Banking without Banks

Banks said it couldn’t be done.  But innovative entrepreneurs are capitalizing on social media, Big Data and machine learning technology to make capital available to people who couldn’t get it before or couldn’t get it at affordable rates.

One company enables middle-class consumers in emerging markets to gain access to short-term loans by using social media to prove their credit worthiness.  Another has, in just 7 years, made $1 billion in business loans to small businesses with poor credit.  A third manages a credit marketplace of borrowers and investors in order to facilitate personal and business loans at lower rates than borrowers can get from banks – $7 billion in loans in 7 years. The fourth provides micro-loans without collateral to low-income Hispanic families who lack a credit history.

The companies are Lenddo, OnDeck, Lending Club and Progreso Financiero, and their founders told their stories at the Data Driven NYC Meetup in May.

The Situation

According to James Gutierrez, Founder & CEO, Insikt, Inc., a financial data analytics company, and formerly CEO of Progreso Financiero, which he founded:

  • New regulations for banks have changed lending:

o   Credit Card Act

o   Dodd Frank

o   Basel II

o   Basel II/II.5.

  • The availability of revolving credit is down – affects small business lending by banks – non-prime consumers are hit hardest
  • Technology is changing lending across the value chain, driving the price down

o   Applications drive higher volume and lower costs

o   Underwriting – big data makes more sources accessible and results in lower risk and increased capital

o   Servicing – electronic payments – ACH means lower costs and lower risks

o   Mobile payments by lower income borrowers – lenders use SMS for collection to lower cost and lower risk.

  • Banks can’t keep up with nonbank alternative lenders, which are transforming all loan products.

Four Nonbank Alternative Lenders Speak

Jeff Stewart, Founder & CEO, Lenddo

  • Launched early 2011
  • Serves middle class consumers in emerging markets
  • Goal was to involve the crowd in lending to the middle class using micro finance techniques and social media data to establish creditworthiness where none exists
  • Social data add value by making it possible to map good vs. bad borrowers in terms of affiliation because “birds of a feather  gather together” – “even two degrees out tells us how you will perform”
  • Integrates social networks with mobile & the cloud to use data sources
  • Works with the community on both demand generation and collections/repayments
  • Storage was a major technology issue – Chose MongDB at the outset with Amazon Web Services – database grew explosively – all opt in
  • User data = social data – grew exponentially – expensive even when only 20K members.
  • Realized “It’s big data, not big database” so they moved data to simple storage, created cache MongoDB for queries and cut costs 70% – they think about data use cases.
  • No database frees you to solve problems
  • Looking closely at bitcoin block chains to add value for transactions.

Noah Breslow, CEO, OnDeck

  • Has made $1 billion in business loans to small businesses with poor credit over 7 years
  • Loan size is small – $100K-$300K; banks need larger loans or they lose money – they need $1 million and up
  • SMEs represent a large and underserved addressable market
  • Built a platform to connect Main St. to Wall St., with OnDeck playing all four essential roles:  originator, servicer, credit bureau for collecting and aggregating data, and credit scoring (FIC0)
  • The database tracks small businesses from birth to death.
  • The digital footprint of different stores is totally different and depends on different data sources
  • Co. adds private performance data to public data and does a lot of fraud management and triangulation
  • Developed a different kind of credit score – it’s a business credit score, not a personal one with the focus on debt service calculations:  cash flow, trade credit, business attributes.  Social data is noisy – need to look at patterns.
  • A large number of small transactions – restaurants, retailers, doctors & dentists, small manufacturers, etc.
  • Gather data for scoring a business from many sources.  Building a data aggregation and learning platform that includes Mechanical Turk and common sense.
  • They price to risk.

