Klarna dancing with Paypal

Klarna’s CEO bought Twitter ads to make the following claim:

Thank you CNBC for making it official: Klarna is now the global innovation leader and Paypal the follower. We are humbled but eager to push the innovation and customer centricity in this industry forward at an increasing pace!

A few observations:

1. No matter how innovative you think you are and how bold your vision is, the difference in the market is made by the strategic execution, not by public statements.

2. Business and thusly the leader and its followers are solely decided by the customers and their wallet, which ultimately dictates everybody’s market share.

3. So why this reaction? Public statements are usually signals you want to send to the market aka your stakeholders.

One way to interpret this is “we’re leaders and not afraid of the threat of increased competition”.

But… it can be translated into showing a lack of self confidence. When you publicly claim you are not afraid, you usually are afraid - leaders are busy leading, not publicly shaming followers. Besides, leaders are always wary of risks which is also controlled fear.

4. Who is the recipient of the message? The customers? The employees? The shareholders? Unlikely. There’s direct better channels for talking to them.

The other competitors, particularly PayPal? Likely. They get a direct mention in an ad purchased by their competitor - btw, comparative advertising is very unusual and generally prohibited in Europe.

But there’s backdoor channels with competitors too.

Fact is, this ad is an unusual move in the European ecosystem. It looks like an impulsive reaction not vetted by the PR and made when you feel threaten.

And another fact is that Paypal is gaining market share in Europe at a higher pace than Klarna has been advancing in the US. And, rather a personal observation, Americans are better at business development than Europeans.

And my intuition tells me that there’s a background story that led to this reaction.

5. Maybe there was a background deal between the two that didn’t work out and this is an ego burst - maybe Paypal wanted to buy Klarna but offered too little money and things escalated, or something.

6. Or maybe Klarna started losing key business to Paypal in its home markets and this is some hurt ego reflection.

Or a combination of both.

7. Also in Paypal’s advantage: better brand awareness and a few strategic acquisitions, including a $2.2bn iZettle from Sweden (Klarna’s turf), a payment processor already working with most of the Euro retailers.

Providing a solution covering the whole spectrum of needs down the chain for a merchant can be a differentiator, see the next point.

8. Also on topic, interesting to note a quote taken this week from the founder of Lunar, a Danish neobank which also wants to eat Klarna’s lunch:

The “schizophrenic” Nordic banking market is the reason why Lunar is launching BNPL. The Nordics is the most profitable banking landscape in the world, but also the most defensive, with least competition from the outside. This means that the traditional banking customer is buying all their financial products from their bank.

It is within this context that Lunar’s BNPL products are built as “post-purchase,” where Lunar will prompt its users after they have bought something. For example, if you were to buy a new television, the app will ask if you want to split the purchase into instalments. This does not require merchant agreements etc, and will work on all transactions both retail and e-commerce.

We do not view Klarna as a direct competitor as they are not in the Nordic clearing system. Hence, you cannot pay your bills, get your salary and use it for daily banking. Klarna is enormous in Sweden, but relatively small in Denmark, Norway and Finland.

9.  Whatever. If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.

So there’s that. Increased competition, different points of market attacks and the feeling that all of a sudden you are not just a pioneer opening markets and risking arrows in the back. You are fighting head to head with solid competitors on multiple fronts. The game has changed. 10. It is a complex strategic one that requires different skill sets than building a company from scratch.

It is also a bit unusual that a founder is involved in the management thus far in the company’s lifecycle such as Klarna. At this point, the beast needs to be steered differently and usually investors prefer professional CEOs for handling $6bn companies. Not impossible for founders, take Daniel Ek as an example. But definitely a different cup of tea.

The Glassdoor for VCs

There’s a new attempt of building “Glassdoor for VCs”.

Quick thoughts:

- I don’t believe in the thesis of startup founders public shaming the investors, even anonymously - I explained here why. The founders alternative today is direct reference asking and checking - easier, direct and more useful.

- The review-based business, especially user-generated, is easy to game and difficult to scale. The more complicated the system to prevent the gaming, the higher the friction to add in the content.

- Here’s another angle of it: what would a founder do if a VC asks her to write a review as part of the funding package they provide? Would it be honest knowing you have to work together for the following years? Not unrealistic, probably you all read about worse things happening.

- The private investors market is quite small and by definition VCs are a difficult genre of customers - how will Landscape make (the big) money? Glassdoor makes money from job ads btw - users come for the reviews and stay for the jobs. Will Landscape go this way and build yet another job site?

- And because when contrarian it’s also nice to suggest a constructive solution: if this flies at all, a) it shouldn’t be a big op, and b) if the VCs are really aligned to use this avenue for cleaning up their business, they can get involved directly, make it a non-profit and all chime in with $ supporting it as an industry organization.

Not an easy case.

The media opportunity

IAB Europe’s ad tracking consent framework found to fail GDPR standard.

What this means - while users want privacy, IAB encourages publishers to use tech that not only doesn't respect privacy  but also is illegal.

Media has become a sick industry because of the digital advertising model, which is mainly dictated by the tech suppliers aka Google, Facebook and the likes.

It’s so bad that media properties have become mostly unusable because they throw down the users throat popups, over and under layers as well as a bunch of spying cookies in the name of providing content for free.

It is a chain reaction started from the money payers: advertisers command control of their budget through tech, the tech providers have a mechanism that does that (and more for their own business model) and publishers need to comply or will not get the budgets. Not having the ad budgets, media will cease to exist.

