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Venture Capitalist Sounds Alarm on Startup Investing
Silicon Valley Has Taken on Too Much Risk, Gurley Says

MK-CP310_GURLEY_G_20140914165552

By YOREE KOH and ROLFE WINKLER CONNECT
Updated Sept. 15, 2014 3:17 a.m. ET

Venture capitalist Bill Gurley, shown in 2010, says cash-burn rates at tech startups are alarmingly high. Bloomberg News
Silicon Valley is a risk-driven place. But over the past year, it may have taken on more than it can handle, according to one prominent venture capitalist.

“I think that Silicon Valley as a whole, or that the venture-capital community or startup community, is taking on an excessive amount of risk right now—unprecedented since ’99,” said Bill Gurley, a partner at Benchmark, referring to the last tech bubble.

Mr. Gurley, who often voices his opinions on his blog, Above the Crowd, sat down with The Wall Street Journal as part of a Journal event series called “Tech Under the Hood.” The investor in Uber, Zillow, OpenTable and other Web startups spoke on a wide range of topics. What follows is an edited excerpt of a conversation specifically about potential cracks in the tech-startup investing scene.

WSJ: I want to read you something from your blog. You quoted Warren Buffett’s famous quote, “Be fearful when others are greedy and greedy when others are fearful.” And then you wrote: “Although we may have not reached the level of observing obvious greediness, there is most certainly an absence of fear. Those that managed companies in 2008, or 13 years ago in 2001, know exactly how fear feels. And this is not it.” What did you mean by that?

WSJD is the Journal’s home for tech news, analysis and product reviews.

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Mr. Gurley: Every incremental day that goes past I have this feeling a little bit more. I think that Silicon Valley as a whole or that the venture-capital community or startup community is taking on an excessive amount of risk right now. Unprecedented since ‘’99. In some ways less silly than ’99 and in other ways more silly than in ’99. I love the Buffett quote because it lays it out. No one’s fearful, everyone’s greedy, and it will eventually end. And there are reasons, which might take all night to explain, why this business is cyclical over time, and the more chance you have to see different cycles and to see how it slips away, you can see it.

There’s a phrase that I love: “discounted risk.” Do people discount risk? Right now you’ve got private companies raising $200, $400, $500 million. If you’re in a competitive ecosystem and you raise that amount of money, the only way you use it—because these companies are all human-based, they’re not like building stores—is to take your burn up.

And I guarantee you two things: One, the average burn rate at the average venture-backed company in Silicon Valley is at an all-time high since ’99 and maybe in many industries higher than in ’99. And two, more humans in Silicon Valley are working for money-losing companies than have been in 15 years, and that’s a form of discounted risk.

In ’01 or ’09, you just wouldn’t go take a job at a company that’s burning $4 million a month. Today everyone does it without thinking.

WSJ: Because the equity looks so valuable?

Mr. Gurley: Yeah, it’s a whole bunch of things. But you just slowly forget, and half of the entrepreneurs today, or maybe more—60% or 70%—weren’t around in ’99, so they have no muscle memory whatsoever.

So risk just keeps going higher, higher and higher. The problem is that because you get there slowly the correcting is really hard and catastrophic. Right now, the cost of capital is super low here. If the environment were to change dramatically, the types of gymnastics that it would require companies to readjust their spend is massive. So I worry about it constantly.

WSJ: You used the word silly—a lot of silly stuff going on since ’99. Give us an example.

Mr. Gurley: I’ll give you something that’s tactical. Part of it is why it’s cyclical right. For the first time since ’99, in the past 12 months, I’ve been in board meetings where the company says, “Our only option is a 10-year lease,” at record pricing on a per square foot basis here in San Francisco, which is two or three times what the rent was three years ago. And so this is why it’s all cyclical—because the landlords get greedy. They wouldn’t do a 10-year lease if they thought that the rates were low. So they’re implicitly telling you they want to lock this in for 10 years, which is its own form of greed because what happened in ’99 is half the companies went bankrupt and they couldn’t pay the lease over the 10-year period.