Renaud Laplanche, Founder & CEO, Lending Club

  • Has created a credit marketplace of borrowers and investors, where Lending Club facilitates loans but is not involved on the credit side.
  • As a result, LC can operate at a lower cost than banks – banks have 5%-7% of amounts lent in operating expense vs. LC , which is under 2% and declining.
  • LC incurs none of some bank costs, such as the cost of branch offices, reserve requirements, and has lower costs or more advanced technology for customer acquisition, underwriting, origination and servicing.
  • Bank’s intermediation cost for credit cards is 16.99%.  LC’s range is 7.9%-127% with average intermediation cost of 4.83%.
  • A lower lending rate means a higher return to investors.
  • Have consistently controlled LC’s growth.  Now have 550 employees; hire 100 people every 6 mos.
  • Use data for marketing, credit, fraud and collections – receive about 9,000 loan applications a day.  Less than 10 are fraudulent, so that fraud becomes a needle in a haystack.
  • Fraud predictors:  time of day, frequency, etc.  New data sources:  device, online footprints, application use.  Look at consistency of the information provided, behavior online footprint, machine/device and location signal.
  • LC uses machine learning to assess risk and predict fraud based on more than a thousand attributes
  • Fraud attempts have declined from 5% to 2%.
  • Just formed a partnership with Union Bank in San Francisco, which overcomes the challenge of complying with 49 sets of state regulations for Lending Club and opens the way for a traditional bank to offer products it could not otherwise offer.  (Probably an indicator of a future trend.)

James Gutierrez, Founder & former CEO, Progreso Financiero

  • James was a 2005 MBA from Stanford
  • Micro finance gave him the idea for Progreso Financiero – unsecured micro loans and debit cards – delivered from a table in the supermarket – to help immigrants with no FICO scores
  • Typical loan size was $1,000 for 12 months.  Had to make 10,000 loans to get $1,000 back.
  • Immigrants with no FICO scores are a challenging population to underwrite
  • What he did:

o   Took an eHarmony approach with a robust application with extremely detailed personal data.  Detailed data turned out to be valuable.

 o   Booked some bad loans – a learning experience – the most valuable data is performance data – having a huge amount of data helps build a model – data science is no help

 o   Aggregated and analyzed alternative data:

      • 300 attributes on the application
      • Separate borrowers into nodes
      • Later 2,500 attributes from multiple sources
      • Over 120 segments
    •  Data helped simplify the process & determine the score
    •  Merged alternate data with bureau data
  • Fair equal Opportunity Act – the jury is out on what data you can use to deny credit, the actual underwriting decision
  •  Made more than 500,000 loans with single digit loses
  • Partnered with Prosper, the first peer-to-peer lending marketplace, with more than 2 million members and over $1 billion in funded loans.
    •  Risk model design
    • Loan valuation framework
    • Valuation stress testing.

Today James’s focus is on Insikt Inc., a financial data analytics company that uses data for risk models to apply to consumer markets.  He and his team are working on how to originate loans in the subprime market and how to create a more curated market for securitization – concerned with both bond performance & loan performance.

Panel Discussion, Moderated by Matt Turck, Organizer

  • Banks are encumbered by regulation
  • Alternative lending is only 5% of consumer finance

o   In 5 years we’ll see a lot of new entrants

o   More partnering with banks

  • Transforming the bank system to be more transparent and customer friendly
  • There are four different segments with lending opportunities

o   SMB

o   Consumers

o   US

o   Emerging markets

  • Top ten global institutions will be big players in financial services
  • Rates for consumers can be as low as 6.5%, average 12.5%; for business, 5.9%
  • Rate risk is better through the use of data and marketplace dynamics drive interest rates down
  • A virtuous circle continues to make credit more affordable and drives interest rates down
  • Most credit cards are priced at prime plus
  • Alternative lenders return a higher return to investor
  • Rates rise in a better performing economy and defaults come down so we expect our proceeds to be stable.

