If investors needed a sign for an Uber IPO, here it is

Uber CEO and founder, Travis Kalanick, has been ousted from Uber. This is of course the result of a corporate culture that is incompatible with the times we live in. This dramatic turns of events is ironically, the result of the technology era Kalanick has contributed to establish. Bad CEO manners have existed before. Steve Jobs notoriously called those employees he didn’t like «Bonzos». He was also known for losing his temper, specially in his first Apple tenure. But that was in a time before social media. These days, CEO and upper management failures can be broadcasted to anyone in a question of seconds. It will be interesting to see whether this event could prompt dissatisfied employees in other companies to do the same. Those with real low moral standards may even lie if they, for example, don’t get the promotion they think they deserve.

The farewell to Kalanick implies a strong signal for investors with a taste for Unicorn meat. It is a strong signal for an IPO. Indeed, Kalanick had to be sacrificed in order to secure a future polemic-free IPO.

Today I was interviewed in E24.com about the departure of Kalanick. This is the English version of that interview.


The resignation of Travis Kalanick was absolutely necessary now because the company is heading for IPO, analyst Salvador Baille believes.

«He has been a very charismatic leader. That he is being ousted is very dramatic,» says Salvador Baille, consultant and analyst within innovation and technology management.

The person he is talking about is Uber’s recently departed boss Travis Kalanick.

Baille describes Kalanick as a typical «aggressive Silicon Valley wonderboy» and points out that he is far from being the only one in history who has had to leave the company he once started.

«The same happened to Steve Jobs, who was kicked off Apple, and Jack Dorsey, who was kicked off Twitter,» says Baille.

– But both came back later. I do not rule out that it can happen to Kalanick too, he adds.

The departure of Kalanick was the result the Uber investors’ pressure.  Kalanick has been accused, among other tings, of tolerating a working environment where sexual harassment occurs.

Baille thinks that Kalanick has been under pressure for a long time now.

– Business models like Uber are easy to copy. Growth is the only thing that can secure a future. I’m guessing Kalanick has been very stressed all the time and unable to get into HR-related issues, he says.

The fact that Kalanick is now disappearing can have major consequences for the company’s innovative power, but it was still necessary, says Baille.

«They could not hold him because the company is heading for IPO. Under such circumstances you can not have a boss at the top who has such a reputation. Institutional investors, who will be the first ones to buy shares, don’t want to be associated with these issues. The company had therefore to find someone to blame, remove him, and start over again», says the analyst.

– Critical who takes over
It has been speculative for a while if Uber will be on the stock exchange. Baille is aware that a stock listing is the next step for the company which, according to Bloomberg, is valued at $ 69 billion.

«They have gone through several investment rounds and the likelihood of a new big round is getting smaller and smaller. I think investors are concerned with first and foremost one thing now: when can they list the company?»

It is likely that the listing will take place as soon as possible once they have replaced a new boss, he believes.

«I think they must get into one that has run companies through IPO processes before. Ideally, he or she should come from outside, and from a similar industry» , Baille says.

«But if they hire a more conservative manager-type boss, the consequence can be that creativity and innovation power may disappear very quickly. At least if he is not visionary enough, he continues.

«It is absolutely critical for the company’s future who it is taking over.

Should Kalanick come back, it’s because the company has come in a bad situation, Baille believes.

«If the strategy does not work and Uber continues to lose money, Kalanick will be able to come in again and be accepted as a hero,» he says.

According to Baille, Uber now loses around $ 1 billion a year, mainly due to structural costs linked to the business model itself and that they are also expanding very quickly.

– Many believe that when the company stops growing, it will become a money printing machine. I have my doubts, says Baille.


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Derfor måtte Jeff Bezos satse Amazons fremtid på Whole Foods – Podcast

Amazon har tilbudt å kjøpe premium-segment dagligvarekjeden Whole Foods. Dette selskapet er prinsipielt ingen god match for lavkostorienterte Amazon, som i tillegg ma synke selskapets balanse i gjeld for å gjennomføre kjøpet. Hva betyr dette for Amazon og dagligvarebransjen både i verden og i Norge?

Fredag ble det annonsert at Amazon har tilbudt å kjøpe Whole Foods, den amerikanske upscale dagligvarekjeden med fokus på ferske matvarer. Prislappen er 13,7 milliarder dollar. Aksjeprisen til de største tradisjonelle dagligvarekjedene i Europa og USA gikk ned mellom 12 og 1 prosent umiddelbart. Frykten er at konkurransen fra Amazon vil sette resultatmarginene til disse aktørene under enda større press. «Retail Apocalypse» kan flytte seg over til dagligvarebransjen. Aksjonærene har fått panikk.