Anyway, it’s those kinds of things that happen. The most obvious one is just the acceptable burn rate. And that can be seriously, negatively reinforced by the capital market. In the software-as-a-service world, where the risk is potentially among the highest, Wall Street has said it’s OK to lose tons of money as a public company. So what happens in the board rooms of all the private companies is they say, “Did you see that? Did you see they went out and they’re losing tons of money and they’re worth a billion. We should spend more money.” And there are people knocking on their door saying, “Do you want more money, do you want more money?”

So it takes the burn rate up.

WSJ: As a result, is Benchmark pulling back?

Mr. Gurley: There are two types of answers to that question. How do we go about investing on a day-to-day basis in terms of new things? And I happen to believe that innovation happens more continuously, even though there are financial cycles, so you can’t afford not to be out on the field. But I do think you want to look out for what is the long-term viability of something. I’d much prefer to do a Series A [funding deal] right now than I would later-stage because of this type of risk. So that’s one type of answer.

The other type of answer is what you advise your companies to do. That’s really difficult because if you have a competitor that’s going to double or triple down on sales and you just decide, “Oh, well I’m not going to execute bad business decisions, I’m just going to sit back,” you lose market share. So, choosing not to play the game on the field doesn’t work, so you’re left with trying to advise someone to be pragmatically aggressive with some type of conservative backdrop or alternative strategy in case the world shifts. But it’s hard.

WSJ: And you see people apps like Yo or Snapchat. These things get hefty valuations but in reality what we’re talking about right now is eyeballs. And once upon a time I remember people were really intrigued by eyeballs, and that didn’t work out.

Mr. Gurley: I don’t have that criticism as much simply because we’ve seen so many proven cases now of taking huge market share and then monetizing. That was said against Facebook, FB -3.74% and that was said against Twitter. TWTR -5.24% I think the jury is out on our sale of Instagram and whether we sold it too soon. And so I don’t necessarily buy into the well, you’re not monetizing so it’s not valuable.’ And I guess [WhatsApp's sale to Facebook for $19 billion] is another data point.

But I think it’s different to employ a bunch of people when you don’t have the wherewithal to fund yourself through and what type of risk are you taking (in that situation). Anyway, it’s something I think about constantly. And, unfortunately, I’ve come to believe that bad business behavior is coincidental with the best of times in our field.

WSJ: What do you mean by that?

Mr. Gurley: So, the crazier things get, the worse people execute. I was thinking of writing this so I’ll test it out on this group.

So I took my family down to the Galapagos this summer and read this book on the way down there called “The Beak of the Finch” which is about this couple that has lived on Daphne Island for 40 years studying the finch. And, amazingly, when there are huge El Niño years and floods bring tons of food to this island, the finch population goes up like three or four times. Inevitably, when the rains are normal the next season there is massive death. Simply because once you get the food level back to a sustainable level. So, from a fitness perspective, excessive amounts of food lead to a lower average fitness and I think the same thing happens here.

Excessive amounts of capital lead to a lower average fitness because fitness, from a business standpoint, has to be cash-flow profitability or the ability to generate cash flow. That’s the essence of equity value. And so I think we get further and further away from that in the headiest of times.

WSJ: So who loses? Who is way ahead of themselves? Name some names.

Mr. Gurley: That’s obviously loaded. I do think there is a high likelihood that we’ll see some high-profile failures in the next year or two. I actually think that could be healthy for the ecosystem. You remember in March when the IPO window closed for like three weeks and everyone thought that the world was coming to an end? Like you really have to work hard to remember it because it reversed itself so quickly. I think having events like that can lead to sanity.

And another element is—that most people don’t think about—liquidation preference. This is pretty technical, but liq preference piles up on a startup. It’s not common stock, it’s preferred, and it has a debt-like element on the ability to get your money back. So if your liq-preference stack gets so big it makes it is really hard to raise the next incremental round of financing, unless you have some kind of financial behavior that says it definitely should be worth more. They calcify a bit. That’s probably the right metaphor.

