I know I am joining into the varied commentary around the US$1 billion purchase of Instagram by Facebook, but I wanted to say a few words and try and apply that to other parts of what will become the Facebook platforms operating areas.   

1 billion USD is a lot of money, and while surprised at the amount spent by Facebook on Instagram I am at the same time not at all surprised that it has happened.   I'm an avid user of Instagram and it is one of those iPhone apps that is easily accesible on the home screen.  That's really valuable "attention" real-estate -- and facebook wants me to spend that attention on where it can see it, tracking and target it.   It fits well into the timeline product, etc.   I'm apt to think that many of Instagram's devoted users are pretty active all things considered given the amount of fun it is to add on "expression" to the activity of taking pictures on a mobile phone.   In the long run, it could be that $1 billion was just a good price:  measured around the user base of Instagram (rumors of 40m now!!), Facebook paid about $25 per user.    $25!  I don't think it is hard to imagine that FB will be able to recoup this if the platform continues to become valuable....  (Google's ARPU is $18 I think, and Facebook ARPU is something like $4 overall, but $14 in domestic US user segment, when I last checked... ) 

It's no surprise, and probably a given, but I really do believe that we can expect that Facebook will have a similar attitude to payments -- either through building it out internally, or by acquiring companies that make the "commerce" activity one of the things you can just do better within their platform.  Most payments on Facebook today are game related and advertising related, but there is a lot of potential there to explode beyond -- it is just a matter of when, not if, and there are so many friction points in payments today from banks to sites, that the opportunity is huge.

Its rare you find an article the talks about the payment experience as a starting point, but today via @sjl's tweet stream (Scott Loftesness of Glennbrook) is the article that really hits it home:  

Of course, not every coffee, meal, grocery run, or shopping trip needs to be made into an experience. Sometimes, maybe most times, people just need their caffeine fix or a to-go sandwich, snacks for the kids, or some office supplies. But in every case, the transaction can feel easy and pleasant, in which case they’ll likely return, or difficult and unsatisfactory, in which case they most likely won’t.

If You Want To Craft Your Customers' Memories, Start With The Checkout [and Payment] Process, FastcoDesign.com (Henry King) -- Feb 23rd, 2012

If you read one thing today, read this one.   Why are installments important in Brazil again?  Think about it this way... locally or globally!

Virtual Currencies, Big Data and Risk Management!

• Big Data is scaring banks! I absolutely live the idea of disintermediating lending. I think this article is spot on that there will be more and more innovation in niches and applied lending as banks choose to pull back from what they don't understand and other companies leverage data in new ways. Expect this to continue in acquiring merchants too - why not? I know the BillMeLater and Klarna are not the final iterations. Read here: http://pandodaily.com/2012/02/27/big-data-machine-learning-scared-banks/
• But... Regulation is challenging. Surprisingly a company that has a bunch of data on all of us wasn't willing to issue currency! Regulation and perceived illegality stopped Google from issuing Google Bucks. It's true that regulation is hard but with the pockets of Google or Facebook it almost seems like a shame they didn't want (or don't) want to push it. I think Facebook will continue to think about it since it could be a powerful part of the platform. https://financialcryptography.com/mt/archives/001367.html

More soon!

I ran into a couple of interesting articles this weekend on the reading list -- it is much too long, but here was what got me thinking.   The theme is behavior and data...

