Tag: innovation

Google Asset Management

Facebook, with all the data they are collecting about you, your interests, your social “klout”, etc. could soon make the role of your bank manager redundant. And they have been trying to wedge into the financial services for a while now. Back in April, we surfaced a story about how Facebook is entering the remittances market and is planning to allow its users to store money on Facebook and use it to pay and exchange money with others. “Facebook wants to become a utility in the developing world, and remittances are a gateway drug to financial inclusion.”

Where Facebook goes, can Google be far behind?

Google has commissioned research on how it could enter the asset management industry, adding weight to widespread fears in the fund sector that the world’s biggest internet companies could destroy the livelihoods of established fund houses.

However, Silicon Valley tech firms with their “move fast and break things” motto may be ill suited to meet the fiduciary standards set by regulators to protect investors. Apple sending out a flawed update to new iPhones is a minor irritation, screwing up somebody’s retirement account is a big deal.

It will be interesting to see how this plays out.

Source: Google study heightens fund industry fears

A Real Live Innovator’s Dilemma

The last time I wrote about innovation, I pointed out some of the most common problems that innovators face (The Disruptor’s Dilemma) and how incumbents can use regulation to stymie the disruptor. Peter Yared has an interesting post up on Techcrunch on how BMW is responding to Tesla’s onslaught and winning. Here’s the tl;dr:

  • Legacy companies can mislabel their products to leverage their brand, especially if an upstart compares itself directly to a particular model.
  • Legacy companies are often willing to hodgepodge new technology with their older technology to stave off new competitors
  • Innovators should not underestimate the power of a legacy company’s large, lumbering sales channel.
  • Legacy companies are often in numerous segments of a market and leverage their scale to beat an upstart’s roadmap.

Read the whole thing here: BMW Vs. Tesla

Alibaba: The Riddle Wrapped in an Enigma

We are setup for an epic fight between Amazon and Alibaba in the US. Something that will be keenly watched by the Bansals, now that they want to be Alibaba instead of Amazon (LiveMint). But what exactly is Alibaba? How did they become a multi-billion dollar company with a finger in every pie?

Alibaba is a lot of different things for different people


If you think it looks like a land-grab, you are right. They basically asked: What would a newly online Chinese consumer want? And connected the dots.

Alibaba is huge

The Wall Street Journal says that Alibaba’s Taobao and Tmall sites reached $240 billion in combined transaction volume last year. By way of contrast, EBay posted $76.5 billion last year in so-called “gross merchandise volume” excluding vehicles.

Alibaba now handles roughly 80% of all online shopping in China. Alipay is not only a payments processor (the world’s largest, at that) but also runs a money-market fund with more than $65 billion in assets.

What are investors buying?

Its hard to say. Alibaba stock will buy investors a stake in a Cayman Islands-registered entity which is under contract to receive the profit from Alibaba’s lucrative Chinese assets but will not actually own them.

The reason is that China permits privately controlled firms in some industries to tap foreign markets by establishing offshore companies permitted to wholly own Chinese companies. Yet it prohibits foreign investments in certain restricted industries, including the Internet. These controlled industries must be owned by Chinese nationals; no foreign investment are allowed.

So, the work-around has been to establish ownership by Chinese nationals, while setting up an offshore company that can be publicly listed. Mimic an owner relationship by setting up contracts between the two parties so that the offshore public firm reaps the successes of the Chinese firm — without actually owning shares in it.

Basically, investors are buying into a story.

Can Flipkart + Myntra = Alibaba?

Hard to say. Social networking in India is basically owned by Facebook (+ WhatsApp). Uber is here, and so are half a dozen home-grown taxi “startups.” Online payments are heavily regulated by the RBI and payments startups are in round 2 of the hunger games. Amazon.in is a looming threat and selling other people’s brands is a lousy business model. Its probably too late to be the “Alibaba of India”… and its probably going to be tougher just hanging on to being the “Amazon of India.”

Besides, isn’t “______ of [something]” a red flag for most venture capital firms? But it seems like its a story that investors are willing to hang their hat on for now.


The Disruptor’s Dilemma

On our shark-fin posts earlier (here, here), we saw how even the most entrenched industries are getting disrupted as the cost of innovation plummets. But that is not to say disruption is easy. Incumbents have a number of levers to pull before they fade away. The biggest lever of them all is regulation.

Tesla Motors

Tesla wanted to sell its cars directly to consumers. But this threatens the business model of car dealerships. So New Jersey’s franchise auto dealers association successfully got the state to make a ruling that prohibited Tesla from selling its luxury electric vehicles directly to consumers.

And its not just in New Jersey. Auto dealers around the US have been lobbying their state governments to force Tesla to change its ways. Dealers like the existing system, and they don’t want other automakers to get any ideas.

So while Tesla can cry itself hoarse as to how a direct sales model is beneficial to its customers, it’s plan to disrupt the way in which cars are sold has been effectively stalled.

