Where's the Beef?

Might as well use this Leap Day to get one more blog post in before the month of February ends...

Two weeks ago, a blog post by Redfin CEO Glen Kellman entitled "How Green was my Valley" prompted a quick reply by TechCrunch founder Michael Arrington. At issue was their argument as to whether or not Silicon Valley or Seattle was better for life, love, and most importantly entrepreneurial success.

Now I grew up outside of Atlanta, and have been in Chicago for ten years, but 7.5 years of policy debate and the diaspora of my friends has provided me plenty of access to folks from both Northern California and Seattle. In addition, I've been exposed to the platitudes, "The West Coast is the Best Coast" and "NorCal is hella cooler than SoCal." I was on my way out west after finishing my MBA when I got waylaid by my dream job at Mpayy.

I have no dog in the race, and would certainly argue that either is a more nurturing locale than Chicago for starting a company than is Chicago. As PWC Moneytree demonstrates, the $2.399 billion that Silicon Valley pulled in the fourth quarter in VC funding far outstrips the $439 million in the Northwest and the $244 million in the midwest.



If you drill down, you will see that the $405 million in Software in the Valley, which leads industries there, is much higher than the $57 million in software in the northwest, which is still almost twice the $29 million in the Midwest. So, the funds are certainly there, especially as so many alumni of successful high-tech startups move into Angel/VC roles.

What Does it All Ad(d) Up to?

Here again, I am not in a position to comment on the fashion and social mores related to commenting on websites at parties in either Silicon Valley or Seattle. My question from this detached position is related to the insights and filters that are applied to business models (or lack thereof) and valuations that are derived.

Yelp raised $15 million yesterday at what is rumored to be a $200 million valuation, and the company has "Revenues are rumored to be sub $10 million/year," again from the Blog of Record. At the high end, that is a 20x multiple on revenues in a crowded marketplace. TechCrunch mentions Insider Pages, Yellowbot, City Search, Google & Yahoo Local, to which I would add grayboxx, Kijiji, and Zagat off the top of my head. Not to mention TripAdvisor, Frommer's and Viewpoints for specific properties.



Yelp has three lines of revenues:

1. Sponsored Search Results Placement
2. Advertising
3. Branded Goods

I don't know how quickly Yelp-gear is taking off, but a 20X revenue multiple raises some eyebrows.

Kara Swisher recently put out numbers from a facebook all hands meeting that point to -$50 million in Free Cash Flow (FCF) based on $150 million in revenue and $200 million in Capital Expenditure. Even if that were +$50 million, it would be a 300X FCF multiple compared with Google's 34X FCF after the recent drop in its share price. Swisher also questioned the $50 million valuation placed on PayPal co-founder Max Levchin's Slide.


My questions respectfully are as follows:

• What is the scenario that drives these valuations, and how frequently is that "Winner Take All"?
• What is the exit for these companies, and how frequently is that assumed to be a strategic buyer in the form of Google, Yahoo or Microsoft?
• Online advertising rose 25% last year, and is expected to continue to rise. However, there is clear evidence that click-through rates are falling to an industry average of about 0.25%. Search engine marketing text links are higher, but are they concentrated enough among the highly atomized online publishing community to run a business based on this revenue stream?
• What effect does the "Bandwagon Effect" play in many of these investments in crowded sectors? Money is also flowing into the Open Social/Data Portability sector with a number of players, most recently Gmail-creator Paul Bucheit's FriendFeed. Similarly, as I discussed here, survey participants expected Clean Tech as the sector most likely to receive investments and be over-valued in 2008.

Turning the Mirror Inward

Electronic and Mobile Payments startups is certainly not an empty marketplace, and it's a frequent discussion about how to distinguish ourselves from the pack. We will swear up and down we have the most economical and efficient payment solution for Internet Retailers and Online Sellers alike. We give folks free and efficient means to send money to friends through Mpayy, our widget that launches 3/2 and our mobile site. The speed with which I can diagnose a payment processing system has accelerated significantly since I came aboard Mpayy. The quest to distinguish ourselves from the money launderers, store & forward companies, those who charge the consumer, and those without a qualified merchant model continues. For a complete discussion of capabilities of payment processors, click here, and pricing here.

Online Sellers' Satisfaction

In my continuing attempt to tap into the habits and attitudes of the online selling community, I put out a survey last week on the following sites' forums.

• Power Sellers Unite
• Overstock Auctions
• eCrater
• iOffer
• BluJay
• Yahoo Group I subscribe to

The survey was anonymous and 10 questions long. 62 responses were collected within ~24 hours.