WSJ: So what does that mean exactly? Last in, first out?

Mr. Gurley: Sometimes that happens when terms shift. But at the very least, your return horizon might be impacted by, you know, now we’ve got private companies raising between $200 million and $1 billion. If the company ends up being worth not that much, then you don’t even get your money back. And your return payout at different points on the horizon may be negatively impacted by the fact that so many people could take their money back instead.

So one of the first things that happens when that starts to become a problem is that you start to see derivative terms, which gets to what you were talking about—first money out. And those things are guaranteed returns against an IPO or some type of debt. You have creeping PIK dividends (dividends paid in preferred stock), that kind of thing. And that then starts to change your return profile for everyone underneath it.

Write to Yoree Koh at yoree.koh@wsj.com and Rolfe Winkler at rolfe.winkler@wsj.com

 

For institutional investors, keeping secrets for long is an impossible task. The Securities and Exchange Commission requires these entities to file a 13F, a quarterly filing required of investment managers of assets of $100 million or more, which contains information regarding the asset manager’s investment style and potentially even a list of equities owned.

It’s a good gauge of what an investment company did in the last quarter. Taking a look back at prior quarters can paint a fairly accurate picture of what direction they’re assuming the market will take and how they’re positioning themselves to prepare – long, short, equities, derivatives, and so on.

When an investor like George Soros suddenly increases a bearish position by 605% in a quarter, it raises more than a few eyebrows.

For the quarter ending on June 30th, Soros Fund Management reported a large investment in puts, options that give an investor the right, but not the obligation, to sell a security at a given price, for an ETF that tracks the S&P 500.

Breaking Down Soros’ Position

Normally, a large investment firm will place hedges on positions, whether long or short, in order to mitigate risk. However, Soros increased his put position from 1.6 million to 11.29 million shares. That’s the equivalent of going from $299 million to $2.2 billion in notional value.

Skeptical investors dismiss any worries about an imminent market collapse due to the fact the Soros added to a few holdings like Facebook (NASDAQ:FB) and Apple (NASDAQ:AAPL) as well as added 182 brand new stocks. They believe his short position is simply a hedge or part of a longer term trading strategy.

I’m not sure it’s that simple. Soros’ total short position leaped from 2.96% to 16.65% making it the largest part of his holdings for the second quarter. That doesn’t sound like a hedge, it sounds like bearish speculation.

If we closely examine the stocks he did add to, it’s clear he’s preparing for a worst-case scenario. Soros doubled down on gold mining ETF’s and added plenty of gold-based companies to his portfolio. He increased his position in Market Vectors Gold Miners ETF to 2.05 million shares worth around $54 million from 1.16 million shares in the first quarter. He also established a call option investment worth 1.33 million shares of the Gold Miners ETF.

The gold addition is telling. Gold is an asset class that’s typically bought as a hedge against inflation or economic uncertainty. Real interest rates are in danger of becoming negative with the inflation rate at 2% and the yield on the 10-year treasury at around 2.33%. That means the inflation-adjusted rate of return is a scant 0.33%. If that figure declines, gold could see a rally, but that doesn’t appear to be Soros’s line of thinking.

The general consensus is that gold prices will actually fall in the next twelve months. Goldman Sachs estimates that gold will fall to $1,050 an ounce, a drop of nearly 19%. Speculators have pared back stakes in gold futures by 15% for the week ending August 5th as well.

So if Soros isn’t adding gold to his portfolio as a bullish sentiment, then the only reason left is as a hedge against a bear market. But one firm, albeit a well-known one, establishing hedges and speculating on a market declines isn’t enough for us to question the strength of the 5-year bull market yet.

