From: Robert Hettinga <rah@shipwright.com>
Date: Mon, 6 Jul 1998 06:39:56 -0700 (PDT)
To: Digital Bearer Settlement List <cypherpunks@toad.com
Subject: IP: "CyberCash can't oust credit cards"
Message-ID: <v0401170bb1c67c2a2ef8@[139.167.130.246]>
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Hettinga's three laws of internet payment technology investment:

1. Geodesic, peer-to-peer transactions.
2. Three orders of magnitude cost reduction.
3. Nothing but net.

The application of the above to Cybercash, or SET, for that matter, I leave
as an exercise for the reader...

Cheers,
Bob Hettinga


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Subject: IP: "CyberCash can't oust credit cards"
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Source:  Charlotte (N.C.) Observer (printing a Washington Post article)

Posted at 3:32 p.m. EDT Friday, July 3, 1998

 CyberCash can't oust credit cards

By MARK LEIBOVICH
The Washington Post

 WASHINGTON -- Two years ago, CyberCash
 Inc. walked tall as a pioneer in the seemingly vast
 frontier of Internet commerce. Today, the Reston,
 Va., firm and its software that lets merchants
 receive payments over the Internet offers a
 cautionary lesson in how social habits in the digital
 age are difficult to predict -- and dicey to stake a
 business on.

 On Tuesday, CyberCash announced that its
 second-quarter revenue would be below
 expectations, and that it would lay off 20 percent
 of its staff. The news sent its stock price into a
 decline -- the latest to strike the company. Once
 trading in the $60 range, it fell steadily this week to
 finish at $11.12 1/2.

 The hard times come even as CyberCash has tried
 to tone down its aspirations and diversify into a
 more conventional business, the processing of
 credit-card transactions in ordinary stores. The
 moral, said Ulric Weil, a technology analyst at
 investment bank Friedman, Billings Ramsey Co. in
 Arlington, Va., is: ``It's always hard to bet on the
 purchasing mores of consumers.''

 William N. ``Bill'' Melton, one of Northern
 Virginia's most accomplished technology
 entrepreneurs, envisioned a world of paperless
 purchasing when he founded CyberCash in August
 1994. In this world, Internet users would purchase
 goods and services using new ``virtual currencies,''
 such as CyberCoin, a CyberCash product that
 allows online purchases of up to $20 at a time by
 transferring funds from a credit card or bank
 account to an account that CyberCash oversaw.

 Few people bought anything with this virtual
 currency at first, but the market was patient. In the
 speculative world of Internet stocks, the potential
 for this commerce seemed limitless, and
 CyberCash was an instant Wall Street hit.
 Company shares, first offered to the public for $17
 in February 1996, were trading at more than $60
 by that June.

 But today, investors are tired of waiting. The
 predicted rush to electronic currency remains a
 mere trickle and what little there is generally uses
 plain-old credit card transactions, not a fancy new
 currency. For now, consumers shopping online
 merely want to use something they know and trust
 for payment, the credit card, not an entirely new
 form of currency.

 After this week's layoff, which involved about 20
 positions in the Washington area, CyberCash has
 about 200 employees. It remains unprofitable,
 having reported a loss of $5.67 million on sales of
 $1.14 million in the January-March quarter.

 If life weren't uncertain enough in Reston,
 speculation was rampant this week among analysts
 who follow the company that its low stock price
 was making it a ripe takeover target. These
 predictions were fueled further by the company's
 announcement Tuesday that its board of directors
 had adopted a new shareholders rights, or
 ``poison pill,'' plan, which companies typically use
 to deter unwanted takeover bids.

 In this case, if an outside entity attempted to
 purchase a stake in CyberCash that exceeded 15
 percent, the company board could invoke the
 provision -- at which point CyberCash
 shareholders would win the right to purchase
 company shares at a greatly discounted price. For
 a potential buyer, this would make CyberCash far
 more expensive.

 Russ Stevenson, CyberCash's general counsel,
 said the new provision was not related to the
 company's recent struggles, and that the timing of
 its adoption was coincidental. In a statement,
 CyberCash said the poison pill did not come in
 response to an acquisition proposal.

 James J. Condon, the company's chief operations
 officer, would not comment on whether
 CyberCash was in discussions to be acquired,
 citing a company policy ``never to comment'' on
 potential acquisitions. Melton, CyberCash's
 president and chief executive, was traveling
 Thursday and could not be reached for comment.

 CyberCash's recent woes stem in part from its
 May acquisition of ICverify Inc., an Oakland,
 Calif., company that makes credit-card processing
 software. CyberCash, which purchased ICverify
 for $57 million in cash and stock, hoped to
 complement its own technology with ICverify's
 more conventional ``point of sale'' software, which
 helps retailers process credit card transactions in
 shops and other commercial establishments.

 Entering the ``point of sale'' market was a way for
 CyberCash to hedge its bets against the uncertain
 future of electronic commerce, analysts said. ``This
 gave (CyberCash) a piece of the physical point of
 payment, as well as the electronic point of
 payment,'' said Scott Smith, an Internet commerce
 analyst at Current Analysis Inc. in Sterling.

 With the addition of ICverify, Condon said,
 CyberCash could now offer a full package of
 payment software to potential customers. They
 could now provide, say, a clothing retailer, the
 tools to process both in-person credit card
 transactions as well as Internet credit card
 purchases.

 But the ICverify acquisition proved a difficult
 transition. In recent months, analysts said, some
 customers of both companies have frozen their
 accounts, saying they were unsure about which
 transaction software they would deploy in the
 future.

 ``The ICverify transaction resulted in customers
 taking a close look at what direction they wanted
 to go in,'' said Weil.

 Condon said he expects this to be a short-term
 problem. He said he has spoken to several
 customers who plan to continue their accounts
 shortly.

 People who follow CyberCash generally agree on
 two things: that if the company can hang on long
 enough for electronic payments to become a
 widespread phenomenon, it will be well positioned
 to cash in.

 They also say the company has a strong, tenacious
 management team in place, led by Melton. ``He is
 the rock the company is built on, and he's
 committed to the company's success,'' said Smith.
 ``I don't see anyone there who is ready to back
 down.''

 But in the end, Weil said, the future of CyberCash
 might rest with forces beyond its control. ``You
 can't change the psyche of consumers,'' he said.
 ``CyberCash doesn't have that kind of influence.''
-----------------------
NOTE: In accordance with Title 17 U.S.C. section 107, this material is
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interest in receiving this information for non-profit research and
educational purposes only.
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--- end forwarded text


-----------------
Robert A. Hettinga <mailto: rah@philodox.com>
Philodox Financial Technology Evangelism <http://www.philodox.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'
The Philodox Symposium on Digital Bearer Transaction Settlement
  July 23-24, 1998: <http://www.philodox.com/symposiuminfo.html>