Facebook readying itself to provide financial services in form of remittance and electronic money

Facebook will soon offer remittance and electronic money services. It’s another piece of the puzzle after the launch of Internet.org and buying Whatsapp.

The authorisation from Ireland’s central bank to become an “e-money” institution would allow Facebook to issue units of stored monetary value that represent a claim against the company. This e-money would be valid throughout Europe via a process known as “passporting”.

This is just another piece of the puzzle that Facebook is executing with determination.

The devil is in the detail on this one, though. Internet.org and buying Whatsapp have been clear plays towards the not-yet-developed world. Facebook can grow in the US and Europe by making ads more expensive per user. That works so far. Especially with organic reach approaching Zero. There is growth in optimization for the next few years. Especially now that Facebook seems to have understood how to work mobile.

But the growth that is needed to get to a distant future, one that might involve having bought Oculus, is only going to materialize by getting all those other internet users onto the platform. While that might not be a literal goal – there is no chance for them getting everybody –, this might not be as far from the vision that Mark Zuckerberg seems to pursue.

A big step towards that goal was the acquisition of Whatsapp and its presence and brand recognizability in said markets. While mobile is on its way to be king in our world, it already is in Africa and many parts of Asia. Feature phones still rule, but smartphones are on the rise. Especially with Huawei & Co. dumping cheap, reliable hardware powered by Android on everybody that holds a Nokia feature phone in their hands.

One, if not the, major application of mobile phones is those markets is dealing with money. It’s a big place and banks aren’t as accessible. Money is being managed, for years now, through services. Sending money (P2P/remittance)? Not a problem. Paying for groceries? Not a problem. Name a scenario that you wish would work here and it’s already an old thing in at least part of Africa.

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That’s why it’s so interesting that Facebook is about to acquire a remittance license in Europe. tl;dr – it makes total sense.

We’ve been part of a project that involved building a payment service into / for Facebook since 2011. For the record, I do not know, if our client is in some way involved what Facebook seems to be doing right now, but I wouldn’t be surprised if they are. That being said, when we started I didn’t know much about how money transfer works. Things changed in the last 3 years.

Europe is a messy, extremely tightly regulated market for financial services and products. At least from the perspective of anybody with a banking license or with the desire to have one. Compared to other markets, it’s still a “if you can make it here, you can make it anywhere”-situation. Additionally, many not-yet-developed countries are using European knowledge to build regulation for themselves.

Another expect is that to provide good remittance services, one has to be present in the market from which the money will flow to somewhere. Since remittance is used predominantly by foreign workers who transfer their money from the place of their work to the place where they and their family live, it makes a lot of sense for Facebook to be present in Europe. Both because European citizens are moving quite often between countries to earn their money as well as foreign workers from Eastern Europe, Africa and Asia are coming here to make a living, often financing the life of their relatives in the places they came from.

As a strategy, it makes all perfect sense. Buy yourself the app that people use to communicate with each other on the devices that they use for communicating and banking, get yourself a “banking license” to one day connect everything inside one company (and possibly one application).

If successful, this will have catastrophic consequences for the open web. The tragic part, for me, is the eloquence and decisiveness of Facebook in the execution of a vision. I can’t help myself, but to admire that.

The economics of new media ventures like Vox

Key to the economical models of new media outlets is not journalism, but their technology. In this column, we are taking a closer look at the business model of Vox.

Just about every company with a reputation problem, for instance, should be jumping at the opportunity to be able to tell their story using Vox’s technology and platform.

In what is yet another masterful analysis of the news industry, Felix Salmon writes the quote above at the end of his article about Vox.com, Ezra Klein and The Washington Post.

The rest of the article is great, but this part is fantastic. At least to me. I don’t hide my fascination with new outlets like Buzzfeed or Vox, but I wasn’t quite sure whether the economics behind those venture will work. While the current inflow of VC money into news organizations is paying for the current unraveling, I am still not sure if long-form, investigative journalism and VC money can work together. That being said, VC’s obviously do not invest into journalism, they always invested in the tech. It’s the only part of companies like Buzzfeed at Vox that is scalable at a rate that is remotely interesting to venture capitalist. My hesitation was that: if those companies don’t earn money quickly enough, it is not the developers who will be fired first.

But with that one bit of information in Salmon’s blog post, I got a missing piece of the information needed to understand the economics of a venture like Vox.

If you are active in the publishing and / or media industry, you will have heard of buzzwords like brands as publishers or native advertising.

