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Archive: February 26, 2006

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air force one

Sunday,  02/26/06  09:18 AM

Last night Shirley and I attended "Destination Celebration", a charity fund-raiser for the Assistance League of Conejo Valley (for which Shirley serves as VP/Fund-raising).  The event was held at the Reagan Library in Simi Valley, which recently added a huge pavilion housing Air Force One.  Not a model, mind you; the entire airplane, the very Boeing 707 which served seven Presidents from 1973 through 2001.  Pretty darn cool.  If you ever have a chance to visit the Reagan Library and see this exhibit, take it; the whole thing is fascinating.  They actually placed the plane on the site, then built the pavilion around it, including a dramatic 60' x 200' glass wall.

Here's a cheesy shot of Shirley and me pretending to be the First Couple, emerging from the doorway of the plane:

air force one - the First Couple?
(click for larger pic)

Yes, I know.  But it was fun.  To get an idea of the scale of things, check out this photo:

Destination Celebration in the Air Force One pavilion
(click for larger pic)

They didn't allow flash, sorry for the blurriness.  Note (if you can) the tables way down below the nose of the plane, that's where 200+ people had dinner and danced the night away.

Anyway, the event was a huge success - raising a lot of money for underprivileged kids - and we had a great time.  I wasn't a big Reagan fan while he was President, but somehow his legacy has worn well; I think history will regard him as a good if not great President.  Certainly a lot of interesting things happened during his time in office ("Mr. Gorbachev, tear down this wall"), and the library is an interesting record of the time.

 

reblogging

Sunday,  02/26/06  09:47 AM

So it has been well over a month since I began blogging again.  Nothing is less interesting than blogging about blogging, but Sunday mornings are for reflecting, so well...

In the three years since I began, blogging has come a long way.  It is now pretty "mainstream"; lots of famous people blog, some people even have become famous through blogging, and the 'blogosphere' has become an important element of U.S. public life.  Meanwhile I just continue has I have, reading blogs and filtering, and noting things of interest.  Probably the main thing that's happened recently is that blogging is trying to become a business.  But it just doesn't work.  Nobody is willing to pay for reading blogs, so the only source of income is advertising, and very few blogs have sufficient traffic to generate much revenue from ads.  Many readers like me consume blogs with an RSS reader (like SharpReader), and others visit blog sites using Firefox with Adblock, and hence don't even see the ads.  Whatever drives people to blog - and I don't fully understand why I blog, let alone anyone else - it isn't money.  I actually think it is ego.  It is fun seeing your stuff up there in public, and even more fun realizing a bunch of people value it enough to come by and read it.  And link to it.

I started out blogging because I wanted to write a book, and thought blogging would be a good way of prototyping.  That may still happen - I hope so - although it turns out being CTO of a growing startup and father of a growing family appear to be incompatible with making time for writing.  (That's my reason anyway, even if it isn't an excuse.)  Meanwhile blogging remains fun, and so it remains something I do.  Thanks for visiting, and please stay tuned!

 

all Google's base

Sunday,  02/26/06  10:01 AM

One of the blogging VCs I really respect is Bill Burnham.  He recently posted Uh oh eBay, Google Base is now facilitating payments and Google Base is the Merchant of Record.  Please read his posts, but essentially the point is that Google now has a payment service, and this is a threat to PayPal, which is now part of eBay.  I felt compelled to email Bill about this, and also to share my thoughts with you:


Bill –

As a veteran of the PayPal wars, I think Google is going to bust their pick on this one.  Sure, they have a lot of cash, and sure, they can afford to mess around for a while with something new that isn’t profitable, but ultimately operating a payment service is not going to work for them.

First, payments is a low margin business.  You need serious volume to make money doing payments.  eBay auctions gave PayPal serious volume long before PayPal was a part of eBay.  Of web merchants, only Amazon has the volume to make payments a business, and even their payment service was abandoned because it was unprofitable.  Remember Billpoint?  C2it?  Dotbank?  Bank One’s eMoneyMail?  Yahoo’s PayDirect?  Western Union’s Money Transfer service?  None of them had the volume to make it.  Right now Google Base is a curiosity.  There just isn’t enough volume there to support a payment service.

Google Video might be able to get to high volume, except it is so lame right now.  If Google seriously became the iTunes for video, I would change my mind on this point.

Second, fraud is a huge problem online.  PayPal’s success over a large number of competitors was largely due to their ability to manage fraud, and that ability was largely due to the account-based architecture of the PayPal service.  If Google tries to operate a payment service without stored value, they will have a massive problem with fraud.  They will rapidly become the best way to monetize stolen credit cards.  They have to be the merchant of record if they don’t have a stored value system, because otherwise their customers will bear the brunt of this fraud.

Third, there are a lot of people online who don’t have credit cards.  One of the reasons PayPal succeeded was because they enable people to make payments via ACH.  This has two big benefits, first, people without credit cards can use the service, and second, the cost of ACH is much lower than credit card exchange fees.  This is why PayPal costs 3% instead of 6% like most card-not-present merchant account services.

Fourth, PayPal had a really tight squeeze to avoid being regulated like a bank.  I really think they skated through because of the times and flying under the radar.  Google is going to be a bright flash on the radar, every banker in the country is going to want them to be regulated like a bank.  And that will mean holding reserves, smurf reporting, tax withholding, etc.  I’m not sure Visa and Mastercard are going to play along, either.  Citibank in particular may very well refuse (they switch most of the Mastercard authorizations) in order to prevent Google from becoming a competitor.

Fifth, customer support for payments is tricky.  Again, PayPal’s account-based architecture made customer support easier, because more of each transaction was “visible”.  Right now Google has zero services which require customer support, it is not a core competence for them.  They’re going to have some unpleasant learning before they master this.  And purely email-based support is not going to do it for them, either, they’ll need a call center.

I know it is a mistake to underestimate Google, they’re top-heavy with smart people.  But I also sense that they’re a bit cocky.  Payments is a mature market with a lot of entrenched competitors (banks, CheckFree), and a new entrant with a decent network effect (PayPal).  I would bet against them.

Finally, it is interesting to speculate, what should they do instead?  Accept PayPal, of course!  Sure, they would be giving away the payment revenue, but that’s not their core competence.  It would be much better for them to host content (goods for sale), use it to display advertising (which is their core competence), and let people settle the transactions using PayPal.  They could probably even cut a deal with PayPal which gives them some margin back.  They probably won’t start their own shipping service, either, and they shouldn’t; they’ll just partner with UPS or FedEx, in exchange for some margin.

Cheers,

Ole


Have a thought about this?  Please share it with me...

 
 

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