Following In Soros’ Footsteps

George Soros is perhaps most famous for his trade made back in 1992 when he shorted the British Pound for a net gain of $2 billion and forced the Bank of England to devalue the currency. When he takes steps to leverage himself to profit from a downfall, investors tend to take notice.

Other major players share Soros’ feelings on gold. Hedge fund Pauslon & Co. owns 10.2 million shares of the SPDR Gold Trust (NYSEARCA:GLD) worth $1.21 billion and held on to his position for the second quarter making no new changes. Other companies have a bullish opinion about the precious metal as well like BlackRock Global and U.S. Global Investors. It’s enough to wonder what they know that Wall Street doesn’t.

Two of the most popular stocks for institutional investors have been Facebook and Apple, both of which were bought in greater numbers by numerous companies in the last quarter. At first glance, such a move may seem to indicate a bullish sentiment by so-called “smart money,” but there’s more to these companies than meets the eye.

Both companies have their attention on the Chinese marketplace as the next great growth opportunity. China’s market though, appears to be bracing for a fall. As counter-intuitive as it may sound, that doesn’t necessarily bode ill for these companies. The Chinese market has rallied on both good and bad news which could mean the government will step in with stimulus to support prices.

The world’s second largest economy is preparing for slowing growth and government intervention while the U.S. markets continue to hit new highs every week. There seems to be a disconnect on Wall Street and investors should be cautious.

To Follow, Or Not To Follow?

Many investors follow 13F filings as if it were a Wall Street cheat sheet. Following the moves of “smart money” should be a beneficial strategy according to their thinking process, but they fail to take into account several downsides.

First of all, the 13F reports are always a look back at what institutional investors did in the prior quarter, not a play-by-play breakdown of current strategies. Attempts to mimic a 13F means always being behind the curve.

The other big drawback is that hedge funds and other money management firm are often quite large and invest in ways that the retail investor cannot and should not. Strategies can include equities, bonds, derivatives, currencies, swaps, and other exotic instruments that work in tandem for large sums of money. Just to initiate a position in the futures market usually costs at least $50,000 making the strategies of firms investing in these markets much different than the appropriate strategies for every-day investors.

Still, there are takeaways to investment changes like the one’s Soros Fund Management made.

Concern for a market pullback is not just idle speculation. Here’s a few things to consider:

    • Bull markets historically last about 5 years – 2014 marks year number 5 for the current bull run.
    • The average S&P 500 P/E ratio is 15 while the current P/E is nearly 20.
    • The strongest sector of the year has been Utilities, typically a defensive sector that performs well in recessionary stages, at 15% YTD.
    • The weakest sector of the year has been Consumer Cyclicals, typically strong in market expansions, at just 0.23% YTD.

Combine these facts with the strong short moves George Soros made and a picture of a bear may begin to form in your head. Investors should consider this a warning notice to begin protecting your portfolio with appropriate hedges like covered calls and puts. Caution is recommended in this environment and you can be sure that we’ll be keeping a close eye on what Mr. Soros does in the third quarter this year.

http://seekingalpha.com/article/2465215-george-soros-is-betting-against-the-market-and-why-investors-should-take-notice

Which iPhone Should You Buy?

phil schiller iphone models

AP

The complete iPhone line.

In the past, buying an iPhone was as easy as walking into the store, grabbing the newest model, and going on your way. Not this year.

For the first time in Apple’s history, it has a genuinely diverse iPhone line. It is selling an iPhone 5C, 5S, 6, and 6 Plus. And all four phones are very good.

This means consumers in the market for an iPhone have a tough decision to make when it comes to which phone to purchase.

Since preorders start Friday, I decided to put together this guide to help anyone in the market for a new phone.

Before digging into the current phones, let’s talk about you. How rich are you? If money is no object, then you can skip the following section and just read about the iPhone 6 and the iPhone 6 Plus. If money is an object, then read on.

WHAT PHONE DO YOU HAVE RIGHT NOW?

iphone 5 broken

Flickr/MSVG

If your phone looks like this, then upgrade.

