New York under zero: some thoughts on the Engage! Expo

"If there are any Mattel engineers in the audience, the astronaut Barby's space suit is not crash proof" (loose paraphrasing on Will Wright's keynote)

Yep, the keynote was entertaining and Engage brought a lot of vendors to snowy New York's Javits center. The two day event, though a bit low on developers, had a few interesting sessions and some interesting chances to share opinions. So what did I pick up from these two full days?

Payments and mobile

This Engage was heavy on payments companies, and by payments I mean mostly - if not exclusively - mobile payments focusing on SMS billing through carriers (obviously Paypal was there - a few of my colleagues and me - and additional sponsors). While the value of mobile payments for a streamlined, high conversion purchasing experience is clear (on the verge of overstated), the abundance of these companies over such a small space only served to emphasize how not-that-different these companies are from one another. Better coverage, low fraud and a promise for lower fees in 2011 were the value propositions.

Now, while I think mobile payments are clearly an avenue the industry must pursue, it was clear to me that until operators make a big leap of faith to embrace mobile payments, this field will not move much unless the companies themselves move to a Zong+ like, account based system that allows users to add a financial instrument and for the mobile payments company to charge it directly. And, as you are soon to find out, account based systems are a whole new world of pain - while with direct billing you charge a prepaid or underwritten balance an operator is liable for, accounts are a much more complicated structure. Plainly put, you start writing big fat checks directly to fraudsters' pockets. Looking at chargebacks in hindsight, as at least two of the participants suggested, just doesn't cut it. So mobile payments are looking for the next big breakthrough, and if fees don't drop soon (and they probably won't), I'm expecting some M&A work as competition heats up.

Offers and tasks

I'm a long time advocate of offers. Yes, offers have their "dark side", when misused, however they have a huge potential for creating incremental volume - something I personally love. When at the conference I heard that Offerpal are integrating tasks from Amazon's Mechanical Turk, and have been hearing assertions that competitors are going to follow suit (also heard it on stage from IMVU.com's CEO). Why is this good? I think that using social gaming to crowdsource simple but human intensive tasks is good for user education - do something good instead of just signing up for Netflix (nothing bad about Netflix, though); plus, it's good for the potential work providers - ideally, research institutes, advanced OCR services and others. In short, tasks are the new "green". Two caveats in this optimistic view, though: the first is that there is a serious chance of shortage of tasks, at least until this market picks up; the second is that abusing this model is still doable, maybe even easier than standard offers - if I were a fraudster, I'd immediately outsource my CAPTCHA operation to Amazon. Oops! Better read previous posts and do some risk analytics, guys, or you'll find you're breeding an ecosystem of thieves.

Zero cost of goods

I had this feeling in the past, but the conference reassured me: the "zero cost of goods produced" concept is both a blessing and a curse. Why a blessing? Because developers, bathing in the sensational bliss of high margins, were keen on trying new things - new business models, new payment options (30% take for mobile payments? come on) and various experiments in user interaction (offers, vanity items and many other really cool stuff). Why a curse? Because the notion has outgrown its proper boundaries, actually harming some of the developers. Assuming that if you just auto-refund your zero-cost virtual good, the problem of chargebacks goes away is a mistake, and not checking operational costs related to this "zero cost" work will make your bottom line look pretty bad eventually. Additionally, zero cost of goods got many developers focused on solely growing their user base and ARPU - both important but, as a few speakers noted, shifted attention from a few other very important stuff. Like fraud, like going international, but also like pricing - when the third pretty senior person suggested to developers that going all-in on a freemium model just isn't a good idea, I started to understand that the problem transcends risk management and controls; it's starting to detach companies from sound business judgment. So this is probably time to reconsider - it's all a part of growing up as an industry.

P.S. One last thing

I was delighted to meet a few young and talented entrepreneurs working exactly on the things I find exciting - namely p2p trade and new, great ways to engage users. It's fun to see how ideas evolve, and I'm looking forward to hearing more about them and others like them. Well done, guys!