-Contact Thomas Rasmussen
The consolidation in the mobile payment market that we outlined recently is still on. Startup Boku announced on Tuesday a $13m venture capital infusion in the form of what we understand was a $3m series A round followed quickly by a $10m series B round a little over a month later. Benchmark Capital led the latest round, with Index Ventures and Khosla Ventures also pitching in some cash. The money was used to acquire two competitors, Paymo and Mobillcash. We estimate that very little of the cash was used to buy the vendors. We understand that the purchase of Paymo, which raised a reported $5m itself, was primarily done in stock. The deals were largely a way for Boku to gain customers and technology, as well as expand its international reach. It’s increasingly important for mobile payment startups to do something to stand out among the dozens of rivals also trying to crack this market. What’s unusual about Boku is that this strategy is playing out so quickly. The company only incorporated in March.
The real question for Boku and other promising startups in the mobile payment space such as RFinity is what will ultimately happen to this hyped market. Despite hundreds of millions of dollars poured into startups, they haven’t been able to generate much revenue, certainly not to the level that would make them viable businesses at this point. We believe the best outcome for these firms is an exit to a larger strategic acquirer. An example of this that may well be in the offing is Obopay, which took an investment from Nokia a few months ago. We suspect that could be a ‘try before you buy’ arrangement for the Finnish mobile company. Research in Motion and others could look to use acquisitions to catch up, as well.
However, we wonder how long it will be before other smartphone providers, platforms and mobile operators do as Apple has done. Micro-transactions are a huge selling point for the new iPhone 3.0 update and, frankly, one of the few bright spots for the mobile payment sector. However, all transactions for iPhone applications are done through Apple itself, leaving companies such as Boku out in the cold. If other vendors – including RIM, Palm Inc, Google, Microsoft and even application platforms like Facebook – stay in-house to develop the technology, there isn’t much need to go shopping. That could well hurt the valuations of mobile payment startups, even those that survive this current period of consolidation.