Native advertising is now a proliferated instrument in the ad business. Facebook does it. Tumblr does it (somebody on Twitter said that Tumblr is Yahoo’s native advertising format, which is both funny and can be correct). Vox.com does it.

Vox.com has build a piece of technology that, as Salmon mentions as well, allowed Ezra Klein to build a new news outlet in 15 weeks. 15 weeks! That’s nothing. That’s the time that the management of a German newspapers requires to decide whether or not to launch a new blog. If they are lucky and can bypass the print editorial team.

With flagship products like Vox.com, The Verge and Polygon, Vox ensures that they can shape the market according to their needs and build the technology to power it.

Enter brands as publishers. Simply put: why should a brand spend money on advertising, if they can spend that money on creating their own content for their own properties? That’s something that very few brands pulled off successfully and it took most of them a decade to become good at it. Like Red Bull.

But if a company like Vox.com can launch a whole news outlet in 15 weeks, I bet they can build – on top of their technology and distribution experience – a communication channel for a client that could generate them a mid-size six figure marketing budget. Something along the lines of what they just did for Intel. And here is the ultimate kicker. This is now burned money as it is with advertising. It doesn’t only take away the budget that Intel might have spent with a publisher like The Washington Post, it also ensures that they build something that will make Vox’s technology better and more competitive.

That’s why it scales.

Week 158: About the Berlin Startup Scene

Instead of their pilgrimages to San Francisco, startup founders should travel to South Germany to learn from the Mittelstand how to build sustainable companies that benefit their communities as much as their founders.

I have became a technology industry skeptic.

That’s not a sentence I’m uttering lightly. After all, just a few years ago, I would have described myself as a technology determinist, a true believer in the power of technology’s ability to transform the world for the better.

Tech is the new finance industry. I’ve said so before and, unfortunately, I’ll have to stand by this statement. When Entrepreneurship centers are flourishing and universities like the MIT can’t cope with demand of new applicants, when professors teaching at those departments are announcing that young people don’t want to be investment bankers and instead are seeking their luck as tech-startup founders, I feel the urge of pointing to history and reminding us how the same happened before in finance. With its final transformation to a self-observed, self-deterministic sphere in the 80s, the finance industry became a huge magnet for young people who believed in the promise of becoming something bigger than themselves and not minding to earn more money than they could possibly need in their life-time. The demand was so huge, universities and colleges had to invent new departments just to cope with the demand of people wanting to acquire the right qualification to become an investment banker.

The same happens in the technology industry, especially in Silicon Valley. There is no doubt in my mind that it all started with good intentions, but when looking at things today, I doubt that we are on the right track.

Just take a close look at incubators in Silicon Valley. Despite talk of changing the world, they are fundamentally not significantly different from military boot camps. Despite the promise to cherish individuality and creativity, those institutions are rewarding conformity and punishing differentiation from the proposed model of the particular organization. Said models of executing upon predefined processes, usually created by rich, most likely white, males. Again, despite the talk, those processes aren’t there to help founders. Instead they are built around financial risk assessment models. Those rich, white men do want their money back. And then some. All of this is by no means an accident. It’s an elaborately designed system, which is in place to ensure and increase inequality. To put that into numbers: “between 1992 and 2007, the income of the 400 wealthiest people in the United States rose by 392 percent”.

All of this is surprisingly Ford’esque and I’m not one of the people who are saying that as a compliment.

I find this all especially appalling when I hear the talk about and by Berlin’s tech scene. In recent years, Berlin was pushed into becoming a potential place of investments. So far, with only mild success. A flourishing new industry is by itself not a bad idea for a city with above average unemployment rate. That is, when this industry has the potential to contribute something meaningful to solving the problems of the environment that it’s becoming part of.

While there are significant factors why Berlin is a great place for new things to emerge – still fairly cheap, high quality of living – it is by far not because so many potential employees for a technology startup are among Berlin’s unemployed. This is not exactly news. Most founders and CEOs are openly talking / complaining about how hard it is to hire good people, how they have to lure people to Berlin. Apparently Eastern European developers are in high demand.

Said startup hype lead to a furious emergence of new initiatives and new incubators. Seemingly any company with some change to spare and the desire to become part of the new gold rush. The saddest part here is that all those companies don’t even try to create a romantic, technology deterministic narrative like their Californian counter parts. Their language and footprint is corporate, they are here for the profits.