Deriving Big Value from Big Data

What is Big Data and what does it do to how we do business?  Ask the people doing it.  That’s what Matt Turck, of FirstMark Capital, did at the 28th Data Driven Meetup, which he organizes.  He gave four Big Data stars the mike – two entrepreneurs, a data scientist and a VC who used to be an entrepreneur.  Robbie Allen of Automated Insights, and Joe Hellerstein, of Trifacta, were the entrepreneurs; Rachel Schutt, of Newscorp, was the data scientist, and Chris Lynch, of Atlas Venture, was the VC.

So what are these companies doing?

  • Delivering automated narrative reports of quantifiable data in real time that are designed for individual user groups.
  • Enabling users to easily transform raw, complex data into clean and structured formats for analysis so that analysts can have direct access to Big Data and both analysts and data scientists can be significantly more productive in delivering business decisions.
  • Building a corporate data culture led by a cross-functional team headed by the CTO that combines data science, IT and product management in order to help journalists tell stories and develop a sustainable content/publishing/media company business model.
  • Using lessons learned from running a Big Data pioneer to help new Big Data companies understand the importance of simple messaging that dummies can understand, ease of use, security and designing the business to connect directly to user value in order to optimize monetization, even using someone else’s Big Data platform to achieve this.

Robbie Allen, CEO & Founder, Automated Insights (robbie@automatedinsights.com)

His theme:  Let Your Data Tell Its Story.  His company has developed a patented platform, called Wordsmith, that writes insightful, personalized reports from client data – reports comparable to an expert talking in plain English to each user.  Its cloud software turns raw data into compelling content customized for specific users and groups of users.  It delivers automated insights as narrative content at scale, in real time, on any device.

Visualizations require mental gymnastics to translate.  They also suffer from the baseline effect – small changes are imperceptible, which renders most dashboards useless.  But pictures don’t tell stories.  Words tell stories.  Data density can obscure meaning.  A single word can sometimes do the job best.

Media companies are the target customers for the Wordsmith platform, which creates reports from quantifiable data.

  • The data can come from anywhere – external databases, real-time data, proprietary data, and historical data.
  • The platform creates algorithms that create facts and lists of facts.
  • It then describes those facts as narrative.
  • Creates tweets and other messages

Examples:

  • Yahoo fantasy football grades users on their drafts – using any tone desired, including snarky.
  • InvestCorp – portfolio recap.  (Ultimately data scientists will be replaced b automated processes.)
  • Samsung – fitness update – “quantified self.”
  • Honda – sales reporting

Wordsmith Marketing can generate fully automated personalized websites and performance reports that replace Google Analytics.

Rachel Schutt, Chief Data Scientist, Newscorp

Newscorp owns multiple major news media.  The parent company has begun leveraging all its companies instead of acting as a holding company in order to create new business models based on their content.

Data is at the heart of its future.

Schutt, who has a PhD in statistics, reports to the CTO.  Her two peers are people who head the platform and the product. The goal is to build a data culture, investing in people rather than tools.  They build cross-functional teams, and everyone codes.

Examples of data science in action:  churn models.  Propensity analysis.  User behavior modeling.

The plan is to make data-based decisions to help journalists tell a story and to make sound business decisions that can build a longer term sustainable media business model.

Chris Lynch, Partner, Atlas Venture

Vertica was the first new database in 3 years.  Chris, previously a sales and marketing business entrepreneur, was CEO.  The engineers couldn’t communicate except to data scientists.  He had to simplify the message so it scaled.  Vertica was a real-time analytics database that was faster than others and delivered actionable insights in time to make decisions It was sold to HP for several hundred million dollars.  But Zynga was sold for billions.  Zynga was an analytics company that masqueraded as a gaming company.  It used Vertica’s real-time database to analyze user behavior and target sales of virtual products.  Vertica was disintermediated.  You need to be close to the customer for monetization – to connect directly to customer value.

Chris has been a VC for two years.  His thesis is that big data can be transformational if democratized so that it talks to dummies, not the 1 percent.  Scale, security and simplicity are issues.  Individuals will own their own digital footprints.  Simplicity means ease of use so the magic is behind the curtain and users have an intuitive interface.

