Web 2.5 Opportunities for New Generation of Web Entrepreneurs

(This article was first published as a guest post on e27.)



I recently launched Taggo, a membership card aggregator and storefront, using a new platform-as-a-service model that is increasingly being referred to as Web 2.5.

With Web 2.0 already mature – think social networking, blogs, video sharing, mash-ups, and a myriad of other applications that facilitate user-generated content – and with Web 3.0’s elusive semantic search capabilities still far off in the distant future, a new term is emerging to describe companies that are starting to fill the gap.

Web 2.5: What is it?
Web 2.5 is about aggregation, personalization, and other tools that help us with our Web 2.0 world now, today. Tech entrepreneurs are using it to develop new types of Web applications at very low cost, using essentially free services that are available thanks to the first two generations of Web companies. Some of these Web 2.5 entrepreneurs are already becoming wildly successful.

Intuit recently paid US$170 million to acquire two-year-old startup Mint.com, a data aggregation site that lets users consolidate their bank accounts and credit card statements in one place, where they can manage their finances. Trumpeted “the triumph of Web 2.5”, Mint.com links to bank Web sites to aggregate and filter the customer’s data. The service was created on a shoestring budget. Mint.com acquired 2 million users in two years with no ad campaign, other than a small amount spent on search engine terms. Instead, they rely on free social media, with 36,000 Facebook fans and 19,000 Twitter followers, a blog, and an iPhone application. Mint.com had US$10 million in sales when they were acquired – that’s a whopping valuation of 17X revenues. You would think we were back in the good ole days!

The terms Web 1.0, 2.0, 2.5 and 3.0 are mainly jargon of course, since they don’t actually refer to different technical versions of the Web. Nevertheless, they are useful in describing important changes in applications and business models. Web 1.0 helped lay down the initial infrastructure of online business. While many of those players are no longer around, the next generation of Web 2.0 companies built their businesses on the platform created by Web 1.0 entrepreneurs. In turn, with Web 2.5, yet another generation of entrepreneurs is building new services on the Web 2.0 platform.

Platform as a Service
With Web 2.5, we are seeing the emergence of platform-as-a-service, which takes the existing software-as-a-service model (also known as SAAS) to another level. SAAS offers companies the ability to use expensive software at low cost, with no need to purchase in-house equipment, databases and servers. A SAAS application’s features and functionality remain essentially the same as with the traditional software version of the application. Platform-as-a-service provides additional capabilities.

A key element of Web 2.5 is that platform-as-a-service providers manage the customer’s profile data, such as name, address, billing and payment details, etc., and allow developers to create applications that leverage that data. Think Amazon, Google, Facebook and the iPhone app development environments, all of which are valuable to developers in part because of the customer data that these platforms have. Developers can bill customers through the platform provider’s billing capabilities, using credit card information that the customer previously registered. Shipping is easy, with no need to re-capture address details. These are basic ideas, but you get the picture.

A Web 2.5 platform can be generically defined as an aggregation service that simplifies the customer’s life, combined with tools that let developers create applications using the customer’s profile, managed by the platform provider. It does not need Web 3.0’s profiling of the customer’s online purchases, browsing behavior, searches, etc. Basic customer information is already very helpful in creating useful applications today.

That’s a generic definition that can be applied to lots of different areas and completely different applications. Here are several examples.

In the payment space, making Amazon’s OneClick feature available to third-party developers is one example. The PayPal X developer’s platform is another excellent example. And of course developers of iPhone apps enjoy the iPhone’s built-in payment capabilities as well. In the social networking space, Google’s OpenSocial is a set of APIs that lets developers share and access social data.

