Articles Dragos Novac

Amazon launches in the Nordics

Amazon is set to launch in Sweden and other Nordic countries this fall. It is a long-expected move, and kind of a big deal as the Swedish/Nordic society is, in general, a closed one to big business from outside.

In Sweden retail’s case, consumers have available mostly Swedish/Nordic brands on the shelves, with little non-Nordic competition, as all the active operators are tightly controlled by a group of local wealthy families. And, like in any oligopoly, they drastically limit the market entrance from outsiders (same goes with the banks or telecoms, for example).

It is notable Apple’s case which acquired a property for opening a flagship store downtown Stockholm, only to be denied after getting their papers in order by the local authorities, who had a sudden change of heart a few years later. Unofficially though, rumours say that actually there were commercial interests at stake as Apple's way didn’t want to get local businesses involved in the Apple Store operations (they never do) and the political angle was a way to make them change their minds. Apple didn’t and was really pissed about it.

And so, Amazon is kind of a big deal in the Nordics, as it will likely shake the market and provide a much-needed competitiveness and wider access, which ultimately will benefit consumers.

The car-as-a-service vs e-bike-as-a-service model breakdown

Here’s some data I found in the Swedish media detailing the car-as-a-service model breakdown for Volvo’s M service:- period: 2018 - mid 2020 (30 months). The numbers are aggregated.- 70k registered users (nota bene: not payers!) - 5 cities: Stockholm, Gothenburg, Malmö, Lund and Uppsala- investments of SEK 640M ($72M) - losses of 400M ($45M) - revenue 242M ($27M)

In case you didn’t know, M is an on demand car service operating on a hybrid model: roundtrip, station-based, with a subscription fee and pay-as-you-go-expenses on top.

The user number is from a longer period actually, since M was launched in 2019 as a rebrand of and replacing an initial service called Sunfleet, which was more 30% more affordable - the transition likely generated churn.

The obvious difference of car-as-a-service compared to ebike-as-a-service is that instead of having to optimize for an ARPU spread over a $30-40k asset during a 3-4 years lifecycle, you optimize for a $2000 asset at a 2-3 years lifecycle.

Quick back on the envelope:

- at a monthly ARPU of $500 we get almost 5000 customers. Since the revenue is cumulated, the number is lower than that.
- a fleet of 1000 cars @ 30k accounting value at a monthly ARPU of $500 is covered by 5000 users, before SGA expenses.
- parking spaces are also big items on the income statement.

The obvious difference of car-as-a-service compared to ebike-as-a-service is that instead of having to optimize for an ARPU spread over a $30k asset during a 3-4 years lifecycle, you optimize for a $2000 asset at a 2-3 years lifecycle. 

And so, for a fleet of 1000 e-bikes at $2k a piece at a monthly ARPU of $59 you need less than 3000 users to cover inventory. 

And in a sub model you don’t have to budget parking/docking.

Here is a detailed analysis about the car as a service breakdown in the Nordics I wrote some time ago.

E-bike as a service - microbility business model breakdown

The Soundcloud founders - Alexander Ljung, Eric Quidenus-Wahlforss - made public their new startup: an e-bike subscription service named Dance. 59 euro per month all inclusive.

E-bikes is probably going to be the next hot microbility vertical that a lot of venture money will be invested in - the manufacturing end of the value chain is already heavily invested.

Micromobility, especially in Europe, is in its first inning of emerging development, at the intersection of the adoption of the electric-based vehicles, car banning in most of the capitals centers and a sense of urgency of using tech for climate change purposes. The scooters today are just a tease of what the public infrastructure will look like.

E-bikes have the advantages of being a cheaper asset than a car and a more comfortable, practical and reliable mean of transport than a scooter. It is a sweet spot for consumers.

In time, an e-bike will arguably become a commodity, when DTC competition will pick up. Manufacturers still need to get at economies of scale for a decent unit economic - fwiw, the global e-bike market is expected to grow from $17 billion in 2017 to $27 billion by 2025.

A subscription operation looks like an interesting opportunity to build a biz based on the right product, at the right time and by leveraging product and distribution network effects and virality. It is a much better model than the on-demand scooters preponderantly use nowadays, as it mitigates risks such as client stickiness, vandalism and city regulations.

