Carpadium Consulting

There have been rumours for a while now that @jack from Twitter was working on a new payments venture. Well, it seems that those rumours are true with today’s announcement of SquareUp.

The home page has some information about what they are doing, but the service is in soft-launch / invite-only mode at the moment so full details are not yet available.

Straight away, SquareUp looks cool, and from what limited information is available on the site, it looks like it has the potential to shake-up the way small businesses work with credit cards to accept payments.

Two things stand out. Firstly, it looks like it is designed only for card-present transactions (as far as I can tell), and secondly, it uses a magnetic stripe reader to acquire the card details. The first point means that its not likely SquareUp can be used for online payments, and the second point will probably mean that it does not handle chip cards.

However, this does not mean the system is without a security overlay. One neat feature is that it supports a form of photo id check. When a merchant accepts a payment, the iPhone application shows them a photo of the cardholder, which they can use to verify against the payee. I have to assume that this only works for cardholders that have pre-registered a photo with SquareUp.

To some extent (but certainly not all), this gets around the need to use a chip card, although I wonder what the card schemes will have to say about this as they roll out chip cards and readers everywhere.

One final note about SquareUp that is specifically relevant to the Australian market (although I have no information about plans to roll-out the service here) is what it might look like against the proposed MAMBO payments service.

Is this another payments innovation that the big banks should take notice of, or something with a limited niche for use by small businesses currently lacking in ability to work with credit card payments?

My first impression is that it will certainly be successful in that niche, however you have to wonder what they might have up there sleeve. If we have learnt only one thing from the history of Twitter its that they understand how to build a platform.

M@

Update 1: Here’s some words from the Man himself. Pretty much confirms my initial thoughts. Still no CNP option, as far as I can tell.

There are a few agencies reporting today on the news that Visa is mandating that credit cards will need to be chip-and-pin enabled by 2013.

While it’s obviously a good thing to improve card security, Australia actually has pretty low card fraud by World standards (although it is on the rise, and in some areas more than others). Because of these relatively low levels of fraud, our Banks have been a little slow to fully roll out new security measures. What has been standard in the UK for some years is only now just becoming standard in Australia. The reason for this is simple: Banks only ever spend on fraud reduction an amount less than they are losing in fraud.

What I find particularly interesting about this announcement is that it won’t really do too much to stop one of the main pain points: card-not-present fraud. Chips are great when you have a chip reader at the point of sale, but they don’t do too much when you don’t. The obvious example of card-not-present transactions is Internet commerce. Chip cards don’t help much to stop fraud here, unless you have some extra countermeasures. And that starts to get a little tricky in terms of cost, and not least of all in terms of the end user’s experience.

So, while this is a good step forward, it’s definitely not a panacea for all credit card security.

M@

I was reading a piece linked from DaringFireball yesterday and something really leapt out at me. Check out these two quotes pulled from the linked article, one from Tim Cook, Apple’s COO, and the other from Steve Ballmer, Microsoft’s CEO.

Here’s Cook’s quote:

“Windows 7, from our point of view, is just another opportunity to remind everyone to switch to a Mac,” said Apple Chief Operating Officer Tim Cook. “People are sick of all the headaches that go along with Windows.”

And here’s Ballmer’s quote:

“Let’s face it, the Internet was designed for the PC. The Internet is not designed for the iPhone,” Ballmer said. “That’s why they’ve got 75,000 applications — they’re all trying to make the Internet look decent on the iPhone.”

I really don’t understand Ballmer’s point. Leaving aside for a moment that there are 2 errors of fact and an irrelevance in the space of 3 sentences – what is he trying to say? It just does not make any sense. It even has an air of the Chewbacca Defence about it. Just what is their message? I have noticed this coming up again and again in recent Microsoft comments and not just from Ballmer. I guess if the message is confused at the highest levels, it’s difficult to see how it can get any clearer down the chain.

On the other hand, the message from Cook could not be clearer. And not only is it clear, but it’s said in a completely positive way. It’s a brilliant piece of communications that uses Microsoft’s own weight against it. It’s 31 words without a skerrick of weasel. It’s a piece of PR jujitsu.

M@

The Australian is reporting that CBA is in the process of rolling out contactless payments, apparently with a view to shortening the lines for pie and chips and your next footy match.

I think this is a good move, because I believe that it can have a real impact on the way people make purchases. If you can cut down the time it takes to make a payment, then you can obviously cut down the time taken waiting in line. This will obviously be really good at the big venue scenario, where you often have to wait a very long time in huge queues.