Online Auction Site Satisfaction

As I have discussed here, there has been a great deal of consternation in the eBay community since the departure of CEO Meg Whitman. New policies related to release of funds through PayPal, and restrictions on the types of feedback sellers may give to buyers are two of the reasons. At a high level, there seems to be a great deal of dissatisfaction among the online auction choices as seen here (readers should filter a certain level of angst among those who participate in online forums to begin with):



The good news for eBay and the other online auction sites is that the Satisfaction levels are significantly higher among sellers with >25 items. Among this group, about 49% classify themselves as Dissatisfied or Very Dissatisfied vs. 55% among the overall population.




In both groups, 64-65% indicate there is a 51-100% chance they will try new auction sites.

Among Power Sellers, those with 100 or more products currently listed online, the picture gets more interesting. 55% of them indicate they are Dissatisfied or Very Dissatisfied with eBay, and fully 42% of them indicate there is at least a 76% chance they will try new auction sites. Among all three groups, Online Auction has the most consistent Satisfaction levels.

Payment Options

Because Mpayy offers the best merchant model for online sellers, and is very new to the market, this section of the survey holds particular interest to us. None of the respondents indicated they were currently using Mpayy (subject to change), although two did indicate they were Very Dissatisfied with us, but that is likely me pestering this community for information and attention as I evangelize the virtues of our secure money transfer service.

Not surprisingly, PayPal has an incredibly tight grip on this market, with 88% of respondents using PayPal and 36% using Google Checkout. PayPal helped midwife the online selling market and eBay, and Google has been loss leading to get a toehold in the payment processing business. Google Checkout has paid some shopping cart providers to include their service, and so these two providers are the most available and thus most highly utilized right now.

100% of the Google Checkout users rate themselves as Satisfied or Very Satisfied, which is a nod to the continuing user friendliness of the Northern California behemoth known as Google. 30-40% of the PayPal users across the three groups rate themselves as Dissatisfied or Very Dissatisfied.

The survey indicates that ~40% of online sellers are at least 51% likely to try new payment options, with Power Sellers showing the highest willingness to switch. The following table shows by group the percent in each group of sellers to try new payment options.

# Items	0-25%	26-50%	51-75%	76-100%
All Respondents	37%	16%	16%	30%
More than 25 items listed	44%	16%	13%	28%
Power Sellers	44%	12%	12%	32%

56% of Power Sellers Participate in eBay Boycott

One interesting tidbit revealed in this survey was that while 45% of the overall eBay community participated in the boycott, 56% of the Power Sellers (>100 items listed online) who responded to the survey participated in the eBay boycott. There was no further qualification of this participation, but it's an interesting number.

Lessons Learned

It seems rather clear that this is a movable market. Online auctions have virtually zero switching costs, especially as new software platforms arise that allow online sellers to manage their inventory in one central location and publish to multiple selling forums. Mpayy can gain market share here by demonstrating its value and integrating to the sites and solutions being used by this market. Given the ease of implementation and the value proposition to buyers and sellers alike, it is only a matter of time.

Online Sellers Survey

As I've discussed, this week is the eBay boycott. It's even being reported on NPR that a number of sellers are leaving eBay this week.

According to the story I heard in the shower yesterday, eBay announced that there was not demonstrative impact to the number of weekly listings it usually has. A more interesting source of eBay listing deletions that has been published is the use of the Verified Rights Ownership (VeRO) program at eBay by the Church of Scientology to delete listings for the re-sale of e-Meters. The program exists to allow Intellectual Property Owners to delete listings of black-market goods.

The truth of the Church's actions notwithstanding, I decided to try to gauge satisfaction among online sellers, and their current and future use of new online auction tools and payment systems.

The survey can be found here.

Electronic Payments Pricing Compared

Last week I presented the capabilities matrix that juxtaposed Mpayy with the other payment processing systems available for plug-in to any eCommerce website and for use to conduct payment processing for online sales that don't involve a web shopping cart.

Today, we present a comparison of the pricing for each of the various channels offered by each of the systems.



Mpayy wins in all categories on the basis of pricing, and was designed to do so. Mpayy is a multi-sided payments network of buyers and multiple types of sellers. There's a great article in the Harvard Business Review that indicates it is important to subsidize one-side of the network. Mpayy does this by providing the 1% Cash Back on purchase amounts over $50, 100 free Person-to-Person Transfers/month, and providing for $0 overdraft fees when users' checking accounts are empty.

On the Mobile Commerce side, Mpayy is well-positioned to take advantage of any growth in this new type of sale. PayPal does have a model, and is working with companies like Mporia which hosts mobile commerce websites for companies like Buy.com. As you can see, PayPal forces those merchants to pay through the nose for this unique capability, though those prices will come down as adoption of Mpayy grows.