Dance needs to solve for the consumer frictions and hidden costs associated with buying (i.e. choosing a suitable one and setup) and the total costs of ownership (i.e. maintenance, theft, gears and consumables etc) providing an outstanding experience and support.

The defensibility should come from strong brand and community around the business which can translate into a revenue line (just look at what Rapha did with their club). As Dance solves this, the lock-in, up-sell, and after market will be some of the main upside drivers. It's a strong marketing play, with the brand and its values aligned with the consumer proposition.

 

What software company will spoil the fintech startups party from Europe.

Name a software company from Europe which runs a fintech operation bringing in about $100M in revenue every quarter. Hint: it’s from Norway!

There are not too many options but the answer you are looking for is Opera Software. In Q1 2020 Opera brought in $94.7 million driven by 8.6 million financial loans. Yes, the browser company.

A little history

The story goes that in 2016 Opera was in discussions to be acquired for $1.2bn by a Chinese group. Due to privacy concerns, Opera and the Chinese have instead came up with an alternative deal worth $600 million which stripped out some products and services in order to overcome regulatory hurdles.

As such, the Chinese took over the Opera brand, along with the mobile phone and desktop computer browser business, its performance and privacy apps division, its technology licensing business, as well as its stake in Chinese joint venture nHorizon.

Opera’s advertising and marketing business, the TV operations, and game-related apps remained as a standalone biz operating as Otello Corporation.

In 2018, two years after acquiring Opera, the Chinese listed it on Nasdaq in US.

Since then, the company, which is led by CEO Yahui Zhou and COO Lin Song, transitioned the core business from selling advertising to selling consumer financial services, getting from 0 to 70% of its revenue in two years. In Q1 2020 the ads biz generated some $40 mil.

The business

More interestingly, Opera’s current focus is in Africa and Asia, where most of their users come from. The company’s core products are a multi-device browser, an AI-based news product and financial micro-loans - mostly targeted at African users.

Now, the move from ads to other service-related business has deep strategic background. When you have an operation solely based on a browser competing with Google, going head-to-head for user share and related ad revenue seems to be a waste of resources. Even in markets where Google is not as strong such as Africa or Asia, it is just a matter of time until you collide and uhm, can’t just be part of a growing story.

And in this position, it seems reasonably strategic to evaluate your core assets and strengths and leverage them towards a more lucrative and growing market. In Opera’s case, the main assets are the good tech, good brand and a 300+ million MAU number, which may be not a big one in the browsers market but in other markets can be a huge figure.

The switch from advertising to a financial services provider was criticized by retail investors, going as far as producing a research report accusing Opera of offering predatory short-term loan products (that means obscenely high interest rates; but legal nonetheless) and further accusing Google being complicit by providing lax Play Store’s policies on short-term and misleading lending apps.

While it is true that the Chinese culture is different and public markets require more transparency, when you attack strategically a new market aiming to totally reinvent your front end business perhaps it is not very wise to lay out your cards upfront. But, especially when in public markets, a lil’ scrutiny is welcome.

However, none of the allegations seemed substantiated and it looks like the market priced accordingly the Opera’s stock, not too far from the 2018 point when it IPO-ed and later made the pivot.

Why the switch to financial services though? Some background arguments: 

i) the Chinese shareholders - the group’s largest investor and current Opera Chairman/CEO were recently involved in a Chinese lending business that listed in the U.S. It’s also notable that the above mentioned report mentions this business saw its shares plunge more than 80% in just 2 years amid allegations of fraud and illegal lending practices - again, the Chinese culture is very different than the Western one.

ii) Africa is a lucrative emerging market - large, untapped and with not that much competition, and open to financial services provided via mobile apps because of low tech education/adoption. 

iii) the financial services market is at an absolute behemoth size, with its core still very much un-touched by technology. The consumer side has already started to be disrupted in the past 5 years or so. But that’s just scratch on the surface and, besides that, the outdated legacy financial technology companies are next in line to face competition from a new wave of startups.

The strategy book

In the past 6 months, Opera bought two neo-banks from the Baltics: PocoSys, which is a developer of banking technologies from Estonia, and Fjord Bank, a full-digital consumer finance bank from Lithuania. 