Read: Shut up and deal


Uber is a “ride-share” company that allows you to request, ride, and pay for a “taxi” all through your mobile phone. They have mobile apps that connects you with a driver who gets the GPS coordinates of your location. You can then track where the driver is on your mobile and usually, the car arrives within 15 minutes.

The problem is that taxis are tightly regulated and unionized. For example, in New York City, taxi “medallions” are auctioned off once a year and wanna-be taxi drivers pay as much as a million dollars for these rare and wonderful permits that give them the right to operate a taxi and pick up street hails. In fact, this business model is so profitable, that there’s actually a publicly listed firm that finances taxi medallions.

In Chicago, cab drivers are suing the city, arguing that the city is damaging and discriminating against them by refusing to enforce the same stringent regulations it has long imposed on the taxi industry on these newer “de facto taxi services,” which function “in all material respects as taxi companies.”

In France, there are plans to allow only existing taxis to use GPS services like Uber. Spanish taxi drivers are now calling for an Uber ban.

Some critics think that Uber is a race to the bottom, a way of ducking valuable regulations in place to ensure the quality of existing taxi services, slashing working class wages and simultaneously using tax loopholes to dodge paying their fair share into the system.

So while Uber can cry itself hoarse as to how it is bringing efficiency into the public transportation marketplace, its expansion plans are effectively bogged down by street fighting.

Read: Brace yourself for the European Uber war


At least Tesla and Uber have huge war chests of venture capital to fight regulatory assaults against their business model. But not all startups are this lucky. Take Outbox for example. They wanted to allow consumers to digitize all of their postal mail so that individuals could get rid of junk mail, keep important things organized and never have to go out to their mailbox again. Customers would opt-in for $5 a month with “Outbox” to have their mail redirected, opened, scanned and available online or through a phone app. Consumers could then click on a particular scanned letter and ask that it be physically delivered, or that certain types of letters not be opened.

But the US Postal Service would have none of it. In the words of the Postmaster General himself: “You mentioned making the service better for our customers; but the American citizens aren’t our customers—about 400 junk mailers are our customers. Your service hurts our ability to serve those customers.”

Outbox decided to shutdown rather than take on the USPS.

Read: Outbox vs. USPS: How the Post Office Killed Digital Mail

Forgiveness vs. Permission

“It’s better to beg for forgiveness than to ask for permission.”

Eric Jackson, who was PayPal’s first marketing director, had this to say in the book The PayPal Wars: “Regulators say, ‘If we don’t know what you are, you must be dangerous, and later on we’ll figure out what we’ll call you.'” In 2002, Louisiana regulators nearly banned PayPal from operating in the state, sending the company a warning that it might be operating there illegally.

Paypal argued for years with officials over whether it was, or wasn’t, an illegal banking operation. Cut to the present, PayPal has licenses wherever it needs state approval and that has become a big part of its competitive advantage. But it had to sell itself to eBay in order to win the war.

Read: Who Killed PayPal?

A cash-strapped startup typically won’t have the patience, expertise or resources to ‘ask permission’ as such. Instead, they calculate that it’s better to move forward with bringing their product to market and deal with the consequences if and when they gain traction (because if they don’t gain traction, no one will come after them and it will all be moot anyway).

For example, in the music business, negotiating content licensing deals with record labels can take months. While the original Napster is one example where begging forgiveness didn’t pay off, there are successful startups that begged forgiveness once they had traction: iMeem, YouTube and MySpace.

Read: Digital Music Startups

Samsung first copied Nokia and then blatantly copied Apple. Four days ago a jury found Samsung guilty of patent infringement and ordered it to pay $290 million. A year ago another jury also ruled in Apple’s favor against Samsung, accessing $1.049 billion in damages. In the meantime, Samsung generated almost $30 billion in annual revenue in its IT & Mobile Communications Division. So that $1 billion and change penalty levied by two juries might be less than 2% of the annual revenue that mobile device sales generate for the company.

Read: The GoldieBlox playbook: Imitate Youtube and Samsung

What should disruptors do?

There’s life before meaningful traction and then there’s the life after. Disruptors can get away with a lot of things before they become a big enough target. But once they do, the biggest mistake is to assume that the competitive response will be through product innovation alone. Existing regulatory frameworks can be used by incumbents to put up a long and expensive fight and can be a significant source of their competitive advantage.

The way out of the dilemma: forget about permission, but start asking for forgiveness soon after you get traction.

Introducing The Facebook National Bank

We had pointed out back in February as to how startups are disintermediating banking and that given the amount of data that both banks and Facebook have on us, it is only a matter of time that we saw a “Facebook National Bank.” Turns out that it is now a reality:

Facebook is readying itself to provide financial services in the form of remittances and electronic money. The social network is only weeks away from obtaining regulatory approval in Ireland for a service that would allow its users to store money on Facebook and use it to pay and exchange money with others. “Facebook wants to become a utility in the developing world, and remittances are a gateway drug to financial inclusion.”

Source: Facebook targets financial services