Sizing up the businesses

Ebay is primarily in the auction business. Everyday, millions of people buy and sell products through the service. Ebay does not hold any of the inventory and focuses primarily on providing a marketplace for exchange.

In parallel, Paypal provides a service that allows people to send money electronically by tying credit card numbers to email addresses. 60% of Paypal’s business comes from people who are using Ebay for auction and Ebay tried to compete with Paypal through its own service called Billpoint. The only problem was that Billpoint never received the kind of support Paypal enjoyed.

While other offerings (Yahoo PayDirect, Citibank’s C2It, Western Union’s MoneyZap) tried to go after the same market, Paypal established an early lead and hung on to it.

Furthermore, Paypal has worked hard to work with multiple credit card providers, and has established signification relationships with companies like UPS to create a system that allows for end to end processing of transaction.

Opportunities

At the same time, Ebay has been moving closer to a fixed price model since the acquisition of Half.com and has expanded into providing other services for sellers. Combining the services Ebay and Paypal have been offering will mean providing an end-to-end solution for anybody interested in selling goods online.

This puts Ebay on a collision course with Amazon.com, which is trying to attack the same problem from the large provider end.

What’s Next?

Once the merger has been completed, expect Ebay to integrate Paypal as part of its complete offering and get rid of Billpoint. Once that is done, Ebay will collect fees on listing goods, transacting the business, receiving the money, and delivering the goods. This is a great model as it puts Ebay clearly in the lead in terms of offering a complete solution for online retailers.

Once it’s managed to do so for small retailers (as it does on Half.com and Ebay “Buy it Now” sellers), expect Ebay to start going after larger and larger customers. In the long run, I would not be surprised to see Ebay and Amazon bid on some of the same contracts, with Amazon showcasing its warehousing capabilities as a plus, while Ebay would present its complete platform as the solution of choice (let’s not forget that Ebay now has a complete API already working, which makes it easier to integrate its services into other platforms.

Since both companies offer capabilities for online selling, I would expect them to fight it out on new features, with Amazon eventually suing Ebay over 1-click functionality and, after a settlement is reached, both companies looking at the possibility of a merger.

It looks like such a thing would make sense as both companies have managed to amass large quantities of customers and both are striking out in similar fields. Whereas Amazon focused on becoming a host to large companies like Target and Toys R Us, Ebay has focused on small retailers. Together, they could become the biggest host of online stores on the whole Internet.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Ebay to Acquire PayPal. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

As many of you already know, the game station is a small box that attaches to your TV and on which you can play video games. However, the firepower of new generation boxes now on the market is now equivalent or higher than that of most computers. The main logic behind this was that gamers wanted a more realistic experience and crunching 3D representation in an ever-changing environment required more and more processing power.

Playstation 2 opens the gate

Last year, Sony introduced the Sony Playstation 2, a new gaming system that included a built-in DVD player and a 3D graphic engine that made computer video card look ridiculously outdated. At that time, Sony admitted that their goal was to go beyond games and control the digital living room. Recent partnerships with Macromedia, AOL, and Real Networks seem to show that Sony has established a clear roadmap as to how it would get into the online market. And with a growing installed base of (8 million so far, and an expected 34 million by 2004), Sony could become a major online player.

Microsoft unveils the Xbox

Having survived the browser wars with Netscape (Internet Explorer now controls 80% of the market), Microsoft is starting to worry. If one could download music and exchange videos via a gaming station, as well as play video games, where would the home PC go? And where would that leave Microsoft’s ambitious .net strategy?

As a result, Microsoft had to play in that field and to do so, it went to game developers. After much discussion, the result is here for everyone to test: it’s called the Xbox, and is essentially a PC packaged as a gaming station. If you read the documentation, the Xbox becomes more difficult to classify as simply a gaming box. For starters, there is a DVD player, which was added just to match Sony’s Playstation 2 DVD player. But Microsoft goes further by building a Dolby decoder within the system as well as adding parental controls to the box.

The second thing they added to the box is the ability to put in a CD, play it, and burn it onto the built-in hard drive (through what they call a music manager). All of a sudden, the Xbox becomes a music stereo box.

Going further is the matter of the Ethernet port and the mysterious broadband network touted by Microsoft. Early inside reports point to the first broadband gaming network that might go beyond gaming. At the current time, there are rumors of a network that would also allow for Internet browsing, email, and instant messaging, as well as gaming.

