Blog

Analysis of credit card transactions

20% Of Customers Bring In 50%+ of Revenue

>

Second Measure analyzes credit card transactions. In their analysis they found that just 20% of customers were responsible for more than 50% of the revenue for the top 1000 companies they have transaction data available.

The average top 20 customer spends 8x more than the average bottom 80% customer.

I found this super interesting because I’ve seen this myself in my companies. I always wondered if this was normal and at times felt some apprehension about it since a large portion of the business was carried by a relatively small number of customers. Apparently this is normal.

A tale of email

I won

>

A year ago, I started on a quest to get rid of all newsletters, retention emails and other commercial (to me) non-relevant emails. My inbox was overflowing with emails I did not care about and I noticed I was mostly idly swiping away these emails without ever reading them. It was time to do something about it.

Gmail does an excellent job on spam for me. I rarely get a spam message in my inbox and even more rarely have to dig up an email from my spam box. But still I ended up with 25 – 50 emails a day on things I couldn’t care less about. My favorite was from Facebook which sends retention emails like “You’ve missed 7 notifications, please come see your notifications”. Obviously I am not a big Facebook user.

My quest was if I could get rid of all commercial emails which are not spam. Like the ones you silently sign up for when you join a some internet service or site.

I would diligently click on every unsubscribe link I got. If the sender did not have a working unsubscribe link (yes this happens, looking at you Microsoft) or none at all, I would mark it as spam to instruct Gmail to move all future emails to my spam box. Gmail dutifully obliges in perpetuity.

In the first month, I slowly saw the number of commercial emails going down until I plateaued at a few emails per day. But now after 12 months, I only get commercial emails from companies I want – maybe 5 per week – and from services I just signed up for (from which I immediately unsubscribe).

I won the quest. Nowadays, there are literally days I do not get any email on my personal account. None.

I never thought it would be possible.

Market saturation on a different scale

Peak attention

>

We’ve reached peak attention on the internet. As you can see from the graph below, the time spent online is not significantly growing anymore.

The growth of the internet has generated 4 champions (Google, Apple, Facebook & Amazon) who together dominate for the most part how you spent your time online, where you do your shopping and how you get online.

Comscore’s Mobile App Report 2017 underlines this, they found that most of all our time we spent only on 10 apps.

And those apps are:

These companies are now at their peak and they have the momentum to buy, absorb or change their tactics to fend off any competitor. The Facecbook / Snapchat battle is a great example of that. Facebook just absorbs everything which makes Snapchat unique. It might not capture all the audience away from Snapchat, but just enough to defend their position.

Distribution on the internet is becoming harder & expensive

VCs love to say that it became much cheaper to start a company and in many ways this still holds true today. Except it became more expensive and harder to distribute your product – being it a service, software or product – and reach your audience.

It is more expensive because today you need a website and 2 mobile apps instead of just a website.

Harder because by default you don’t have easy access to your audience anymore. The audience does not live on the web anymore. They live in Facebook, app stores, search engines, Amazon and Netflix. The attention of the average internet user is fully engaged and it has become virtually impossible to steal a bit of that attention away without smart, engaging and costly marketing.

You used to be able to start a company by building a site and service and launching it. You could market it to a few key users and find a few journalists to write about it. Today that is not enough, you get quickly buried because we reached peak attention.

I would argue that it is much cheaper to scale your company nowadays – not necessarily to start one.

I don’t expect that AI, machine learning, AR or VR will not significantly change the landscape. GAFA is well situated to absorb and embrace those new technologies. They’ll lead to new opportunities but companies need to battle the same attention problem like any other company launching a new product or service on the internet.

It’s reasonable to assume that only a major new platform or major platform shift can threaten their position and generate a new set of GAFA companies.

The Future of Free Expression

>

Fighting Neo-Nazis and the Future of Free Expression

Protecting free speech is not something we do because we agree with all of the speech that gets protected. We do it because we believe that no one—not the government and not private commercial enterprises—should decide who gets to speak and who doesn’t.

