Analysis on BillShrink

BillShrink is a Silicon Valley startup providing web service to customers to find out the best gas, phone and credit card deals by analyzing individuals’ lifestyle and spending behavior. A brief analysis of BillShrink and proposal for future growth from an outsider’s perspective follows.
Consumer spending can be categorized into recurring spending and discretionary spending. Recurring spending includes such items as cell phone and gas while credit card usage could include discretionary spending such as travel, dining and entertainment. BillShrink has developed internal algorithms to match consumer behavior and spending patterns with the best possible deal. Some of the other markets that can use similar algorithms would be car insurance, rental insurance and financing options. In all these cases, the markets are very similar with a large number of service providers from which consumers can choose from. The partnerships needed to deliver the best deals to the consumers need to extend on the technology developed for the gas and phone markets.

It is clear that all the cases of recurring spending need an aggregation point at various levels. The insurance markets (auto, home, rental, travel, and healthcare for visitors) provide a lot of choice to consumers with varying levels of coverage, liability and other options such as rental and towing coverage. An insurance agency such as Progressive also claims to provide people with their rates against the rate of the competition. However, customers typically use insurance agents to obtain their policy selections. BillShrink could serve as an aggregator of information about insurance companies, rates and service and provide matching criteria based on customers’ preferences. The revenue model of BillShrink is based on lead generation to service providers. With no insight into its current business relationships, it is clear that the model is based on significant volume in terms of the number of referrals. Hence, markets such as insurance with potential for significant volume provide good revenue growth opportunities.

BillShrink can also use its technology to provide services that might not have much aggregation but can generate volume through repeat users and referrals. One such example would be to provide the consumers with the best bang for the buck at a particular product level. Let’s consider the case of Hi-def televisions. Based on the customers’ budget, BillShrink would direct them to the right mix of product and cost. This would require partnerships with categorization search engine companies such as Kosmix.

On the discretionary spending of consumers, BillShrink’s approach to provide savings requires detailed analysis of credit card usage. Once the expenses are analyzed, it can be used to provide customers with alternate options that provide better value based on customer preferences such as reliability, quality, and other personal preferences.

Thoughts - news on inflation

Found this interesting article on inflation. I had a few questions which were clarified by a Phd student in finance. http://finance.yahoo.com/news/Goldman-Sachs-fails-to-excite-apf-879362838.html?x=0

1. Why did treasuries tumble on news of inflation

One of the Fed’s primary responsibilities in implementing its monetary policy is to guard against high inflation. It does this by acting to influence short-term interest rates. By buying or selling Treasury securities itself in the open market, the Fed is able to increase or reduce the money supply, for example. It is possible that investors, seeing news of higher-than-expected inflation, fear that the Fed will act sooner than they had expected to combat inflation, which would entail increasing rates. If investors believe that rates will be higher in the future, prices of Treasury securities must fall.

Practically speaking, however, the Fed might be constrained in its ability to raise rates, as doing so would be counter to the goals of promoting expansion of the economy in order to more quickly end the current recession. They’re in a particularly tough spot right now!

2. Long-term government debt tends to be sensitive to reports of higher prices, as inflation erodes the value of fixed-income securities over time - what does this mean.

Second question, think about how inflation affects lenders. Suppose that you lend me $100 today (interest-free, for simplicity), and I pay you back one year from now. Any inflation over that period reduces the purchasing power of the $100 that I return to you at the end of the year. The higher the inflation, the less I’m paying you back in real terms—the less you’re able to actually buy with that $100. This is good for me, as the borrower, but horrible for you, as the lender.

Holders of Treasury bonds are, in effect, loaning money to the government. Higher inflation means that the principal repayment to bondholders won’t be worth as much in real dollars, making the bonds less valuable, and leading to lower prices. The problem is worse for bonds with longer time to maturity, since inflation has an affect over many more periods for long-term bonds. Thus, one might expect long-term treasuries to suffer disproportionately from this report.