However, there is another angle where it could be very useful: public transport. There has been a long running effort to try to roll out a stored value transport card system here in NSW. This is similar to existing systems around the world, with the exception that our Government has not been able to make it work as yet. Perhaps an alternative to building a new stored value system specifically for transport would be to make use of one of these emerging contactless payments mechanisms? If done properly, this would obviate the need for a dedicated stored value card system altogether.

It will also be interesting to see how the fees and charges work. In the past, this is something that the banks would have placed a whole bunch of new fees onto from the outset, but my sense is that there is a bit more competitive tension these days between the Big4 banks on fees, so I’m guessing that there will not be too many (at least in the short term).

M@

I have made several comments about Windows Mobile over the last 12 months or so. As anyone who has read those would know, I really think its the laggard in terms of mobile operating systems (at least ones that are actively being developed).

Today there has been some interesting chatter about a bond issue by Microsoft to the tune of US$3.5b, which some have seen as a little odd given that they have about US$25b in cash.

I like the SmartMoney suggestion that it could be a way for Microsoft to test the mechanics of the bond market, to get familiar with it and allow the market to become familiar with Microsoft. This kind of makes sense if you have something planned that would require a big chunk of debt down the track, but equally, that amount of money might be all they need for something specific. Its this kind of speculation that has led people to wonder what Microsoft is really up to.

Perhaps we can tie some of these recent events together?

Over 12 moths ago, Microsoft purchased Danger. I’m surprised this didn’t get more attention at the time than it did, but it has always stuck in the back of my mind as an interesting move, particularly given public commitments to Windows Mobile. My suspicion is that Microsoft was far more interested in the hardware than the software, and I suspect we are about to see the next phase of a big, new platform play by the Redmond Giant, but more on that later.

More recently, Oracle purchased Sun. This surprised me enormously at the time, but listening to the subsequent commentary, it seems like there is a very clear plan for Oracle to try to build an end-to-end model, not dissimilar to Apple. With Sun, they get hardware and an operating system, plus a huge (and profitable) storage business. This play makes a lot of sense if you can pull it off, and one thing Oracle has been doing pretty well lately is acquisitions. All up, this sounds like Steve and Larry got together over a beer and had the “own the whole widget” conversation.

You could argue that Sunacle makes things interesting for IBM, but I think it definitely makes things interesting for Microsoft. Oracle can now go in and provide a whole-widget enterprise stack from the storage and hardware layer, right up through the middleware and into the application. It’s a good story for Oracle, but the consequence for Microsoft is that it ends up with a tough job trying to sell Windows Server into the mix. It’s just not necessary anymore.

So back to the platform. Like I’ve said in the past, dominance comes from building a platform, not just having a good product.

We’ve seen it with Windows, where Microsoft owned the content (Windows and Office), while at the same time commoditising the endpoint (the PC business) and stitching up distribution by tying the sale of Windows and Office to the sale of new machines. All up, it was brilliantly commercially successful.

More recently, we’ve seen Apple build an amazing platform around the iPod and iPhone (endpoints), iTunes Music Store and App Store (distribution), and via deals with record labels to sell digital music (content). It’s been an amazingly successful strategy, both commercially and technically, as many would argue. In fact, it’s been so successful that it seems to have changed the game not just for the mobile business, but for the PC business as well.

I think we’re already starting to see the platform play from Oracle. They certainly have the pieces now: servers and storage (endpoints), vertical and horizontal applications in a ever widening number of domains (content), and one of the best sales forces in the technology industry (distribution). It all fits.

When you add these together, you can pretty quickly start to see why Microsoft is worried. They already lost the race in mobile, were never in it in portable media, chase 3rd place in gaming, and although the jury is still out, there’s a huge opportunity for them to fall out of the race in the enterprise stack. This really only leaves them with the desktop, and unless Windows 7 rocks everyone’s world to the point of psychosis, Windows XP might end up being the last successful thing Redmond ever does.

Which leads me to ponder if Ballmer is about to try something radical.

Ballmer needs a win, because not a lot has gone right lately, either strategically or with mindshare. They failed to make the Yahoo takeover work, the Zune seems to keep sucking no matter what they do, and not much more can be said about how totally lacking in awesome is Vista.

About the only thing that they have been good at (and exceedingly so) is making bucket loads of cash. Which has to say something about the competitive position of the Windows franchise with respect to the rest of the market. Very few organisations get the opportunity to stuff up like this, and still have the trucks backing up to their offices dumping cash. But that’s another topic altogether.

So if Microsoft is getting ready for a big move, what could it be?

