Uber, France and Protectionism

France moves to ban Uber while homegrown ridesharing service BlaBlaCar continues to grow.

Carsharing service (or unlicensed taxi service, depending on who’s talking) Uber has faced enourmous regulatory hurdles where local taxi cartels try to protect themselves from the popular service. Europe is no exception as several there is a movement in several countries to stop or regulate or extract fees from Uber. However, Europe has lagged the U.S. in startup activity and success and has taken action against many prominent U.S. tech companies, such as the recent antitrust actions against Google and previous antitrust actions against Microsoft that seem so quaint now.

With that backdrop, let’s take a look at France and Uber.

The French government recently declared that some of Uber’s services would be banned in 2015. Like many places, there are some consumer protection rationales.

““Currently, those who use UberPop are not protected in case of an accident,” Mr. Brandet told the French news channel BFM TV, on Monday. “So not only is it illegal to offer the service, but for the consumer, it’s a real danger.””

Anyone anywhere who has ever taken a licensed cab knows this is silly. The real answer? Regulation and protection of a local cartel.

“Critics contend that the service represents unfair competition for other taxi operators, and falls afoul of many licensing rules across Europe. That has led cities across Europe, including Brussels and Berlin, to outlaw the budget car service.”

But what happens if a local company makes good?

“The 28-year-old student is one of a growing number of people across France relying on ride-sharing to travel long distances. Driving the change is a homegrown startup called BlaBlaCar that is challenging state-run railway monopoly SNCF by creating an alternative transport network out of empty car seats.”

Is longer distance safer? What about how everyone loves European trains and how every U.S. city wishing to be considered “world class” wants more trains?

It turns out that when given a choice, people prefer not to take public transportation.

“BlaBlaCar’s ascent has come partly on the back of a deteriorating public-transport system across the continent.”

Even better:

“Its business model responds to the flaws in train travel his association has been complaining about for years: high prices and bad service . . .”

It makes you think that maybe a homegrown company has advantages over a foreign company providing what the local authorities cannot.

Or maybe they simply don’t like it when people make money in an unregulated environment.

“Because it keeps fees so low that drivers are sharing costs rather than making profit, the company argues it is quite different from a company like Uber, which also uses some nonprofessional drivers and bills itself as “ride-sharing.”

“There has been such a hijacking of the word ‘ride-sharing,’ ” said Mr. Brusson. “The key is about the driver not making a profit, and the driver going to his destination anyway.””

And yet, BlaBlaCar has business aspirations, as long as the drivers don’t make money.

“BlaBlaCar was originally called covoiturage.fr—simply the French word for “carpooling”—but its founders changed the name to BlaBlaCar to ease international expansion with a non-French brand they could own.”

Uber
France moves to ban Uber while homegrown ridesharing service BlaBlaCar continues to grow.

Miss Me Yet?

They say absence makes the heart grow fonder.  Its been since April.  You must be really fond.  Lots of interesting developments I should be covering more regularly.  “More regularly” is a sliding scale, of course.

Better Than Bitcoin? Fund Manager Discusses Disruptive Tech In Finance

Former co-head of largest bond fund discusses what can really disrupt entrenched businesses.

Logo - Bitcoin
Not the most disruptive finance technology.

Kicking Bitcoin while its down, Mohamed El-Erian penned an article for CNBC about how technology is taking on finance. In his words “via a democratization process that could gradually reconfigure a notable part of the institutional landscape, particularly in consumer finance, while challenging regulators to adapt.”

While most people would think “Bitcoin,” El-Erian doesn’t even consider it a good example. He claims its impact, “both actual and potential, is relatively limited when compared to ongoing attempts to enhance and democratize lending, borrowing, investing, and payments and settlements.”

El-Erian notes his take on the sequence for disruptive tech:

  • A bold innovation suddenly lowers entry barriers for certain activities;
  • Mechanisms emerge to enable a larger part of the population to participate in what is deemed desirable but, until now, had been hard to access;
  • As the disruptive forces gain traction, existing business models face difficult adaptation challenges, and regulators begin to fall behind; and
  • The situation is often amplified by a natural human tendency to overproduce and over-consume hitherto restricted goods and services.

He sees this happening in finance, though the pace is less frantic and less disruptive. According to El-Erian, examples include:

  • Internet-driven lending and borrwoing clubs
  • peer-to-peer initiatives in consumer financial services
  • Digital wallets
  • Mobile transfers

He suggests that they reduce costs and provide “fairer risk-pooling outcomes and better credit underwriting.” He doesn’t mention that none of these ideas are particularly new. He does mention that the prospects for each vary considerably.