Think about monetizing someone else’s platform.  Disintermediate those guys.  Leverage the apps an platforms you can put under a problem.  What’s the problem you’re solving? Moving up the stack creates more value for the customer.

What he looks for in a company is people with courage, character and conviction – people with a soul.   You need people to build stuff.

The venture model is broken.  Too much money in the market (Lazy VCs).  Too few good ideas.  Chris takes pride in being a company builder.

Joe Hellerstein, Founder & CEO, Trifacta

Trifacta has developed a platform designed to “transform the way the world works with data.”  It is designed to make it easy for analysts to have direct access to Big Data and to increase productivity for both analysts and data scientists.  They asked analysts what they did and how long it took and found that 80 percent of the work on data is cleaning data.  So, Trifacta takes raw logs and transforms them for immediate analysis.  Joe demonstrated this, transforming a typical log of restaurant violations in minutes into a straightforward list of where not to eat in San Francisco!

Brave New Business World!

“Build from what the customer wants to buy, not what you do well.”

“Always work backwards from where you want to be, not forward to where you want to go.”

“Successfully sell your offering before it is finalized – when it’s just barely useful – and get customer feedback.”

“You are in the relationship business. Build what customers think is worth having. The product is merely the method to build marketable relationships with customers.”

Marketing words of wisdom from serial entrepreneur Tony Grass, currently founder & President of a new kind of service that help clients find customers worth having – e-Market Intelligence – at last evening’s NYTECH event on “Long-Range Planning for the Successful Sale of a Company.”

Excellent insights were also provided by moderator, Paul Ellis, principal of the Paul Ellis Law Group, and co-founder of NYTECH, and his knowledgeable panelists, all focused on today’s new new exit environment and the importance of building towards an exit from the company’s early days in order to assure a smooth process when the time comes.

What factors build value in the last couple of years before exit? The two most important:
• Reputation, credentials, brand – the brand will be worth 30% of the exit value.
• Recurring revenue – based on distribution for product sales and on recurring need for services from delivering a unique bottom line advantage to B2B customers, “enjoyable value” to B2C customers.

I was especially struck by just how different today’s exit environment has become.

  • The traditional discounted cash flow (DCF) value is not that useful anymore because of accelerated change. Today a lot of value derives from possibilities a company’s assets can lead to in time – the future use potential.
  • Even the traditional structured auction is no longer typical because the same technology has different uses and values for different buyers. It’s all about the individual value proposition.

And because the environment is getting more and more complex, professional advisors have grown enormously in importance – investments bankers familiar with complexities of a company’s industry as well as accountants and attorneys specialized in specific areas of relevance. (Say goodbye to your husband’s best friend who’s a generalist lawyer!)
To begin at the beginning today means knowing the end game from the outset. As the Cheshire cat said to Alice, where you want to go depends a good deal on where you want to get to. If you don’t know where you’re going, it doesn’t matter which way you go.

Secrets of Mobile App Success

With 1.6 million apps in two app stores alone, how can yours be discovered? Once discovered, how can yours get someone to use it? To download it? To keep coming back? What types of apps are out there? Where’s the future opportunity? How can you make money from an app when 80 percent are free?

The title of PluggedIn’s March 27th roundtable was App Engagement, but one question led to another and soon a virtual primer on the business of mobile apps took shape.

Discovery. A huge issue, but, truly, it’s fundamentally Marketing 101. People are not looking for apps. Apps have to go to users by understanding user DNA. (80% of apps are games.) Deliver real value for a specific user. Deliver sufficient value for users to want to talk about and share it – word of mouth is key. Facebook is good for this. Cross-promote your game through others with appeal to similar audiences. Most push notification is annoying, but intelligent push notification that respects boundaries can work.

