Wake up, Google!

The last few weeks/months, we have all seen a glut of news and opinion pieces mourning the decline of Google, as if it were already dead and buried. I offer a slightly different viewpoint below, and a more focused one, around its mobile commerce strategy. There, I believe Google is now at an inflection point, where the choices it make shall determine if it could successfully transition from online to mobile, or whether it will resemble Microsoft in its glory days, failing to understand or monetize on the opportunities that lay before it in the early days of internet.

There is no direct correlation between the length of the gestational period for a blog post and its perceived quality

Two things. First, there is no direct correlation between the length of the gestational period for a blog post and its perceived quality, infact it is nothing but a reflection of how life tends to pull you in orthogonal directions which leads to procrastinating. Second, this is a long post – consider yourself forewarned.

The following post does not reflect on the recent Google’s acquisition of TxVia and what it means to the prepaid platform Google Wallet has embraced within, that may go towards incentivizing GW adoption among retailers who see it as an upside to Isis Credit products.

Since 2011, Google’s fortunes in local commerce, has found itself inextricably linked to Google Wallet. As the first mobile wallet initiative, launched to a doting-smartphone-toting public, it was meant to galvanize current financial service providers to gather under one umbrella. The result? One Issuer. One Carrier. One Carrier Approved Phone. One transit use-case. A handful of retailers. A handful of offers. A handful of public exploits. Stuck with NFC. Stuck in Card Emulation mode. Stuck since day one. Like to a prodigal son who sullied the family name, Google shunned its wallet initiative, let it adrift and drew inward, leaving ineptitude and politics creep in. The highs and lows Google exhibited from its launch through now, resembles a bipolar organization, that expected itself to be coddled by public & partners and found itself recoiling in horror when it was instead treated with disdain.

Marc Freed-Finnegan (ex-GW Product Lead) responded thusly when I asked him about TappMo: “We’re excited about diving in with Tappmo and are currently heads down building our team and our technology.”

And it’s certainly not Google’s fault. Well, not all of it. The GoogleWallet experience is frictionless to a fault as I have written about it a number of times – here, here and here. Google’s approach to solving the mobile payments puzzle was as it approached any engineering problem, except the fault lay with its partner strategy. Banks, expecting Google to be their arch-disintermediator were quite taken aback when Google extended an olive branch. Surprise slowly gave way to cynicism when banks realized Google was leaving its share of interchange on the table for banks to bicker over, while dangling its grubby hands over what it came for – customer and transactional data. For mobile payments to be all that it can be, you either need to own the entire value chain (possible ‘maybe’ if you are Apple) or you must partner with every current stakeholder along that value chain. For the latter to occur, each has to agree on what their roles are, who owns what, who owns the customer, their ownership of each of the control points to add and extract value out of the wallet, so on and so on. When you think of how long it took for fault-lines around the current payment structure to conceal itself, you can imagine how quickly the knives came out with the emergence of a new stakeholder – only this time the new entrant had a well established rapport with both retailers and customers.

For Mobile Payments to be all that it can be, each partner along the value chain has to agree on what their roles are, who owns what, who owns the customer, their ownership of each of the control points to add and extract value out of the wallet, so on and so on.

Why did Google choose NFC? Google had long rejected the notion of anything but cloud. Yet, it opted for NFC on handset which inevitably linked it to merchants, banks and carriers, a trifecta of inertia. I believe Google chose NFC, believing it to be the path of least resistance, after its sobering loss of Social to Facebook, it believed it could leapfrog other potential competitors including Facebook, Amazon and Apple, by partnering with current stakeholders and use its clout to close the gap. Except it had none.

