Beaucoup Bucks?

by Carol Coye Benson on June 17, 2009

in Carol Coye Benson, ECommerce, Micropayments, Web/Tech

Carol Coye Benson
Editors Note: Glenbrook, along with the rest of the payments industry, has been watching developments in mobile payments closely.  Our partner Carol Coye Benson profiles Boku today. She has also taken a look at the CashEdge’s POPmoney, Canada’s Zoompass, Zong, Billing Revolution, and Blaze Mobile. [UPDATE Aug 6th: Be sure to check out Carol’s latest installment on Obopay, one of the original mobile payment pioneers.]

Boku announced a new mobile payments product yesterday, along with a set of acquisitions, new funding, and a new management team. The offering is ambitious, and dead-set against the emerging global market for spontaneous purchases related to online gaming.

Niche, you say? I’m not so sure. There’s a lot to be interested in here. Of course, I may be biased – as a Francophile (at times openly, at times secretly), I like the wordplay. And strong, four letter payments brands seem to work…

Here’s what caught my eye:

Boku is drop-dead easy for the consumer. The online demo is stunning in its simplicity. Never, ever, underestimate the importance of ease of use for a consumer. Especially for spontaneous purchases. In my opinion, this is right up there with 1-Click.

It enables “new money”. While many new payments offerings are structured to provide consumers with alternative ways of paying for things they are buying now, Boku is primarily about enabling the sale of stuff that hasn’t been sold before – all those “extras” (costumes, awards, points, etc.) that the new class of on-line “free” games will allow users to buy.

Those of us with long histories in the payments industry may well say “hmmm, sounds like micropayments to me”. Now, the term may cause you to twitch – there is a long and painful history of micropayments failures. But the lure of micropayments – what has brought investors and developers back to the concept time and again – was this very notion of enabling a class of commerce that previously didn’t exist. The failure of most micropayments schemes to date can most simply be attributed to the basic “information wants to be free” concept, which proved to be the case with computer-centric consumers of information.

But this isn’t about computers, and it’s not about information – right now, at least. It’s about phones, and entertainment. If “information just wants to be free”, remember that “kids just want to have fun”. The model here is ring tones – a market that is very much still alive (as evidenced in my life by a trip to the mall yesterday with three thirteen year olds – all playing their ring tones to each other in my much-too-small car).

What else has Boku got right? Matching the drop-dead easy pitch to consumers is a pitch to sellers (“publishers”) that makes it simple to access a global market of consumers. The mind-boggling complexity of cross border commerce and payments has already provided lucrative opportunities for companies and networks willing to step in front of the complexity and offer simple products. That is what the global card networks did so successfully for tourists, and what PayPal has done so successfully for online eCommerce. In an interview with VP of Product & Marketing Ron Hirson, he referred to this as “iceberg-ing”. A publisher will be shown exactly the fees for a given country and carrier, and (equally key) be given easy-to-use tools to set pricing and therefore control their available revenue. Boku will handle all the complicated details behind that. Transparency plus simplicity – nice!

So, you say – it still sounds like a niche? How big can online gaming be, after all? Even if I agreed with that, here’s why I’ll be watching Boku as it moves forward:

It’s defining itself as a payment platform. Today, the platform has limited funding options (the purchase is billed to your phone bill) and a risk management approach that is obviously optimized for digital goods. There are inherent limits to these models. Larger dollar purchases will run into well-known problems with carriers extending and managing credit; non-digital goods have entirely different fraud management and logistics requirements.

But platforms, once established, can support growth both horizontally and vertically. A Boku “wallet” of the future could easily offer consumers choices of funding, and make its way into other classes of goods. Perhaps not the purchase of plasma televisions (at least not right away), but certainly other forms of digital content – music, video and ebooks.

This will take them straight into the Apple orchard – so it will be fascinating to see how Boku evolves and works (or doesn’t work) with the iPhone App store and its emerging competitors. As an avid ebook/Kindle user (making way too many spontaneous purchases of digital content!) I’m keeping my eye on Amazon in this market as well.

Finally, there is the confusing, but intriguing, world of social networking, with hundreds of unanswered questions about how payments will be made and received among participants in a network. Boku has some of the pieces necessary to play. Let’s stay tuned!

5 Responses to “Beaucoup Bucks?”

  1. sheasie says:

    You forgot to mention that all that “ease of use” comes at a price: Businesses pay 30% – 40% PER TRANSACTION! (This is NOT good for online businesses with slim profit margins.)

  2. Of course – and at that price, online businesses with slim profit margins will not use this service. But I bet that Boku is betting on a market of of online businesses with theoretically high margins (the no-incremental-cost-of-goods thing) but little ability to realize their potential market. Bluntly, but clearly illustrated by the pie chart economics on their site!

    Carol

  3. Steve Klebe says:

    Carol, hi! One fly in the ointment is the 50% fee to the merchant!!! Another one is that these type of TXs have a history of having a significant dispute and reversal %. The carriers are not going to risk losing a $75-$200 monthly wireless account over the $1.00 they make on a $2.00 micropayment purchase.
    I agree with you on the convenience!!

  4. Joseph Mognon says:

    In international markets, where pre-paid phone plans dominate about 80% of the phones, Boku would work well because a carrier does not have the non-payment risk, as it would with a post-paid plan. It’s also best suited to digital goods, as you mentioned. Will be interesting to see how it evolves.

  5. Dean Procter says:

    A superficial look at their system shows it to be one we discarded as potentially too flawed after short consideration years ago.
    1. It isn’t secure, either on the web end or the phone end. Perhaps you wonder why certain early and easy to program as ‘evil twins’ nokia mobile phones are fetching $25,000 or more in online auctions.
    2. Consumers don’t want to pay with their phone account. They don’t want their phone cut off because they bought a coffee or – in the light of the above (didn’t buy) a Rolex.
    3. It costs merchants and ultimately consumers too much.
    4. It is too clunky for use in the real world.
    5. So you want to give your phone number to every website now?
    Give me a break.

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