Last week, I hacked (I repeat, hack!) together a pilot/test website to explore the online acquisition channel for what traditionally has been a retail sold product. Green Dot (my company) sells Prepaid Visa and MasterCard to the underbanked community. The product is commonly called (however a misnomer) a “prepaid credit card” or “secured credit card” . . . The card is mainly targeted at immigrants, teens, and people with bad credit records. (So its not really for you so please dont click on anything! )

(ok you caught me, I’m just trying to redirect some of my rank juice to increase my natural search results for the pilot site. . . )

The point of the post is actually to compare google and yahoo’s search engine advertising efforts. I tested Yahoo and Google’s system a few month back and now again. The Yahoo CTR is definitely better. Furthermore, my conversion rate is also better on Yahoo (new click fraud algo?). . . However Google is still driving 3x the traffic that Yahoo has been able too. . .

Another gripe against Yahoo. It appears to me that Yahoo has gone way too Web2.0/Ajax happy. . . to the point of decreasing the customer experience. At first glance, the advertiser’s interface is really really slick . . .but dammit its just way too slow (like most ajax apps) and not very intuitive. because the huge amount of data flowing between the browser and the server in the background, there is a half second delay on almost every thing I click on. People expect page refreshes to take some time . . . but not ajax elements . . . if you want to be like the desktop, you better BE like the desktop. . .

It also has Ajax pop-ups everywhere . . . even places where it shouldnt (for example, show me my ad copy right on the page, not in a popups). 3 years ago, popups (browser based) almost compeletly disappeared because of pop-up blockers and because people hate them. Now I see them everywhere . . . as if just because its a Ajax popup its suppose to be any less annoying or less disjointed than before . . . please, someone invent a ajax popup blocker . . .

Anyways, just a cautionary tale for UI designers to not to get Ajax happy . . .

The majority of mobile subscribers in Europe has a prepaid mobile account - as opposed to mostly underbanked customers having prepaid accounts here in the U.S. As much as it is a coincidence or prescient segmentation, the majority of first general MVNO (or just sub-brands like Boost) here in the US are prepaid focused giving the MVNO market an apparent high growth trajectory where it was really “prepaid” that was driving growth in the US. (confounding variable)

As a result, most of the second generation MVNO did not fare too well given that the prepaid market is beginning to saturate like the post paid (Disney, ESPN, AMP’d, Helio and a dozen more). Some are still hanging on through technical innovation and blanket mass marketing (AMP’d + Helio) . . . but steadfastly refusing to release sub #’s.

Well . . . long story short. . . easyMobile, the MVNO of the Richard Bronson wanna be, Stelio (first name only, like Madonna), is about to fold after only acquiring 80K customers (another rule of thumb for me, you gotta have user # higher than the total people in any given superbowl to be considered “impressive” growth).

This is scary given the amount of runway left for mobile innovation is unlimited, but MVNO’s who can potentially push incumbents forward are fading like flies. As a result, the “walled garden” of the mobile platforms might persist much longer than the IBM monopoly on the PC BIOS (the last time the PC platform was “closed”).

It used to be that economies of scale in the mobile business comes in the capex (network buildout, spectrum acquisition); right now it looks like economies of scale in distribution & marketing is equally big too . . .

Only companies that has already achieved economies of scale in marketing and distribution can really leverage the MVNO model to some degrees of success . . . (read Apple). . . lets hope

What a difference a year makes. Early in 2005 Virgin Mobile USA passed the million subscriber milestone. Their success began inspiring numerous copycats with its example of how a more focused MVNO can do a better job targeting and serving specific subscriber segments than could a large carrier. During a conference I attended at that time, a noted research firm predicted the channel would experience such significant growth that in a few short years more new wireless subscribers would be added by MVNOs than by the direct channels of wireless carriers. By midyear a steady string of press releases ensued, announcing one new MVNO after another. MVNOs were hot; if you had a recognized brand or an established distribution channel you too could cash in on the wireless bandwagon. One began to wonder if the ‘O’ in MVNO stood for ‘Over-saturation.’

David Grigg for Prepaid Press

What people didnt realize at the time was that the first gen MVNO’s that suceeded (Tracfone, Virgin, Boost) all had one common characteristic . . . and it wasnt that they are all MVNO’s . . . it was that they were targeting a segment of the market that was completely untargeted by the “post-paid” billing model of mobile carriers (cingular, nextel, verizon etc) -> the underbanked.

The MVNO craze that followed extrapolated their predcessors’ success to mean that targeted niche marketing of ANY segment will be sucecssfull. They failed to realize that the reason the first gen MVNO was successfull was because of their prepaid business model was able to attract an audience that was completely UNSERVED by traditional carriers. As an ESPN addict, I already have a phone provided by Cingular. As a result the ESPN MVNO is now competing “@ the margin” for small slice of incremental switchers. Targeting an unserved versus already served market is a hugely different marketing challenge.

If ESPN Mobile is the poster child for diminished optimism on the MVNO model, industry analysts and other MVNO insiders knew for some time that things weren’t as rosy in the MVNO world as the press releases would lead you to believe. The industry was never without its detractors and naysaysers. Public speculation that the bloom had fallen from the rose for new MVNOs actually began at CTIA in April of this year when Sprint- Nextel’s chief operating officer at the time, Len Lauer, announced they turn down a lot of MVNO applicants and will wait three to four quarters before judging the performance of those recently launched. Implying they were tightening the spigot on new MVNOs was significant because Sprint-Nextel is the MVNO channel leader, having launched the most of any U.S. carrier. (Lauer has subsequently left Sprint.)

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.

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.