Which begs the question: what would be the virtue of welcoming this industry into the city with open arms? Klaus Wowereit, Berlin’s mayor in his third term, thinks that he has an answer. Recently, McKinsey published a pro-bono study for the city of Berlin. “Berlin gründet – Fünf Initiativen für die Start-up-Metropole Europas” (Berlin founding – Five initiatives for the european start-up metropole). Therein Wowereit postulates in a forword that the tech industry can have a significant contribution as a tax payer and employer. This comes from the man who sold out this cities real estate to the highest bidder without any regard for cultural and societal impact. With no significant contribution to fight unemployment, he leaves the city with a future promise for tax income. An unlikely scenario.

Unfortunately, there is no way out of this. Pressured by overwhelming attention from around the world, the city governments is cornered into shaping legislation or at least appearing authentically as if it can contribute something of significance to a development that mostly emerged because there was little to no regulation at all.

With pressure rising from investors waiting to be wooed, the government does what most governments would do and that is looking at so called best practices. Despite the fact that there is an overwhelming body of theory to the fact that is impossible to copy same models and various, failed attempts to copy Silicon Valley else where. Before anybody points toward Tel Aviv, let me say this: There is a strong correlation between a long-standing, overwhelming presence of huge facilities by US tech giants and the success of Tel Aviv’s tech scene. There is also a geo-political factor that can’t be replicated and it doesn’t hurt having a man of Yossi Vardi’s stature in your corner either.

Just last week I heard Joachim Bühler from BITKOM – an tech industry lobby group – say that he discusses many initiatives with city officials and all of them are trying to emulate Silicon Valley. One of the various observation documented by the McKinsey study states that there is lack in funding for technology companies seeking A & B investments rounds. There is plenty of seed money to go around and it hasn’t been easier to get some cash and hack away for six month, but when it comes to financing your dream to become bigger than Facebook things eventually get tough. The only reasonable hope that bureaucrats in this city can have to change something about this is fact is by luring financially strong and successful investors into the city. That, in turn, means luring in more US-based funds to the city.

There are three most likely outcomes for startups these days. Die unsuccessfully, get acquired by an US based technology company, or IPO. Most tech startups end up in the first category. This is by design and has been a long standing practice in the technology sector. Only the most successful of all companies end up in the last category and there is no reason to believe that the Berlin tech scene will produce a likely contender for a big tech IPO. That leaves the second category, acquisition by an US company. It’s that category that will ensure that neither qualified people, nor tax income will be left in the city as soon as something of significance will emerge here. This will not stop Berlin’s government walking down this path, because of the lack of courage to come up with a unique, feasible and realistic approach for a city in need and because those US investors will make everybody work according to those risk assessment processes that they teach in their incubators.

This is a dangerous path and one that is not only being applied in Berlin. All over a financially unstable Europe with high youth unemployment numbers, technology and startup culture is en vogue in city, state and federal governments. The same mistake of attempting to copy our spying American friends is happening everywhere.

We stand at the crossroads. We have a generation of founders that are unwilling and unmotivated to pursue anything else than world fame and the attempt to become the next Mark Zuckerberg. Those desires are fueled by investors who don’t care about fame, but about the returns on investment that is associated with finding the company that can become the next Facebook. And as addition to the team of people who will not help us get out of the financial crisis, we are seeing politicians completely incapable of coping with a rapidly changing world that are eager to build up those “ecosystems” that seem promising enough to help them campaign in the next election.

The technology utopia transformed itself from a hippy’esque LSD dream where technology will solve all of humanities problem to a well oiled machine in which the brightest people in the world are busy building new features that will make advertisers spend more money on the information that those apps gather about us and in which only a small fraction of the extremely hard working people can say for themselves that they are in fact Mark Zuckerberg.

I don’t want to leave you with the impression that I am a staunch opponent of anything tech, on the contrary. It is now that we have to debate how we want to see the technology industry evolve beyond its Californian Ideology model. I am all in favor of Berlin becoming the new startup capital. The question is: what kind of startups do we want? What kind of people do we want to start them? This is far more about goals and demeanor than about market opportunity and finance. We in Europe have the privilege to learn from companies that are building products and solving problems for generations now. Germany’s Mittelstand is still the backbone of its economy. European founders should stop traveling to San Francisco and instead focus on their national and European markets, the problems that those markets experience and how they can be part of the solutions to issues like massive youth unemployment. But foremost, they should concentrate on building a company that can stand on its own feet, that is not setup to race from one venture round to the other with the sole goal to exit as quickly as possible and be part of a machinery that never seems to be interested in being sustainable in itself.

