Apple | Guillaume's blog

What would be the iPod of Financial Services?

7 years ago exactly today, Steve Jobs introduced the iPod, a 5GB HDD stylish music player.

Looking back, this was one of Apple boldest strategic moves and one of its most successful as well. It’s good to look back at the choices they made and wonder what the equivalent would be in the financial services world.

They identified a large non-speculative market with no market leader (music).
They laser-focused on a “quantum leap” value proposition: “your whole music library in your pocket” at a fraction of the TCO per song provided by other products.
They chose the best technology they could find to power this value proposition: thin HDD, fast-charge long-lasting battery, and fast uploading FireWire link.

What could be a comparable innovation in financial services and where could it come from? Here’s my take.

Large market: personal money management
Quantum value proposition: complete peace of mind
Technology: real-time access by the service provider to any financially-relevant information about you (expenses, assets, liabilities, goals, etc.) and automated creation of a sound and realistic plan.

I know some will strongly disagree with me, but my feeling is that just like the iPod didn’t come from an established music label/distributor, the iPod of financial services may not come from an established financial services provider (just like music labels/distributors, financial services providers are too busy these days to save their business models).

That does not mean it will come from a start-up either. The key will be to leverage an established trusted brand, and establishing a trusted brand requires much more than a top-notch team, VC money and unique technology and value proposition.

Looking at the consumer perspective, it seems to me that there is currently a stronger-than-average interest in trusting a single brand for a given problem, and leaving it to them to make the choices for you (and focusing on what you do best). Yes, Windows lets you decide where to put your application money, but for most computer non-geeks, less choice is more.

Financial Services are a bit like Windows these days. Many choices are offered but consumers feel they are left to decide what’s best for them in a world they don’t understand.

To come back to my comparison to the iPod, many consumers don’t want to have to know where to click, which audio file formats to use, which software to use, where to shop, etc. they just want to enjoy their music. I think a similar comparison could be made with money: most people don’t want to have to know where to invest, what to save, how big a loan they can afford, etc. They just want to know that whatever money they have they can enjoy the most today and tomorrow.

At a recent mobile conference (Mobile Web Wars), Michael Arrington said: “people are always willing to give away their privacy for value”. This is a thought that came back to my mind as I was recently reading Lending, with a Twist, an article describing one of Khosla‘s investments: On Deck Capital. On Deck essentially reduces the risk with loaning to small businesses by tracking their business on a daily basis, which is a much better measure than a credit score that is always lagging valuable creditworthiness information.

Reading about On Deck made me think that there was no similar financial service where consumers would voluntarily give their full past, present and future estimated financial picture to a third-party in exchange for true peace of mind. This could probably be done without even switching completely away from existing financial services providers, just as companies like Mint.com or Wesabe allow you to get a better understanding of your finances without swithing to Mint bank or Wesabe bank.

But to bring true piece of mind, such a service would have to go much further than giving recommendations and it would have to be backed by a highly trusted brand, with a value proposition backed by a wide portfolio of investments giving it preferred access to a wide variety of goods and services. This type of peace of mind used to be provided by large enough corporations to their employees, but it seems that such a responsibility is to heavy to bear for any a single industrial company, so it would have to be provided by some sort of conglomerate (companies have put in place strategies to focus on what they do best, but ironically that leaves most of us with less time to focus on what we do best). I don’t really have any name in mind, but Berkshire Hathaway may be the closest one I can think about.

Is this a crazy idea?

The problem with banking innovation and how to fix it.

Allen Weinberg has a great report on the first day at Payments 2008 that confirms some of the thoughts I’ve had in the past few weeks: that non-banks are becoming the primary source of banking innovation, threatening to relegate banks to mere accountants.

Allen cites the difficulty for banks to hire innovative employees because their lack of coolness, and I partly agree, but I think that is a bit too imprecise. It’s a bit like saying “We failed b/c we are were not lucky”. I think smart innovative employees go to companies that have an innovative management environment and culture, and there are very practical ways to create such an environment and culture, if the top management wants to.

