The Market Ticker
Commentary on The Capital Markets- Category [Company Specific]

You know you've gone from the ridiculous to the obscene when a company buys a web "property" that has as its claim to fame the broadcasting of people playing video games.

Really?

Really.  And let's not kid ourselves -- Amazon didn't buy the company because it makes gobs of money (it doesn't) it bought it because it is on the front end of an exponential adoption curve.  In other words, while costs are still (relatively) cheap to do what it does, and the fact that it earns nothing.  The actual capacity to earn a profit is considered immaterial.

It's worth a billion dollars to watch someone else play a video game?

I will note that it was worth billions to sell pet supplies over the Internet too.

In 1999.

View this entry with comments (registration required to post)
 

I have to chuckle at Amazon's ~3.5% stock rise this morning, coming on the back of an announcement that they're going to offer a competitor to "Square" and PayPal for "micro-POS" applications.

Amazon Local Register would allow local businesses to accept credit and debit card transactions from a smartphone or tablet. It requires users to download a new mobile app and attach an Amazon-provided card reader to their mobile device. Square and PayPal provide similar services.

The "gimmick" is a 1.75% discount rate for swiped transactions until 2016, at which point it will rise to 2.5%.

There's a problem with this business model: It's a money-loser.

The interchange costs exceed 1.75% and it gets especially bad with the ticket charge on small items, which is real.  The only way a bank or other financial institution can evade charging you a ticket fee (typically 50 cents or so) is if your ticket size is consistently large enough that they can absorb it in the discount rate without going broke.  

Note that it is broadly against merchant agreement rules to limit ticket size to "more than $X" for credit-card use; despite this many merchants do it for that exact reason -- the ticket fee eats them alive if you start charging $1.00 candy bars!

Square is barely hanging on with a 2.75% discount charge as it stands; PayPal has a material advantage here in that some percentage of their transactions are entirely internal or funded with bank account (ACH) transfers which are (much) cheaper for them to process.  But Amazon possess no internal funds structure that gives them a PayPal-like advantage and thus has a cost structure for this service much more like Square.

In other words they're going to lose money, and lots of it, particularly during this "promotional" period.

Here's the ugly reality of these systems, coming from a guy who has had a merchant relationship in one form or another since the late 1980s:  There is zero reason for any sort of "loyalty" to a merchant processor; there is no customer-facing advantage to one over another.

I remain amused by the premise that a company can enter line after line of zero-profit businesses, expanding expenses at a rate that exceeds revenues, and not get destroyed in the capital markets.  Apparently Bezos' Jesus halo has not yet completely worn off given the stock price reaction this morning, but even the most-charitable examination of the financial aspects of this "offering" show it to be utterly bankrupt -- and that's being kind.

View this entry with comments (registration required to post)
 

In short, what does it mean?

NEW YORK -- BlackBerry said Tuesday that it will acquire Secusmart, a German mobile security company. The purchase highlights how BlackBerry is doubling down on the enterprise as well as mobile security.

The two companies have been partners since 2009. The plan is for Secusmart, known recently for its anti-eavesdropping software, to become a core component of BlackBerry's security portfolio and enterprise mobility management pitch.

This company has a very cool little implementation -- it's basically an AES encryption chip (hardware-based) along with an authentication chip built into a standard micro-SD card envelope.  When plugged in you wind up with an authenticated crypto system that is then accessible over the SD interface, allowing encryption of voice.

One of the issues for mobile handsets is that current ARM processors prior to ARMv8 do not support hardware crypto.  Voice traffic requires fairly high performance in order to work reliably, so hardware acceleration is a must.

This also offloads the potential for contamination of the system crypto into the card, compartmentalizing that risk (and, if a problem is found, allowing fixing it without trashing the underlying device!)

I like it, in short.  This makes BlackBerry the only company with a demonstrably secure path forward for not only data communications but voice and SMS, and brings forward the potential for carrier-independent and cross-carrier secure transport in both government and enterprise environments.  

With a bit of work that capability might even be extensible to consumer users as well.

View this entry with comments (registration required to post)
 

Main Navigation
Full-Text Search & Archives
Archive Access
Get Adobe Flash player
Legal Disclaimer

The content on this site is provided without any warranty, express or implied. All opinions expressed on this site are those of the author and may contain errors or omissions.

NO MATERIAL HERE CONSTITUTES "INVESTMENT ADVICE" NOR IS IT A RECOMMENDATION TO BUY OR SELL ANY FINANCIAL INSTRUMENT, INCLUDING BUT NOT LIMITED TO STOCKS, OPTIONS, BONDS OR FUTURES.

The author may have a position in any company or security mentioned herein. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility.

Market charts, when present, used with permission of TD Ameritrade/ThinkOrSwim Inc. Neither TD Ameritrade or ThinkOrSwim have reviewed, approved or disapproved any content herein.

The Market Ticker content may be reproduced or excerpted online for non-commercial purposes provided full attribution is given and the original article source is linked to. Please contact Karl Denninger for reprint permission in other media or for commercial use.

Submissions or tips on matters of economic or political interest may be sent "over the transom" to The Editor at any time. To be considered for publication your submission must include full and correct contact information and be related to an economic or political matter of the day. All submissions become the property of The Market Ticker.