IBM @ SXSWi 2012: Interview with Mark Schulze

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WATSON: Hello, there.
This is Todd "Turbo" Watson at the IBM Future
of Social Business Lounge here at South by Southwest 2012.
I'm here with Mark Schulze, who is the business development vice president for Clover Mobile.
Thank you very much for being with us today.
SCHULZE: Thank you.
WATSON: I actually ran into Mark and met him
in that long interminable line waiting to get our respective badges.
So we had a nice opportunity to catch up and get to know one another.
So, what I thought I would do, Mark, is just have you talk
to our friendly IBM social business audience out there about kind of the state
of the mobile industry in San Francisco and the Bay Area, because that seems to be where a lot
of great things are happening in this space.
SCHULZE: Yes, right.
It's clearly taken off.
And I saw the last dot-com boom, and it has some similarities
but also some striking differences as well.
Very clearly, the features and the functionality that the handset has brought,
everything from GPS to things like fast steps, switching subtle changes or changing
and allowing multitudes of entrepreneurs to come
up with really fundamental changes in the way we do business.
I think we're only at the very beginning right now.
I think we're only at the very...just the very tip of innovation
that we're going to see moving forward.
WATSON: So what are some of the...I mean, I have observed from afar it seems like some
of the differences are a lot of these companies now the infrastructure and barriers
to entry are much lower because of the build out of the cloud and a lot of the telco.
So you can kind of push some of the economics aside there.
But you've still got labor and talent.
It's really moving up the value chain, I would suspect has been the biggest opportunity
and challenge, to try to find the talent to build the things that you need to build.
SCHULZE: Yes, no, it's completely true.
In many ways, it's almost like the intellectual talent has been amplified how much more
important it is, because you have many, many fewer people and you need
to leverage really good people to get products done.
I think in the first dot-com boon, sort of an aside, you're also seeing a lot more companies
in San Francisco than there used to be during the first dot-com boom.
In the first dot-com boom, many of them were down in Silicon Valley, more in suburban areas
where there are large office parks and the like.
And I think the reason for that was back then when you started a company
in many cases you'd have to write the software layers on top
of which you wrote your applications.
And not only that, but you'd have to build your server centers, and you'd have to build out
and make sure you have enough space and cooling to actually put together machines.
But now between the cloud and all the services companies
that have written all these different software layers, it's much easier just to get three
or four people and a bright idea and build something out,
whereas in the past you might have needed 25 or 30 people
to write all these additional layers and functionality.
WATSON: And you needed a bigger check to get started.
SCHULZE: A much bigger check and you needed a lot more space.
So, that's why I think in particular San Francisco over the last couple of years,
has become really so vibrant and so exciting, because it's quite easy to just find space
for five people, but it's quite difficult to find space for 40.
WATSON: Yes.
SCHULZE: The other thing that's happening is the shared workspace is kind of a revolution.
It's almost like a cloud for people, right?
[ LAUGHTER ]
WATSON: I like that.
SCHULZE: Where you can put the talent...you can really just find an office
and you might share with other people and that's fine, but that's really made,
that's sort of the flexibility has really made a difference for these startup businesses.
WATSON: Very cool.
So, are we seeing a mobile bubble emerge at all; or,
is it because of these factors you've cited --
lower barrier to entry in terms of infrastructure and cost --
that there's less of the helium that we saw in dot-com?
SCHULZE: I don't...well, I think there's two reasons we're not seeing a bubble.
The first is, you can't have a bubble when everyone's talking about a bubble.
If everyone says, this is a bubble, then bubbles come when you don't expect them, essentially.
And nobody sees them.
And if half the population thinks there is one, then that's going to depress valuations,
people aren't going to invest as much, and that will kind of keep the lid on things.
I think the other side of it is that you're not seeing the massive investments, right?
Because you can start a company now, there's...I know scores, hundreds of companies
that got started with two or three people and a $50,000 investment from an accelerator,
from a VC, from a group of angels, whomever it might be.
But that's very common now...
WATSON: Wow.
SCHULZE: ...in Silicon Valley, to see a company started
on $50,000, you build a prototype.
If it works, then you take it out and you try to raise a million, right?
So you can really put some fuel on the fire and try to ramp it.
Gone are the days of having an idea and raising $20 million.
And so in that sense, there are a lot of $50,000 checks being handed out,
but I think at the same time, the people doing that are fully cognizant
that they might make 50 investments and 40, you know, might not really go anywhere.
And five might be sold for what you invested, and then maybe you'd have a few successes
that will pay for the rest of the investments.
WATSON: So, can you get a deal right now if you're not a mobile play?
Are there any other areas that you would call out?
SCHULZE: There's a lot of innovation around big data, so there's a ton of companies
that instead of the flat file revolution where people moved off of some
of the traditional database hierarchies and moved towards more
of a flexible data infrastructure where you'd have the capability using Hadoop and some
of these other new technologies to parse and churn through vast quantities of data
to find learnings for a myriad of things, I think that's a very fertile ground.
There's a lot of innovation still around memory, believe it or not.
So there's still a lot of innovation around hardware in the memory space in particular,
companies like Fusion-io and Violin and others there are right at the forefront
of moving everybody off disk drives to flash memory.
WATSON: Hallelujah.
SCHULZE: Yes.