Usage and Download. It’s all about delivering real value. What constitutes value depends on the purpose of the app. Is the purpose utility – to help someone achieve a task? Media – to help someone get information they want? Entertainment – a third of the time people spend on their phones is spent playing games? To get beyond one-time use to download requires meeting the No. 1 requirement: focus on doing one or two things superbly. Start by talking/messaging with your first users personally and get feedback. Turn them into passionate advocates. Without perceived value, you’re just adding to clutter. (40 apps is typical for most phones today.)

Repeat Usage. Here’s where engagement comes in with a vengeance. It’s about getting an app to become a habit. It happens when the app helps a customer accomplish a task – when the user finds what the app offers to be valuable enough to share. Gamification – i.e., rewards – is necessary on all apps to get people coming back. Marketing automation – such as that offered by Appboy – can make a big difference. In advertising, engagement is about loyalty to a brand. It’s a different use case for apps – satisfying a need. App engagement is also different from website engagement – and 98 percent of apps do not lead back to a website. The mobile app is in the context of the user’s life, and the user is multitasking, hard to engage, pops in and out of the app.

Types of Apps. Utility (Yelp). Media. Entertainment – video, Kindle, games (Candy Crush). Loss aversion (Whisper).

What’s the Future? Location – location – location. It’s unique to mobile app. It has huge potential and has yet to bloom

Revenue Models. In the beginning, 80 percent of apps were paid. Today, only 20 percent of Apple apps are paid, and all Android apps are free. The model is freemium – start free, then add paid features. Keepy, which helps families share memories, will generate revenue long-term through subscriptions. But the first step is user engagement, the second monetization through ads and partners. Then they can advertise payable features. Appboy sells “picks and shovels,” i.e., infrastructure, to app developers. Insticator, which lets viewers predict TV show events, will sell licenses to TV show producers.

Words from the Wise. Message your first users personally to get feedback and turn them into passionate advocates. Start small and gradually build the product to get more people on there. Go both small and international – two-thirds of the market is international. Focus on 1-2 things that work and do them well to get the data you need to learn. Keep functions atomic – no app is for everyone – take a focused approach to distribution and discovery. Measure things like time and frequency to assess and build engagement. Keep the app transparent so it allows user to do what they want but doesn’t get in the way.

Innovation from Within: Google

The very name Google denotes innovation.  Thousands of engineers are at play at Google Labs, with a steady outflow of amazing experiments.  But what if innovation is about more than engineering?  What if it is also about the human dynamic of technology?  That’s where Abigail Posner comes in – not an engineer but a social anthropology practitioner who’s changing how Google innovates – in subtle ways.

Her major at Harvard, where she took honors, was social anthropology, the study of human culture and society.  It turned out to be right on for account planning at global agencies like Publicis and DDB. She joined Google in 2011 after a 16-year career in advertising and management consulting.  Her title is Head of Strategic Planning, Agency Development.  What’s planning?  Insight and strategy, she explains.

Google knew they needed her but could not define exactly in what ways, she reported at a recent Women Innovate Mobile event.  She had to use whatever processes it took to get political and emotional sponsorship and to build her practice.  And so progressing in her role became not about moving up but about moving out, spreading her impact in many directions, probing for feedback.  “And then they all help each other as opposed to doing only one thing well,” she said.

Her first job is to help clients – marketing agencies – develop ideas.  Her role is not to make sense of data but to help creatives come up with creative ideas that inspire people.  To do this means understanding the symbolic value of brands and products.  Her second responsibility is to develop insights using Google tools and anthropological research; her third is training.  She developed a course on insight development for internal marketers; then clients asked for it..

According to Abigail:  “Because people spend so much time with digital media, we need to get value to them.  It’s not about screens but points of contact and communication.  We need to leverage those.  We’re all social strategists.  Everything we do is social.  The social platform space is unlimited.  What does it mean to be social?  Mobile?  Search?  Everything will be social and mobile.  How can technology amplify this?  Are we getting that fulfilled?

