As the Consumer Goes, How Goes eCommerce?

The Federal Reserve released its Q1 GDP economic growth number today, indicating that the first of two quarters of negative growth necessary to trigger the technical definition of a recession did not open 2008. However, there is evidence that the consumer pullback that has been all but inevitable took another step. Consumer spending rose just 1%, the lowest level since the second quarter of 2001, and less than half the 2.3% that it rose in Q4 '07.

This morning (May 1st), the Commerce Department released lagging consumer spending numbers for the month of March. At first glance, the number is up 4%, but when you strip out inflation, that number falls to just 0.1%.

The litany of issues facing the American consumer continues to grow - rising fuel, food and other prices, falling home values, and increasing credit card rates - and those factors place pressure on the American consumer's ability to drive the economy forward.

This may not be as bad for ecommerce shopping if last year's experience is any guidance, but we're still waiting for new data from Comscore on Q1 online shopping.

Exploring Digital Content Revenues

As Mpayy continues to look for transactions that its Secure Payments Widget can enable, one industry we considered was digital content. The theory was that a Do-It-Yourself model could be enabled allowing artists to host songs on Mpayy's servers, or somewhere within the cloud that we would enable streaming of the music as a preview, and then download.



Mpayy's model is uniquely well-suited for selling digital content online because we do not require the billing address that is a piece of the Address Verification System associated with credit cards. Thus, the checkout process can be simplified, improving incrementally what is the largest concern of ecommerce retailers of all varieties - simplifying the checkout process to improve cart abandonment rates. In the Do-It-Yourself digital content industry, there are a number of players with varying levels of success, and it begs the question...

Can any Money be Made in Digital Content?

Sonific founder Gerd Leonard announced today that the company will shudder its doors. Sonific's mission included:

Sonific.com and Sonific.net reflects our philosophy that offering better tools for music discovery and providing new, free platforms of exposure is what will really sell music, going forward, and that the viral nature of the Internet is perfectly suited to help get the word out for new and established artists and their music.

Leonard discusses the prohibitively costly option of paying for permission to the largest music studios; it is essentially economic suicide. Thus is the danger of abiding by the law, which is the path Sonific was pursuing.

Sonific's fall comes on the heels of Imeem's acquisition of Snocap, which was Napster founder Shawn Fanning's startup. TechCrunch speculates the sale price was less than $5 million, even though the company raised more than $25 million. Last.fm, which is now pulling in 1.7 million monthly unique visitors according to Quantcast has driven a significant rise in its click-through affiliate based sales with Amazon. However, PaidContent.org cites a Jupiter report revealing that digital sales have compensated less than 1/3 of the loss seen by the music industry since 2004.


MySpace recently concluded a new deal with the studios, but the prospects are questionable, because, according to New Zealand's Stuff:

But the MyStores widget proved a bit of a flop. Slightly more than 100,000 of MySpace's 5 million artists embedded the store on their profile, and few sales followed. What's more, rival Imeem has since acquired Snocap – likely to add its own download-to-own service as well. Expect MySpace to either terminate its Snocap deal outright or simply wait for member artists to dump the app on their own.

Industry-backed iLike is the leading music application on Facebook that also leads through to Amazon and iTunes, though no numbers are released.

The Register article I read that pointed me toward Sonific speculates that it was YouTube's disregard for copyrights led to its success as a home for music video viewership. If that's the case, and those are combined with Chinese sites I StumbleUpon frequently with NO respect for digital rights, do Hulu and MySpace have it right that the only way to get money from digital content consumption is through advertising?

A Fresh Look @ Costs of Online Giving

The first decade of the 21st century has seen a meteoric rise in the levels of charitable giving due in part to massive disasters like 9/11 and Hurricane Katrina. In 2006, charitable giving reached $295.02 billion, according to Giving USA 2007, the yearbook of philanthropy published by Giving USA FoundationTM and researched and written by the Center on Philanthropy at Indiana University. Charitable giving en masse was up 4.2% after inflation.

Online giving, on the other hand, has been rising much more quickly.
2006 donorCentricsTM Internet Giving Benchmarking Analysis released a study last year that demonstrated online donors had grown at an average of 101% over the previous three years vs. 6% for offline donors. 56% of online donors, in fact, made their first contribution.



What's the Story w/ Online Donations?

Mpayy has an open offer to process online donations for free, i.e. with zero transaction costs. There are a number of sources both for online donations, and researching non-profit companies, and what they do with their money.

Network for Good and FirstGiving are two companies that provide platforms for non-profits and charities to accept donations. FirstGiving is the US version of JustGiving, a British company that allows the similar collection of donations. For those charities and non-profits, the charity director must contact the company, which consults an online resource called GuideStar, which collects the 1099's non-profits must file with the IRS. From GuideStar, when someone researches a specific charity or non-profit, they are one click away from making a donation to the charity.

Further, the facebook group, Causes,, lets donors click through to Network for Good to make their donation. Causes has approximately 80,000 daily users, which is #74 on the daily users list, and #20 on the total number of installs, according to Adonomics.