[ LAUGHTER ]
WATSON: Maybe we'd turn to just sort of the contours of mobile.
You've got geolocation as a key thread, I think.
The thread that you're in at Clover, which is mobile commerce.
I would venture to say mobile entertainment could be its own thread.
Am I missing any big key threads in the mobile space there?
Because I'm not as close to it as you are.
SCHULZE: Well, I'm in the payment space.
There's a tremendous amount of activity around mobile payments.
But I think you more or less nailed it.
They're entertainment, geolocation.
All those things are important and people are going to continue to think
of more innovative applications of those technologies.
And I think...I'm sure that in a year you're going to be using an app you rely
on that we can't even think of today.
And it probably uses all the features that are in the phone today,
and it's just it took someone or a few people in a room to go, oh,
this would be a really interesting application for that.
So there's more to come.
WATSON: So you shared with me when we were waiting in line,
I don't remember the exact data point, but hopefully this will ring a bell.
You suggested that there was some vendor out there or partner or somebody who was getting all
of this data and yet it was clear with all their mobile transactions they were not getting much
in the way of commerce because there was no payment system.
I don't know if you remember that, but if you do or you don't, include it.
But then, that's a perfect segue into Clover and what the value prop is there.
SCHULZE: Yes.
So, Clover, we actually started a little bit differently.
We were looking at playing in the e-commerce space,
and what we found is...it was a mobile e-commerce play.
And what we found is that we're able to get people to download their app,
and we're able to get them to shop with it and things.
But they wouldn't buy anything.
And we thought, well, gosh, why is that?
And we realized it's just very difficult to check out.
So we started to, you know, pull out your credit card, type it into a phone.
[ LAUGHTER ]
So, we started talking to other merchants, e-commerce merchants.
And we talked to one, and we said, hey, what's your mobile traffic like?
And he goes, oh, 25 percent of my traffic's mobile and it's growing like that.
WATSON: Yes, there you go, yes.
SCHULZE: And we said, what's your revenue?
He goes, I don't know.
Nobody knows.
Nobody knows.
This is very consistent.
WATSON: A quarter of your traffic just...
SCHULZE: A quarter of your traffic, three percent...
WATSON: Over the cliff.
SCHULZE: ...he called his analyst, three percent of his revenue.
And we've talked to people who do extensive email marketing, and they're telling us that,
oh, my conversions on my e-mail were crashing.
I couldn't figure out why.
Well, it's because people are reading the emails on their phone, they click to convert
and they can't check out or they give up, they walk away.
And so what Clover did is we said, hey, let's imagine there was no web, it was phone only.
Would you need things like a username and password for authentication?
No, you have a device, you have a phone number.
It's hard...you can't spoof a phone number.
I can't steal your phone number without complicit, you know,
okay from Verizon or AT&T or whomever.
And so what Clover does is we actually have an app
that is the authentication device for payments.
So if you're on the web, mobile web, iOS, Android platform and you want to buy something,
buy now, opens our app, says, are you okay to pay for this?
Yes. Close the app, purchase complete.
So we're trying to innovate in that space and make it...and bring the sort of velocity
to mobile e-commerce as we see on the web today.
WATSON: So, you were talking about one other feature.
SCHULZE: It's a coming problem.
WATSON: You told me about another feature that I wanted to bring up.
You know, Scott owes me some money, and how can I use Clover to have him send me that money?
SCHULZE: So, Clover also has a peer-to-peer application.
So, once you have the app that keeps your receipts for things you buy,
and you can also request or send money to people who have the app or who don't have the app.
So as long as Scott has a smartphone, you can literally through Clover just text message him,
we'll send a link, and the text message will say, hey, Scott, you owe me $10.
I prefer to use Clover.
Scott clicks on it, he downloads the app, and he can fund you and pay you back immediately.
And I used that recently.
Someone owed me $65, I did a favor, I bought something for him.
He was in Hawaii.
I texted him.
I got my money, and he didn't have Clover, I got my money in five minutes.
WATSON: I love it.
One last thing.
I'm going to ask you the same question I asked Steve Wozniak the other day when we were
out in Vegas: Android versus iOS.
I've seen you're an iOS-er, but what's your prognostication of that overall market?
Is it a fait accompli that Android is going to eventually dominate?
Or is there maybe somebody else out there we don't even know about?
SCHULZE: I don't know about somebody else.
It's always possible that Microsoft
with their new platform could move in or someone along those lines.
No evidence of that yet.
Android is going to continue to grow.
I think the iOS platform just because of the simplicity and the uniformity
of it will always appeal to a large audience.
I think Android has some problems.
Android has some consistent problems of monetization.
A lot of app developers will tell you that I don't make as much money on Android.
Fifty percent of my installs are Android, but 10 percent of my revenue.
We're still investigating why that is, if it's something to do with the check-out process,
if it's something to do with the nature of their audience.
I think we'll figure that out soon.
And so, Android is here to stay.
iOS is here to stay.
I think they'll be strong competitors.
Unclear if there's going to be a third player in the market.
WATSON: All right, fair enough.
Mark, thank you so much for taking the time out of your busy schedule.
SCHULZE: Thank you.
Pleasure to meet you.
WATSON: It's good to meet you.
This is Todd "Turbo" Watson signing off from South by Southwest Interactive.
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