Do you have an iPhone 4S or earlier? If the answer is yes, then you should definitely get a new iPhone.

If you have an iPhone 5 or iPhone 5S, and the phone is in good condition, you may not need to upgrade. The iPhone 5S is an excellent phone. The only drawback is that it has a smaller screen. If a bigger screen is really important to you, then you should upgrade. But if you’re happy with the 5S, then you should hold out for another year. Next year’s iPhone 6S will be better than the iPhone 6.

If you have an iPhone 5 and you’re on a contract and you’re eligible for an upgrade, then you should probably get a new phone. You can sell your iPhone 5 on Craigslist, or eBay, for ~$200, which effectively makes the cost of upgrading $0.

If you’re not on a contract, then it’s a bit more complicated. The iPhone 5 is a good phone that should still be working fine. If you don’t yearn for a bigger screen, then you can probably squeeze another year out of the phone. (And, again, next year’s iPhone is going to be better.)

What if you — gasp — have an Android phone? Apple CEO Tim Cook says you’ll have “a better life” if you get an iPhone. That’s a bit strong, but you will get a better selection of apps. A friend of mine who owns an Android phone was pestering me over Labor Day to write a story about how Android owners don’t get new features for apps until long after iPhone owners.

I like the iPhone and iOS better than Android. But, it’s a matter of taste. If you’re happy with Android, then stick with it. If you hate Android, then now is a good time to bail since Apple has bigger phones with better features.

With that out of the way, let’s explore the iPhone options. One thing to note: I have not used these phones. I have used every iPhone design since it was released and they’ve all been pretty good. I have tested all sorts of Android phones at various screen sizes, so I have a good idea about what you’ll be getting from Apple.

SHOULD YOU BUY THE IPHONE 6 PLUS?

iphone 6

Steve Kovach/Business Insider

The iPhone 6 Plus is the most expensive phone in the lineup. The entry level model is $299 on a two-year contract.

It’s also the biggest with a 5.5-inch screen. It has the highest-resolution screen too. Apple is using the large screen to offer unique software options, like a keyboard that has dedicated keys for copy and paste and new display options for content. It also has a bigger battery and slightly longer battery life than other iPhones.

The iPhone 6 Plus is the phone I plan to buy. A few years ago I got a Samsung Note II at a Samsung event. It has a 5.5-inch screen. At first, I was inclined to dismiss the phone as too big and goofy. But the more I used it, the more I fell in love with the big screen.

If you’re the sort of person who lives on your phone, then you should get the iPhone 6 Plus. I use my phone from the time I get up to the time I go to bed. I check email and Twitter on it constantly. I do a lot of reading on my phone. My iPhone is a minicomputer and so I want a big screen. I have an iPad Mini, and I think I’m going to sell the iPad Mini and go all in on the big iPhone.

When you hold the phone to your head to make a call you might look funny, but so what? How many calls do you really make? I use headphones half the time I make calls, so this isn’t that big of a deal.

Two other concerns people have about the big phone: Is it too big for my hands, and is too big for my pockets? Let’s tackle those in reverse order.

The phone fits in your pocket, no problem. Because this is Apple, the phone is thinner than thin, so it won’t be too bulky. However, it is going to be a bit large. Personally, my phone is often out of my pockets. If I’m at work, I have it on my desk. If I am on the train, I am holding it and using it. If I am in a car, I use it for maps and directions. If I am at home on the couch, I usually have it out to surf the web while watching TV. If this sounds like you, then it’s no biggie. But if you keep your phone in your pocket all the time, it might be a problem. My colleague Steve Kovach tested the iPhone 6 Plus at the Apple event on Tuesday and said it fit in his jeans pocket perfectly.

As for hand size … that could be a problem! There is no question that a bigger phone is going to be harder to maneuver. If you’re really worried about this, go to the Apple Store when the phones are out and try picking up the 6 Plus. If it’s too much it’s too much. I’m over 6 feet tall, and, I guess, have hands that correspond with that size. I don’t think the bigger phone is much of a problem. Sometimes it will be clunky, but life is a series of trade-offs, I think it’s the bigger screen is worth it.