One of the better and more balanced articles written on this topic.

Today, we’re right and perhaps tomorrow we are self-righteous.

Future platforms

>

Google, Apple, Facebook and Amazon (GAFA) are now the most valuable and successful companies in the world. This also means that they’re maturing rapidly and this means the platforms they ride on are mature quickly as well. These companies are carrying boatloads of money which give them the power of money to compete against any new (potential) threat quickly. A good example is Google Home and the subsequent push by Google to bring this product to as many consumers as fast possible. It is competing against the highly successful Amazon Echo family of products. 

Another example is the introduction of “snapchat” features into the different properties of Facebook. Instagram and WhatsApp reached 200M DAUs within months – just compare that to Snapchat’s 160M DAUs on IPO which took them years to get to that point.

So strictly speaking any new development on the internet or mobile will either be quickly bought up or copied by these companies. And this will make it much harder to launch and grow a successful competing company on these platforms.

History also tells us that when companies reach this height and as their platforms further mature, new platforms and opportunities will arise. And interesting enough these companies will not be able to compete or turn around their business to take full advantage of this. This might sound inconceivable today, but let’s look at these two examples. 

First, there’s Walmart, the biggest retailer in the world, but in online retail they’re irrelevant. You’d think that a company with the resources and knowledge of retail would be able to compete and keep up with online retail competitors. But they are not. Of course, they won’t go away, but they will not become the number one online retailer anymore. 

The same can be said about Microsoft. They completely missed the boat on the internet and mobile platforms until it was too late. You could even argue they missed the cloud platform as well. Same applies to Intel. Intel missed the boat on mobile as well. Together they were known as Wintel and they were the jewels of the nineties. Now, these companies have become irrelevant from a mindshare and technology direction perspective.

Before Wintel, there was IBM. IBM was the computing company of the 80s, but today they’re irrelevant.

Of course IBM, Microsoft, Intel and Walmart are still alive and generating sizable revenues. Irrelevancy does not mean bankruptcy – in many ways, these companies are too big to fail. But they’re on the infinite road of playing catch up in their respective markets.

This brings me to my point that the hegemony of GAFA will go away as well. You already see some early signs of this in both Google and Apple. Google spends an extraordinary amount of money ($15B in 2016) on R&D but no new platform has emerged from it yet. Same applies to Apple. Their biggest product launches in the last 5 years were just accessories – watch and AirPods – and not platforms. They’ll never be able to grow into revenue streams similar to iPhone or Macbooks.

Taken together, you could come to the conclusion that we’re on the brink of a new major platform to emerge. Investment dollars and ideas are turning away from more traditional investments in internet services and mobile towards other platforms. At this point, it is impossible to say what these new platforms will be. It is pretty certain that they will emerge from all the attention towards blockchains, machine learning/AI and augmented reality/virtual reality. None of these technologies is a platform but you can bet on it that it will be enabled by one or more of them.

Platforms emerge when there is a technology breakthrough which makes it possible to bring technology to form factors or places which were previously impossible. 

Electric autonomous vehicles are way on top of my list. It will be as disruptive as the internet. Cities will change; no need for parking lots, people can live further out in suburbia. Car-ownership will change, there might not even be a need to own a car anymore. This will impact car dealerships and car manufacturers. We might only end up with a few of manufacturers and reach complete commoditization of car manufacturing. There will be no further need of gas stations. Cars are probably maintained by large corporations running major fleets of autonomous vehicles. The car wash will go away. There is no longer need for the DMV and maybe policing of traffic is a thing of the past. Tax revenue streams need to be readjusted.

A little further out but as fundamental as the computer processor or the internet, I would bet on either power consumption or power storage technology. The biggest problem holding back many potential applications, form factors, and new technology is power consumption and power storage. Any new technology which can decrease power consumption or increase power storage densities by 100x is going to change the world fundamentally.