While this was not the most insightful article on the subject, it is hard to dismiss El-Erian’s statements, given his former position as CEO and CIO of PIMCO, home of the largest bond fund.

General Mills Pushes Boundaries With Online Terms and Conditions

General Mills gets a lesson ‘bout messin’ with legal rights in overbearing Terms and Conditions.

Logo - Lucky Charms
"Like" this on Facebook for a coupon and waiver of legal liability.

Almost anyone who has put up a website is guilty: Your “Terms and Conditions,” “Terms of Use,” “Legal Matters” or “Legal Terms” section is over the top.

Sure, you want to be protected. Or, at least, you want to feel protected.

However, you may face a severe backlash from the people you are courting as customers.

Case in point: General Mills.

General Mills slipped some language into their Legal Rights that said customers,

“give up their right to sue the company if they download coupons, “join” it in online communities like Facebook, enter a company-sponsored sweepstakes or contest or interact with it in a variety of other ways.”

Instead, if you derive any sort of benefit, you are stuck with email negotiation or arbitration for any dispute. That $0.50 coupon for Wheaties is looking kinda expensive now, isn’t it?

General Mills backtracked the language, explaining:

“There’s no mention of arbitration, and the arbitration provisions we had posted were never enforced. Nor will they be. We stipulate for all purposes that our recent Legal Terms have been terminated, that the arbitration provisions are void, and that they are not, and never have been, of any legal effect.”

Then they added, “That last bit is from our lawyers.” Always blame the lawyers.

General Mills spokesperson explained that they never imagined this reaction. “Never considered it” is probably more accurate.

She continued to explain:

“Similar terms are common in all sorts of consumer contracts, and arbitration clauses don’t cause anyone to waive a valid legal claim [Ed: Um, sometimes they do.]. They only specify a cost-effective means of resolving such matters [Ed: Um, not always.]. At no time was anyone ever precluded from suing us by purchasing one of our products at a store or liking one of our Facebook pages. That was either a mischaracterization – or just very misunderstood. Not that any of that matters now.”

Translation: You, Customers, didn’t read it correctly, but we are changing it anyway.

Good for General Mills for listening to customer complaints, but you’d think they would have been more diplomatic about it. How about the truth: “We overreached and didn’t think any of our customers would ever notice, at least until they tried to sue us. Since there are plaintiffs lawyers and public interest groups that pay attention to this sort of thing, word got out. Sorry about that. We’re changing back.”

Here is the current page for General Mills’ Legal terms.

 

Going Solo – BLS Reports More Americans Quitting Their Jobs For The Freelance Economy

More Americans going solo in the Freelance Economy as culture shifts from “get comfy job” to “I’ll make my own job.”

Noting recent Bureau of Labor Statistics reports, Bplans reports that the number of Americans quitting their jobs is at a 5-year high.  This is related to a reported rise in entrepreneurial activity.

I am not surprised, as the Freelance Economy offers great opportunity and flexibility to the ambitious and talented.

While the economy was hurting, people were staying in their jobs as fear kept them in place.  People now feel more confident about landing well if they quit, whether it is for another job or to create their own job.

“We’re currently in the midst of a major cultural shift—48 percent of Americans want to be entrepreneurs today. While past generations believed that the best and safest path was through a long career at a big, stable company, those in the workforce now don’t see it that way at all. The financial crisis called into question the entire notion of job security, as “stable jobs” were lost and “stable companies” turned out to be anything but.

Nowadays, many people are of the mindset that entrepreneurship is actually the more secure path. Instead of putting yourself at the mercy of layoffs and watching the heads of the company you work for make bad decisions, entrepreneurship means taking your fate into your own hands.”

According to Bplans, this is a trend that spans generations.

“A whopping 63 percent of 20-somethings want to start their own businesses, according to a recent survey…

According to the Kauffman Foundation, the 55+ age group is the fastest growing demographic of entrepreneurs. “Encore careers” are becoming more and more common, as retirees want to stay active and supplement their retirement income at the same time.”

“Encore careers.”  I like it.

Spanning the divide of the millenials and the AARP set are the  baby boomers under retirement age, and the 25% of them who want to go entreprenurial.

Is it just economic conditions that are pushing folks into the Freelance Economy?  Nope.

Technology is making entrepreneurship accessible, from reducing cost to promoting ease of use.

“It costs almost nothing to build a basic web page, and you can set up a whole business infrastructure for under $100 a month. Virtual help desks, for example, allow small companies to offer world-class customer service without adding a whole customer service team to the payroll.”

In this regard, Bplans believes that “we are entering into a new golden age of entrepreneurship in America.”

From this solo practitioner, it is hard to argue.