Both new iPhones also have a special one-handed mode that pops the top portion of the screen down so you can reach it with your thumb. You just lightly tap the home button twice to do it:

Bottom line: Buy the iPhone 6 Plus if you live on your phone. It’s a great size, and it’s better than owning a tablet. Don’t buy it if you have small hands, and you don’t live and die with your iPhone.

SHOULD YOU BUY THE IPHONE 6?

iphone 6

Steve Kovach/Business Insider

The iPhone 6 has a 4.7-inch screen, which is probably the best screen size for most people. It’s not too big and it’s not too small. The entry-level iPhone 6 costs $199 with a two-year contract. If you’re due for an upgrade and you want the next model iPhone, this is probably the phone you should buy.

The iPhone 6 has a new A8 chip, which Apple says is faster than last year’s A7 chip. It has an M8 chip, which tracks your motion to keep track of steps. It also has a barometer, so it can tell how high you’ve gone, counting the stairs you’ve climbed. The camera is also upgraded, likely making it the best smartphone camera on the market. (Of course, all of this is on the iPhone 6 Plus, too.)

There are two reasons to go with the iPhone 6 over the 6 Plus — price and screen size. If you want to save a little money and you don’t want the bigger screen, then this is the phone for you.

The only other difference between the 6 or 6 Plus besides screen size is the camera. The iPhone 6 Plus camera has better video stabilization than the iPhone 6. It’s a minor feature that most people won’t really notice or care about, but probably something you should know if you plan to shoot a lot of video.

Bottom line: The iPhone 6 is the replacement for the iPhone 5S. If you just want the latest greatest iPhone with no compromises, this is the phone for you. Don’t buy it if you want a giant screen or if you like the current size of the iPhone.

SHOULD YOU BUY THE IPHONE 5S?

What if you don’t want a really big screen? What if you like the current 4-inch screen? You’re in luck.

Apple will be selling the iPhone 5S for $99 with a two-year contract. The iPhone 5S is a great phone. Unlike in year’s past, it doesn’t feel like the 5S is significantly worse than the phone that’s replacing it. The 5S has a fingerprint scanner and a motion tracker, just like the iPhone 6. The iPhone 6 is slightly faster, and its motion tracker is slightly better, but it doesn’t seem like it’s that big of a deal. The camera on the iPhone 6 is slightly better, but not significantly so.

If you don’t want a big screen and you’d like to save some money, the iPhone 5S is the phone for you. It’s a really good phone, and if you use a 5S for the next two to three years, you won’t be let down.

Bottom line: Buy the iPhone 5S if you don’t want a big screen. Don’t buy it if you do want the big screen.

SHOULD YOU BUY THE IPHONE 5C?

iPhone 5C back

Steve Kovach/Business Insider

The iPhone 5C is a very good entry-level phone. It has a 4-inch screen. It doesn’t have any of the bells and whistles of the other models. If you are on a limited budget, you want a small screen, and you like colors, this is the phone for you. It’s $0 with a two-year contract, and it works pretty well.

The risk is that it’s going to be obsolete in a few years. If you plan to have the phone for the next two to three years, then it’s worth paying $100 to $200 for a better phone. If you don’t use your phone much, or your just want a hold over for a year or two, then get the 5C. In yellow. Be bold!

Bottom line: If you don’t have much money, or don’t care about screen sizes, or you don’t care about the latest features, get this one.

WHAT COLOR AND WHAT LEVEL OF STORAGE?

apple iPhone tim cook

Apple/Screenshot

By now, you’ve decided which phone is for you.