Likevel kan dette bli en lang og vanskelig reise for Amazon. Whole Foods er ingen naturlig match for lavpris-besatte Amazon. Samtidig blir hele oppkjøpet finansiert med en komplisert gjeldstrukturering. Dette vil tredoble den langsiktige gjeldspost i balansen til Amazon og kan viske bort bortimot all bunnlinjen fra e-commerce giganten i flere år. Selskapet kan fort begynne å tape penger i stor skala hvis oppkjøpet ikke går som planlagt.

  • Hvorfor tar Jeff Bezos en så stor sjanse?
  • Hvorfor akkurat innen dagligvarer og fersk mat?
  • Hvilken er strategien bak og hva må Amazon gjøre for å lykkes med den?
  • Hvordan vil Walmart, verdens største retailer reagere? Selskapet har satset hardt på deres digitale operasjoner og deres omsetning knyttet til e-commerce har økt 63%   bare i det siste kvartalet. I tillegg omsetter Walmart for 3 ganger mer enn Amazon og har større resultatmarginer. De kommer ikke til å bare sitte og se på.
  • Hvorfor prises Whole Foods aksjer høyere enn prisen som Amazon har tilbudt for dem?
  • Hva bør norske dagligvarekjedene gjøre nå? Hvor reell er Amazon-faren for dem?

Investorer, innovatører, gründere, dagligvarekjeder og brands kan bli sterkt påvirket av dette oppkjøpet de neste årene. Lucas Weldeghebriel i Shifter.no og jeg diskuterer disse teamene og våre konklusjoner i ukens podcast om corporate innovation og internettøkonomien.

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Her-knapp -2

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Hvor lurt er det for deg å investere i din egen solenergi?

Hvorfor må strøm bli dyrere? Hvordan vil smarte målere hjelpe og hva kan du som privatperson gjøre for å holde kostnadene på ditt eget strømforbruk så lave som mulig med hjelp av fornybar energi? Thomas Pettersen, Adm Dir i Rejlers, forklarer.

Forrige mandag 29.5 intervjuet jeg Thomas Pettersen. Han er Administrerende Direktør i Rejlers, en av de største leverandørene i Norden av prosjekter innen digitalisering av infrastuktur.

I løpet av intervjuet forteller Thomas oss om den store transformasjonen som kraftindustrien går gjennom i Norge. Han forklarer hvorfor elektriske biler og moderne induksjonskomfyrer gjør det uungåelig å oppgradere kraftnettverket i Norge. mange klager på at de nye smarte målerne kommer til å gjøre strøm dyrere. Thomas forklarer hvorfor vi hadde opplevd enda høyere priser uten disse.

En annen teknologisk revolusjon som foregår i kraftbransjen er den eksponensielle veksten som alternative energikilder som sol og vind. Plutselig kan vi alle produsere vår egen strøm og selge overskuddet til kraftselskapene. Thomas forklarer hvordan nye forretningsmodeller vil gjøre det lønnsomt for privatpersoner å produsere sin egen strøm og hvorfor innovasjon rundt batteriteknologi kan gjøre det mulig selv uten subsidier.

Endelig tørr Thomas å svare på kanskje det vanskeligste spørsmålet:

«Hvilke råd hadde du gitt til en gründer som vil bidra til å skape verdi i denne gjennomregulerte industrien ?»

Se teaseren:

 

Se video:

Eller hør på podcasten:

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Den eneste formelen en gründer i internett-økonomien må kunne utenat

Som de fleste leserne som følger meg vet, er jeg veldig skeptisk overfor enhjørning-kulturen som har utviklet seg de siste årene. Havet av likviditet som sentralbankene har oversvømt de finansielle markedene med etter finanskrisen har skapt en surrealistisk situasjon. Selskaper som taper milliarder av dollar hvert eneste år – og deres gründere – blir hyllet som helter og verdsatt utover all logikk basert på forventninger om uendelig vekst og et antatt komponent av disrupsjon i deres forretningsmodell. Dette er spesielt bekymringsfullt når mange av disse selskapene er nesten ti år gamle og ikke er i stand til å kommunisere engang når de i det hele tatt kommer til å tjene penger. Fra Spotify til Uber eller Xiaomi, listen med blødende enhjørninger er så lang at det gjør vondt å tenke på tapene for samfunnet som de representerer. Kroneksemplet er den uforståelige børsnoteringen av SNAP, som var nesten designet for å stjele pengene fra småinvestorer.