The messaging portion is an interesting one since it would include and optional plug-in for the box called the communicator, a headphones and microphone device people would use to communicate either via IM, or while playing online games. The unit includes a wireless headset with microphone, which could easily be used to make phone calls if Microsoft uses some of the technology it is currently building into the Microsoft Messenger. Long term, the Xbox could become another entry point into MSN, and into the web as a whole.

Moving forward: the Playstation 3

Sony, however, is not resting on its laurels. Now that Microsoft is entering its turf, the company is seeing its dominance on the digital living room being challenged.

With the PS3, originally slated for mid 2003 but possibly being released earlier, Sony plans to integrate offerings from its music and movie divisions into the system.

Considering the fact that the company already offers a suite of MP3 players, it is easy to see that the company will build that functionality into the next box.

Rumors are that the company will build a large hard drive within the box, which would make it a perfect storage area for an MP3 collection.

But going beyond music, the company is also looking at packaging a digital TV recorder within the unit, turning it into a device that would compete with Tivo and Replay in the market for customized television.

Also built into the box would be a TV tuner, and rumors has it that the system would also include a satellite TV decoder. In order to counter the online capabilities of the Xbox, Sony will release an online pack for the PS2 but will build that functionality directly into the PS3 box.

The unit would be offered in two different version: a light version, which would focus on gaming and be sold for around $250-$300 and a more expensive full featured convergence version which would retail for $400-$500.

Games Only: The Game Cube

Meanwhile, Nintendo believes that games and only games is what consumers want out of their boxes. As a result, the GameCube is a smaller, less pricey gaming box. However, this does not mean that it is offering less performance. It’s just that it’s a different take on the world. As far as Nintendo seems to see the world, gamers will want to pay no more than $200 for a gaming box but may be willing to pay extra for new features.

In a concession to Microsoft and Sony, the box will soon sport two different modem adapters: a 56k module for people who use a phone line and a faster broadband module for people who have a network at home. Rumor has it that Nintendo is preparing a membership network with services like online video game, full Internet access, and the distribution of music data. Since the GameBoy advance can interface with the GameCube, it seems that Nintendo is working on a hardware strategy that will make the gamecube a connecting station into the home, while the GameBoy will become a roaming device that can get updates from that box.

Convergence is here

Based on those recent developments, it seems pretty clear that hybrid boxes are now starting to pop up and that we will soon see more applications (initially in the gaming world but eventually in other areas) become the norm. I would strongly recommend that TNL.net readers who are involved in developing online consumer applications pay attention to the gaming space as it is the next arena for which we might have to format our outputs. Based on early showing, I would say that Playstation 2 will keep its predominant position for the next year or so but may be getting some competition from the new underdog in this arena: Microsoft.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title The Convergence Game. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

I’ve been looking at the press coverage and it seems that some of the coverage does not work out. For starters, Boo.com’s failure is not an example of why B2C E-commerce will fail, it’s an example of why Boo failed itself. Nor is it a failure of E-commerce in Europe.

Now that the company is buried, I’d like to take a look at what went right and what went wrong with the company and go into more details as to what we should learn from that failure. I will try to summarize what I learned over the 6 months I spent there but I may be off a little here and there since it’s been a while since I’ve left the company.

Boo was the first company to launch from the ground up in multiple countries from day one. This represented a set of challenges that were previously unadressed, ranging from technology challenges to more traditional issues in generating a global brand. While I was working for Boo, I was in charge of developing the back-end fulfillment system, a platform that allowed us to handle multiple currencies, multiple languages, on the fly tax calculation, and integration with multiple fulfillment partners. Let me go into more details on what this means.

Multiple currencies

If you want to trade globally, you can’t only offer US dollars. As a result, you need to figure out a way to handle multiple currencies ranging from dollars to pounds to liras to francs, to deutshmarks, to kroners, etc… If you are planning on doing this well, you have to peg your prices to a particular value. However, you have to realize that prices are not the same in every country and what may seem expensive in the US can be seen as cheap in other countries. This is where you have to make a decision as to whether you want to set a fixed price in the local currency or set a more dynamic price that is affected by currency exchanges and other fluctuations. It’s a fascinating problem in and of itself but it’s one that we discovered to be a big pain to deal with.

In the end, Boo built a system which allowed us to set a different price for each country or set a single price for all countries and have that price be translated in the proper currency based on a set exchange rate. It was a bit of a kludge but it worked and, to this day, I haven’t seen an Ecommerce shop with a similar system.

LESSON:

When dealing across multiple countries, decide early on how you want to set up your pricing scheme, it will save you headaches down the road.

