Fabulous” But the truth is that eBay grew and grew despite, and probably because, of all the quirks of the website. (case study #2, myspace).

Well, the launch of eBay Express last year gave hints to what is to come for eBay.com. And the recent (I just stumbled on it, but I think it launched last night on the 23rd) revamp of eBay Motors officially begins the march of eBay.com towards the so called web 2.0 era. Since the new interface is still in A/B testing (not everyone gets it when they login), you can get a quick education of whats new at eBay Motors 2.0 at eBay University. A lot of the new changes are born of technology first created for eBay Express and other initiatives. But the integration of all these features truly points to the fact that this is the LARGEST and most IMPORTANT revamp of eBay Motors in the history of the company.

Here are just some of the new changes:

1) Web 2.0 fonts (bigger), color (brighter), and layout (rounded edges) . . . oh ya. . . AJAX (I pray one day people would stop associating AJAX with web 2.0)

2) Moving up the life cycle of commerce from transaction consumation up stream into research (eBay used to be much more focused on the transaction it self rather than decision making)
- Product reviews are front and center
- additional licensed content from KBB, carfax and more

3) A product architecture & ontology
- listings are now grouped under a product concept (all acura TL’s are associated as the same model type)
- attributes are extrated from each listing
- cross model navigation - for example coupe, 2 doors, SUV

4) New search engine - obviously related to (3) and very much looking like eBay Express

5) New emphasis on local searches and e-commerce (this is a new market eBay did not participate in pro-actively untill recently)

As I always said, “better” doesnt always mean “better” . . . users are creatures of habit, and an “implied social contracts” drives the interaction between a company’s website and its users. For example, conversion rate goes up when Google simplifies its homepage but down when Amazon simplifies theirs; given huge overlap in userbased, there is no way to predict actual user behavior by blindly following any mantra (2.0 or not). And thus, the only way is to test repeatedly and slowly roll out any changes. Make no doubts about it, any small percentage change in conversion rate will impact the bottomline. This revamp is a neccessary and inevitable for eBay (in search of growth and fending off new competition), but it is a gamble nonetheless . . .

If all goes well (it should as the new site is amazing, my opinion) looks for rest of eBay to move in this direction in the next 12-24 month.

Put this together over the weekend. eBay Alumni Network. If you are an eBay alum, please join! We’ve got much more important people than me on the network.

I’ve actually been using ning, which the network is based on, to learn php for the last month or so. Ning is really cool, not so much the social networking thing, but the whole idea that a company can create a service oriented stack ontop of the current web app infrastructure . . .

First of all congrats to Jason Steinhorn on his hard work and foresight (two of the most important ingredients of success) at Tellme.

I remember Tellme from the dot com days as one of those companies with insatiable desire and ability to raise money. In many ways it had more hype than substance in the intial stages (anyone remember the “voice web”?) but unlike most of its brethens, it slowly executed towards its vision (while the positioning has changed to reflect the latest buzz words, it has stayed surprisingly faithful to its original vision). Can’t say that about too many companies of that era . . . many of which eventually lost its way amongst all that cash.

Anyways, this is a big win for MSFT. (stock was up big today!). Instead of fighting Google at its own game, algorithmic web search, there are entirely new battlefields being born that are more wide open. . . voice, local, text, j2me and their intersections . . . mixing multiple input and output channels are what really made Tellme cool . . . smart buy for the guys up north . . .

(BTW, I hope eBay took a hard look at this deal . . . search is way too important to leave to the usual players)

Not now . . . but it will get there. Last week, Skype launched the long rumored/ expected/ in development Skype Prime service(via TechCrunch). Using Skype Prime, users can charge to recieve a call.

Even before the skype acquisition, (aug 2005) I recognized the impact of Skype on payments, but this development was headed off by the acquisition (Paypal was a huge benfitiary of the acquisition eventhough Wall Street did not recognize it). This development, however, could potentially be more revolutionary.

The key to the why Skype Prime is so much more than a “1-900″ service. It is the product strategy of useing Skype Credits as the payment mechanism:

your Skype Credit is deducted by the appropriate amount that then goes to the receiver’s account. The provider does not get the call fees directly as Skype Credit — rather, they go into a special holding “box”. The provider then receives the revenue via PayPal.

As is, skype credits are associated directly to the funding currency and thus are automatically converted into real money for the reciever. However for cross currency conversions, (caller bought skype credits in US$ and reciver is charging Euros) it does not appear that this transaction could be consumated.

Because skype credits are essentially pegged to a local currency AND there is no cross border transactions, Skype credits are only fungible as part of a transaction. However if Skype begins to enable cross currency calls, and begin denominating Skype Credits in MINUTES, a liquid market for trading these minutes will likely occur. Skype will have essentially created a virtual currency/economy. (I pay you in skype minute and you charge using skype minutes, and convert them to local currency in an as needed basis)

Of course, for a Skype economy to appear, there need to be a market for skype minutes. There are one very obvious applications: Sex. And second even more brilliant suggestion by Tom Evslin - as a method to self-monetize leads.

Here’s my prediction: many people will set up Skype Prime based call services. They’ll put information in their profiles which attracts telemarketers. Telemarketers will learn who the best prospects are both from the profiles (some of which will be lying) and by accumulating lists. You’ll adjust the rate so that you’re pleased, not annoyed when you get a telemarketing call.

Of course, given the rise (and probably proliferation of virtual economies like 2nd life) , Skype Minutes could easily become the currecy of choice for these smaller vitual worlds. (and as any gamer will tell you, Skype is the best thing (IM + Voice) to ever happen to a raiding party.