• Movenbank's Brett King chimes in on Forget the NFC argument - look at payments behavior -- he turns things around a bit to show that mobile payments is already becoming part of our behavior whether we like it or not, and NFC is not the only way to measure it.   We are already in the middle of the trend.   What Mr. King points out though is that the only way Visa and Mastercard stay as well positioned int he future is by pushing NFC which allows them to support legacy and future.   In the end -- it is very simple -- mobile payments has started and is here to stay!  Who will win?  Well things are ripe for disruption.
• I really enjoyed the NYTimes piece on personal data marketplaces -- they talk about Singly, Personal, and other companies that are trying to put consumers at the center of the data marketplace.   Like everything, it is definitely the early adopters who are thinking about this and are actually using software to do things about it.   In the future if these types of user controled repositories become common the landscape will change and data as currency could happen.   The level of transparency needed for it though are also quite high... but it could change payments behavior, it could change fraud, etc.   We will be talking about empowering the consumer with data more and more, and just as the timeline on Facebook gives you a nice view of your social life, you might find a personal timeline that is far richer on your tablet (or whatever it is) in the future.    Our children will be able to browse/surf our lives in ways we probably can't imagine.  

Have a good week!

Some interesting news recently in two of the BRIC markets.    

• Citibank has finally gotten permission to issue cards directly in China.   The word on the wires is that this is due to the WTO complaints about the lack of competition in the market.    It's interesting I think that CUP has had the opportunity to really establish itself well in the market and given what we know of network effects it seems pretty safe to start to "open up" especially when the cards themselves are likely to be branded with CUP as well as VISA anyway. 
• In Brazil, meanwhile, Itau has announced it will take Redecard private in order to protect it in a very competitive market.   This move could actually make it much easier to do the 500 million BRL investment that the CEO Yamaguti wants to do.   What kind of innovation will be possible when not having to report quarterly?   I'm thinking about how this will impact the Elavon or Global Payment plans and their tie up with local financial institutions.  It may continue to be hard for them. 

I thought one of the best articles I read today was from the blogs at FT analysing the value of the emerging markets to Facebook.  You can read it here.    Generally when thinking about whether Facebook has saturated a market, the author Rob Minto, suggest that looking at FB peneration of the total population may give you a misleading sense of the opportunity ahead.   Instead it is better to look at FB penetration within the existing online population.    In the end it isn't that there isn't an opportunity, but rather that it may take some time.

Here's the chart:

One take away for my payments focused view of the world is really that the same question applies when doing an analysis around which payment methods are important when going to the emerging markets.   It is one thing to look at the IRTC stats for an indication of the payment preferences in India, but is that representative of what a merchant like Apple would see?  Unlikely -- the important analysis (and one I'd like to do here in the near future) is to match up a merchant's target demographics with both the online demographics and the payment methods of those demographics.    You may find, as I have in some cases, that your Visa/Mastercard options are enough to get started if you focus on your localization of content/site and products.   You may also find that your first step if you are serious about the market is to go full steam ahead, believe the magnitude of the opportunity and get local or work with partners who make you feel local.   For example,  it could be that payment methods are a type of marketing and that by NOT having local options you turn away a buyer who may have felt more comfortable using his cross-border Visa or Mastercard card.  

It is these analyses that make global payments so fun and challenging at times.   Demographics, consumer preferences, business models all come together to define the needs. 

On this list is to explore this a bit more during 2012!

There's a whole bunch of activity now around the Facebook IPO announcement that has the blogoshpere and newswires full.   I didn't have much time to read today, but these are the three articles that got me thinking:

• Wired's Soft Money: How Facebook Can Boost Its Virtual Currency describes three payment opportunities to take Facebook's payments business from a 15% to a bigger business.   I personally think based on what was stated in the S-1 and the core focus that Facebook will have that the "wallet" and one "secure identity" piece is the most logical (#2) -- doing #1 will be tricky and heavy handed versus the value of getting all that data in the system.   #3 is so fraught with complexity and parties that Facebook probably would dilute chasing it.  This brings me to the next article (supporting my argument)
• Andy Kessler writes about the power of the Like Button in the WSJ -- great quote: Facebook is an emotianal locker. Also well said: Advertising's nirvana is an ad chosen especially for you. Of all the players, Facebook is the closest to delivering.
• Finally, MobileCommerce has a great reminder of the mobile use case being powered with simplicity in Five Guys increases mobile ordering with card-on-file feature-- customers will look to share more data to have better experiences -- no one really wants to try and enter in a 16 digit credit card number on a phone.   Really, no one.  It's a great reminder that there are easy ways to tackle this already today.   I think more retailers are going to take matters into their own hands with the help of smart payment companies.   