Here are some absolutely crazy, it’ll-never-happen prognostications that might explain why a company with US$25b in cash is out borrowing money at a 95 basis point premium to the Fed rate:

1. Microsoft to buy RIM?

Of the three ideas, this is the one that makes the most sense, and its the one touted around by the commetariat today. There is a very strong technical tie in between the Blackberry platform and the Microsoft messaging platforms, so it is a very good fit. The problem here is would RIM shareholders sell out? I’m not sure. I think it makes a lot of sense for Microsoft because they would have a strong mobile platform, with huge enterprise penetration that would be a very credible competitor to the iPhone. I don’t know if RIM would play, and I don’t know if a hostile takeover of this scale could really work.

2. Microsoft to buy Dell?

I know this sounds crazy, but consider this: Dell’s share price is depressed ($11.21 as I write this) a price not seen since the last century. It’s currently valued at about US$21b or so, which would be easily digestible by Microsoft, presumably with a combination of stock and cash, some of which it would source from debt if today’s bond activities are anything to go by.

But it’s not just the price. This is a classic Microsoft emulation move. There’s nothing original in the idea, but its so ingrained in Microsoft’s DNA to watch what is going on elsewhere and first try to suppress it, and if that doesn’t work, just copy it. They might be seduced into thinking that it too can own the whole widget and start making hardware in addition to software.

I am not really seriously suggesting that this is going to happen, but it just has that ring of craziness about it that so often surrounds massive corporate deals done by organisations prospecting for a clue. I can see Redmond understanding how to do this, and I can see some Dell shareholders liking the opportunity to exist at a premium to today’s price. I’m not sure that Michael Dell would agree, and regardless of what Microsoft might think, I’m not sure that the market would think that this is a good idea. So let’s see.

3. Microsoft to buy Palm?

This idea also sounds totally crazy, but let’s consider for a moment that Palm really has done something amazing with the Pre. Early reports are certainly promising, and let’s face it, they outdid Apple once before – the original Palm blew the Newton out of the water (commercially) back in the day. Of course, things are very different now, but there can be no denying that Palm has the kind of corporate DNA that allows it to successfully innovate.

The other point to conemplate with Palm is how or why they managed to get such a big chunk of cash recently from Elevation Partners. Could this be because there is a quick exit on the cards for Elevation in selling out to Microsoft?

This deal doesn’t have the enterprise elegance of the RIM alternative, but Palm has built  Windows Mobile devices before, and it also knows how to make a smartphone, thanks to its experience with the various Treo lines. It’s also a whole lot cheaper, with a valuation as I write this of about US$1.5b.

If Microsoft went in with a healthy premium, that $3.5b in debt they picked up over the last couple of days would fit nicely. On recent form, any one of these options is going to be far more intresting than the Zune Phone.

M@

Update 2010-Feb-12: Kara Swisher has some more thoughts on the idea of a RIM purchase.

There is a crazy amount of speculation at the moment that Apple will release a new kind of device sometime this year, or at least announce one, possibly at WWDC in June.

If you believe the official line from Apple, this thing won’t be a Mac and it won’t be netbook – at least as they are currently defined – because Apple believes that it cannot make a decent quality product at that US$300 or so price point.

So let’s have a think about what is compelling about the current crop of netbooks. Obviously form factor is a hit with people who want to be ultra mobile. But from my experience with the animal in the wild (which is little more than having a heft of one in a PC store) the extremely small form factor is as much a curse as it is a blessing. They are obviously great for doing really simple stuff like reading your daily blogroll, posting a few tweets, or checking e-mail, but I’m pretty sure that the next Great Novel will not be tapped out on a netbook.

Price is also a huge factor. The pricepoints of netbooks (even here in Australia, where we tend to pay a premium for most hardware) are pretty good. For example, you can get one of these for about A$600 or A$700 or so. There are better deals, that was just the first one that came up in a Google search. That is quite a bit less than what you would pay for a full featured laptop, and rightly so, because netbooks are relatively underpowered compared to something like this.

So, what if rather than trying to scale down a Mac into a netbook, Apple scaled up an iPhone into the category?

I would like to propose a name for this new type of device: The Phonebook.

That’s phonebook, as in:

Netbook + iPhone = Phonebook

What would set the phonebook apart from a normal netbook? The first thing is that the phonebook has a slot for you to plug in a SIM card. Apple obviously has all of the hardware and sofware IP required to make a phone, so it would seem pretty straightforward for them to pull this together.