Pills
Porn
Poker
PumpNDump

heard it today, just thought its so ironic (and funny) . . . considering that not long ago (98?) people said there are only 3 things that really made money on the net

Sports
Sex
Stocks

. . . all very much very inter-related . . . where there is money, there are spam & splogs

I dont write about payments much since lots of my work and research are somewhat confidential (for my job) and; more importantly, I’m really a student of the industry than a guru (not that it ever stopped me from BS’ing before) . . . However as I read and talked more to people in the industry it was clear to me that the future of mobile payments in the US is in somewhat of a holding pattern.

There are several architectural issues that needs to be resolved before wide spread adoption by consumers can take place. Even more importantly, without the emergence of a dominant architecture, the current consumer experience for mobile payments is not a marked improvement over what is the current “NON-MOBILE” payment experience . . . without a magnitude imrpovement in convenience or a catalyst (aka killer app), mobile payment adoption will be hard to realize.

What many entrepreneurs and VC’s fail to realize is that EXISTING payment methods are already “mobile.” What Mobile Payments really should stand for is MOBILE PHONE PAYMENTS as well as what happens to digital payments when ubiquitous real-time connectivity becomes a reality. IP connection and the browser used to tether computer users to the desktop, but not anymore with advent of IP/browser/applications on mobile phone. This is a quantum leap improvement in accessibility and context. However, cold hard cash as well as the good old Visa/MasterCard never tethered the end user to anything in the first place. The wallet is as mobile as it get! . . . Mobile payment’s value proposition will never be mobility, but the increase value through better acceptance, authentication, and control.

There are really two major mobile payment architectures in competition for the future. (Hybrids are possible but harder analyze.)

Scenario One

NFC technology matures (its very close). The payment card (Visa/Master) merges into the cell phone at the physical layer - ie your payment card sim chip is in the mobile phone.

1. Customers buys something
2. Customer “waves” his phone at a terminal
3. terminal asks customer to type in PIN at terminal (or not)
4. terminal uses its existing connection to association rails to authenticate and authorize payment
5. payment complete/fail

This is almost embarassingly simple. Besides step 2, there is almost no difference between this use case and the existing use case for payment cards. And there lies why this architecture will gain the most traction DESPITE the fact that it got a late start. The incremental value proposition is simply speed . . . and the incremental disruption to existing pratices & infrastructure are almost none. And thus the barrier to adoption are the lowest - new terminals and new cards needs to be distributed but the associations have allocated huge budgets to make this happen. Under this architecture, the opportunity for startups to disrupt incumbents are low. The banks, associations, and merchant networks will retain most of the value created.

The only evolution I can see is that Carriers gets in the game and create applications and sofwares that integrate the sim chip at the system and application layer, not just the physical layer. Thus, you can check your balance/credit limit in real time, keep a history of your transactions, etc.

Scenario Two

Almost all independent mobile payment companies are taking this route (Paypal, OboPay, MobileLime etc). Instead of relying on merchants, their terminals, and thus the existing VISA/MC association rails for authentication and payment, they route the transaction through the mobile phone, OTA IP connection, and the Carrier back onto their own merchant processing network (circumventing the association).

Here is the customer experience

1. Customer buys something
2. Phone recieves merchant ID via a few possible methods
- text message using merchant phone # as ID
- NFC gathers merchant ID from a passive terminal (no connectivity whatsoever)
- customer enters ID via an application interface
3. Phone requests/customer PIN
- dial back
- text message
- application prompt
4. The mobile uses its IP connection to authenticate and process the transaction

There are a huge amount of infrastructure that needs to built here. BUT even more important, the change in customer behavior is HUGE. . . . The odds of this architecture winning in the short term are low . . .

BUT I can see why this is a much more exciting vision of the future and a broader set of value can be created. For one, payment connectivity is no longer enaslaved to the merchant. Anyone with a mobile phone can accept payments. ACCEPTANCE (not payment) mobililty for digital money moves from “store to store” to “people to people” (Its like payment cards finally became like cash , ie it is fungible at the people level) Furthermore, the integration of the authentication through the phone opens up creative applications for controling spending, savings, and any financial activities.

EVEN MORE IMPORTANTLY from the business model perspective, this architecture gives startups an opportunity to disrupt the incumbents and create/launch their own merchant network where they can make 50-200bps on the transaction volume. Who wouldnt want to be the Visa/MC/Amex of the next millennium?

Eventhough the 2nd architecture has gain a lot of funding and publicity, I believe the first architecture will be the first to gain adoption. It is certainly not ground breaking, but its the neccessary next step. A version 2nd architecture (which enables breakthrough accpetance and ubiquity) will come but only with the blessing of the existing payment associations and not in its current form as implemented by the existing slew of startups. Paypal is the only player with an outside shot of pulling this off because of their existing merchant relationships and consumer adoption. All others needs to revaluate their architecture and give up the hope to create a merchant network. (atleast not in the first 5 years). Instead, they need to learn to play better with the payment associations, embrace NFC, focus on building mobile applications, and earn the trust of carriers. They need to learn to leverage the hundreds of millions Visa/MC/Amex have earmarked to upgrade its terminal, network, and cards instead of fighting an uphill battle.

In that model, a modified scenerio 2. Mobile phone will become payment as well as a acceptance tool . . . it will be able to act as a terminal as well as a authorization ID. (through NFC/RFID/Infared/bluetooth or whatever communication device method is out there between two phones). Visa/MC/Amex etal will not go away, but a startup might gain enough traction (Paypal) to join them. Their rails/processing systems will migrate to the handset with the help of Carriers who controls the physical layer (mobile phone hardware + airwaves). Applications will be written for the mobile phone to transform “mobile phone + payments cards” beyond simple identification tools (what is a credit card if you take out the plastic?) into innovative method for controlling spend, evaluating credit, managing savings, and whatever entrepreneurs can think of next. . .