Why Startups Fail – Mint vs. Wesabe

In an old blog entry (that I just found), one of the founders of Wesabe thinks back to why his company lost to Mint.com and shut down. For those who don’t remember, Mint was high-flying personal finance site that was sold to Intuit in 2009 for about $170 million.

Wesabe and Mint
Wesabe and Mint went head-to-head. Mint won. Here's why.

Marc Hedlund writes an honest article about his take on why Wesabe eventually shut down.  First, he knocks out four myths, including that Mint launched first, had a better name and design and went viral.

Then, Hedlund discusses what he saw were the drivers behind the success of one and the failure of another.  At the end of the day, it comes down to familiar themes recognized by those of us who work with businesses, particularly startups.

“I think in this case, Mint totally won at the first (making users happy quickly), and we both totally failed at the second (actually helping people).”

Mint gave people what they wanted and made it easy.  Wesabe wanted to help people change their financial behavior, which is a value judgment with which the consumer himself/herself may disagree.

Hedlund notes that some of the things founders obsess over are really not important:

“You’ll hear a lot about why company A won and company B lost in any market, and in my experience, a lot of the theories thrown about – even or especially by the participants – are utter crap. A domain name doesn’t win you a market; launching second or fifth or tenth doesn’t lose you a market. You can’t blame your competitors or your board or the lack of or excess of investment.”

He does get to the crux of the issue about how to succeed:

“Focus on what really matters: making users happy with your product as quickly as you can, and helping them as much as you can after that.  If you do those better than anyone else out there you’ll win.”

That’s it.  Give people what they want to meet their needs and solve their problems.

Hedlund still believes that there are problems to be solved.  However, imposing your judgment on people’s behavior will not have the same success as meeting people’s needs and desires.

“So, yeah. Changing people’s behavior is really hard. No one in this market succeeded at doing so – there is no Google nor Amazon of personal finance. Can you succeed where we failed? Please do – the problems are absolutely huge and the help consumers have is absolutely abysmal. Learn from the above and go help people (after making them immediately happy, first).”

 

Nasdaq Launches Market for Private Companies

Nasdaq debutes market for private companies, taking aim at SecondMarket and others.

Logo - Nasdaq
Nasdaq launches marketplace for private companies.

Most people are familiar with Nasdaq as a stock exchange for many well known public companies.  Most people would like to forget Nasdaq for its handling of the Facebook IPO, but that’s another story.

For private companies, even those with shares held by many people, it is difficult for their shareholders to find a buyer for their shares.  Buyers often have a difficult time finding a way to invest in those companies if the Company is not offering directly to them on a private basis.

Nasdaq has launched a new capital marketplace for private companies that it claims will provide “qualifying” companies the tools and resources “to efficiently raise capital, control secondary transactions, and manage their equity-related functions.”  Nasdaq refers to it as a “platform for controlled liquidity.”

To qualify, a company must have one of the following:

  • funding of $30 million within the last 2 years and an enterprise value of $50 million, based on the most recent financing round
  • Total assets of $50 million and annual revenue of $50 million in the latest fiscal year or 2 of the last 3 fiscal years
  • shareholders’ equity of $5 million and a two-year operating history
  • backing by a recognized financial investor with a track record of successful venture investments

The qualifying company will be subject to governance and reporting requirements.

Nasdaq is taking aim at SecondMarket and the burgeoning market for secondary transactions and the coming deluge of crowdfunding and other platforms for private company finance that people have been predicting since the passage of the JOBS Act.  For their sake, I hope it goes better than the PORTAL market did way back when.

Local Taxes – This Is What It Has Come To

Selfies are now tax records as generations collide.

Local tax compliance is tricky, particularly for small firm and solo professionals.

When I was at Big Firm, I lived and worked in Dallas.  I paid income tax in Georgia, New York, North Carolina and Virginia (and probably a couple of other states) as well as a few foreign countries that I have never visited.  Over the course of the last several years, I spent one day in New York City and never so much as set foot in the other jurisdictions.  It doesn’t matter because I was a partner at a firm that did business in those states, and therefore, I did business in those states.

This brings us to Andrew Jarvis, an architect who works out of Philadelphia and New York.  Taxes are even higher for New York residents than for out of state people so he adjusted his schedule to make sure he was on in New York City less than 182 days per year.

Do you think New York is lenient with these rules?  How do you prove it?

Jarvis would take time-stamped pictures of himself in Philly by the train station or with a newspaper in hand.  This is in addition to the time honored practice of collected receipts.

In the grand tradition of older and younger generations teaching each other, Jarvis taught his daughter the value of recordkeeping and (probably) the reality of living under an oppressive tax regime, while Jarvis’ daughter taught him to post his pictures on Instagram.