Let me finish with a question: what do you think who employs more people? A company like Facebook with a world-renown brand that is worth about $100 Billion on the stock market or a hundred companies that most people have never heard of which are each worth a billion dollars each?

Week 142 – Working in Times of Strangeness

It’s an essential part of building a business for the 21st century to deal with the “strangeness” of our times.

We featured this quote in some of our presentations:

You can’t help but realize, that the next 10-to-40 years are going to be really strange. Totally strange. And… that rate of strangeness seems is going to get exponentially more strange. And the problem we have right now is the people that are in charge of this stuff don’t understand a) how strange it’s going to be, or b) the form of the strangeness itself.

Ben Hammersley

And then we have days like yesterday that are best summed up this way:

Twitter today reads like a @GreatDismal novel in realtime, and reality unfolds like a Jason Bourne plot in realspace #EdwardSnowden

– Juha van ‘t Zelfde (@juhavantzelfde) June 23, 2013

I find myself going back and forth between different layers in my everyday life these days. As we mentioned in previous weeks, work is plenty. Currently, our greatest challenge is how to get all those projects done. Then I open my Twitter app and a completely different world opens up in which our worst apprehensions are coming true. The US and UK governments have found ways to track and collect our complete digital communications and are chasing the guy who told us around the world.

So there are tons of work and tons of things to think about and I’m asking myself how to behave in a situation like this. Do I just close all input channels, put on some music and drown myself in work to wait and see what will come of it all? Do I immerse myself in every little news item that emerges, join and start endless conversation about what this means and where it will take us? Should I move all our company data away from any of those US platforms that are involved in PRISM or would that make our work impossible? What role should privacy and data security play in my consulting work? This is but a fraction of the questions lingering at the fringes of our minds at the moment.

There are no easy answers these days and we embrace that. It’s an essential part of building a business for the 21st century to deal with the “strangeness” of our times. To immerse and retract, to drown and zoom out, to adapt and resist. We move back and forth to keep the balance and to avoid the two extremes we fear the most: lethargy and panic. Practically, this means that we prepare a workshop or develop a strategy deck in the morning and write an essay on the problem of the commercialization of technology in the afternoon.

What we’re finding right now to be most important for us is to organize ourselves even more then before. With so much work, input and conversations going on, we need fixed points to regroup and re-plan. Inspired by the agile development system, we’ve started doing quick stand-up meetings in the morning and the afternoon to quickly discuss what each one of us is working on in the next hours. This also helps our minds to keep on track and to feel more accountable for how we spend our days. It’s just one very practical tool to keep organized.

I don’t know exactly why this is like that, but somehow all the “strangeness” happening around us is invigorating. Everything is uncertain, nothing is determined. I feel extremely privileged to be in a position where this is a blessing, not a curse. How dare I not make a move.

So, how do you adapt your work in times of strangeness?

Week 132: A Core Digital Pattern

A future of publishing workshop triggers some reflections on a key pattern in digital.

It’s early Monday morning and I’m on a plane to London to attend the Digital Media Europe conference and take part in a panel about digital publishing business models.
I’ve reached a new level in preparation for a panel, since we spent the whole of last week preparing for this very topic for a workshop last Thursday and Friday with one of the largest newspapers in Moscow.

A core digital pattern

It’s been fascinating for me to observe that in our discussions around the future of publishing, we always come back to the same principle: There is no big idea at hand that will replace old revenue sources. The only way forward is to invest in a lot of small ideas that will add five to ten percent to revenue. Among these small ideas might be one that has the potential to become a big revenue source one day. But right now, there’s no way to predict which one it will be.

The interesting thing is that this is a core pattern of anything digital. It’s already well known in the seeding and venture capital world, where you invest in ten startups with the hope that one will be successful. That’s why you can see incubators emerging left and right. They produce and nourish even the smaller ideas.

It’s also becoming a new approach for marketing communications that move away from the single big campaign. In a context as fragmented as the digital world, it’s careless to believe that one can predict which ideas will work.

I think we will see more agencies and marketers taking on the incubator concept from the invesment scene and applying them to their ideation and implementation processes. A client will green-light ten ideas and whichever one gets traction will get more budget to make it bigger.

This is a tough change for the advertising industry that is basically built on the concept of the big idea. But as long as they cling to it, we will see ideas that seem to work well in award videos but tank when it comes to effectiveness and consumer receptiveness.

And it won’t just be investment and marketing. Watch this pattern manifest in the near future in more and more industries and contexts that are gradually becoming more digital.

I’m in London for the whole week. If you’re around and want to meet up, let me know.