According to sources, Network for Good charges 4.75%, while FirstGiving charges up to 7% in transaction costs to the charities. In other words, only $0.93-0.9525 of each dollar of a donation actually reaches the charity. Network for Good, in fact, doesn't actually get permission from charities, but rather has an opt-out program if charities do not wish to have Network for Good collect donations for them. According to the FAQ's on the Network for Good's website, they send the money on to the charities through electronic funds transfer or a paper check on the 15th of every month.

So, in other words, the Network for Good is taking 4.75% and then holds the money for up to 31 days before moving it on to the charity. Network for Good is itself a non-profit, but those fees and the benefit of that negative float provide serious financial benefits to Network for Good far above the cause to whom the donor actually wanted to provide money to.

There are other companies, like Acteva and Blackbaud, that do the same thing, but also provide a number of online promotion tools, including database management and event registration items.

Mpayy Free Donation Processing

Mpayy's offer of free donation processing obviously benefits Mpayy in the form of account opening, but even if we were to charge the charity, we would charge $0.20 + 2.00% or less for a Mobile Merchant or Retailer Pro account. Further, as Mpayy hits critical mass, we create the ability for someone on stage to ask 50,000 people to give $1 a piece to Save Darfur with their cell phones, and it will happen with no fees for the charity.

Mpayy is in talks with a number of charities - small and large alike - and has approached a number of the organizations listed here. The question is, as a donor, do you want your money - ALL OF IT - going to the charity, or to the platform provider?

Series B Closed - The $$$ is in the Bank!

Mpayy has just CLOSED a Series B round of financing. All private and institutional investors from the prior round participated in this round to maintain or increase their stakes in the company. Plus, we welcome new investors into the fold.

Mpayy will use this money to improve the look and feel of its front-end, broaden and increase its marketing program, and work with new ecommerce merchants to integrate what will become the new standard in payments into their websites.

On Monday, Mpayy will welcome a new VP of UI Engineering, and next Saturday, we will relaunch our site for Mobile Merchants who wish to take their stores on the road.

For now, we've finished the bottle of Dom, and moved onto the beer, and Monday, we will redouble our efforts for both commercial and consumer adoption.

Eyeballs Aren't Enough

I've been having a discussion with an acquaintance who is starting a venture incubator about what startups really need in a strategic partner. He contends that personnel and advice are critical to a startup, and that the proper guidance can make most business models work. My argument is that the foundation HAS to be a solid business model - with very few notable exceptions - or in the long run it will fail, and there are a number of examples out there right now to draw lessons from.

The Many Faces of Social Networking

I've discussed at length the potential overvaluation of many startup companies, and the overcrowding of specific markets caused by the herd mentality. However, that does not stop money from flowing into those markets whether or not they prove profitable.

Three years ago, Fox bought MySpace for $850 million, and Google bought YouTube in 2006 for $1.65 billion. AOL spent the same amount as Fox to buy Bebo last month, and Microsoft's investment in facebook that valued the social network at $15 billion has been widely documented.

As of now, the only business model producing revenue for these companies is advertising, and acquiring companies possess successful advertising businesses that the acquired properties are expected to drive forward. In fact, Google paid Fox News $900 million for the right to sell advertising on the popular MySpace property. Yet, that bet doesn't seem to be panning out, as Investor's Business Daily reports.

The story does say that Fox's revenues from "Other" grew significantly, and guesses that may be related to improved targeting in it advertising.

Targeted Ads to Drive Revenue through IM/Chat?



In the Spring of 2006, I wrote a paper on instant messaging startup Meebo for a Technology Strategy class at the University of Chicago. I'll dig the document out and post it here as soon as I get a chance. The thesis behind our paper was that Meebo's power would leverage the universality of instant messaging by allowing users to log in to multiple instant messaging services at the same time. While there are a number of other services that allow this, meebo's thin-client application was unique in that it would not be blocked by firewalls and download restrictions that businesses put on instant messaging, and users could use meebo through a browser from anywhere. The traffic has certainly come.



While we were correct in our forecast that the company would benefit from the zero costs of homing among instant messaging networks, and meebo would free ride on the dollars that Yahoo, AOL, Hotmail, and others had spent to build out their instant messaging memberships. These features, combined with their successful launch of chat rooms, has generated incredible success. The challenge, we concluded, would be to monetize the traffic for long-term viability.

Meebo has attempted to turn its traffic into a sale to both Fox and AOL at a valuation of around $250 million, but is now searching for a new round of funding at a valuation of $175-200 million. The company has only thus far created around $1 million in revenue.

Meebo hired a Chief Revenue Officer, CNet and Warner Music vet Carter Brokaw, to help it launch its long anticipated advertising offering. According to Read/Write Web,

"Users will be able to opt-in to sponsored experiences that are targeted to them specifically, based on their demographics and behavior. Negative feedback on a particular ad will teach the ad server not to serve the same ad to a particular user and there will be a leader board on the site displaying the most popular ads according to user response.

Meebo says that in tests, they are experiencing 2 to 4% user engagement with these new types of ads, a far higher percentage than banner ads see. "

If meebo can replicate its click-through rate at scale, it will certainly earn a premium for its advertising and could grow into a significant moneymaker. However, if, like on facebook and others, users remain too engaged in the process of networking and chat, rather than commerce and advertising, meebo will continue to struggle to justify its valuation.