What color should you get? It’s up to you really. But if you want me to make a decision for you, here’s my advice:

  • iPhone 6 Plus in black/space grey
  • iPhone 6 in white/silver
  • 5S in white/gold
  • iPhone 5C in yellow

As for storage, I recommend getting the midtier, which is 64 GB for the 6 and 6 Plus. If you’re getting a 5S or a 5C, then that’s 32 GB. These things are great for taking photos and video. Unfortunately, that stuff takes up a lot of storage space, so it’s worth paying the extra $100 to get the space.

If you have questions, ask in the comments and I’ll do my best to answer them.

September 11 2001 – 9/11 10th Anniversary Animated Typography Memorial

 

 

https://www.youtube.com/watch?v=sRS7uknu0rw

God Bless them!!

Delta Baggage Handlers.

This will give you goose bumps or tears! This is done at D/FW International Airport.

As you watch the video, notice the number of people watching from inside the terminal.

Most people have no idea Delta does this.
http://www.youtube.com/embed/c_VGxfmDmEo

All The Pieces Are In Place For Apple To Change The Way We Shop

buying ipod apple store

Chris Hondros/Getty Images

Cash is so old school.

On September 9, Apple is expected to unveil a new iPhone as well as a smartwatch.But just as significant — if not moreso — is the payment platform they are expected to announce. After years of speculation, Apple seems ready to finally tackle mobile payments, turning the iPhone into a wallet.

This isn’t the first time tech companies have tried to take over your wallet. Google Wallet, which lets you pay for stuff with an Android phone, has failed to reach critical mass since its launch in 2011.

Square, once heralded as “Silicon Valley’s Next Great Company”, isn’t the ubiquitous payment startup many thought it would be.

And Isis, a mobile payments system backed by U.S. wireless carriers, is almost nonexistent. (It was just rebranded to Softcard to distance itself from the terrorist group.)

Because of these bumps, the notion of using your phone in lieu of a credit card is foreign to most consumers.

Mobile Payments Usage

Jackdaw Research

Mobile payments are still niche — for now.

Apple’s is about to change that. Here’s why.

Timing

Apple has a reputation for quality, but it’s rarely the first to enter a new product category.

“When Google launched [Google Wallet] they thought they could do it by force of will,” said Vibes CTO John Haro in an interview with Business Insider.

Vibes is a mobile marketing tech company that works with retailers to create loyalty cards and tickets for Google Wallet as well as Apple’s Passbook app.

Creating a successful payment platform is often seen as a chicken-and-egg problem.

In order to galvanize consumer adoption, companies need their virtual wallet to work in a wide range or retailers and merchants. But those merchants won’t adopt new technology unless they see it catching on with their customers.

For Apple, this has meant sitting on the sidelines and waiting for merchants to upgrade their point of sale (POS) terminals. When Google Wallet launched in 2011, retailers still had relatively outdated credit card readers. They could swipe your card and let you input a PIN, but that’s about it. But more and more retailers are upgrading their POS terminals to include Near Field Communication (NFC), the technology that lets two devices communicate just by tapping them together.

“I think Apple has waited and many POS systems have been upgraded to support NFC,” said Haro.

NFC will almost certainly be integrated in Apple’s new iPhones and the new wearable computing device, according to several reports. On Thursday, The Wall Street Journal reported that the so-called iWatch will have NFC. Wired, Re/code, and others have reported that the iPhone 6 will have NFC too. That technology will be a huge part of Apple’s push into mobile payments.

Apple hasn’t put all of its eggs in the NFC basket. Haro expects Apple’s payment platform to use a combination of NFC, Bluetooth, and iBeacon technology so that consumers can use their smartphones for purchases at a wide range of stores.

Duane Reade iBeacon Locations

Google Maps

These NYC Duane Reade stores have been ready for mobile payments since May.

iBeacons let iOS devices communicate and transmit information within a certain distance of each other. Apple hasn’t done much with this yet, but it has the potential for different interactions depending on how close you are to the next iBeacon.

What’s more, iPads are increasingly becoming POS terminals themselves. Since iPads can act as iBeacons, they will automatically be ready for seamless purchases once the platform is up and running.