Multiple languages

First of all, forget translation software packages. They are still relatively immature and there is (at this point anyway) little hope that they will mature much beyond their current point in the near future. If you’ve taken any linguistics course, you know that grammatical rules can hardly be standardized for several languages. For example, something as simple as a verb can become a whole new set of problems. In English, there is a relatively small set of basic rules. The verb “to want” breaks down into “I want, you want, he wants, we want, you want, they want”. Notice that there are only two basic variations here. In French, the same verb “vouloir” breaks down as follows: “Je veux, tu veux, il veut, nous voulons, vous voulez, ils veulent.” In this case, there are 5 different variations. In spanish, it’s six… and so on. Take that problem and try to automate it and you are building a system that is bound to fail. The way we worked around it at Boo was to create a system where the copy was translated by hand by people who were fluent in the language.

Unfortunately, another problem cropped up: British English and American English are EXTREMELY different. Considering that the assumption was that one version of each language was sufficient, problems cropped up and some of the perfectly normal British english stuff ended up being very offensive in the US. THAT was a major problem.

LESSON:

One language per country can be a dangerous road, check with the locals before making anything available to the general public.

On the fly tax calculation

This one almost killed me. In the US, it’s relatively easy to deal with taxation. For the most part, the only taxes you have to pay are for states in which you have a physical presence. Where it gets tricky is when your servers are located in one area and your offices are in another. Technically, that is two locations.

In the case of Boo, it got worse. For example, a sale to France was taxed three ways. Why? Quite simply because the company had offices in Paris, its servers were located in London, UK and its distribution center was in Cologne, Germany. However, the interesting part of the problem was that we were making a sale but not delivering a good in the UK, delivering a good but not making a sale in Germany, and making a sale and delivering a good in France. This was just one example. Multiply that by the number of countries the company was doing business in and it soon got VERY complicated. Add to that the fact that certain goods were coming from China or Taiwan and the picture got so clouded that we had to bring in tax attorneys to help us on the details.

LESSON:

Hard to believe, but accountants and tax attorneys should be part of your development cycle if you are developing global Ecommerce apps.

Integration with multiple fulfillment partners

The main issue here was dealing with different file formats for DeutschePost (the European fulfillment company) and UPS (the company that did fulfillment for the US). What we ended up doing was create an EDI link to those guys (DeutschePost was not web-enabled yet) and create a set of filters for each of them. A simple answer to a simple problem but this little answer cost about 150 man months of work as the content had to be migrated from the old (untagged) setup to the new one. Because the original database was originally set up wrong, we had to totally reorganize the schema and refit the content into it.

LESSON:

Plan early, think of all that can go wrong, and then plan it again. Usually, spending more time on specs saves you from many headaches down the road.

Where’s the plan?

When I joined the company in August, the launch was behind schedule by three months and we had ten weeks to the Christmas season. The first thing I asked to see what the project plan. It didn’t exist. People were working on bits and pieces of the project without communicating with other people they were affecting. Within a week, we put together a MS-project chart and things started to move properly.

LESSON:

An e-commerce project without a development plan will always be “this close” to launch but will never launch.

Front end is technology

One of the biggest failures at Boo was to assume that the front end was not a technology issue. Up through launch and beyond, the front end team was first reporting to business development and then to marketing. This was a capital mistake that I kept fighting over. A web site front-end is interface design, it’s not a marketing exercise. It should include people who are versed in this and not just people who know about pretty colors. Ultimately, I think this was one of the big failure factor in the company.

LESSON:

No matter how good your backend systems are, the users will only remember your front end. Fail there and you will fail, period.

There are many other reasons for which Boo failed (I’d rather not go into them but I can say that the press is on the mark on a lot of their accusations) but ultimately, there were a lot of really smart and really good people there who worked very hard to put together what, to my mind, was an amazing back-end operation. Lack of communications to and from the top was definitely a problem as well as a lack of understanding of Internet time (the redesign of the site I heard about on the day after launch has not yet happened and probably never will now). In the end, though, Boo’s failure was not that unexpected to anyone who had worked for or with the company. Boo.com did not fail as an Ecommerce company, it failed as a company, period. The thing that took it down were not Ecommerce related as much as they were just plain business. Yes, I’m a bit saddened by the fact the company went downhill but I already knew this was going to be the outcome back in January when I left.

Ultimately, Boo is a typical example of a lesson that many VCs are pushing these days: Management makes or break a company.

Let’s hope we all take that lesson, remember it, and let Boo stand as old mistakes we will never make either again (for those of us who made them) or at all (for those who haven’t).

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Boo.com Goes Bust. You can follow him on twitter here or receive his weekly newsletter by subscribing here.