Fred Wilson’s avc.com blog is must view material for me.  Fred is a part of Union Square Ventures and has a knack for seeing 2 – 4 years ahead.  His predictions for 2015 make for great conversation among those who pay attention to technology trends.

From Fred’s blog, http://www.avc.com / Jan 1, 2015

What Is Going To Happen

As always when Tom Friedman discusses Washing DC issue, I say to myself, “We should all write Tom in for President.”

#yougetwhatyouelect

See Bottom of post for Jan 2015 Update

See Bottom of post for July 2016 Update

Oct 2014

Facts:

1)  Changes in technology and regulation have made the Margin Trading Products (“MTP”) industry’s dominant retail trading platform (MetaQuotes’ MT4 Platform) an increasingly smaller part of the software stack that a brokerage needs.

2) Most technology and services components in the software stack charge based on total volumes traded, MetaQuotes charges installation fee plus a very moderate monthly Support fee ($1,500/month).

3) MetaQuotes’s sales are down 30% year over year even as MTP industry sees increased volumes, and increased number of brokers operation.

Question:

What changes, if any, should MetaQuotes make to their sales strategies?

Answers:

Answer A (MetaQuotes Actions)  = Publicly announce they will no longer offer discounts on their $100,000 list price software.  They will no longer discount additional servers to existing clients.  This will cause fewer and fewer start up brokerage firms to license this software platform and they will look to newer platforms.  This also negatively effects the larges of the company’s clients who used to be able to grow their own brokerage business by adding less expensive second, third and fourth platforms from the dominant platform provider.  Now even as a growing, existing client, you would get the same terms for a third, fourth or fifth platform as a start up would pay for their first.  This is just a horrible sales strategy.

Answer B (My suggestion)  The answer is to increase the previously mentioned moderate monthly support fees charged.  Once a brokerage has taken on a trading platform, their elasticity of demand gets quite low.  Increasing the monthly support fees from $1,500 to $3,000 is a small percentage change to a brokerage doing anywhere from $50,000 to $500,000 per month.  And it is a fixed cost that the broker can easily plan for and absorb.  Or make a variable Support Fee structure such that as the Broker grows and their reliance and usage of the Support team increases, they will pay an accordingly increased amount for their monthly Support.  One could even make the razors & blades analogy that the dominant platform provider should be giving their platform to the brokers at the bare minimum costs they can afford to offer, and mark up the monthly support greatly.  That would help them keep their dominant market share (Want to operate a brokerage?  Here is a free retail trading platform.)  It would also increase the gross revenues per brokerage client on any brokerage that operates for more than 14 months or so (my calculations)

Jan 2015 Update:

MetaQuotes has raised their monthly support fees by 33% and backed off their policy of not discounting purchase prices on their platform.  (Did they read this post?)

July 2016 Update:

Metaquotes is (re) launching their follow up to MT4, the MT5 platform.  This platform was first released 6 years ago and made very little headway in the market.  MetaQuotes has made some changes to MT5 to make it more appealing to their core base of users and more like the beloved MT4 platform.  I am not yet sure of their sales/marketing strategy for MT5, but I would like to think MetaQuotes will work in tandem with their existing MT4 brokerage firms.  Find an incentive plan to get the brokers to adopt MT5 and convert MT4 users to MT5.

I will add here something I have spoken of to many in the Margin Trading Products (“MTP”) industry previously.  MetaQuotes made a bad mistake when first launching MT5.  They used a single marketing strategy to the outside world.  But they needed a two-pronged approach.  MetaQuotes blasted the brokerage and the retail trading communities with materials that discussed the “multi-asset platform”, the “position-based” accounting, and the gates ways that link to certain global exchanges.  All those features are appealing to brokerage firms in the MTP industry as they all have grand ambitions to expand their offerings.

But to a retail trader, these words are just confusing.  MT4’s success came from it’s simplicity, and from the ability to simply code up an “Expert Advisor” (read as: simple algo).  MT5 did not have the compatibility to transfer Expert Advisors from MT4 to MT5.  Confusing terminology and lacking a key feature killed the initial launch of MT5.  MetaQuotes should have used a separate marketing campaign directed at the end users of the platforms that talked about the similarities between the beloved MT4 and the new MT5.  That MT5 was simply a “better” MT4.  That would have helped drive end user demand for MT5, which in-turn would have driven the brokers’ demand for MT5.  Instead, MetaQuotes marketing plan relied on selling MT5 to brokerages who would then have to force unwilling clients to switch from MT4 to MT5.

Lets see how they fare this time around.

Arise

Nourish

Think

Write

Create

Play

Love

Rest

While posting elsewhere, my stream of thought led me to use the word, “smartcut”, which was contrasted with shortcut.

I like it and am going to keep it in my personal lexicon.

