Sunday, February 7, 2010

The Next Big Thing (and what is it takes to be that thing)

When something happens for the first time - it's avantgarde.
If you see it twice - it's original.
On the third time - it's plagiarism.
On the fourth - it's pastiche.
But when it happens for the fifth time - it's a genre...

In the never ending discussion on innovation vs. execution (see Sara Lacy's great post here) I tend to be an avid supporter of the execution point of view; I've yet to see a great idea execute on itself, but I have seen pretty dull ideas becoming hits because of laser focused hard work. And, of course, it is my personal tendency for building and running strong organizations rather than engaging only in ideation. The reality of the business, as well, shows us companies that succeeded with strong execution on the ideas of earlier, less successful and agile companies (see the article for some examples). This is why I really like the dynamics of a new genre of products and services - if you follow closely you can track the evangelists, the copiers, the big and small players all mixed together, fighting for their place.

The dynamic is pretty straight forward - after a need is established by the avantgarde, in come the strong execution oriented players; proliferation kicks in, and many companies rise to offer similar services and products, each with its own twist. This stage ends with convergence - first with aggregation services, and then with the big winners emerging from the crowd of competing companies. Finally, when these winners become too big or fail to innovate, new avantgarde kicks in, discovering new niche segments that the giants were overlooking.

Social networks are, generally speaking, beyond the genre stage. Facebook and Linkedin emerged as winners, and though there are aggregation solutions out there I personally don't see any need to mix my personal and professional business networks. In fact, Twitter has signaled a new niche (together with Yammer, its LinkedIn-like twin), taking the Facebook status line to the extreme - but the cambrian explosion of networks has passed. It might be best reflected in the coverage and attention Ning - the DIY social network platform - is getting (or not getting) these days compared to 2008.

Online games are in an earlier stage; although there are a few major players in every part of the ecosystem (hardware, portals, platforms, publishers etc.), the barriers are still low and any garage geek can develop the next game. Until now, major game publishers have overcome this by cloning, executing quickly and gaining more and more traction; but as the market becomes more sophisticated and gamers' expectations rise, we will see changes. Acquisition of smaller studios by larger ones to get hold of new IP, traditional game companies entering the space and introduction of known franchises (I vote for Star Trek!) will all come into play, signaling the the battle for control is far from over. But there's another interesting story here - and that's payments in the virtual space.

New ways to pay and be paid have caught the eye of entrepreneurs and VCs alike. Investment money is running like crazy, funding the next-next innovative, zero-click-super-social payment service. Kwedit gets $3 million for letting people pay if they feel like it, Square is making news by enabling coffee shop sales via iPhone. We have hit the spot where there are just too many payment options, and platforms try to answer the need for convergence. Now, I have the utmost repsect for new inventions, but as I started this post, you also need to know how to execute on them (Square is going to discover that, with Verifone's generous help). Remember the three pointers for a successful payments service? Easy, Enabling, Trustworthy. Getting those nailed doesn't take mere ideation, but good old fashioned execution on boring stuff like compliance, reconciliation and relationship management with card associations. And merchants are not early adopters like most gamers - getting them to expand to yet another payment service, in a highly fragmented market, is hard. Merchants are looking for a broad and established user base. Succeeding in this is much harder, and therefore constitutes a bigger barrier, than in other industries.

I can only give only two general advice: one, is do not underestimate compliance and regulation; they will either limit your market (SMBs don't usually work with non-compliant payment services) and you may be facing huge fines even before you start profiting. And two - make anything possible to establish yourself as reliable - it's a merchant's biggest nightmare to have their payment service vanish one day, or to see their customers' data accessed by fraudsters. Guard you system, adapt your best grown-up face, and think about availability because being cool is great, but will only last that much. For success, you need to understand the basics of executing on a successful payment experience, to complement the big technological and business ideas.

Watching the payments industry over the coming two years is going to be extremely interesting, much more volatile than we were used to. Hopefully, some of these incredible minds will adjust to the demanding type of execution the industry requires, and will make it on the other side of the convergence.

Two quick ones: due to a new role I'll be taking on in Paypal, the content and nature of my posts my shift a little. I apologize in advance to those who expected the deep dive on mobile payments threat analysis. On a similar thread, I will be at the Engage! expo next week - buzz me if you'd like to chat.


Yuval said...

Beam me up Scotty!
A great post!
How do you balance regulation and compliance implementation with the business drive?
It seems there is a strong contradiction between full compliance and time to market...

Anonymous said...

mmm...Paypal was not working according to the rules of the CC and regulations when it launched, even when it IPOed, they even wrote about it in the prospectus, AND it is not considered reliable even today, and is still a huge do you explain that?

Ohad Samet said...

First to anon - two things.

The first, is that the situation in which Paypal operated ten years ago was very different. If a series of blog posts can get a CEO fired and a whole industry rattled to give up one of its biggest revenue generators (I'm referring to the TC-Offerwalls saga), then not only formal regulation but also the public's opinion are issues not to be taken lightly. Now, does that mean that every startup needs to be compliant from day one? I can't say. I'm just suggesting that the "boring" issues are closing in on new companies faster than one would imagine, and not paying enough attention may be lethal.

Now, to your second point, let's not confuse reliability with trust. I'm not sure what you mean about Paypal, but let's take reversals as an example. It's known that Paypal sometimes reverses payments after they happened; this may render some of Paypal's flows less reliable for ForEx merchants, for example. But the fact that users from across the globe are buying items and services from merchants that wouldn't have gotten a merchant account anywhere else - that's a trust generating environment for you. This is how new volume is created.

@Yuval - my answer is probably along the same line of my first bullet above. I'm a big believer of launching, monitoring and fixing on the fly whenever possible. The only thing to remember is that when you take on such an approach, you have to be committed to actually monitoring and fixing, not just throwing a product at the market and waiting to see what happens.

prashant said...

Any comments/view on PayPals recent decision to suspend operations in India for a couple of months.

I only hope that Paypal addresses all the queries raised by the Regulator.
Arun is not clear as to which regulator, but I am risking a guess that the Regulator is Reserve Bank of India.
This seems to be a test case for Paypal as well as regulators in India.

Ohad Samet said...

Nothing that I can add beyond what's already known...