There’s been a bit alot of rumbling over the last few weeks regarding Amazon’s introduction of Flexible Payment Services to their already burgeoning set of web services. Not a surprise really, but strategically very key for Amazon to close the loop. Having already blazed trails in affiliate marketing as well as more specific service models such as the S3 modules for web services, Amazon has come in on the final piece of the puzzle of the modern commerce landscape they are shaping.

Obviously this is a basic dis-intermediation threat to banks (again) and merchant service providers, as well as a way to reduce costs on Amazon’s own transaction/interchange expenses. Banks can take heart in that rather than pursuing the Paypal model, Bezos and team have elected to go through the existing credit card networks for larger payments. Google Checkout uses a similar model but Amazon has put a bit more into the model. Look carefully and you uncover an Amazon branded stored value account as the crucial center of the FPS value proposition. Om Malik points out that the FPS strategy is a Trojan Horse designed to take share from Paypal. I would build on that by saying that FPS can start enable the holy grail of payments, the dirty little M-word: micropayments.

The pricing model that Amazon has prescribed for their service is a very interesting first indicator of the differentiation that Amazon FPS can provide to online merchants who are selling non-traditional goods. By differentiating ACH, association and stored value transactions into different pricing buckets, FPS provides access to all the major forms of payments as well as their own ultra-flexible account. The Amazon account is controlled by a truly groundbreaking set of rules that can actually enable new types of selling models. Merchant can charge periodically for usage, split payments to and from different endpoint accounts as well as aggregate micropayments without merchants having to “hold” onto transactions. These are just a few of the types of selling models that can be enabled that may have been cost-prohibitive before using the incumbents system.

The wildcards here are 1) Amazon is by far the most developer friendly in the “Big” web. 2) Amazon has 62 million active consumers with Amazon credentials (with credit cards on file) that can be leveraged by merchants using FPS.

To think, it all started as bookstore.

Just think, instead of paying for four Internet connections in your home (phone, cable, wi-fi, mobile), you could actually have the one that makes the most sense at the time. Google’s proposed bid to make this happen with the upcoming 700 MHz spectrum auction is making waves. The kind of waves that severely rocks the boats of telecom incumbents. It’s clear when they use meaningless, bourgeoisie responses such as “corporate welfare” to describe the FCC’s interest in utilizing Google’s free, neutral and consumer-centric rules that the protected hegemonies that so unceremoniously charged me $1.00 per minute to call home from London last month are about to start breaking.

The facts are pretty indicative that Google is serious:

1) They have the cash and have committed to meeting the minimum $4.6 Billion reserve for the auction.

2) They have been buying dark fiber since the 2005 bust. This fiber is key for the economics of running a mobile telecom service. The signal received by one tower needs to be transported by land-based fiber lines to the destination tower.

3) Mobile apps are all the rage at the GOOG. Every one of their consumer facing successes have been ported to mobile including maps, gmail, blogger, picasa and now YouTube as well.

4) Google has a deal with LG for an integrated Google button (and apps) on “millions” of phones.

Google’s openness requirements for the spectrum, favor a company with diversified revenue streams rather than a retail model that relies on access fees only. This is the source of much twitching and bitching from the telcos. What is interesting is that it is absolutely evident that should AT&T or Verizon win this auction, consumer won’t see a single kilobit of wireless data for some time. Their business models have not been evolving because of a non-competitive environment in the US. The consumer, as a result, has been suffering. Take a look at the mobile web on a normal everyday Verizon phone. The “home deck” will take you back to the 1990s. Why would anyone use such a service when rich, interactive, developed environments invite you on the real Internet. Yet the mobile phone is the device most people carry with them all the time.

I would expect that non-incumbent handset manufacturers would get on the Google bandwagon right quick if they win the spectrum. With little legacy carrier volume to protect, why not roll out the pipeline of devices that cannot be used in the US. Apple will probably make a good partner, after all Eric Schmidt is on their board. And what’s AT&T going to do, drop the iPhone? The second tier of US carriers could see the light and through their hat in the ring. I personally vote for Sprint, since they have shown the ability to deprioritize legacy voice revenue defense in favor of WiMax, a better last mile technology, but an open standard. Throw EBay and the trifecta of commerce, cash and communications (auctions, Paypal and Skype) into the mix and who knows where it can go.

I am wary of Google’s growing dominance and reach in various spaces (I recently saw a proposal for small business services from them). However in this case I am more wary and tired of the telco’s abusive consumer policies and the spoonfed pace of innovation in US wireless. Google and Co. would improve the consumer’s experience and drive new value on an already ubiquitous platform. More power to them.