It is not limited to power consumption or power storage. The new technology can also change the paradigm on how devices work. For instance, power could be transmitted wirelessly. Or the technology can offer a way to offload 99% of processing to a different device while offering a full-fledged platform performance.

When that happens it is pretty obvious what is going to happen. History is telling us that again. Typically an emergence of a new technology is unbundling existing platforms and then bundles it again into the new platform. For instance, the internet unbundled many things like the cable subscription, magazine subscriptions, music distribution, phone subscriptions and this is still going on. Currently, a lot of offerings of the banking industry is being unbundled like debit cards, loans, mortgages, and insurance. But at the same time, you see new bundles appear. GAFA is a good example of this. They bundle and protect their own platforms. The openness of the web has been replaced with proprietary – and much less open – platforms like IOS and Android. The mobile phone bundles everything like your wallet, camera and must player. Facebook is pulling everyone into their walled garden much like AOL did at the time with their own version of the web.

And this is my second major observation for the next platform which is openness. All the major platform shifts were twofold. First, the emergence of new technology which allowed new form factors, services or applications not previously possible before. And second, the emergence of an open standard to make us of the new platform. It is essential to level the playing field for a new technology to become successful. For instance, if the new technology would be of the nature of wireless power transmission, it would only start to take off when the platform or protocol is open.

When this all happens the whole cycle will start over again.

Artificial scarcity in the broadband market

>

Last week the Wall Street Journal wrote about the introduction of data caps by cable companies. Comcast, AT&T and many other cable broadband providers apply data caps or are experimenting with putting data caps on their connections.

Here are few quotes from the article:

Comcast technically has a 250 gigabyte monthly limit on its 23 million Internet customers but stopped enforcing it in 2012. The company is running a series of trials with a data threshold of 300 gigabytes, and, in some areas, varying thresholds and an unlimited option for an extra fee.

Until recently, all of AT&T Inc.’s broadband offerings had limits ranging from 150 gigabytes to 1,000 gigabytes depending on a home’s connection speed.

For limited plans, AT&T charges $10 for every 50 gigabytes over the limit; Comcast charges the same.

Time Warner Cable says the company’s average household usage in December was 141 gigabytes a month and has grown about 40% a year.

Comcast says its aim is to ensure the heaviest users are paying more than lighter ones, since 50% of its bandwidth is consumed by just 10% of its customers.

AT&T says the change will include offering unlimited data to people who pay an extra $30 a month or who subscribe to DirecTV, which it owns, or its U-verse television service.

This is typical cable company behavior. In many areas, these companies enjoy a monopoly — or in the best cases a oligopoly — on their services. For this reason, these companies are completely focussed on extracting as much as they possibly can from their customers. Since there is no competition to speak of they can charge whatever they want. The pricing game for them is purely about maximization of revenue and ultimately gross margins.

However, the market is changing. Consumers — and especially the younger demographics — are ‘cord cutting’. The cable companies made lots of money with offering Triple Play packages (Internet, TV and telephony) but now they are confronted with changing behavior which leads to price erosion. People who choose to get internet only packages bring in less revenue.

Because of price erosion and declining revenue from their cable subscriptions, these companies need to find a way to combat this. The data caps are introduced for exactly this reason. It’s their way of ‘easing’ their customers to get back to paying more.

Cable companies know exactly how much money they can extract from their customers. Now they find themselves in a situation where that is not set in stone anymore. They’re rethinking how they price and sell their services. They are introducing artificial scarcity in the market to stop the price erosion.

In the worst possible scenario this means we end up paying more for all services. Cable companies will get us back to Triple Play pricing over time and now we will pay companies Netflix, Hulu and HBO separately for their streaming services.

‘Net neutrality’ how lofty in its goals will not bring us anything to prevent that. Ultimately there’s a total lack of competition in the internet broadband market and as long that’s the case, we will end up paying more for less.