This has two benefits. Firstly, it gives the device an edge against the current crop of netbooks that need a WiFi access point, or some kind of external 3G hardware. But perhaps more importantly, it gives them a way to manage the pricepoint. Sold with an appropraite 3G broadband contract, these devices could be given away for free, just like most iPhones are sold now. This makes the entry price very competitive when compared to other netbooks.

There is also a further opportunity to solve one of the problems of the current generation of netbooks: the keyboard.

If you recall, Apple’s solution to the problem of fiddly keyboards on mobile phones was to throw it away alltogether.The same approach is possible with the phonebook: get rid of the keyboard and just go with the same kind of touchscreen technology that exists in the iPhone.

This would be obvious, but Apple rarely just does the obvious when it comes to innovation. So I was thinking about the possible size of such a phonebook, and it struck me that you might want to hold it with two hands, kind of like a book held sideways.

Compare this to the way that I (and many people) hold an iPhone, which tends to be in the right hand, with the right thumb doing most of the work, and the left hand coming to the rescue on occasion (or vice-versa for the sinister among us).

And with this tablet-like-a-book image in my head, I was reminded of a previous Apple patent application that described a mechanism that used the back of the device, rather than the front, for input.

The patent suggested that in touch-controlled devices of a certain size, the user’s hand and arm tended to get in the way of the user interface as it was being used. The solution was to make the back of the device touch sensitive (I am not sure how this would work), so that whilst one hand held the device, the other hand could control it by touch from underneath. Here’s a link to an article discussing the patent.

So, on reflection, what I think we’ll see is a device that is far more iPhone than it is Mac, but it will be something arund the size of the Kindle. For example, I think this is probably as good a guess at what it will look like as you will find.

In addition to that design, I think it will have phone capabilities, and I would really like to see it make use of the back-of-the-device touch patent. Here’s an idea: perhaps the device could have a cover, the inside of which was touch sensitive. When the cover folds around to the back of the device, it works as touch panel. That could work.

M@

Update 1: Looks like some of this might be on the cards. Here’s a little bit of extra rumory goodness (via 9to5mac) that suggests the next MacBook hardware rev might contain builtin 3G wireless.

A good friend of mine recently sent me a link to a paper by Roger Martin titled “The Design of Business”. It’s a transcript of a speech Martin gave to a Graphic Designers conference in Canada. I thought the paper was brilliant, and I’m sure it would have been even better to actually hear him speak.

The article is interesting because without ever mentioning it, the processes Martin talks about are essentially the same processes used in Agile software development.

In examining the nature of what Martin calls Design Shops (in the creative sense of the word, as in graphic design, advertising and the like) he has recognised how the “design approach” is a fundamental part of the way these organisations operate. He wants to try to understand this notion so that it can be rolled out and applied in other contexts. This is not only how design shops work at the practical day-to-day level, but also with their management.

As we know, really good software engineers came to the conclusion sometime late in the 90′s (although the terms weren’t properly defined then) that there is a set of characteristics that define successful software projects. They found that there were idioms and practices that came up again and again, and when you have those ingredients, projects went well, and if lacked them, projects did not go so well.

If I think about the software and technology projects that I have worked on, then the best ones, and the ones that tend to be successful are precisely the ones that exhibit these ‘design shop’ characteristics. In my own experience, the ones that worked well were time-constrained (sometimes artificially), impossible problems, output-oriented, and deeply creative. You had to be agile to get anywhere near a result. The less successful projects had none of these qualities. There is almost certainly a bad case of confirmation and recency bias from me in here somewhere, but the point I am trying to make is that people outside technology (and well outside in this case) are coming to similar conclusions.

What I think Martin is alluding to, are problems with the idea of management being separated from the things that it purports to manage. He says “its not about the business of design, it’s about the design of business”. I think you see this schism a lot, particularly in Banking. I don’t know of any other industry that has so many managers, none of whom can claim any kind of deep understanding of things that they purport to manage!

He posits that design shops are so, precisely because they fundamentally understand design at all levels of the business. By way of example, check out Todd Samson from ABC TV’s The Gruen Transfer. He’s the CEO of Leo Burnett here in Sydney, but from watching him, I’d bet that he was a pretty good Creative before he took that role. He quite obviously gets advertising.

So its absolutely fascinating to see a very credible management scientist like Martin noticing this trend – “the design of business” as he calls it – and taking it out to a wider audience.

A similar thing has been happening (but without the top management school credibility) in the software business with Agile. People are looking at the success of agile software development projects and applying those patterns in non-technical areas. Principles like iteration, being really close to the customer, short time-boxed release cycles, testing, lack of hierarchy, deliverable focus, and the like. These are the things that demonstrably work.

