eBay: quiet redemption

I’ve been tough on eBay in the past, but it’s now necessary to give eBay its due.  Not because I feel that my earlier criticism was in error, but because I don’t think eBay has gotten nearly enough credit for what amounts to a brilliant strategic move.

To what am I referring?  Nothing less than eBay’s foray into microfinance with MicroPlace.  This is such a smart maneuver that it’s surprising that it’s been all but ignored in the media.  So, let’s take a moment to analyze what makes this so smart.  First, microfinancing is one of the “hot” movements of today, on par with social networking.  As a feel-good story, microfinancing is second only to environmentalism and the fight against global warming in the promise of worldwide benefits that it can reap.  (If you’re not convinced, just do a search on Muhammad Yunus or Grameen Bank.)  Think about it, the promise of microfinancing is the elimination of poverty in the developing world.  What could be more worthwhile?

Second, like the acquisition of StubHub, eBay waited until someone else proved the market.  In this instance, the groundbreakers were companies like Prosper, Kiva, Zopa, Lending Club, and others.  Yes, this reinforces the notion that eBay should no longer be thought of as an innovator, but it is the smart strategy for a mature company, which eBay is.

Third (and most important) this move is a logical extension of what eBay is.  EBay is a marketplace for connecting people to conduct transactions.  The foundation was in the purchase of used goods, for sure.  But, eBay can leverage its brand equity to expand into all kinds of transactions, with financial services being just the latest such type of peer-to-peer transactions.  eBay can become the “un-social network”  for transactions of all kinds.

Fourth and finally, the timing was impeccable.  Just a week or so after eBay launched MicroPlace, Fed Chairman Ben Bernanke praised microfinancing for its promise of economic development domestically and globally.  EBay seems to have caught the wave right at the perfect time.

Yes, eBay deserves a gold star for this latest move, or at least a little media coverage.  This could more than make up for overpaying for Skype.

Web-IV convergence: social networks and applications

The news is coming fast and furious. I thought the dot-com boom was life at Internet speed, but this is ridiculous. It wasn’t all that long ago that Web2.0 was just a bunch of WYSIWYG tools to ease development of web content. In that respect, Web2.0 did for the Internet what Microsoft Word did for computer word processing. (Think back in horror to the days of color-coded key combinations for document formatting with the old WordPerfect.) That is, Web2.0 made it easy for anyone to publish content to the web.

It was only a few short months ago, on May 24, 2007, that Facebook led the next evolution and brought applications to the masses by introducing the Facebook Platform. Web-IV is the ultimate convergence, and this was one of the defining events in taking us from Web2.0 to Web-IV. Think about it, until this point, Web2.0 gave people easy ways to produce content (blogs, wikis) and to aggregate content (mashups). But May 24th marked the day that interactive, feature-rich applications were elevated to that same social status. It became simple for anyone (with just a little technical know-how) to build an application and have it immediately used by the ready and eager masses.

That was ground-shaking, earth-shattering, sea-changing. But, alas, that was sooooo May. Now Google and its posse are riding out trying to tame the wild west of social networking with OpenSocial. And, it’s so much more than just a common technology for developing applications on social networks. Lost in all the coverage is the fact that this is the first significant move to finally, finally bring all the social networks together.

I fully expect OpenSocial to, first and foremost, provide a “single sign-on” level of interoperability to the social networking space. I would be shocked if one of the first applications developed on OpenSocial wasn’t some way to better share information and connections across the various social networks. It’s inevitable.

The natural course of all communications networks have followed the same path. One need only review the history of the telephone industry to understand the phenomenon. First, there are a lot of small network providers, who all fight really hard to protect their “walled gardens.” But, as Metcalf’s Law explains, the value of a network grows as the square of the number of nodes in the network. So, after a while, a small number of dominant players emerge and gobble up all the smaller networks.

So now the question becomes, will Google become the Ma Bell of social networking in our new Web-IV world?

Google has cellular industry caught in a pincer movement

While Apple utilized a frontal assault on the cellular carriers, Google is attacking with a classic pincer movement. Let’s explore the underlying differences between these companies and how that drives the different strategies.

Apple is the preeminent consumer electronics brand today. No consumer goods company carries the same cachet that Apple does. No other brand has such a rabid, fight-to-the-death following. And nobody gets more out of their consumers than Apple. Steve Jobs use of the stage and the buzz ever-surrounding Macworld conferences is enough to draw the spotlight away from CES and the entire rest of the consumer electronics industry.

With Apple’s strengths being in designing consumer devices and the fervor of its devout followers, Apple’s foray into the mobile space was, of course, from a strictly consumer-facing, handset manufacturer angle. Apple wanted to create a device the way it wanted to create it. And, Apple knew absolutely that their device would sell to a significant number of people.

The carriers are always looking for a competitive edge against their oligopoly-brethren, and their tried-and-true approach to gaining such an edge is through the use of exclusive agreements. Knowing this, Apple played a game of “let’s make a deal.” Apple offered an inside track on cheap and easy acquisition of legions of the most loyal consumers in the world. In exchange, Apple wanted the power of control over the platform. There was no way a carrier would give up control over handset requirements without getting exclusivity in return. This deal was first offered to Verizon, which declined. AT&T, which as Cingular had been one of the more conservative of the carriers, wanted to inject new life into AT&T Mobility, so they grabbed for the brass ring. And, as I touched on in an earlier post, AT&T must have expected that Apple, owing to its history of maintaining tight control over its technology, would keep the platform closed. So, for AT&T, this probably didn’t seem like such a huge risk and came with a big upside.

Google’s strengths and history led it down a different path. While Google has a brand that takes a backseat to nobody, Google does not manufacture physical goods. Google provides web-based software services. So, it’s too big of a stretch to think that people will flock to use a phone that is running a Google-OS just for the sake of it. But, what leverage Google does have lies mostly in its substantial war chest. Through the threat of entering the 700 MHz auction, with the very real prospect that it could win such an auction, Google can force the carriers to the table.

The threat is what a Google-owned spectrum would mean to the cellular industry. First, let’s set aside the notion that Google would actually enter the cellular carrier market. That’s just too far from Google’s core and would require too great a commitment of resources to physical infrastructure. What’s much more likely is that Google would license the spectrum to one or more of the carriers, but that would come with many strings attached. In essence, Google could use the carriers’ own arguments and tactics (“It’s our network/spectrum, and if you want to use it, you’ll follow our rules.”) against them. One such string would undoubtedly be that any device running on that spectrum would have to be Google-powered.

So, in dealing with Google, the carriers are between a rock and a hard place. They are not “induced” to work with Google by the allure of advertising revenue splits, they are compelled to do so. Either they negotiate some revenue split now (with the greater portion of that split going to Google, of course), or have a worse deal force-fed to them later. Either way, the carriers are losing their tight grip on the mobile universe, which is a good thing.

Even though the unspoken Apple-Google alliance’s efforts against the cellular carriers is ultimately leading to a more open mobile network (hooray!), let’s not forget that this is in no way an altruistic endeavor on either company’s part. Apple was forced by consumer backlash to open its platform. Google is simply looking to expand its advertising reach into the emerging mobile arena. In this respect, Google seems to be setting itself up as the default advertising platform for mobile devices in a manner eerily similar to how Microsoft leveraged the Wintel monopoly to win the browser wars with Netscape.

Let’s just hope that Google isn’t using the banner of openness as a trojan horse for creating its own monopoly, but stays true to its”Do no evil” mantra, because mobile users in the US have been oppressed for too long already.