This quote from The Verge sums it all up:

So schemes like data caps, which have already been used extensively in the wireless industry to reap as much money as possible from customers, exist solely to frustrate those customers — which is really an incredible situation in a country that ostensibly cares so much about the virtue of competition.

The future battleground of internet access

>

For decades, cable companies have been in an extremely comfortable position. They were — and still are — generating piles of cash and their market positions were untouchable. But something is changing: their once dominant market position is slowly falling apart. It is falling apart to the point that they risk become irrelevant. As any industry, their natural reaction is to fight back to recover their control and it is this reaction that ties directly into the discussion around net neutrality.

Historically, cable companies have de facto monopolies or duopolies in the areas they serve. It gave them significant market power on consumers & broadcasters alike. There was little choice than to just deal with them. They priced themselves to consumers in such a way that alternatives were just not competitive enough to consider while maximizing pricing to generate as much money as possible for themselves. While at the same time, cable operators receive fees from broadcasters — and in some cases cable companies negotiated part ownership — for the “honor” to be carried.

Though, the market is slowly changing. Phone services are not as important as they once were since consumers start to rely solely on their mobile phones. At the same time is television moving towards the internet. This leaves the cable companies with only a dumb data pipe towards the internet.

They are losing the iron grip, they once had on their markets. And here comes in net neutrality. Now what if the cable companies could pull the same trick they did with broadcasters, and apply it to internet companies as well? Let’s say, they appeal to Netflix to fork up a fee per subscriber for the ‘privilege’ to be available to their customers. If Netflix does not want to pay, they just slow Netflix to crawl so it is barely working during the evening hours. I am sure it will impact the number of subscribers Netflix has in the area serviced by the cable company.

But at the same time there is another battle front emerging for cable companies and that could potentially make them completely irrelevant to consumers. Their worst nightmare can become true, and that is that internet access will go completely wireless. Verizon, AT&T, T-Mobile and Sprint are investing huge amounts of capital into building out and improving their 4G LTE networks. In 5–10 years, we will not need a cable company anymore. Our phones, tablets and computers will just connect to LTE.

Cable companies must have realized this as well. So how do you compete against that? Simple, build your own mobile network. The problem is that all usable spectrum for mobile phone services is unavailable. Their next best option is to use unlicensed spectrum and bet on existing technology to access that spectrum. Here comes wifi. Wifi is ubiquitous and every device has it. The challenge though is that the reach of wifi is limited and you need countless wifi cell sites to get some kind of continuous coverage in an area. Fortunately the cable companies can rely on their existing customers to turn their homes into their own little private cell sites.
So with cable companies going wireless and their willingness to try to squeeze every dollar they can get their hands on out of their customers and suppliers, it is only a matter of time net neutrality will make the jump to wireless as well.

Now, this begs the question of net neutrality is really that important. How bad is it that Netflix pays a fee per subscriber? They can just increase their monthly fees to their subscribers and be done with it. While this is true, it will put back market power back into the hands of large corporations with exclusive access to specific markets. These companies do not necessarily have the best interests of their consumers in mind with delivering their service. Bottomline companies only answer to their shareholders who want to see maximization of profits. Any industry with great market power bordering to a monopoly begs for regulation by governments. Typically these are only reserved for markets with lack of competition due to huge capital investments to service these markets. You see that with utilities and cable companies in the past. Their last mile investments were huge and it was not conceivable a positive return on investment with competition was possible. But this statement does not hold true anymore. Cables which went into homes and the ground are still going strong 30–40 years after they have been put in. Cable companies are moving or have moved part of the network to fiber which realistically will last them again 30–40 years. There is ample time for cable companies to recuperate their investments. At the same time, I do not expect that multiple cables go into every home. This begs for regulation for now. Consumers simply do not have a choice and there is a significant lack of competition in the internet access market today. Net neutrality offers that regulation. It is fair, easy to implement and — actually — increases competition on the internet itself.

