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IP: "CyberCash can't oust credit cards"
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
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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.''
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-----------------
Robert A. Hettinga <mailto: [email protected]>
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>