To me such a culture starts by embracing the facts that:

Committee planning does not work for innovation because most innovations fail and slight differences between similar projects can be huge key factors of success, and as a result it is impossible to predict from which team innovation will come from.
People with innovative ideas (ex. new online service, new investment theory) as well as execution capabilities (ex. coding, sales skills) are a company’s greatest human asset and should be given opportunities before they leave and join a company that does.

Such an innovation culture consists then in implementing a management policy where such people can submit their plans, get a green light to allocate part of their time (whatever their direct manager says) and get a bootstrap budget as necessary. Then, just like a good option portfolio manager, define progress/success metrics, and allocate more resources to those with the most traction. And finally, reward success. All of this is something Google seems to be doing very well.

Banks are now at a most critical time and their ability to innovate in sustainable business models will be key to their survival. Nouriel Roubini noted this morning that banks’ unsustainable “originate & distribute” business model of the last few years is crumbling with the broken “securitization food chain”.

Banks are social intermediaries, and as a result, social services that focus on social lending or social saving pose a major threat to them, but could also turn out to be a major opportunity if they manage to re-intermediate these relationships and combine it with their unique competitive advantage: creating money from thin air.

Think for instance about the idea of a “college car” savings account solely dedicated to buying a car and that grand-parents could contribute too knowing where the money would end. Think of the negotiating power the bank could have by aggregating all the buying power behind these savings account and exchanging secured rebate from car manufacturers with secured future sales. This is what SmartyPig does, but environment/culture aside, it seems to me much easier to do it from the inside of a bank than from the outside. John Gaskell, SmartyPig co-founder was quick to comment that they have a patent pending on this process, so banks may actually not have this option.

Think also how a bank could leverage the fact that 50% of your student loan on a peer-to-peer lending site comes from your mum and dad, and grand-parents, and how little risk it would be for a bank to lend the remaining 50%, especially if the bank gets preferred re-payment rights.

Banks have some of this social data, in a way that is most likely much more authentic than a Facebook (think about all the documents you need to provide to open a checking or brokerage account compare to what you need to provide to open a Facebook account). It is just a matter for them to put in place the right environment and culture in place to attract people.

If they cannot change their culture, their next best bet might be to do what Apple or Facebook do: expose some of this information via easy-to-use APIs in a way that is more secure than their startup competitors. Then, allocate a VC fund to fund startups using this API (which is equivalent to buy an option to invest more/buy out the most promising ventures later).

iTunes not available in Brazil

Here is what you get when you try to connect to the iTunes Store in Brazil:

iTunes error -4

I discovered this while trying momentarily to authorize one of my friend’s computers to read a movie I had purchased on my computer.

Well, I researched the problem and found this petition. It looks like iTunes Store is not available in Brazil, my guess is for fears of piracy, but I’m not sure. The problem is that the use case above is perfectly legit, yet, impossible to support in Brazil.

A store for products that don’t exist yet

How do you let Apple know that you want the next release of the Mini to include a Blu Ray player and how much you’d be ready to pay for it?

What about an online store that includes some of the many product concepts designed by Apple fans such as the MacCube concept below? or a product configurator of existing products that includes features not yet available from the manufacturer but that exist as technologies or as third-party add-ons?

Seems like something identified by the VRM promoters.

Only problem: would Apple care?

Waiting for Apple TV 3.0

The Blu-Ray / HD-DVD war had until recently kept me from buying a HD player to go with my HD projector, I had just been convinced that these format wars didn’t matter and that the future of HD was online downloads. I was seriously considering buying an Apple TV thinking that the 2.0 version should have everything I need (how couldn’t it be when Steve Jobs had acknowledged that 1.0 had been a failure and that they had learned from this failure).

It seems that they didn’t. I was very disappointed to learn today that the Apple TV does not do 1080p and that rented movies only last for 24hr, not the standard 3days.

I’m going to wait for 3.0, get an Apple Mini or look at the competition.