My own startup venture, Taggo, is an example of applying these concepts in my area of expertise, transaction systems for credit cards, loyalty cards and membership cards. The Taggo platform is used by companies that develop CRM, loyalty, membership and point of sale systems for retailers. This developer community consists of a large number of vertical market systems providers, for the most part local and regional companies that each specialize in one or a few retail segments. Taggo provides the underlying platform that lets customers use their mobile phones to replace lots of plastic cards, while Taggo’s platform users develop the actual systems that power a wide variety of retailer loyalty, membership and prepaid card programs. Four systems providers have signed up as Taggo platform users, covering major retailers in South East Asia, India and Australia and New Zealand. Check out ETP International, Integratech, Memberson and Transactor Technologies. We expect to sign a total of thirty systems providers by the end of 2010.

Here are several questions to guide you in thinking about Web 2.5 entrepreneurship opportunities. These questions are all open-ended and can be difficult to answer. But better that you ask yourself these questions now instead of having somebody else ask them later.

What is your platform all about? So what? Who cares? Who really REALLY cares?

What pain does your platform address? Who has that pain? Is your platform more like vitamins (nice to have to keep away potential future pain), pain killer (needed right away to eliminate pain) or cocaine (addictive, think social networking, gaming, etc.)?

How will you deal with privacy issues? Will any of the customer’s details be shared with application developers? Why will customers give you permission to share their details? If you will not share any information, why will customers trust you to protect their data?

Which developer community will most benefit from your platform? Why? How much will they pay? How will they pass those costs on to their customers? Who are their customers?

Why you? What is your special story that makes this venture something that nobody other than you should launch?

With good answers to all of these questions, you may be on your way to becoming the next Web 2.5 mogul.

Making Customer Relationship Management Easy

Youngupstarts recently did a piece on Taggo, and ended up doing something on entrepreneurship.

"Most people think entrepreneurship is one of the riskiest decisions they can ever make in their life. Not Taggo’s Aneace Haddad. The 49 year-old CEO and owner of the mobile card solutions provider says that entrepreneurship is the safest career path he could have chosen."

See the full post here.

Banking's single most important innovation in the past 25 years: ATMs (Paul Volcker)

Paul Volcker is angry with bankers.

"There is little evidence innovation in financial markets has had a visible effect on the productivities of the economy."

“I wish somebody would give me some shred of evidence linking financial innovation with a benefit to the economy.”

Volcker believes the industry's "single most important" contribution in the last 25 years has been automatic telling machines, which he said had at least proved "useful".

See here, here and here.

The missing link in the NFC story

There is a growing realization that retail applications will drive NFC adoption over the next few years, in a bigger way than credit cards and transit. Leave your loyalty card at home and tap your phone instead. Top-up your coffee account now, without a card. Get a free desert with your next value meal, just tap this smart poster.

Assuming that NFC mobile phones finally become available, and that business models become clear (I know, I know, just assume) the next barrier is the retail infrastructure.

Anybody that has dealt with chip, EMV or contactless deployments knows how difficult it is to upgrade the retailer infrastructure. And that’s just for the payment terminal, a relatively small part of the cash counter complexity. Compared to the rest of the retailer’s systems, the payment process is highly standardized, thanks to security and compliance requirements defined by the major payment schemes.

In contrast, providers of retail applications operate in a very messy world with virtually no standards. There are hundreds if not thousands of companies that develop retail applications for CRM, loyalty, promotion management, couponing, etc. Every single one of these companies specializes in a small number of vertical markets, maybe one or two. Experts in supermarket ERP systems have almost never been able to become experts in fashion ERP, much less restaurant marketing. The promotion management methods are always different from one supplier to the next, couponing business models are entirely different for supermarkets and for fast food outlets and fashion retailers, loyalty techniques that work for department stores don’t work for petrol stations, supermarkets or convenience stores. Even if basic concepts are sometimes the same, the bits and bytes are always different.

If upgrading payment terminals is difficult, where the payment function fits in a small device that pretty much always works in approximately the same way, provided by a small group of companies that are very well known in our community, imagine the complexity of dealing with the rest of the retailer’s infrastructure, provided by a much larger group of companies, most unheard of in our industry.