PayPal rates are closer to those of Mpayy, though online selling merchants are increasingly in opposition to eBay/PayPal, which is restricting payments to sellers for up to 21 days for any transaction eBay deems questionable. Further, there is some evidence that sellers with a spotty track record and new sellers are being forced to use PayPal. Large retailers are reluctant to adopt PayPal for two reasons: i) eBay clears billions of dollars of merchandise competing with the retailers and providing eBay with a competitive advantage by possessing their data; and ii) "gray market" goods that move through eBay will undermine the retailers' own goods.

Google Checkout offers $0.20 + 2.00% for Internet Point of Sale transactions. However, Google only accepts credit cards, and increases indirect costs through the onus of integrating to their API's, including providing complete information on everything in a user's shopping cart rather than just clearing the transaction. While we have no direct evidence, this would suggest that Google is taking a loss on every transaction in light of credit card costs to merchants being so high. Further, our discussions with the largest retailers indicate it is unlikely Google Checkout will receive significant adoption among "MegaRetailer.coms" because they know the value of their data and don't want to give Google all of that information.

Revolution Money is on here because they are currently offering $25 account opening bonuses and claiming no fees. As discussed on Friday, Revolution Money does not have a merchant model, and funds sent through it are not guaranteed. Further, they require a pre-funding step rather than just treating their account as a pass-through account. Revolution Money is seeking a lead list for its credit cards, and they do have plenty of other fees built into the system should anyone run afoul.

Electronic Payment Processing Systems Compared

The following is a side-by-side comparison of Mpayy with its electronic payments processing competitors.



It is certainly possible to feel this is biased towards Mpayy, as is my tendency. However, this highlights design decisions that were made in constructing the application.

For consumers, Mpayy created a multi-channel application (online, mobile, social networking, and internet retail partner sites). Further, consistently, Cash Back is the highest ranked reward by consumers. Mpayy provides 1% Cash Back on Purchase amounts over $50, and will provide soft dollar rewards that can be used as cash based on balances stored in the application. That is coming in the next few months.

For Merchants, the primary concerns were the price and security. The MOST expensive Mpayy will be is $0.20 + 2.00%. Google Checkout is offering that price, and we will certainly go below it with the right internet retailer partner or for PeSA and ECMTA members should they approve us. However, Mpayy also takes 100% of the fraud liability, not so with Google Checkout, and provides merchants with guaranteed payments, which GC does not.

On site integration, PayPal and Google Checkout provide relatively extensive API's to integrate to, and Google Checkout requires merchants to maintain their SKU's within the application, which is not practical as the size of the merchant grows. Mpayy's simple session transfer can be developed to within hours, and the AJAX Checkout window will be packaged up and plug and play when it launches as well.

Equitable Payment Processor Seeks Disaffected eBay-ers

Introducing Mpayy to Professional Online Auction Sellers

If you read this blog, you know that its author is an open advocate of mass adoption of Mpayy. Mpayy's Mobile Merchant product was uniquely tailored to suit the needs of professional eBay sellers that sought fair pricing and efficient payments. As such, I've been trying to find forums where I can reach these sellers.

In the last week, I've been banned from eBay forums, turned down from a Mary Kay Yahoo group, and been slapped around by Google's Quality Score mechanism. I ran into an old colleague on the 'El' who still works at Zacks Investment Research and indicated their traffic metrics showed some interest in my earlier work. So, there's a link to keep me top of mind.

In trying to tap into the "Power Sellers" Community, I've seen some interesting trends...

eBay is Broken/Paypal Sucks?

(Full Disclosure, you're author has made about a half dozen eBay purchases in his life and been very pleased every time.)

Seeking Alpha is a very cool investment research website that I've seen publish a number of interesting stories these year. A "long-time eBay seller" writes there several ways in which Meg Whitman's successor, John Donahoe, implemented new policies. Further, I have seen numerous links to the "Paypal Sucks" website where a litany of complaints are aired.

The backlash seems to be fairly intense, as sellers unite:

"There has been a lot of noise going around about an eBay Boycott Feb. 18th - 25th. Sellers that survived the all the other eBay fee increases will remember that there was a boycott every time.

I will be supporting the ebay boycott again because we need to show them all the angry sellers out there. Maybe if it weren’t for the past boycotts, ebay forum posts, blogs, and anti-ebay sites ebay would be raising fees every year instead of every couple.

This boycott will give sellers one week off ebay in which I encourage them to take the time to try out all the alternative auction sites available or start there own ecommerce store. Things are only going to get worse on ebay so this would be a good time to seek alternatives.

Lets keep a close eye on the auction site count and make their listings drop during the boycott."

Rally at the Church

I also saw a rally to deliver information from top executives organized in Oklahoma in a Yahoo eBay group that rejected all my posts.