Though Android is near pervasive in mobile and provide Google with a perfect weapon against the Apple hegemony, that has hardly translated in to wield-able clout it can swing around with impunity (like say Apple). Google gave freely and too easily to both Carriers and handset manufacturers, so as to capture market share and capture it did – at the cost of control over its own ecosystem. For the time being, it was a marriage of convenience.Where Apple valued a culture of tightly controlling its value chain – on both hardware and software end, Google built stuff and gave it away for free, while the customer who used it became the product – and how she used it became what sustained Google and allowed it to out-innovate anyone else in targeting and delivering ads online. But as the smartphone ecosystem thrived, fissures started emerging in Google’s Android strategy – where for a single Appstore, Google Play shared the spotlight with competing android app stores, including Amazon which is now becoming a far more lucrative alternative to developers over Google’s own Google Play. Further, fragmentation of the platform – due to fault of Carriers and Google – meant that most of the handsets were sporting a version that is at least a year behind. By all looks of it, Android achieved parity with iOS, but derived little benefit to Google, a reality not lost upon it or its competitors. This was driven home by the brazen Amazon decision to fork android so as to create Kindle Fire.

Android achieved parity with iOS, but derived little benefit for Google in return

What does this have to do with GoogleWallet? Well, the choices Google made along Android’s development, led to a limited role at the end of the day with Carriers. And Carriers, at risk of becoming dumb pipes, seeing existing revenues coalesce around data plans while appstore revenues failing to materialize, while costs escalating along with subsidies-capital expenditures & 4G network investments, found their calling in NFC. In a climate fraught with mistrust Carriers found an unlikely ally in Financial institutions who themselves were searching for a partner less likely to turn out to be a disintermediator down the road (lucky for Carriers, U.S hasn’t had its own share of O2/Telefonica & Rogers). Out of that uneasy relationship, a partnership to control the Secure Element emerged, and Carriers found a new revenue stream.

Why couldn’t Google control the Secure Element? For anyone interested in learning how a smartphone comes in to being, you should read the story on Engadget here. While elsewhere in the world, handset manufacturers utilize a wide range of marketing and distribution channels to reach customers, MNO’s in US exert a near complete monopoly in available sales channels, and force handset manufacturers into submission. Further through the allure of favorable subsidies, MNO’s can closely dictate what ends up on the handset, or subsequent ownership of it – such as in the case of Secure Element. It was inevitable that, with the carrot of favorable subsidies, Carriers can always impress upon handset makers the need to hand over control over SE to Carriers and not to platform providers – in this case – Google. And (apart from Apple, a possible exclusion) this scenario is expected to play out elsewhere too – for Blackberry as well as WP7. For Google to expect a different outcome, it will have to pay handset makers a portion of its android profits. Just by looking at the sorry state of Android generated ad revenues for Google(somewhere between $1.70 – $10 annually per device and most likely closer to the lower of the two), it cannot sustainably or even profitably keep android running while paying out enough to OEM’s so as to guarantee SE ownership. Carriers, who were already in a fight for survival (to find additional revenue streams), won the battle for SE. (Except maybe with Apple)

But Google’s missteps did not end there. It was also unable to win over any issuers other than Citi. Coming in from a lost battle over control of SE, Google started out with a disadvantage against issuers who saw chinks in its armor. Google’s extended olive branch, its desire to leave its share of interchange on the table, was not met with reciprocal affection, as banks blanched at handing over customer and transactional data in return for a slightly bigger interchange slice – of an already shrinking pie (via Durbin, Reg E, Card Act etc). I see this as the newborn arrogance of potential disruptors, who continue to believe that disruptees will not see them coming (It is not that they don’t see them coming, but the moats disruptees end up digging are ultimately ineffectual to the enemy within). Forward looking Banks (Oxymoron alert!), though late to this realization, had already deemed interchange a thing of the past, and were already looking at leveraging customer/transactional data to build the next card and merchant offers platform. Realizing that partnering on GoogleWallet would amount to letting Google be the proverbial fly on the wall on every transaction, Issuers passed on the opportunity. This outcome would have been different if Google had brought along any existing advantages in offine commerce, which it had none. Two reasons: Though Google shoulder-surfs along the bulk of our browser sessions, and can predict with reasonable accuracy of our product and brand affinities, it has no such leverage in retail/offline commerce. Gaps along the last mile in offline commerce, where it has no visibility or role, where we still hand out our paper coupons to merchants or pay with plastic at the point of sale – aggravates and inhibits Google’s seers from measuring its impact in local retail commerce. Though Google has an unparalleled ability in solving the problem of scale, or driving traffic to a merchant, it continues to be hobbled in making its presence felt in retail commerce. Further, smartphones is a new cog in the wheel of offline commerce, one that merchants are still treating with plenty of suspicion. GoogleWallet came along on a time when Google was still proving itself to retailers and it was too early to leverage on this relationship to make a case with banks.