Not by coincidence, PocoSys also holds a payment institution license and provides financial services in the European Union. Fjord Bank has a specialized bank license issued by the European Central Bank and they too can operate across the Euro market.

And so it is interesting to consider Opera’s options. 

On one hand you have an economic mechanism in place, with a foot in the African door, a proof of concept and 300 million users you can cross-sell financial services to. It is a testing market segment at worst and a solid revenue leg at best (today it’s the only one). 

On the other, you built tech, business capabilities and experience so you can operate in Europe, a very fragmented and inviting market. Arguably more crowded and lucrative than Africa - but what the Euro neo-banks and other fintech startups are doing* is just the tip of a huge financial service iceberg stuck in the 90s paradigm. 

It kinda makes sense for Opera to want a seat at the table, doesn’t it?

Its new acquisition, PocoSys, will launch a consumer card called Pocopay as an European alternative sometimes this year. 

The other new acquisition, Fjord Bank, is aiming to launch its first deposit and loan service in Lithuania during this summer too.

And voila, Opera has sneakily become an European contender with a compelling value proposition.

Africa’s business gives Opera revenue, optionality and breathing room for the stock market. And, equally important, the stock market provides access to liquidity. 

The strategy book and choices are wide open. The funny thing is that beyond all the European protectionism against foreign buyers of local tech, you have Chinese operating an interesting European tech company, listed in US, doing business in Africa and Asia and with Euro optionality given by a powerful combo of tech and banking licenses. Globalism. 

Will the browser-based tech and African biz experience combo managed by Chinese work for selling financial services in Europe? Hard to tell, Opera, after all, has a minuscule market share in Europe and did I mention that the Chinese culture is different? :-)

Keep in mind though: 

i) the browser is a valuable internet point of entry for consumers, a gate which is heavily protected by Google’s cvasi-monopoly with the Android + Chrome + Chromebook play. 

ii) a news product, which Opera already operates, is earned media - done right, it can fortify the marketing muscle.

iii) Opera has built Estonia as its fintech hub, besides an existing one in Göteborg, and Estonia is a very good, friendly place to conquer Europe from.

iv) Opera is still an European company, from the Nordics, a region with strong fintech tradition.

Once you have the operating stack in place and all cards in hand, you just need smart marketing and a good pair of strategic balls. What the Chinese did with Opera so far certainly seems to show evidence of the latter.


Revolut made $73M in 2018, raised a total of $836M, last at $5.5bn in 2020.
N26 made $50M in 2018, raised a total of $783M, last at $3.5 billion in 2020.
Monzo Bank made $50M in 2018, raised a total of $483M, last at $1.5bn in 2020.
Opera Software made $138 million in Q1 2020, $95M of which from financial services.

Karma Kitchen is WeWork for dark kitchens

Karma Kitchen has raised £252 million in series A for building a business for shared and private commercial kitchen spaces to rent. Yes, two hundred, not a typo. 

There are not too many public details available except for a paywalled article* and one with a rather general spiel, raising more questions than providing answers. 

Karma buys spaces and sets them up as cooking facilities, renting out portions of them to teams of cooks not interested in setting up restaurants on their own premises. A backend operation, very asset heavy, including buying the real estate, so that the huge valuation makes sense. It looks like WeWork for dark kitchens, at a similar scale, and we all know how that ended. 

Many risks to mitigate on both sides of the market and not clear what part of the chain Karma innovates. The real estate investor backing the deal will get the physical spaces against the financial risk in the worse case scenario with the upside of trying a new rental model on top of real estate. And so Karma is a vertical real estate startup with a different GTM**, more complicated than WeWork but as risky. 

Demand side is maybe higher (#restos > #tech startups?) but there is radical behavior change involved - costly and time consuming. The covid context is a rather favorable conjecture, it’s difficult to imagine the biz at scale in Europe though, also given the huge cultural food fragmentation, city regulations etc (London is different than Madrid or Stockholm or Bucharest). 

But there’s something there, the due diligence was done and risk has been taken. To paraphrase a movie quote, it is either an incredibly risky or an incredibly smart idea. :-) 

* I will never understand how startups do PR to get earned media behind paywalled media, but that’s for another time.
** Arguably, it is similar to Travis Kalanick’s CloudKitchens - but the US market is very different and CK’s secret sauce is innovating a completely integrated tech-based backend, for which you need vision.