Asbury United Methodist Church
MAP - http://unkiejoe.com
1320 SW 38th St
Oklahoma City, OK 73119

Search Engine Works Against Me

I have to tell you, though, that as I tried to bid on the term "eBay" at Google, I became acquainted with "Quality Scoring", which is pricing power in action if I've ever seen.

In about the 6 hours we were on eBay, Google served the term 184,942, and we got 61 clicks for $19.80. I spoke with Google Customer Service reps twice over LivePerson's IM Customer Support which is my preferred method of service. I changed my creative to try and reach a sufficient Click Through Rate. I'm quickly down to only a few clicks on Google a day for what I'm willing to pay for a click. Google will only let me have the term eBay if I pay $10. Google's dynamic scoring system was working against me, so I will let it have its softening ad market and find under-valued searches elsewhere.

Pounding the Pavement

I had a thought tonight about who should be at the top of my lead list, and I'm going to meet some people. Mpayy truly runs its network for its Members, and can't wait to stoke an energetic community.

Pretty Soon, It's Real Money

The Federal Reserve released Consumer Credit numbers yesterday indicating that Americans now hold $943.5 Billion in revolving credit facilities. The old adage goes, " a billion here, a billion there; pretty soon it's real money." My contention would be that when outstanding debt hits $1 TRILLION, we're talking about real money.

Consumer Pinch

There is ample evidence, as we've discussed before, that the retail market is tightening. It follows modest weakness in the jobs market, but most closely is related to the fact that the American public added more than $140 billion in debt over the last three years. Combine that with the fact that housing prices are no longer a tireless engine of wealth creation, but is starting to fall. In fact, home foreclosures are on the rise, and American consumers are beginning to walk away from their fledgling mortgages.

The way that the mortgage boom was fed, with at best tacit complicity among mortgage originators, collateralized debt obligation salespeople, real estate brokers and homebuilders that led to very low down payments if any at all being made on hundreds of thousands of new homes. Homeowners are beginning to just forfeit the very low levels of equity they were forced to put into the mortgages out of the gate. Those walkaways will cause a hit against the collective credit rating of the American consumer.

Tightening Credit

The massive debt levels that Americans have assumed is increasing the anxiety level among credit card issuers. In December, 7.6% of that $943 Billion was at least 60 days delinquent, or already in default, up from 6.4% year over year. There is evidence that credit card companies are both increasing their lending standards, and increasing the rates of cardholders, even those in good standing. Further, many of them have already taken charges to build up reserves against bad credit losses.

Even more frustrating for both the credit cards and retailers is the evidence that the consumer is cleaning up its act. While it is unlikely to have the means to collectively wean itself off debt in the near term, many are cutting discretionary spending. Wal Mart, which grew year over year sales only 0.5% vs. the 2% it expected to is frustrated by low gift card redemptions as most expenditures are moving more toward essentials and away from things like electronics.

Mpayy's Value Proposition

Mpayy is not going to drive more customers into stores, or even to the websites of online retailers. Mpayy's offer to internet retailers with an online presence is two-fold: i) Mpayy will be 40-50% cheaper than the other payment options; and ii) Mpayy takes all the fraud risk. It is an interesting market to be entering in, because the highest profile alternative payments company that has been having big wins in the retail space is Bill Me Later, which is in itself a revolving credit facility. For the reasons discussed above, it will be interesting to see what happens to them.

Calling All Sellers! Mpayy Mobile Merchant Accounts

Mpayy has been operating as an online and mobile payment processing system at http://www.mpayy.com and http://mobile.mpayy.com for about a week and a half, and the name of the game is find SELLERS.

So, this is an open letter to the following types of sellers:

- eBay auctioneers
- Overstock Auctioners
- uBid auctioneers
- Bidtopia sellers
- eBid sellers
- AVON ladies
- Mary Kay sellers

Mpayy's Mobile Merchant account was created JUST FOR YOU!!!

How it Works

Mpayy offers two Mobile Merchant accounts. Both are fully self-service and priced at $0.20 + 2%. The only difference is that the Mobile Merchant Universal is linked to a checking account, and funds can be withdrawn to that linked bank account at any time. The Mobile Merchant Standard account was created so that teams can empower their independent salespeople with this awesome mobile point of sale tool, and they can transfer any revenues to a company account that then has funds moved into the linked checking account.

All Mobile Merchant sales receive 100% guaranteed payments, instant account notification by both SMS text message and email. Merchants face 0% fraud liability, as Mpayy assumes that burden. Sales are tracked and downloadable through the Mobile Merchant account dashboard Activity section.

Buyers must have Mpayy accounts as well. However, this can be opened in a matter of minutes and users can open accounts and make purchases within the same session. They will automatically receive 1% Cash Back on Purchase Amounts over $50.

Give it a go! Start selling through Mpayy, today!