This brings us to the second reason Apple’s platform is going to blow up.

Partnerships

This week Apple was rumored to be bringing its payment platform to Nordstrom, a luxury retailer worth over $13 billion.

9 to 5 Mac’s Mark Gurman has reported that Apple talked with “retail store chains” about coming on board with its payment platform. He doesn’t name names — in order to protect his sources — but expect to hear about a partnership with the likes of Starbucks or Nike sometime next week.

It’s not just about retailers either.

On Thursday we learned that Apple has been negotiating with big banks — JP Morgan, Citigroup, and others — to secure discounted credit card transaction fees. This is a big step for Apple. It convinced financial institutions of its platform’s security.

Apple has also brought the major cardholders on board. VISA, American Express, and Mastercard have all agreed to work with the “iWallet” so to speak.

Retailers? Check. Card holders? Check. Banks? Check check check.

Plus, Apple already has the largest credit card database in the world — some 800 million accounts — on file and ready to go through iTunes.

Apple’s timing and partnerships alone would probably be enough to create a hit product. But there’s one more piece to the puzzle.

Security

Touch ID Usage

BII

Touch ID is popular with iPhone 5S users.

When Apple released the iPhone 5S last September, it debuted Touch ID, a fingerprint sensor that takes the place of your lock screen passcode. This single feature is the linchpin of Apple’s payment security strategy.

“All of your payment information will be stored on the [phone] in such a way that even developers won’t have access to your payment info,” said Haro, referring to what insiders call a “secure enclave” for your virtual wallet.

Touch ID won’t be the only thing keeping your money safe, either.

GPS tracking will act as an additional layer of protection for your hard-earned cash.

“There’s a lot of interest out there for consumers to lighten their wallet,” said Haro. “Even if you’re not using [Apple's system], I think people will become aware that this exists.”

It could even be more secure than a regular credit card. If you lose your wallet or someone steals it, a thief is free to swipe away with your credit cards. But if you lose your iPhone or someone steals it, a thief is out of luck unless he manages to steal your finger too.

In short, while others have tried and failed to make mobile payments go mainstream, Apple appears to have put all the pieces in place to make sure it’s ready to go at a massive scale from day one.

cropped-prayersforkate2

Golden
by Kate’s Krew –  The story of Kate’s journey by her family.

Our family has been following and supporting Kate and other Cancer children.  Please take time to read, go to her website and provide whatever support you can.  Their smile is bright and the support of all gives them HOPE.

http://katescrew.com/2014/09/01/golden/

gold-ribbon-childhood-cancer

I told my mom yesterday that a blog post was forming. That I couldn’t concentrate because so many thoughts were spinning around in my head…I just needed to WRITE. But I can’t. I have nothing to put down in a blog that conveys the profound sadness I feel over losing yet another beautiful young soul to this terrible disease called cancer.

There are some people…in this case, children…who you meet that you just think “oh! They’re the one who will defy odds! She will be the one who will live beyond doctors’ wildest expectations! He will be the first one cured!” These kids, wise beyond their years, steal your heart with their pleas of more funding, better research…a cure. But the thing that makes it even more painful is that they’re not just doing it for themselves. They’re doing it for the other kids just like them, whose diagnosis might NOT be terminal from day one. Maybe, just maybe, their voices will be heard and they will be the ones who make it so that YOUR child doesn’t have to suffer their same fate.

Today is September 1st and it’s the first day of childhood cancer awareness month. Today I will mourn the passing of another beautiful child gone too soon, who is now dancing around the golden heavens with her other friends…also taken too soon. Children should never make their way to heaven at this age and they CERTAINLY should not be met by other friends of the same age. This is why we need more funding, better research and a CURE.

Nature’s first green is gold, Her hardest hue to hold. Her early leaf’s a flower; But only so an hour. Then leaf subsides to leaf . So Eden sank to grief, So dawn goes down to day. Nothing gold can stay.

~Robert Frost

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