Every couple of months I find it useful to do a wholesale survey of all emerging technologies and business models in the promotion, selling, and distribution of online porn. I learned in the Internet boom 90s that porn always leads the charge on distribution channels, pricing strategies and product structuring for content.

Good examples of past pornnovations that have made it to the broader markets include freemium pricing where the blue site will ask for a card number just before you see the goods. Freemium is now a common model for content ranging from job postings to childrens’ cartoons. Pornographers also were able to leverage the file-sharing networks to their advantage by overwhelming the networks with legitimate files from content providers and loading them up with advertisements for their sites. This flew in the face of the command and control legal battles that got the RIAA and MPAA skewered in the press. While these distribution strategies blazed trails, the product end of the skin business was busy beating us all to the Long Tail. The mainstreaming of fetish porn is the perfect example of leveraging a zero marginal cost customization platform. The same naked people, same cameras, slightly different activity, slightly different website and (drum roll) higher perceived value. You must admit that these guys are doing something right if kink.com is making the Times with bound up women getting spanked in color. Amazingly while pushing the long tail of porn into the distribution stream, porn has simultaneously become more of an everyday resource by de-sleazing the branding and discretely bringing itself into the home of the average Joe.

Taking their cue from a rich history of innovation and invention, the current crop of skin businesses have grabbed on to the Web’s 2.0 behaviors and capabilities in ways that non-porn companies could learn from. Take a look at how user generated content is being leveraged in porn. By creating a platform for home hobbyists, startups like YuVuTu (very NSFW) have grabbed a piece of the most profitable segment for professional porn production: the amateur segment. Without the costs of paying talent, this segment is a close parallel to the horror films that are being produced on shoestring budgets in the more traditional entertainment space. YuVuTu has taken this concept and blown it to shreds by allowing anyone to post in a YouTube-like environment with tagging and a host of social networking capabilities through blog embeds and user connections. Steve Jacobs, the founder of YuVuTu, feels like he has hit upon a space left open by the legitimate players such as Veoh and YouTube when they decided to eliminate porn from their sites.

The true innovation of YuVuTu (and it’s competitors, PornoTube, Xtube, GooTube) is that they built their services in partnership with the professional content providers who were concerned about piracy. By building in monetized content as well as free, they were able to build their databases of content more quickly and without obstruction from the incumbents. The porn industry has historically stayed profitable by sharing customers and traffic which is anathema to most traditional businesses, content and otherwise. So while the entertainment industry debates the business value of Google’s acquiring YouTube, the guys in the Valley are tangibly driving value. Mr. Jacobs also attests to having learned the lesson of the last generation of X-rated sites and taking the elimination of underage content extremely seriously.

As communication and content platforms evolve, pornography, which is how sex becomes content follows. The fact that smart and strategic business people are driving the industry shows how far the industry has come from the brown bag magazine delivery days. The industry has shown aplomb in handling regulatory issues, customer acquisition strategies as well as network economies. Now that we are more likely to find a Harvard degree hanging on the walls of porn management, I am looking forward to my next survey. Seriously.

I’ve been in the UK for the past week and what I have noticed most recently is that there are so many new and innovative retail concepts here. The US looks stodgy by comparison:

• Tesco kills Walmart in every way.
• Boots’ approach to health is much smarter than any US pharmacy retailer.
• Ladbrokes makes OTB look like a crackhouse.

“What is defensible about this concept?”

“Are there any opportunities to patent something technical about it and make it defensible?”

This was the rather sad discussion I had recently regarding a concept I’m pitching at Citi. It’s unfortunate that managers at companies are thinking this way about innovative new business ideas (and this guy was young, which made it even more saddo).
The notion that you enter the market with competitive advantage rather than earning it is a complete nonevent in the new consumer space. Investment capital is flowing and accessible. Technology can be matched at breathtaking speed leaving parity on that capability level. This leaves only the thorny arena of execution to differentiate oneself.
Dead set in the center of the execution is customer experience. More products have continued the shift to a service paradigm and consumers are more willing to seek out the quality experiences because can sort through overchoice with ever greater efficiency online. The same connectivity gives consumers the ability to take a superior experience and market it for you with their endorsement. It also gives the opportunity for the most vociferous customers: those who have not been satisfied. They will start blogs, post scathing reviews, hold group Skype chats and generally ruin the reputation of a business.

Brilliant customer experience is your defensibility and competitive advantage.