We are in the middle of a transition towards a model that includes a sub-based model but that is a hybrid, sub-optimal one, because sub money is still not enough and media cos need to deal in ads compromise.

To make things worse, because of higher regulation scrutiny, ad tech suppliers will increasingly start paying to access for the properties, perpetuating the compromise and the horrible front end experience of the media assets, controlled by the tech tracking needs.

Unless you as a media are in control of your tech stack and of the conditions under which you will handle advertising, it will be a tough spot for building a healthy media business.

Or, there is an alternative: you go all in for subs and quit* advertising altogether. You know, similar to taking to test the ultimate metric of media: if it suddenly goes away tomorrow, will anyone miss it? Will anyone be less functional at job?

The bold ones took their fate in their hands and started going sub-based only, providing a clean UX and not allowing cookie trackers - think of Substack as a preview of the next gen media companies based on a DTC model.

And that is one of the reasons for which why I am bullish on the media today, it is still trapped in an old paradigm thinking and the business potential for building a new one is huge. All those problems are opportunities in disguise, we only need entrepreneurs to make it happen, the change will not come from within.

*not quit-quit, but do it smarter :P

Why Google will start paying media companies more and more

Google finally gave in and officially decided to pay media companies for the content they are crawling.

It is a big compromise wrapped up in a new news app they are building. I think it is just a piece of the battle as things will change more in the future, whereas Google will start paying more and more for the right of crawling media websites.

Let me explain.

While the right of freely crawling a news site is debatable in principle as it’s also a free distribution channel for the said media, for Google it is strategic to get access to the media content.

That is for a simple reason: its ad layer, which is where it makes money from, is useless without having access to data to make it work. A very good part of that is gathered from the media assets and the data associated with it.

The data points collected from crawling websites are richer than the regular guy would be able to tell. The sites content and its meta are corroborated with the behavior data extracted from the Analytics and with the one from the cookies tracking the user journeys throughout the entire internet. The more data points connected over a longer period of time, the better.

And bonus, if you give Google your inventory for placing ads (a very common scenario in media business) that would be an extra data boost.

And one more bonus: if you browse while you are logged in with a Google account (YT, etc) that history data is equally valuable, dully tracked and thrown into the Google matrix.

That’s just an overly simplistic view - suffice it to say that an AI-based software product, such as the ad stack built on top of Doubleclick, is useless without the data you feed it with. The more data you feed it, the better the output becomes.

That data is a result of the content access - that is why it is strategic for Google and it will start paying for accessing content more and more.

Add to that the scenario that media properties started getting paywalled and thusly become unavailable to Google’s spiders.

And getting paywalled combined with DTC (newsletters) and good brand can make for an interesting strategic play trading off free inbound traffic from search engines.

Which inbound traffic you:

i) convert into ads, which is a one time play because that traffic is lost if you don’t have ads to serve and bounce rates are very high anyways - that is the standard go-to-strategy for media biz

or

ii) convert onto getting customers to pay for content or at least create an account, if you have a pure SAAS play that is - publishers are terrible at this tactic btw.

The more bloated and horrible the reading experience of a media property is, the more a publisher optimizes for the first. And that includes the cookies the GDPR enforced warning about, which are a must only if your business needs to use tracking cookies, which are for ads purposes.

Also why Google Analytics, which is a very powerful analytics product, has a compelling free version which is pretty much standard for publishers - that data is also feeding off Google’s ad tech, building sophisticated consumer behaviour models based on which it serves ad products.

And, of course, that is also the reason for which Google pays a few billions a year to both Apple and Firefox just to be one of the search engines in their browsers.

No data to feed its ad stack with, no business for Google.

PS. Weirdly fitting to this is that my son randomly asked his friend Google last night:

Hey Google, do you have a brain of your own?
G’s answer: have a good night!

The bad VC behaviour

“A finance-person turned tech operator-person based in London” (probably a former VC who jumped ship) and without the balls to put a name to his opinions asks why founders don’t speak out about bad VC actors.

It is a rhetorical question, of course - we touched upon this before:

"These individuals will never be named publicly because this is a relationship business. Founders don’t want to burn bridges and investors are friends with each other. And deal sharing opportunities are more frequent and important than “that time I screwed a founder because I coronavirus panicked” situations. It is part of their job."

Another way to look at it would be that the equity sales event is episodic in a company’s life, it is not the main thing. It is rather a distraction and a sometimes necessary evil - once you’re done with it, you focus on the business, not on being friends with investors because you need to ask them for money. Investors are just one of the stakeholders in founders’ ecosystem together with customers, employees, suppliers and competitors.

And, listen, if you go to the market and the guy who sells you apples fucks you over, you just move on and find another guy who sells apples. It’s as simple as that. Changing their mind is not your problem, it is their problem - it is likely a benefit in disguise as you don’t want this kind of character in your company to begin with. It’s a test they failed, next.

And that is why the incentive of calling out the bad apples should come from the investment community rather from startup founders, as

a) this is investors’ industry and you are what your industry rep is.

I have yet to meet a founder who is happy and excited to start talking to investors for fundraising reasons. Anxious, stressed and freaked out are more appropriate attributes and there is a strong corellation between those and the industry rep.

b) investors usually work together and they can correct bad behaviour easily if they want to;

c) more often than not, investors cover each other asses;

d) bad investor behaviour is usually considered an “accident” by their peers, “there’s always a next deal”.