My view is that this is similar to what Martin suggests happens when you take this design shop ethos and apply it outside the graphic design, advertising or movie production firm. I know from personal experience that I love to work this way, and with stuff that is as complex as software, it’s about the only thing that consistently gets results.

Unfortunately, the problem is that it requires the average level of competence on a team to be very high because it’s a lot harder to carry dead weight if you are running Agile.

In software, I call this The 200-to-1 Problem. This is the idea that although some engineers get paid twice, or perhaps three times as much as other engineers for allegedly doing the same work, they are often 100 or 200 times better at it than the average. I don’t have too much experience with Design Shops, but I suspect they have the same challenges.

This hybridization of management and design reminded by of a couple of quotes from Steve Jobs: “Design is not how things look; it’s how things work”. Which pretty much sums up these ideas. Jobs also had an interesting answer when asked by a journalist how he was going to fix Apple after his return. “By design,” he said.

Roger Martin seems like he is at the forefront of a movement trying to fix management by design.

M@

Here’s the next installment from the Crazy Naming Team at Microsoft:

! exploitable Crash Analyzer

The hilarious thing about this new name is that we are informed that it is pronounced “bang exploitable crash analyzer“. Excellent. That’s cleared a whole lot of stuff up for me.

As I have asked before, who is it that comes up with these names? Have they stood in front of a mirror and said it aloud to themselves so they can hear what it sounds like? Who knows the kind of karmic debt they are getting themselves into by naming a piece of software not exploitable!

M@

After using a 13×21 Moleskine notebook for some time, I decided to downsize a little and give the smaller 9×14 pocket notebooks a spin. One style that took my fancy was the Field Notes 48-page 3×5 Memo Book. They look and feel great. The big question is: how do they hold up to being carried around for a month?

Here’s how:

Field Notes Brand - Before

Field Notes Brand - After

I’m surprised the Field Notes lasted as well as it did. The outer cover is just cardboard, which on first blush made me think it was going to last about 24 hours before coming apart completely. It’s still hanging in there after a month of being tossed around in my pocket and backpack.

Next time around, I am going to try a Moleskine 9×14. I think it will do a better job because it has a more robust cover:

Moleskine Notebook Unused - Front

Moleskine Notebook Unused - Back

It’ll be interesting to see how it holds up.

M@

Over the last couple of weeks, there’s been several articles suggesting that most iPhone applications are downloaded, used a couple of times, and then never used again. While it’s hard to disagree with the raw numbers, I have some difficulty with the interpretation concluding that iPhone application development is just a novelty.

I have an iPhone, and I’ve downloaded a number of applications (46 at last count). I’m quite sure that I’m not the largest iPhone AppStore user, but 46 is more apps than my Mum has downloaded onto her device. Whatever that might mean. 

Of that 46, I make regular use of about 10 or 12. Roughly 25%. Almost exclusively, the ones I use are the ones that I paid for. The ones that I don’t use, or use rarely, are the free ones (mostly games), and the ones that I have used once and never gone back to are almost exclusively ad-ware. This is not including the built-in apps (particularly Mail and Calendar) which I use almost every time I pick up the phone.

My personal view is that ad-supported applications are problematic on the iPhone. Screen real estate is limited, and filling it up with ads is just about the most annoying thing I can think of. Perhaps the Pinch Media data indicates that I am not alone in this view.

At the moment, it would seem that the ratio of good apps to bad ones (or at least, simple ones) falls rather heavily on the side of the simple. There’s a few reasons for this, not the least of which is the fact that its relatively easy to build a really simple application with the iPhone SDK. However, just like desktop software, it’s really hard to build a good application. Unless you spend a lot of time understanding the user, and a lot of time on interaction design, the app will most likely suck. You don’t have to go to the iPhone App Store to see this play out. Many desktop applications are just as ill conceived as some of the dumbest iPhone apps.

This leads me to question the simplistic interpretation of the data. Basically, the apps that I don’t use are the crappy ones, and my broader hypothesis is that the apps on the iPhone that are gathering dust are the apps that people think are crap, and at the moment, there’s a boatload of crappy apps. So while I accept that the data probably says “most apps are gathering dust”, I really think it should be saying that “most crappy apps are gathering dust”. This is not surprising, and almost certainly true of desktop applications as well, particularly in the freeware domain. Just consider some of the rubbish that comes for free in your typical Linux distro. Sure, there’s loads of great stuff as well, but most of it never gets run more than once, if at all.

Ultimately, I don’t think there’s any real difference between the elements of design that make good software on the iPhone, and the elements of design that make good software on the desktop.