Hettinga's three laws of internet payment technology investment: 1. Geodesic, peer-to-peer transactions. 2. Three orders of magnitude cost reduction. 3. Nothing but net. The application of the above to Cybercash, or SET, for that matter, I leave as an exercise for the reader... Cheers, Bob Hettinga --- begin forwarded text Delivered-To: ignition-point@majordomo.pobox.com X-Sender: believer@telepath.com Date: Sun, 05 Jul 1998 13:53:40 -0500 To: believer@telepath.com From: believer@telepath.com Subject: IP: "CyberCash can't oust credit cards" Mime-Version: 1.0 Sender: owner-ignition-point@majordomo.pobox.com Precedence: list Reply-To: believer@telepath.com Source: Charlotte (N.C.) Observer (printing a Washington Post article) Posted at 3:32 p.m. EDT Friday, July 3, 1998 CyberCash can't oust credit cards By MARK LEIBOVICH The Washington Post WASHINGTON -- Two years ago, CyberCash Inc. walked tall as a pioneer in the seemingly vast frontier of Internet commerce. Today, the Reston, Va., firm and its software that lets merchants receive payments over the Internet offers a cautionary lesson in how social habits in the digital age are difficult to predict -- and dicey to stake a business on. On Tuesday, CyberCash announced that its second-quarter revenue would be below expectations, and that it would lay off 20 percent of its staff. The news sent its stock price into a decline -- the latest to strike the company. Once trading in the $60 range, it fell steadily this week to finish at $11.12 1/2. The hard times come even as CyberCash has tried to tone down its aspirations and diversify into a more conventional business, the processing of credit-card transactions in ordinary stores. The moral, said Ulric Weil, a technology analyst at investment bank Friedman, Billings Ramsey Co. in Arlington, Va., is: ``It's always hard to bet on the purchasing mores of consumers.'' William N. ``Bill'' Melton, one of Northern Virginia's most accomplished technology entrepreneurs, envisioned a world of paperless purchasing when he founded CyberCash in August 1994. In this world, Internet users would purchase goods and services using new ``virtual currencies,'' such as CyberCoin, a CyberCash product that allows online purchases of up to $20 at a time by transferring funds from a credit card or bank account to an account that CyberCash oversaw. Few people bought anything with this virtual currency at first, but the market was patient. In the speculative world of Internet stocks, the potential for this commerce seemed limitless, and CyberCash was an instant Wall Street hit. Company shares, first offered to the public for $17 in February 1996, were trading at more than $60 by that June. But today, investors are tired of waiting. The predicted rush to electronic currency remains a mere trickle and what little there is generally uses plain-old credit card transactions, not a fancy new currency. For now, consumers shopping online merely want to use something they know and trust for payment, the credit card, not an entirely new form of currency. After this week's layoff, which involved about 20 positions in the Washington area, CyberCash has about 200 employees. It remains unprofitable, having reported a loss of $5.67 million on sales of $1.14 million in the January-March quarter. If life weren't uncertain enough in Reston, speculation was rampant this week among analysts who follow the company that its low stock price was making it a ripe takeover target. These predictions were fueled further by the company's announcement Tuesday that its board of directors had adopted a new shareholders rights, or ``poison pill,'' plan, which companies typically use to deter unwanted takeover bids. In this case, if an outside entity attempted to purchase a stake in CyberCash that exceeded 15 percent, the company board could invoke the provision -- at which point CyberCash shareholders would win the right to purchase company shares at a greatly discounted price. For a potential buyer, this would make CyberCash far more expensive. Russ Stevenson, CyberCash's general counsel, said the new provision was not related to the company's recent struggles, and that the timing of its adoption was coincidental. In a statement, CyberCash said the poison pill did not come in response to an acquisition proposal. James J. Condon, the company's chief operations officer, would not comment on whether CyberCash was in discussions to be acquired, citing a company policy ``never to comment'' on potential acquisitions. Melton, CyberCash's president and chief executive, was traveling Thursday and could not be reached for comment. CyberCash's recent woes stem in part from its May acquisition of ICverify Inc., an Oakland, Calif., company that makes credit-card processing software. CyberCash, which purchased ICverify for $57 million in cash and stock, hoped to complement its own technology with ICverify's more conventional ``point of sale'' software, which helps retailers process credit card transactions in shops and other commercial establishments. Entering the ``point of sale'' market was a way for CyberCash to hedge its bets against the uncertain future of electronic commerce, analysts said. ``This gave (CyberCash) a piece of the physical point of payment, as well as the electronic point of payment,'' said Scott Smith, an Internet commerce analyst at Current Analysis Inc. in Sterling. With the addition of ICverify, Condon said, CyberCash could now offer a full package of payment software to potential customers. They could now provide, say, a clothing retailer, the tools to process both in-person credit card transactions as well as Internet credit card purchases. But the ICverify acquisition proved a difficult transition. In recent months, analysts said, some customers of both companies have frozen their accounts, saying they were unsure about which transaction software they would deploy in the future. ``The ICverify transaction resulted in customers taking a close look at what direction they wanted to go in,'' said Weil. Condon said he expects this to be a short-term problem. He said he has spoken to several customers who plan to continue their accounts shortly. People who follow CyberCash generally agree on two things: that if the company can hang on long enough for electronic payments to become a widespread phenomenon, it will be well positioned to cash in. They also say the company has a strong, tenacious management team in place, led by Melton. ``He is the rock the company is built on, and he's committed to the company's success,'' said Smith. ``I don't see anyone there who is ready to back down.'' But in the end, Weil said, the future of CyberCash might rest with forces beyond its control. ``You can't change the psyche of consumers,'' he said. ``CyberCash doesn't have that kind of influence.'' ----------------------- NOTE: In accordance with Title 17 U.S.C. section 107, this material is distributed without profit or payment to those who have expressed a prior interest in receiving this information for non-profit research and educational purposes only. ----------------------- ********************************************** To subscribe or unsubscribe, email: majordomo@majordomo.pobox.com with the message: (un)subscribe ignition-point email@address ********************************************** www.telepath.com/believer ********************************************** --- end forwarded text ----------------- Robert A. Hettinga <mailto: rah@philodox.com> Philodox Financial Technology Evangelism <http://www.philodox.com/> 44 Farquhar Street, Boston, MA 02131 USA "... however it may deserve respect for its usefulness and antiquity, [predicting the end of the world] has not been found agreeable to experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire' The Philodox Symposium on Digital Bearer Transaction Settlement July 23-24, 1998: <http://www.philodox.com/symposiuminfo.html>