“Place making, a fundamental insight of social anthropology, is an innate desire to make sense of places, to constantly remind us of who we are.  Cell phones allow us to make places like crazy.  We find information on a restaurant as we pass by.  Then we find a dish we like and photograph and share it.  All this creates value.  Being connected is an opportunity to leverage place making.

“Mobile phones allow us to tap into deep-seated needs and desires.  What’s new is the interest in understanding the human dynamic of technology.  How can we use this to elevate our lives?”

How might understanding the human dynamic of technology relate to product development?  Product development used to be largely engineering, she responds, with some usage research.  She hopes in time to have more input into product development.  What a thought:  products designed with the human dynamic as important as the technology or usage!  That sounds to me like the true basis for a great user experience.

A Fresh Take on Social Network Models

Fred Wilson’s blog today, AVC, raises a provocative question. How much of the equity value of a social network should properly belong to the members? Fred’s question was triggered by Joe Nocera writing in THE NYT about WHO OWNS THE FUTURE by Jaron Lanier. There are no easy answers to this complex question – and it’s an important one with bearing on how wealth is distributed. Fred starts with a look back at mutual companies. Here’s his blog:

The Mutual Company

I remember a time when I was growing up when many of the savings banks and insurance companies were mutual companies. A mutual company is one where the customers own the company, more or less. It seems like the concept lost favor and many of these banks and insurance mutual companies were “demutualized” in the 80s and 90s. I don’t really profess to understand all the reasons and history behind mutualization and demutualization. I suspect some of you may know a lot more than me about this stuff.

I started thinking about mutual companies after reading Joe Nocera’s column in the New York Times which was based on his read of Jaron Lanier’s “Who Owns the Future?”
Joe asks in the title “Will Digital Networks Ruin Us?” and here is the money quote:
“the value of these new companies comes from us. “Instagram isn’t worth a billion dollars just because those 13 employees are extraordinary,” he writes. “Instead, its value comes from the millions of users who contribute to the network without being paid for it.” He adds, “Networks need a great number of people to participate in them to generate significant value. But when they have them, only a small number of people get paid. This has the net effect of centralizing wealth and limiting overall economic growth.” Thus, in Lanier’s view, is income inequality also partly a consequence of the digital economy.”
At USV we invest in digital networks, so this is a fundamental question that we think about a lot. We would not want to be investing in something that “will ruin us” and we don’t think we are investing in something ruinous. But we do talk about this issue all the time.

I will come back to the mutual company thing in a bit, but first I want to say that Joe and Jaron are leaving out the notion of consumer surplus in their analysis. The newspaper costs money. Twitter is free. In a world where “we” create the newspaper instead of the NY Times, the newspaper can and will be free. That is happening all over the place, because of the efficiency of digital networks, and the result is a large amouNt of consumer surplus that is landing in all of our laps.

But maybe that is not enough. Maybe the creators of these networks ought to mutualize so that their users, who are creating the value, can participate in the upside. We have not seen anyone do this to date. We have talked to a number of startups and networks about the idea. We have not seen any takers yet. But we will continue to have the conversation because this is worth trying and seeing how it would turn out. The result could be a much more sustainable and lasting network. Something for everyone to think about this morning.

More About Brains Than Bucks!

Andy Sernovitz’s holiday newsletter speaks to customer service, something that may be the secret sauce to achieving and holding a competitive edge.. These three examples are about e-commerce, but they exemplify a mindset applicable to any business:

From Andy Sernovitz’s Damn I Wish I’d Thought of That – Unusually Useful Ideas for Smart marketers 12.26.13

1. Help them make room

IKEA knows that one of the biggest reasons people don’t buy new furniture is the hassle of getting rid of their old furniture. So the company offered to sell it for them. For their Second Hand campaign, IKEA featured their customers’ actual names, numbers, and old furniture in their ads. Then, they opened their Facebook page for other customers to sell their stuff online in a “virtual flea market” on Sundays.