Penny Stock Fraud – Why Penny Stock Email Promotions Are Bad For You

SEC Logo
SEC cracks down on microcap securities fraud.

Like me, you may get bombarded with long email ads for some penny stock.  They always tout how the stock is about to break out from $0.01/share to $0.05 or $10.00/share.

Did you ever get the sense that these may be scams.  Gadzooks!  Say it ain’t so!

The SEC today announced fraud charges and an asset freeze against the promoter of AwesomePennyStocks.com, a frequent trash dumper into my email accounts.

It charges that John Babikian used his sites for a “scalping” scam with the stock of America West Resources Inc. (AWSRQ).  AWSRQ was low priced and thinly traded.  Babikian fired off about 700,000 emails touting the stock.  However, he failed to disclose that he owned 1.4 million shares of AWSRQ and was ready to sell them through a Swiss bank.  The stock took off, and he made “ill-gotten” gains of more than $1.9 million.

The Babikian case is another example of the SEC’s focus on microcap stock fraud.

“The Enforcement Division, including its Microcap Fraud Task Force, is intensely focused on the scourge of microcap fraud and is aggressively working to root out microcap fraudsters who make their living by preying on unwitting investors,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.

Proving that the SEC has some teeth when it needs them,

The court’s order, among other things, freezes Babikian’s assets, temporarily restrains him from further similar misconduct, requires an accounting, prohibits document alteration or destruction, and expedites discovery.  Pursuant to the order, the SEC has taken immediate action to freeze Babikian’s U.S. assets, which include the proceeds of the sale of a fractional interest in an airplane that Babikian had been attempting to have wired to an offshore bank, two homes in the Los Angeles area, and agricultural property in Oregon.

 

Bitcoin Ban – U.S. Senator Demands Regulators Ban Bitcoin

Bitcoin ban urged by Sen. Manchin, previously best known for a compaign commercial where he used a shotgun to shoot a copy of the Cap and Trade bill.

Senator Joe Manchin (D-WV) sent a letter to federal regulators demanding a ban on Bitcoin.

Should we be surprised?  Well, as one particularly brilliant commentator stated:

“There has been a lot of news lately about the efforts of a variety of U.S. regulators to understand Bitcoin, and these regulators are not in the business of exempting financial products that compete with government issued currencies or act outside of the established financial regulatory environment. . .

As a result of all of the above, there is substantial expense and risk in using and accepting Bitcoins, as there should be a risk premium attached due to the very real possibility that the U.S. and other governments could shut them down.”

Other countries, such as China, India, Japan and Russia have either moved to ban or restrict Bitcoin or have threatened to do so.

In addition, Bitcoin has been under review in the U.S. as well.

And now, we have a U.S. Senator urging an outright ban because Bitcoin is unregulated (which is arguable, but for reasons we don’t need to get into here).

As Sen. You-Kids-Get-Off-My-Lawn said, Bitcoin is:

“highly unstable and disruptive to our economy. For the reasons outlined below, I urge regulators to take appropriate action to limit the abilities of this highly unstable currency.”

He is also using the criminal use of Bitcoin as an excuse.  He discussed the “deflationary nature” of Bitcoin, technical problems around Mt. Gox (which I cannot believe he understands in the least) and volatility as other reasons to ban it.  He even trotted out the Consumer Price Index!

He also had to include a softball to “hard-working Americans” in his letter in his final hit:

“The clear ends of Bitcoin for either transacting in illegal goods and services or speculative gambling make me weary of its use.  The Senate Homeland Security and Governmental Affairs Committee issued a report just this month stating, “There is widespread concern about the Bitcoin system’s possible impact on national currencies, its potential for criminal misuse, and the implications of its use for taxation.” Before the U.S. gets too far behind the curve on this important topic, I urge the regulators to work together, act quickly, and prohibit this dangerous currency from harming hard-working Americans.”

If the “clear ends of Bitcoin” are for illicit activities, why not put the risk of deflationary pressures and volatility on the persons engaging in such activities?  Whatever.

Bitcoin’s pricing will smooth out once there is greater acceptance in the marketplace.  It should not surprise anyone that a relatively new currency experiences volatility or that a new technology experiences some bugs.  The early adopters will absorb the early losses, and changes addressing the early problems may generate the trust that allows for widespread usage.

However, as I have said from the beginning, the risk of Bitcoin lies not with technology or the vagaries of market pricing.  The risk of Bitcoin lies with regulation.  The U.S. government is not in the business of allowing non-government sanctioned currencies or payment channels to exist.

Sen. Marlboro Man gets tough with a pile of paper.