Happy Facebooking... :)   Like someone else said, we went from Facebook users to Facebook customers now. 

There are already a bunch of good lists of stats from the S-1 Filing, but I thought I'd add my own. See Ben Parr's Monster IPO - 10 Interesting Stats.

User growth is pretty amazing... 

Here are some of mytake aways from a quick read through the S-1 filing at the SEC (after the servers came back up!)

• In 2011, 85% of revenue came from advertising the rest (15%) came from payments and other fees.  In 2011 the sum was $577 million!
• Huge potential growth internationally! S-1 says: In 2010, we generated approximately 62% of our revenue from advertisers and Platform developers based in the United States, compared to 67% in 2009.
• Nice big number in-terms of volume!  In 2011, our Platform developers received more than $1.4 billion from transactions enabled by our Payments infrastructure.
• Mobile is a big focus as part of the stated strategy: Build Engaging Mobile Experiences. We are devoting substantial resources to developing engaging mobile products and experiences for a wide range of platforms, including smartphones and feature phones. In addition, we are working across the mobile industry with operators, hardware manufacturers, operating system providers, and developers to improve the Facebook experience on mobile devices and make Facebook available to more people around the world. We had more than 425 million MAUs who used Facebook mobile products in December 2011. We believe that mobile usage of Facebook is critical to maintaining user growth and engagement over the long term, and we are actively seeking to grow mobile usage, although such usage does not currently directly generate any meaningful revenue.
• Global is important to growing revenue -- global was mentioned everywhere.  In 2011, we generated approximately 56% of our revenue from advertisers and Platform developers based in the United States, compared to 62% in 2010. This change is due to factors including a faster growth rate of international users and the expansion of international sales offices and payment methods. The majority of our revenue outside of the United States came from customers located in western Europe, Canada, and Australia.
• No surprise but Facebook considers itself asking as an agent, not as principal in the payments transactions.  We record revenue on a net basis as we do not consider ourselves to be the principal in the sale of the virtual or digital good to the user. Under GAAP guidance related to reporting revenue gross as a principal versus net as an agent, the indicators used to determine whether an entity is a principal or an agent to a transaction are subject to judgment. We consider ourselves the agent to these transactions when we apply the indicators to our facts.

More updates as I have more time to read more of the report.

Skimmed through Akamai's latest State of the Internet and there was a big section in the security section around Bitcoin mining and how the increasing difficulty (computationally) of generating bitcoin coins drove developers to develop malware to use spare resources on comprimised computers to help them (p2p, etc.).  

This is normally what malware does but usually for doing DDOS or other site attacks -- interestingly enough it didn't take long, according to Akamai, for the "BitCoin Botnet" to develop DDOS capabilities used to target/blackmail merchants to paying bitcoins to the hackers.

This is a unique transition from coin creation to income generating botnet, in Akamai's words:

The BitCoin Miner bot had some interesting characteristics that make it stand out. The first was the relationship to BitCoin. The bot herders transitioned from mining coins to attacking Web sites to generate income. The second was the choice of targets: typical victims of such attacks are gaming, pornography, e-Commerce, insurance, and banking sites. In contrast, the BitCoin Miner bot targeted pizza ordering and travel booking sites

Strange but interesting observations!

The other amazing observation comes from Akamai's partnership with Ericsson on mobile data usage:

the volume of mobile data traffic doubled from the third quarter of 2010 to the third quarter of 2011, and between the second and third quarters of 2011, grew 18%.

I believe that much of the same data for Visa and Mastercard must be in their public filings -- it'd be really interesting to mashup the data sets and see what insights we can find.  A project for another day!