The lesson: That’s doing much more than just making room for a new couch — it’s creating an amazing customer service story for everyone who sells something through IKEA.

2. Help them make a decision

It’s a pain to exchange a treadmill. So when you buy one, you want to make sure it’s exactly what you want. At Fitness in Motion in Austin, they don’t think the couple minutes you typically spend testing out a machine at other stores is enough to help you make a decision. So they tell potential customers to use their store like a gym: Come by whenever, do their normal workout, and find the machine that works for them before they buy it.

The lesson: This helps customers feel better about their purchase. But more importantly, it gives Fitness in Motion a chance to build relationships and trust with the customers coming in day after day.

3. Help give them peace of mind

If you’ve ever bought a prom dress (disclosure: I’ve bought zero), you know that showing up to prom with the same dress as someone else is a big fear. At some formal wear shops, they help girls avoid this high school nightmare by asking each customer which event they’re wearing the dress to and checking their database for repeats. That way, their customers can be much more confident about pulling the trigger and buying the dress.

The lesson: You already keep a lot of data about your customers for market research, product development, and ordering — why not use it to help them too?

More About Brains Than Bucks

By Eleanor Haas

Customer service may well be the secret sauce to a sustainable competitive edge, and Andy Sernovitz gives great examples in his 12.26.13 newsletter “I Wish I’d Thought of That.” My three favorites are about e-commerce but the strategy and mindset behind them can be applied to any business.

1. Help them make room

IKEA knows that one of the biggest reasons people don’t buy new furniture is the hassle of getting rid of their old furniture. So the company offered to sell it for them. For their Second Hand campaign, IKEA featured their customers’ actual names, numbers, and old furniture in their ads. Then, they opened their Facebook page for other customers to sell their stuff online in a “virtual flea market” on Sundays.

The lesson: That’s doing much more than just making room for a new couch — it’s creating an amazing customer service story for everyone who sells something through IKEA.

2. Help them make a decision

It’s a pain to exchange a treadmill. So when you buy one, you want to make sure it’s exactly what you want. At Fitness in Motion in Austin, they don’t think the couple minutes you typically spend testing out a machine at other stores is enough to help you make a decision. So they tell potential customers to use their store like a gym: Come by whenever, do their normal workout, and find the machine that works for them before they buy it.

The lesson: This helps customers feel better about their purchase. But more importantly, it gives Fitness in Motion a chance to build relationships and trust with the customers coming in day after day.

3. Help give them peace of mind

If you’ve ever bought a prom dress (disclosure: I’ve bought zero), you know that showing up to prom with the same dress as someone else is a big fear. At some formal wear shops, they help girls avoid this high school nightmare by asking each customer which event they’re wearing the dress to and checking their database for repeats. That way, their customers can be much more confident about pulling the trigger and buying the dress.

The lesson: You already keep a lot of data about your customers for market research, product development, and ordering — why not use it to help them too?

How Fred Wilson Sees the Next Ten Years

By Eleanor Haas

Just yesterday, at the LeWeb conference in Paris, VC, blogger and thought leader Fred Wilson identified three megatrends that his VC firm uses as a framework for investing and four areas they’re watching. Things like mobile and big data are technologies that represent too small a lens when it comes to envisioning the big opportunities to come, he said. For him and his colleagues, it’s about adopting a behavioral and societal point of view.
The three trends are networks, unbundling and smartphones, and the four areas are Bitcoin, wellness, data leakage and trust/identity.