Les også: Snapchat – The pigs get slaughtered

Hvilken er hovedgrunnen for at disse selskapene ender opp i denne situasjonen? Svaret er at de fleste enhjørningene er skapt og lider under den dødelige kombinasjonen av plattformøkonomien og mangel på inngangsbarrierer.

Plattformøkonomien impliserer at bedriften må investere i plattformen før den i det hele tatt er i stand til å koble brukere til den og dermed begynne å generere kontantstrømmer. I seg selv er dette ikke nødvendigvis et stort problem, Forutsetningen er at marginen som hver kunde eller bruker i gjennomsnitt  genererer blir høy nok til å både finansiere investeringene og generere positiv margin for aksjonærene.  Et eksempel er telekomoperatører. De har drevet med plattformøkonomien og har vært i stand til å vokse og levere sunne marginer samtidig i mange år.

Det er mangelen på inngangsbarrierer som er problemet. De fleste enhjørningene er basert på enkle ideer og teknologi som er lett tilgjengelig eller lett å kopiere. Konkurransen kan dermed komme fra overalt og fra hvilket som helst sted i verden. Dermed blir den eneste måten å sikre sin egen overlevelse å vokse ekstremt raskt for å kunne oppnå en global ledende markedsposisjon. Dette konkurranselandskapet driver dermed prisen på tjenesten under kostnadsnivået som plattformøkonomien krever. Tapene akkumuleres år etter år.

Les også: Five business development mistakes that Unicorns can afford, but you can’t

Enhver gründer og investor i internettøkonomien må være klar over denne mekanismen, fordi investeringene som å spille enhjørning krever er altså enorme. Det er dermed ekstremt viktig for gründere og investorer som satser på plattform-baserte tjenester å kunne forutse  på hvilket tidspunkt en bedriften vil bli lønnsom.

Heldigvis finnes det en formel som forklarer dette, og den er (i teorien) ikke vanskelig.

Formelen lyder:   CLTV > (CAC + CRC)

CLTV = Customer Lifetime Value, eller verdien som en kunde eller bruker i gjennomsnitt genererer for selskapet i løpet av alle de årene han eller hun betaler for tjenesten.

CAC = Customer Acquisition Cost, eller gjennomsnittlig kostnad ved å vinne en ny kunder eller bruker.

CRC = Customer Retention Cost, eller gjennomsnittlig kostnad ved å beholde en kunde eller bruker i løpet av de årene han eller hun betaler for tjenesten.

Ulike selskaper kan ha ulike definisjoner for alle disse tre faktorene. Det er akseptabelt så lenge de forblir de samme over tid. Generelt sett:

  • CLTV er målt i dekningsbidrag (gross profit)
  • CAC bør inkludere alle reklamekostnadene adressert til nye brukere
  • CRC inkluderer alle reklamekostnadene adressert til eksisterende brukere

 

Noen nyttige konklusjoner:

  • Kun når CLTV er større enn de to andre faktorene til sammen er man på vei til å bygge opp en finansiell bærekraftig plattform-basert virksomhet, med lønnsom vekst.

 

  • Denne formelen forklarer hvorfor «Freemium» forretningsmodellen er så sårbar. Når bare en liten andel av brukerne betaler for tjenesten blir CLTV veldig lav. Dette er en av grunnene hvorfor Skype aldri klarte å tjene penger før selskapet ble kjøpt opp av Microsoft i 2011. Skype hadde også nettogjeld i balansen på 686 millioner USD på det tidspunktet. Spotify på sin side prøver på alle mulige måter å konvertere «freemium» brukere til betalende kunder.

 

  • Tatt i betraktning hvor nådeløs konkurransen i internettøkonomien er, og den furiøse utvikling av stadig nye tjenester, bør CLTV ikke estimeres for mer enn 7 år.

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Alexa – The end of retail as we know it?

After telecom, media, energy and banking, retailers are facing the far reaching implications of the brutal internet economy. This is what the rise of Artificial Intelligence and Alexa means for the retail industry.

Retail, once a boring appendix in the digital game, is becoming more and more interesting.  Only some years ago, the most important transformation taking place was that every brick and mortar retailer was opening a webshop.