Now all of this will change when wireless becomes an alternative for cable internet. Net neutrality can go when that point is reached. There is enough competition on the wireless market with 5 major carriers and possible a 6th in the form of cable companies going wireless.

This is why net neutrality is so important today.

The post-finishing waste land

>

When you show a 3D printed product to someone who has not seen a 3D printed piece before, there is significant chance that the conversation will be about the material. And that is not surprising. 3D printed pieces look rough, show “printing lines”, and feel different than regular materials.

For purely functional pieces that is not an issue. But often the aesthetic component is as important as the functional component of a product.

It is not so much about the capabilities of what can come out of 3D printer. It has been proven that a lot of things can be 3D printed. But is the material of the right type to be acceptable for a particular use case.

Does it have the right weight?
Does it have the right feel?
Does it have the right texture?

We can wait until 3D printing processes improve with new materials and new deposition methods to overcome the quirky aesthetic. But at the same time, there are real options out there to apply existing finishing options to 3D printed pieces.

The challenge is that many of the post-finishing processes are geared towards mass-production of products. And this does not apply to 3D printing. I have this beautiful vapor-smoothed FDM printed bowl. It is gorgeous but the process never made it to mass 3D printing because it was too cumbersome to scale. The interesting aspect of it though is that whenever I show it someone nobody asks about the material anymore.

I see many companies struggling with the concept of bring 3D printed parts to live with post-finishing. It brings a whole new level of complexity. And it needs more attention.

Copy. Download. Live Forever.

Download a human

>

People who are close to me know I am a Star Trek fan. I also have a long time wish to go to space — maybe someday. In my home, I have an iPad dedicated to the HD Earth Viewing Experiment on UStream which sends out a constant video feed of three cameras attached to the international space station ISS.

But secretly I do not believe in a Star Trekian future. Seriously I do not think it is a plausible future that we space travel as humans beyond our solar system. I think even Mars is quite a stretch.

Instead, I think it makes much more sense to download our human brain into a computer and send that computer instead. Just imagine there is no need for food, water or other supplies + equipment necessary to make those journeys. It even does not matter so much how long the journey will take.

Computing power is progressing nicely and IBM already designed a computer to simulate a mouse brain. In another decade or so and we will see computers who are capable of emulating a human brain. Now at that point, we can program an artificial intelligence which is indistinguishable for a human. We can program the computer anyway we like, but why not model it by copying actual humans? You might think I am insane, but it would make so much more sense to me.

Growing startups

The hardest thing is giving away

, >

You always end up with less when working at an early-stage startup

People working in startups are all so familiar with the concept of giving away responsibilities. Whenever you start in a startup, you can count on the fact that you’re role is changing all the time. Regardless of whether responsibilities shift downwards or sideways, they are inevitable moving somewhere.

Your startup starts out with 3–4 people who do everything. Slowly, new people are added, roles are carved out, and responsibilities are limited. With each new influx of people these roles are reevaluated and the same ritual starts again.

The same applies as the company grows your personal capabilities are constantly evaluated. Your position within the company is constantly shifting and changing. The company often grows faster than your personal growth can keep up with. Or your role is carved up in 2 or 3 different roles and you have to choose between them.

All these things have nothing to do with failure or underperformance. It is about making the company grow as fast as possible while keeping everything manageable. But I can tell from experience it is sometimes hard to let go. Even it is going downwards instead of sideways. You might be end-responsible, but someone else is actually executing it. It is not the same.

It is for this reason that startups are not for everyone. You need to adapt and be comfortable with adapting. You have to embrace change and you need to be comfortable with finding your own limitations. But more so, nothing better to run into this because of the company you work is successful and growing up. On the end of the day, there is nothing more satisfying than bringing something to the world which is self-sustaining and impacting the world in its own way.