No preamble here…just a good read and valuable discussion from Mark Suster’s blog.

http://www.bothsidesofthetable.com/2014/08/30/here-is-how-to-make-sense-of-conflicting-startup-advice/

I recall reading about Yesware when they started up a few years ago.  SaaS, Sales process improvement, lots of good things.  I did not follow progress of the company and did not even take a freemium version (I use Base CRM and believe them to be the best at what they do.  Their mobile app is awesome).  But I thought this summary of Yesware and their business model in the NYT was great.

PS – Hire a dedicated VP of Sales

I got a bit obsessed last night with the concept of “grit”.  The ability to stay focused and grind out a process to get to your desired outcome no matter the obstacles.  Lots of recent (2 years or so) research showing that being able to categorize “grit” makes for better ability to predict success of individuals in life or in specific events.  Some good reading on the ability to purposefully increase one’s inner “grit”.  I am just going to post a few links below.  Be forewarned, you may get into a whirlpool of continuing link-reading as I have last night.

http://www.edutopia.org/blog/true-grit-measure-teach-success-vicki-davis

http://mindsetonline.com/whatisit/about/index.html

Click to access 12-item%20Grit%20Scale.05312011.pdf

Across the globe Russia’s President (seemingly for life), Vladimir Putin, is being vilified in news outlets and person-to-person discussions for Russia’s actions towards Crimea and now Ukraine.  Russia has openly defied the US on the issue of Syria, and in recent years effectively annexed a major Shell Oil facility in Siberia.  Russia’s actions in the past few years, and notably in the last 8 months show a real divide between Russia and the rest of the planet.  Yet the Russian people are overwhelmingly in favor of Putin these days;  Approval ratings as high as 83% per an NBC poll just two weeks ago.  How can it be that a leader who is making enemies with much of the outside world can be hailed as great leader inside the country?  The answer is a willingness to believe in lies and the culture that has been built up in the last 15 years of Putin’s rule.  Lies are OK to the Russian people.  They know they are not getting the truth, but they do not care to seek the truth.  Ordinary Russian’s lives have benefited greatly in the last 15 years with average income up a remarkable 10 fold!  So who cares if you are lied to; keep on growing my standard of living and I will conveniently ignore that which does not seem true.

And now we see the same thin in the world of Foreign Exchange trading.  For the last 6 months we see firms and global exchanges reporting smaller and smaller trading volumes.  The major Japanese brokers are down each month.  The global futures exchanges are down month over month for multiple months.  FX volatility measures are at lows we have not seen for 12 years.  Yet miraculously, the Moscow Futures Exchange (MOEX) notes FX volumes up another 15% month over month, and the smattering of Russian brokerage firms large enough to garner any attention are having their largest trading volume months ever!  Self-reporting trading volumes that have grown over 50% in the last 9 months.  So while the rest of the planet experiences sharp retractions, the Russian firms are seeing their highest growth periods ever?

It seems the tactics the the government of Russia have seeped into the commercial structure of the country.  You can take the Russian data out of Russian brokers, but you can not take the “Russia” out of the data.

Krugman’s recipient piece in the New York Times has the following quote, “But that hasn’t been happening; yes, there’s a slight uptick in some U.S. inflation measures, but nothing out there that suggests an interest rate that is way too low in this macroeconomic sense.” as he discussed low interest rates and increasing asset prices.

It may be time to re-define inflation.  As Krugman notes in his column, “…the price of just about every asset category is now high by historical standards. Bond prices in “safe” countries are very high, which is the same thing as saying that interest rates are very low. But so are prices of risky sovereign debt — Paul De Grauwe points out that Spain’s borrowing costs are now the same as Britain’s. Corporate bond rates are low; stock prices are high; all across the board, assets are up.”

So asset prices are higher, but traditional measures of inflation are not.

Hmmm.   When a person’s assets increase, I see them spend more.  401K had a great year like 2013?  I guess you can afford the new car a year early.  That bond fund that you bought to generate income has now increased in value as well?  Pack the kids up, we are heading to Disneyworld.  Homes in your town are up 4% last year?  Tough not to incorporate that positive sentiment into your financial planning.

But much of that which we consume does not increase in price as fast as our assets.  BMW leases are lower this year than last year (due to the lower interest costs), flights to Orlando are cheaper now than last year even though fuel prices are up for the airlines.  My new laptop costs a lot less (and is more powerful) than the previous model.

The traditional measure of inflation looks at the money we spend year on year on certain items.  But maybe inflation needs to be re-examined.  I did not spend any more money this year, but I consumed a lot more in 2014 (so far) than in 2013.  So maybe inflation needs to be calculated as a percentage of disposable income?

I am not against the ability to get more by spending less.  I do benefit from the high asset prices and the low interest rates that have been in place the last few years.  But I believe that there are natural economic cycles; that there has to be bad times to have good times; that monetary and fiscal policy can not create an ever increasingly parabolic graph of economic growth.

And therefore if we continue to prime the pump (as Greenspan did through out the 90’s and early 00’s), we are due to have a harder fall when the bad times kick in (early 00’s and late 07 – 09).  If monetary and fiscal policy are “artificially” keeping interest rates low again, when is the next fall due and how hard will it strike?