If we want NFC to be deployed on a massive scale, we need to have the same level of connection with this vendor community as we do with banks, telcos, payment processors, terminal vendors, card suppliers, etc.

We need to work with the companies that supply the systems and services that make retailer POS systems work, the systems that actually process the promotions and coupons and discounts that you get on your cash register receipts, the CRM systems that drive retailer marketing programs.

Who are these companies? What are their needs and business objectives? What are their pains? In what way is NFC valuable to them, valuable enough for them to really want to integrate it into their systems?

A small number of loyalty companies are beginning to develop systems using NFC. Zapa in Ireland, Tetherball in the US, Adelya in France and several others elsewhere are loyalty marketing companies that have added NFC to their products. They compete with hundreds of similar loyalty providers who have not yet adopted NFC.

Zapa raised €2.5 million to develop and roll-out “a number of unique applications from customer loyalty schemes to NFC payments”. Most of Zapa’s competitors can’t raise such funds. A simpler approach is needed for a large number of suppliers to adopt NFC at low cost, so that retailers can continue having the rich choice of solutions that they are used to.

TSM (Trusted Service Managers) provide part of the solution. They were designed to manage bankcard data securely on NFC mobile phones, and tend to look at retail marketing programs as something essentially identical. That’s a mistake. For one thing the costs involved are very different. Retailers may pay US$0.50 for a plastic card, much less than the costs of a new generation chip equipped secure bank payment card. In addition, the pains and objectives between the two types of card issuers are very different.

TSM vendors assume that the service provider, i.e. the bank, the transit operator or the retailer, already has a relationship with the customer. This is true for the bank and the transit operator, as well as for a few very large retailers. But it is not necessarily true for the vast majority of retailers.

For most retailers, there is much pain in getting customers to join a program, fill out a form, put the card in their wallet, and keep the card there for every subsequent visit to the retailer. More and more people refuse to fill out yet another form for yet another card that will invariably be left at home. If the retailer’s card is seen as a bankcard, then the TSM will just add complexity to the enrolment process, since it creates the additional step of fiddling with one’s phone to get the program securely loaded through the TSM.

The current TSM approach also adds another complexity that will become unbearable in time. With a single card loaded to your mobile wallet, it might be possible to go through a few keystrokes to get to the card when you need to wave your phone at the point of sale. But as soon as you have more cards, the process is going to be horrible. Imagine at Starbucks, flipping through all of your programs, selecting Starbucks, then realizing that you selected the Kuala Lumpur Starbucks application when you are in Singapore. The POS terminal flashes an error message and you have to flip through pages on your mobile phone again.

NFC will die a quick death if that becomes the user experience, yet it is exactly the user experience that we are moving towards.

Take a look at this video that I find very scary. It throws in coupons as well. You physically select each coupon that you present to the point of sale terminal, as well as choosing the payment method.

My new venture, Taggo, is a card aggregator and storefront platform designed for companies that develop CRM, loyalty, membership and point of sale systems. Taggo has not yet been launched, and already four systems providers have signed up as platform users, covering major retailers in South East Asia, India and Australia and New Zealand. Check out ETP International, Integratech, Memberson and Transactor Technologies. Integration takes around two weeks with each company. We expect to sign a total of thirty systems providers by the end of 2010.

Today Taggo is an RF-ID sticker, but we are working with TSM vendors to load Taggo as an NFC application in the phone. This will automatically provide access to all of the retail solution suppliers that integrate Taggo into their systems.

Working with companies that provide retail CRM, promotion management, couponing and point of sale solutions actually takes me back to my roots as a young programmer in Denver, Colorado, in the mid-1980’s. I was working for a retail software solutions provider, developing a POS program generator that had a configurator tool designed to replicate the capabilities of popular cash registers. I learned all about promotions management, payment types, coupon processing, inventory management, and ergonomics at the point of sale.

The company was JPMA Inc. If you haven’t heard of them, you can be sure that other players in the retail solutions space have. And that’s exactly my point.