Then we got omnichannel, with the clear aim of coordinating all contact moments with the customer across webshop, customer service, social media and the physical store.

Payment became suddenly an issue too. As soon as Apple launched Apple pay In USA, the biggest retailers, with Wall Mart leading the pack, went DEFCON1 and developed their own payment NFC system: MCX. It didn’t work though, and yesterday it got sold to yet another desperate bank: JP Morgan Chase.

Then we got home delivery of groceries. Here in Norway services like Godt Levert or Kolonial.no are growing at astonishing rates.

Finally, digitalization is opening for the possibility of unmanned checkout, like we have seen examples here in Norway. 

However, all these changes are still characterized by one common element: They are based on a local environment and the core value chain remains intact. Will the digital Four Horses (Amazon, Google, Facebook and Apple) let it be that way?

They won’t.

Enter Alexa, the trojan horse into your shopping wallet. Launched in 2015, Alexa is the artificial intelligence assistant from Amazon that powers the Echo, a tubular device that can be set anywhere in your home. It is ready to listen to your orders and execute them.

So how could this be a game changer for retail? A personal assistant will of course be used for the normal stuff? Ask for directions, recipes, play music, maybe read the newspaper for you, some cute smart home applications… just like Siri, right?

Not quite.

The point with Alexa is that you do not need to grab your phone. You just have to talk freely. This eliminates a friction in the customer journey that an increasing amount of consumers are clearly eager to pay for. Five million units had been sold before last year’s Christmas season.

The removal of this friction leads potentially to a huge difference in behavior when it comes to shopping: The user voluntarily sacrifices additional information for decision making for the sake of convenience. Thus, Alexa (and Amazon) acquires a great power as the gatekeeper trusted by the consumer.

This opens indeed for an alarming scenario for retailers, but also for producers and manufacturers. Specially those with fairly undifferentiated goods that relay on the power of their brands to achieve customer loyalty should be specially worried.  Products like  detergents, milk, batteries etc. are an easy target. Say a user wants to buy more toothpaste. In how many cases will the user ask for a specific brand or type? For a segment of the population, it would take too much effort to check the brand they use or grab the phone to go online and search. They will just say «order a new tube of toothpaste».

From that point in time, the decision power is now in the figurative hands of Alexa. She can decide to order the same product you ordered last time. She may also do a quick search in order to find an equivalent product but cheaper and suggest it to the user. Or she may order the product from the producer or retailer that has paid the most for being the preferred one on Alexa’s product list.

Therefore, the implications of Alexa can be huge for all players in the retail value chain.

First of all, it will put a massive pressure on prices. The power of the brand may be minimized to the point of quasi- irrelevance. Houses of brands like P&G or J&J will see their margins erode and face a difficult decision: Should they spend even more resources on brand building hoping that the user will ask Alexa for their specific brand or should they focus on cost cutting and operational efficiency?

Retailers may face a similar challenge. Over time, their role can be reduced to a simple logistics distribution hub. Nor they will decide which products to sell either. Amazon, through Alexa, will optimize their product portfolio for them, along with a maximum admissible purchasing price. Their role may even be erased totally, as the biggest producers and manufacturers may decide to sell directly to Amazon from their warehouses. As a reminder, only 10 companies control almost all consumer goods in the world. They won’t necessarily need the aggregator role of retailers if Amazon organizes the distribution to the consumer for them.

AMZN-fresh
Amazon has launched Amazon fresh for perishable groceries in several countries

In addition, producers and manufacturers may reduce their advertising efforts and channel those resources to buy a top position in the Alexa shopping list instead.  Search advertising may lose in such case much of its appeal. Google understands the potential disruption that this means for its business model. The search giant has therefore launched its own version of Alexa: Google Home together with the delivery service Google Express. The consequences for the rest of the advertising industry, from TV to Facebook can be far-reaching.

Alexa may create some winners as well.

White labels may acquire an even more prominent role and enjoy the best of times. The rise of white labels at grocery stores has been a trend for years now. However, the dawn of Alexa will give them an obvious opportunity to increase their market shares, as brands will see their power undermined by rational purchasing decisions taken by an Artificial Intelligence powered assistant.

The small convenience stores around the corner of your street may also benefit. Their role can be enhanced as a gap-filler between deliveries for very basic or exotic items.