1. Networks
We’re very early in the transition from slow bureaucratic hierarchies to technology-driven networks. The hierarchies were solutions of the industrial world, but today they’re obsolete – just plain inefficient. Examples? Twitter replaces the slow-moving bureaucratic news organization that sits behind every newspaper. With Twitter, the crowd determines what’s news, and we get it instantly. YouTube replaces traditional video production. Again, the crowd determines what’s important – and quality rises to the top. SoundCloud disintermediates the music industry by enabling music creators to upload, record, promote and share their sounds to be found by the crowd.
We saw this happen first in media and entertainment, but now it’s happening with hotels (Airbnb), creative services (Kickstarter) and learning (Codecademy).

2. Unbundling.
Cost factors made it desirable to package and deliver products and services in bundles. Now technology makes it cost-effective to deliver focused services a la carte. Examples? Getting sports news from a different source than business news or classified ads. Finding free-standing services once bundled by banks – Lending Club and Funding Circle – asset management, education – where online classes are disrupting the traditional four-year university model – research – where technology enables researchers to collaborate freely as a network – and entertainment – where Netflix, YouTube, Hulu and VHX let us buy shows a la carte instead of having to subscribe to cable.

3. Smartphones
By carrying smartphone, we become always-on nodes in a network. Examples? Uber and Halo are disrupting taxi and limo services, rental cars and delivery businesses. Payment platforms, such as Venmo, Dwalla and Square are phone apps. Tinder is a dating app that leverages location as well as the phone.

Four Areas to Watch

Bitcoin, says Fred, is important as the transactional protocol for the Internet, not as currency. It provides a global peer-to-peer ledger and a technology-based architecture that entrepreneurs can and will build on so that payments, in time, will flow on the Internet like content and images, not controlled by any company.

Health and wellness platforms and tools, not healthcare, will be increasingly important ways to help people avoid the need for healthcare. Examples? Wearing devices that report physical activity and vital signs, a phone device that provides fertility information for women, gamified weight loss initiatives.

Data leakage is Fred’s term for how we allow our own personal data to be open for spying by Google, Facebook and the government while we ourselves have no control over it.

Trust/identity, both of which are closely allied to the data leakage area are currently managed by Google, Facebook, Amazon, Twitter. We give them access to all that we do online. In time, he predicts, there will be a protocol, just like http, that allows us to control our identity, trust and data.

So what areas are you watching? What mega trends seem to you to be significant indicators of what lies ahead?
(You can see the video of Fred’s keynote here. http://bit.ly/1cByjEg )

The Future is Internet Access. not Devices

Frugal innovation that’s just good enough to enable free mobile Internet access in order to supports a focus on education for billions of low-income people. That’s both the personal and business mission of Suneet Singh Tuli, CEO, Datawind. The outcome? The first $40 tablet computer – the Aakash – launched first by the president of India, then by the UN Secretary General and today in use by thousands of students in India.

Suneet’s business goal is to create a low-price product that impacts people’s lives and, yes, make money from it. “I am not a charity,” he declaims. The Datawind business model is to forgo most of the company’s hardware margins and to focus instead on recurring revenue from content and apps in order to go after and, in time, own the price-sensitive consumer.

He believes everyone should focus on education. Education corrects everything, he says. No, the low-cost computer is not intended to replace teachers but to supplement what they can do. His sons get answers to all the questions they have after school from YouTube! And Forbes International recently recognized Suneet in its annual impact 15 list of education innovators.

Lesson No. 1 for US entrepreneurs: “just good enough” should be part of innovation. It’s not disruptive technology that wins; it’s the one the gorilla ignores – as we learned from Clayton Christiansen. Large companies, such as Apple and Samsung, could own the low-cost tablet market but it would dilute their brands to say nothing of their margins. Their business model is based on creating and producing high-quality, highly profitable hardware. Suneet’s, on the other hand, is to use hardware as a customer acquisition tool.

Lesson No. 2: the future is Internet access, not devices, in Suneet’s view – with money coming not from devices but from content, apps and advertising. In fact, Suneet’s next goal, in addition to bringing the cost of the Aakash down to $25, is to spark a global ecosystem of socially positive apps that empower women.