Tuesday, November 8, 2011

Amex Launches $100 Million VC Fund

On the heels of the creation of a venture capital fund by France Telecom and Publicis, and Telefonica's recent restructuring that created a new digital business unit, American Express has also created a $100 million fund to “identify and develop innovative technologies that will help accelerate the company’s digital transformation.” 


The company, which was founded in 1849, is now establishing a Silicon Valley office to stay on top of the latest developments in mobile and finance technologies. 


The new office and fund will be led by Harshul Sanghi, the former head of Motorola Mobility Ventures. Amex launches VC fund All of those initiatives point to the growing strategic importance of mobile, mobile commerce, payment, mobile wallet and mobile content and transaction applications and services. 


France Telecom and Publicis SA are setting up a venture-capital fund focused on European technology startups. Initially capitalized at about $139 million (100 million euros), the companies will seek additional investors to raise a fund of perhaps 300 million euros ($411.5 million). 

As you might guess, the sorts of companies that might receive funding are of interest to both a mobile service provider and an advertising firm.

Likely sectors include online marketing, e-commerce, mobile content and services, online gaming and social networks, as well as their associated technologies and infrastructures such as middleware, cloud computing, security, and online payments. Likely investment areas

The venture, and the likely investment themes, illustrate the perceived importance of mobile advertising to both France Telecom and Publicis. 

According to Ofcom, the U.K. communications regulator, over the last decade, average monthly household spend on communications has increased by just 12.8 percent in real terms, to £93.10 (£83.01 in 2000) and has fallen consistently year on year since 2005 (£106.50).

Total operator-reported telecoms revenues fell by two percent in 2010. Retail revenues from mobile services increased slightly (up one percent, having fallen for the first time in 2009), but those from fixed voice and fixed Internet services continued to decline, down by three percent and six percent respectively.

Total annual communications industry revenue in 2010 was £53.4 billion. On an inflation-adjusted basis, industry revenues were £54.3 billion in 2000. Read more from Ofcom here.

BT’s share of voice call volumes fell to under 20 percent during 2010. BT’s share of total fixed and mobile voice call volumes fell to 19.4 percent in 2010. BT’s share of fixed voice call volumes also fell to under 40% for the first time during the year. 

In that regard, the most-significant action by a tier-one provider in the past several weeks has been the application by Rogers Communications to become a bank under the Canadian federal Bank Act. If approved, the proposed "Rogers Bank" will focus mainly on credit, payment and charge card services. There is an obvious relevance for Rogers as a provider of mobile payments, but that might not be the immediate application. Banking, advertising, M2M

Some of you should have the logical reaction of “I thought telecom companies were in the communications business?” And that would be a good question. But some might have wondered why telcos were in the video entertainment or advertising businesses as well, and both those businesses now are seen as logical for large telcos. 

It might now be more accurate to say that telecom companies are in a growing variety of businesses that use networks. Rogers to become a bank.

The move by Rogers is highly significant, as it illustrates an important point about where large tier-one providers must look for revenue growth. For an organization such as Rogers, which might book $12 billion in 2011 revenue, even interesting new lines of business that produce scores of millions to hundreds of millions worth of new revenue are too small to "move the needle" overall.

The problem is even worse for organizations such as AT&T or Verizon that book $30 billion to $40 billion a year in revenue. Simply put, there are few realistic new lines of business large enough to matter. That is why you hear so much about machine-to-machine communications, mobile advertising, mobile banking and enterprise-oriented cloud services. Each of those businesses could, in principle, produce $1 billion a year in incremental revenue for any single contestant in a national market.

Keep in mind the scale requirements. A business has to be big enough to produce $1 billion in incremental revenue for each contestant that wishes to compete in the business. By definition, any new line of business must be capable of generating global revenue in the scores of billions of dollars.

To repeat, Rogers will become a bank. It will do so because "banking" is a business big enough to be interesting, and Rogers has customer and other assets that will help it compete. 

There is another important observation, however. Many service providers are looking at ways to build a mobile payments or mobile wallet or mobile commerce business in some way. Rogers seems to be signaling that even "mobile payments," with a transaction revenue stream, might not produce enough incremental revenue to be interesting. In other words, a percentage of a transaction fee shared with other issuing banks might not produce enough revenue to be worth the effort. Rogers is signaling that it has to capture the full transaction fee, and cannot afford to share that fee with other issuing banks with which it might partner. 

At some point, even Isis might have to consider whether it must become a bank, or that its partners separately might have to become banks. That would still leave them as partners with Visa and MasterCard. The point is that the payments ecosystem might not be robust enough to "feed more mouths." Though it might be strategically wise to contemplate a "partner" approach rather than a "displacement" approach, telcos might not ultimately have a choice. 

Telcos might have to displace one or more participants in the payments business, rather than adding one more link in the chain, to create an attractive, or at least reasonable, revenue stream. 

Many service providers outside the United States probably are "running the numbers" and coming to similar conclusions. "Why does Rogers want to be a bank?" is a good question. The fact that it is a serious, practical question tells you quite a lot about where telecom is headed.

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