After telecom, media, energy and banking, it is now the retail industry that faces far reaching technology-driven changes. These changes will of course take time, but once a critical mass of users is reached, there will be no way back. Those players that don’t want to see or are willing to understand the challenges of digitalization may be the first ones to disappear.

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Snapchat – The pigs get slaughtered

The Snap IPO looked like designed for luring incautious retail investors and speculators. If it was, it definitely worked. It took only three trading days to rip them off their money.

Last Thursday we witnessed the IPO of Snap and its tremendous share price increase during the day. Snap shares ended more than 4o % up, putting the value of the company at the astonishing level of 33 bn USD.

From a rational point of view and based on the facts that we know from the company, this was nothing short than an exercise in lunacy drowning in a sea of ZIRP. Snap is indeed a company that, from the fundamentals point of view, is a gigantic operational and financial bet.

First of all, the operational model is almost designed for never earning money. The company doesn’t´t have its own data centers, making it difficult to achieve the economies of scale that Facebook, Google or even Twitter pursue. As a result, more that 100% of all revenues went to Google Cloud in 2016.

Secondly, the company faces stiff competition from, at least, Instagram, owned by Facebook. Since the launch of Instagram Stories, the growth of the Snapchat app has indeed come almost to a halt.

Taking these two factors into account only (there are more), it is not strange at all that the company lost 514 million USD in 2016. Even worse: The more the company has achieved in revenues, the more money it has been capable of losing. Completing the surrealistic joke of what an IPO should be, we can read a statement in the IPO filings explaining that the company “may never achieve or maintain profitability”.

As I explained in a comment published by the Norwegian financial news site E24.no, there could be three reasons for this bizarre market behavior.

  • The market was expecting the Average Revenue per User (or ARPU) to explode somehow. A true exercise in faith.
  • The current ultra-low interest rates environment is still luring investors into taking irrational risks.
  • Institutional and big investors were selling their shares acquired at IPO price to less informed retail investors, desperate for owning the stock. This was of course the most cynical hypothesis. However, we should take into account that the new shareholders will not have voting rights, which is difficult to accept or any institutional or long-term investor. This IPO seemed indeed designed for misinformed retail investors and speculators.

The hypothesis in my comment was that if the cause of this irrational first trading day was the latter, we should see an abrupt fall of the share price in a matter of days or weeks.

It has taken 96 hours.

Today Snap Inc. erased all the gains from the IPO opening. And as the analytics of the online brokerage platform Robinhood confirm, the median age among Snap buyers at the IPO on Thursday was 26, hardly a group of seasoned investors capable of assessing the high risk of a complicated case like Snap.

Snap-stock
Snap gave up all post IPO gains on Monday

The fact is that, once again, hype seems to have chosen to ignore fundamentals, and the retail investors have paid the price of their naiveté and recklessness. As Gordon Gecko said: “Bulls make money, bears make money. Pigs? They get slaughtered.”

Expect a bumpy ride for Snap shareholders in the future. The share price may go up and down like a yo-yo based on rumors and promises of new products and new growth, even if the company eventually becomes profitable. Investors may end up praying for an acquisition, like Twitter already has tried and failed.

This course of events may also have profound implications for other mass-losses Unicorns like Uber or Spotify. They have been waiting for their own pig-slaughtering IPO and may not try it now. It will definitely complicate their financials and/ or growth ambitions and thus their value as private companies.

With a FED rate rise coming soon, we may soon learn what Unicorn blood looks like.

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«Greedy banks are begging to be disrupted»

Christoffer Andvig, co-founder of Fintech Innovation, shares with us his thoughts about disrupting the global banking system from Norway. The keys? Blockchain, AI, mobil first and biometrics.

This month I have interviewed Christoffer Andvig. He is the co-founder and CEO of Fintech Innovation, a new breed of bank which takes advantage of digitalization in order to sink operational costs to a level traditional banks cannot compete on.

Throughout the interview Christoffer talks with us on:

  • What Fintech Innovation is and what inspired him to start a global challenger bank from Norway
  • How Fintech Innovation takes advantage of digitalization in order to disrupt traditional banks drowning in legacy infrastructure
  • Developing a profitable business model based on free basic services to the world population, while providing additional banking services at much lower prices than traditional financial institutions
  • The blockchain technology and why and how Fintech Innovation is using it to achieve competitive advantage
  • Some excellent advices for those who want to start their own business

As usual, I have published the interview on video and as a podcast.

Enjoy!

Video:

 

Podcast

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