Sneak Peek to New Mpayy Mobile Site

Mpayy developers have been hard at work on a new mobile site that enhances the account features available through https://mobile.mpayy.com. Mpayy's Mobile Merchant accounts provide direct salespeople, taxis, and online ebay sellers with a free mobile point of sale system through any web-enabled cell phone. The new functionality being ported to the Mpayy mobile site will make it easier for sellers to process transactions and returns.

Mpayy's current mobile site rates a 4-Good by Ready.mobi's mobile website tester, which is certainly not bad.



However, one of the things we wanted to do was to make sure that we followed all of Ready.mobi's guidelines, including providing the ability to differentiate the experience based on the 10 best distributed cell phones, and we will launch with this device targeting ability. The new site does meet the guideline test as seen here (Dev URL is masked):



Mobile Dashboard

The Dashboard on the Mpayy Mobile Homepage still includes the Make Payment options, but a new piece of information and several new features, including Balance Information, a Withdrawal button and a Help Center.




From the Dashboard, any user can select to make a Withdrawal directly to their Linked Bank account, and get the payment batched up and ACH'd that night.




Payment Activity

Mpayy takes large steps to make sure that all communications are authenticated, including the creation of a Digital Signet at account opening. The Digital Signet is a piece of user-generated content that we place at the top of text messages and emails, so you know it comes from us. Payment recipients, whether they are free Personal money transfer accounts, or Mobile Merchant accounts for AVON/Mary Kay salespeople, Tupperware sellers, Passion Partiers, etc. who are taking direct payment, the Activity list will provide confirmation that the payment was made beyond the text message receipt.



Beyond checking their activity, sellers on the road can also process refunds with the new mobile website. This image is what happens when you drill down to a specific payment by either scrolling and selecting it, or using an AccessKey number to jump to the payment and make the selection.


When a Merchant selects to make a Refund of the specific transaction, the screen looks like this.



Secure Mobile Payments

Mpayy offers free mobile payments for anyone with a mobile web enabled cell phone. Money can be moved from any bank within the United States. On the receiving end, it is free to receive transfers, but traveling salespeople can get guaranteed payments with very low transaction costs and 0% fraud liability. Sign up, and check it out. You'll be glad you did!

Venture Capital Not Insulated from Broader Market Turmoil

Investors opening up their 401K statements for the first quarter of 2008 will probably need a large supply of Pepto-Bismol to assuage their pain with the Dow Jones Industrials offer more than -500 points. A rally on the first day of the second quarter was quickly dispatched by Fed Chairman Ben Bernanke's sick April Fool's joke that the economy could very possibly contract in the first half of 2008 sending stocks tumbling.



While at first glance, the Venture Capital industry should be insulated from the broader market and economy, new data out from the National Venture Capital Association and Thomson Financial indicates that may not be the case.

Short Line @ Exit Sign

The NVCA provided data on Venture Backed Exits in the First Quarter of 2008. In short, this is a count and measure of the magnitude of liquidity events - Mergers & Acquisitions (M&A), Initial Public Offerings (IPO) - by companies that were previously financed through venture capital funds.

The number of M&A deals was down -31% to 56 deals, from the first quarter of 2007, and even more significantly when compared with the Q1 2006. The value of those deals was down -45% to $2.491 B.

Further, the data reveals that 38% of the M&A transactions valued the venture-backed startups at less than the initial VC investment.



Even starker is the IPO trend. In Q1 2006, Venture Backed companies accounted for 18 IPO's with a combined value of $2.2B, and an average of $121.7 million. In the first quarter of 2008, those numbers were 5 deals for $282 million, and an average deal of $56 million.

According to the Wall Street Journal & Dealogic (registration required):

There were fewer IPOs in the first three months of 2008 than in last year's first quarter in every major region of the world. Globally, the number of IPOs fell 60% to 100 deals and the amount raised slid 10% to $35.9 billion, according to data from Dealogic. In terms of the number of new offerings, it was the worst period world-wide since the third quarter of 2003, by Dealogic's count.

Now, the IPO market is typically very sensitive to the overall trend in the market, and venture capitalists, entrepreneurs and investment bankers alike will often postpone an initial public offering when the market is going through a correction. IPO's are meant to allow founders and VC's to take some money off the table as well as create a publicly valued currency that allows the company to engage in some of its own M&A activity. However, the magnitude of the slide is significant, and if you strip out the Visa IPO, everything looks a bit less rosy.



Plenty of $$$ for Now, Financing is NOT the End Game

While the exit picture isn't so rosy, plenty of money is still out there, particularly if you call yourself an Open Source technology company. Further, VC's are so desperate for deal flow that in some instances, they are willing to buy out the owners personal stakes according to the founder of thefunded.

It is important for entrepreneurs to manage their burn rates and work to produce revenues quickly, though, because this funding could easily dry up. Smaller deal size could be a leading indicator for a slowdown in the supply of funding, especially in light of falling confidence among VC's, according to Silicon Valley Venture Capitalist Confidence Index.