Good strategy is when you transform a marketing expense into a revenue line.

I really like Bsit’s approach of launching Parentalist, a new standalone product based on a secondary business need. 

Bsit is a marketplace for babysitters active in France and Benelux and Parentalist’s aim is to become a knowledge sharing community for parents. From what I gather, Parentalist was rather a result of the Covid situation than a grand strategic scheme - nonetheless the beauty of this play is that it is a secondary product on its own, and depending on its evolution, you can derive other revenue lines later on.

Nowadays, especially in the consumer business, good marketing means a lot of earned media as a result of building a community around your users and providing additional utility, on top of the one derived from the core product’s main proposition. Once you have that community in place, the up-sell and conversion are more natural, easier and with better results. If it also generates money, that means you transform a marketing expense into a revenue line, which is even better.

Not too many similar strategic plays in Euro startupland to my knowledge.

Is the Euro startup media producing enough?

Here is a very meta thread, discussing why Europeans don’t have enough discussions about the European startup ecosystem. You get it? You know, like dudes in Silicon Valley do. :D

This simply indicates that perhaps there is a higher need of more media outlets aggregating a very fragmented European ecosystem of opinions and reflecting real work done by entrepreneurs.

Is the today’s Euro startup media output enough? Assuming the Euro startup world increases 3-5x in the next 5 to 10 years, shouldn’t the media covering it grow at a similar pace? Who is going to aggregate the new new media?

Yes, lots of questions to add to the discussion. Hussein puts it very well:

There are those who talk about what should happen and there are those who go on and make it happen. If anything Europe has too many of the former, and too few of the latter.

Does Google finally admit that now it is a media company?

In the Google land, they announced they will start paying publishers for news.

This has nothing to do with Google’s DNA and the way they do business. My guess is that it’s a legal tactic with business consequences emerged from the chess game with the regulators breathing down Google’s neck.

The company has already signed deals with a number of publishers in Germany, Brazil, and Australia and included Spiegel Group in the PR spiel. Does Google finally admit that now it is a media company?

Facebook has a PR problem. Again.

Unilever says it will halt U.S. advertising on Facebook and Twitter for at least the remainder of 2020, citing divisive content on the platforms.

It is not the only one as it joins some other 90 brands such as Coca Cola, Levi’s, Dockers, North Face, Ben & Jerrys, Verizon etc.

Two things:

1. Financially Facebook is not too affected as the bulk of its money comes from circa 8 million small businesses spenders while the top 100 advertisers bring in less than 20% of revenues.

Also notable, in 2017-2019 YT had the same problem and came out ok.

2. But this puts pressure on Facebook, as this doesn't have only a monetary impact but also a product one, and Facebook’s reaction looks really defensive. They keep saying they will change and become better at doing their business, just like a broken record - if you know how media works and still believe an iota from what FB says, it’s on you.

Also interesting to think about timing i.e. whether in times of economic boom big brands would have done the same - these days the consumer demand is pretty weak anyways as the economy is bad.

Startup education as a service or the Harvard for startups

Reading this about the current EU startup landscape and imagining it 5 years down the road, an evident missing piece is a platform that could provide guidance, benchmarks and role models for wannabe founders across Europe. An educational pillar of sort, providing a common denominator for founders from 27 different countries.

The balance is not at equilibrium - corporate vs. startup world, old money vs. new money, traditional media vs. new media, schools vs. <insert the future here>.

Training people for taking risks at scale requires a large talent pool able to network, learn from the best and from each other and move fast.

In Europe we have hundreds of useless startup accelerators, an outdated educational system and a young customer base, tech savvy and hungry to create, with English as their default language learnt via Roblox, Minecraft and the likes.

Who is going to build a suitable system for those guys looking to find models, mentors and a fertile ground for building stuff?

Who is going to teach them that it is ok to fail, still a stigma across the entire Europe.

Is it a business opportunity at all? An EU thing? Something schools should do? An incumbent?

Is it going to happen at all or we will all end up using Startup School, which looks very well positioned to become the Harvard for startups.