After Shunning Revenue Streams, Wesabe Closing Its PFM Shop

Wesabe Inc. has lost its spice.

Having long eschewed the revenue-generating strategies of many of its rivals, the San Francisco provider of personal financial management technology is now winding down its operations.

Wesabe frequently said that offering advertisements or collecting referral fees, key to the business models of its rivals, would undermine its efforts to build trust with its users.

And while observers said its dedication to its principles was admirable, this left the company without a viable source of revenue.

"Part of the plan was 'we don't advertise,' but you can't necessarily survive on that," said Nicole Sturgill, the research director for delivery channels at the research firm TowerGroup. "I'm not sure what they were surviving on."

Wesabe announced on its website Wednesday that it was shuttering its free online PFM service. It is also closing down the unit that sold PFM applications to banks and the dedicated website it had created to support its financial company customers.

The only part of the company that will remain is its online discussion board — because one of its users has agreed to fund it.

Wesabe went live in 2005, initially offering only the free online service for consumers, and for years was cagey about explaining its revenue model.

Last year it finally announced a business model that included a revenue component: selling its software to banks and credit unions.

Even then the company bucked standard practice in the banking technology market by posting its prices online and allowing banks to sign up without dealing with a sales rep.

That business was slow to take off.

"It hasn't helped as much as I had hoped," Marc Hedlund, Wesabe's co-founder and chief executive, said in a May interview. He did not return calls this week requesting comment.

"I don't think that the banking world is as ready to do that sort of thing as I would have hoped they would be," he said.

After rejecting one revenue stream and falling short of its expectations with another, Wesabe came to the point where it could no longer afford to run its service.

"In recent months Wesabe has been operating on a shoestring budget," Hedlund wrote in a message posted online Wednesday.

"We have not been able to provide the support people need to use" the website "for something so central as financial management. … That's obviously a bad experience, and not what we want to offer," he wrote.

The consumer PFM service will go down at the end of July, and Wesabe said it plans to delete all user data at that time. (The one-month window will allow current users to download their transaction data.)

The company also said it would publish the source code for its system, so that users with coding experience can continue to keep the software running for their own accounts.

Though Hedlund's letter only addressed the consumer-focused portions of Wesabe's operations, Delta Community Credit Union confirmed that the bank-focused business would also be shut down.

Delta agreed last year to offer its members the Wesabe software but it has not yet introduced the service, and Bill Mesplay, Delta's chief information officer said Thursday that Wesabe is no longer providing PFM software to financial companies.

On its online forum, some users offered to pay for Wesabe's service, but Hedlund said that charging such a fee would not provide enough revenue.

Further, PFM rival Intuit Inc. has already proven, through its short-lived Quicken Online service, that charging end users for PFM access is an unsustainable model.

"We've watched competitors, including Intuit, try to charge for their services and get nowhere," Hedlund wrote. "We would not want to accept payment from users only to repeat their experience" of being cut off from Wesabe.

Peter Glyman, a co-founder of the rival PFM firm Geezeo Inc., said his company doesn't share Wesabe's troubles.

Like Wesabe, Geezeo initially offered only a free online PFM service for consumers, but it also generated revenue through advertisements and referral fees from financial companies when users opened accounts based on its recommendations.

Late last year, Geezeo began transforming itself from a pure PFM provider to a full online banking provider to financial companies.

"Our shift and laser focus in the institutional market, servicing banks and credit unions, has served us very well," Glyman said. "Things are going good here and the client base is growing rapidly."

Sturgill said that true to Hedlund's assessment, companies providing online services need to offer more support than a shoestring budget allows.

"You can't be online and not be able to keep up — it's just impossible," she said. "They just simply didn't have the development staff to be able to keep up."

Wesabe's opposition to ads also hurt it, Sturgill said. "It probably would have been better at the beginning" to have accepted advertisements, she said. Even if Wesabe had another business model in mind, "the initial revenue stream can be driven by the ads," she said.

Wesabe still had some good ideas, particularly in switching its focus to banks last year, she said.

"When they started selling to banks, that made perfect sense … and I really thought they'd have more success than they did," Sturgill said.

Though Wesabe tried to simplify the sales process by letting banks and credit unions buy its service online without having to deal with a salesperson, that model was not a good fit for the banking industry, where sales cycles for this sort of technology can range from nine months to two years, she sad.

Banks "are suspicious of simple," Sturgill said. "When you put it out there and make it that easy, no bank believes it's that easy."

Bankers that choose to sign up with Wesabe would still have "a lot of hoops to jump through" to gain approval from their own company, she said.

George Tubin, a senior research director at TowerGroup, said another issue was that Wesabe's most inexpensive services made too many sacrifices.

In particular, Wesabe offered to host banks' PFM service on its own site for banks that signed on for its cheapest packages. Tubin said this was going too far.

"That's something that very few banks would want to do, to force their customers to go to a third-party website," he said.

Wesabe's fate offers some important lessons, according to Tubin. A strong sales force is a must, he emphasized, as is a diverse offering.

Wesabe may have also incurred too much expense in building its own aggregation platform; most of its rivals buy the service from Yodlee Inc. or CashEdge Inc.

"There's definitely cost involved in keeping data safe," he said.