Gaps along the last mile in offline commerce, where it has no visibility or role, where we still hand out our paper coupons to merchants or pay with plastic at the point of sale – aggravates and inhibits Google’s seers from measuring their impact with retail merchants.

That is not to say that GoogleWallet did not have a retailer friendly strategy. These are still early days in mobile commerce, but I would be remiss if I did not say that Google had the customer experience at retail, front and center to its wallet experience. But there was no sizable merchant segment it could bank on, at launch or since then, that could have proven to an issuing bank, that a GoogleWallet partnership was the right step forward. Being first to market afforded none (or barely any) of the advantages to Google, while it still took brunt of the criticism – deserved or not.

So what will happen to Google Wallet? Will Google let it die? Or can it? Google has certainly displayed a willingness to kill initiatives that has failed to deliver or align with its core strategy(which happens to be Social these days), but I believe it sees the current state of Google Wallet as Act I. But Google is at an inflection point in its journey to mobile where it understands that it lacks a clear strategy to monetize in Offline search as it successfully did once with Online search. And what Google Wallet has proven so far is that it faces serious impediments along the last mile in its quest for adoption & scale, and in the end – monetization.

And why must it figure out mobile?
Despite Android’s parity with iOS among smartphones (~50%), this has not translated in to a meaningful and compelling source of revenue for Google. Reportedly, Google makes about $30 a year from each desktop online user, and its prolific ad business accounts for close to 90% of its revenues. On mobile, its ad revenues has been reported from anywhere between $14 per user(Oracle’s claim), to $7 (Cowen) or all the way down to $1.70 (Google, in response to Oracle). Oracle’s claim can be expected to be inflated to its benefit, and Google’s vice versa, but what is known is that Google has a mobile run rate of $2.5B. And that number is not just from Android devices, but iOS, Blackberry, Symbian & Windows Phone devices that run Google’s product suite as well. Charles Arthur of Guardian, who reported that Google’s android revenue since 2008 is about $550m concludes that the 315m iOS devices has actually generated more revenue for Google than Android itself. Ouch.

Google’s android revenue since 2008 is about $550m concludes that the 315m iOS devices has actually generated more revenue for Google than Android itself. Ouch.

The above painful reality, as obvious as it is to Google, is not totally lost on Apple either. The paltry $8 (approx) Google makes at the behest of Apple (after itself having paid Apple a fee for bundling Google Search on Safari) is a drop in the bucket compared to the $576(approx) Apple scored on each iPhone sold in 2011. However, Apple is understandably wary of Google’s growing Ad presence and influence inside its walled garden while its own iAd platform continues to flounder. Apple’s Siri powered search, it’s recent shift to OpenStreetMaps from Google Maps are both indicative of a strategy to wean itself and its customers off of Google products sooner than later.

Google’s troubles extend beyond the Ad revenue non-starter that Android has become. Carriers and Handset makers are stepping in to the void, as they see both Google and Apple lagging behind in creating any meaningful revenue from mobile ad delivery. Samsung recently talked up its plans for launching an Ad platform, while Sprint is expected to announce its exclusive partnership with an Ad platform provider soon.

Now I am not spending ink (nor am I qualified) to tell you why mobile is such a different landscape for pushing ads, owing to the smaller form factor and browsing/search intent on a mobile device vs PC. Further most mobile searches are for weather, location, directions, contacts, or are generally unrelated to commerce. When we search for a product with an intent to buy, we either opt to do so at a PC, or when unable – open up the Amazon app, which offers us a quick snapshot of product detail, reviews along with an appealing price point and next day ship – instant gratification nirvana. More people are starting and finishing their product searches on Amazon, disintermediating Google completely.

More people are starting and finishing their product searches on Amazon, disintermediating Google completely

But the problem hardly ends there. Even on searches with an intent-to-buy that originate at Google, its revenue is determined by ROI generated per click for its advertisers. And this is easy to measure online, where its easier to separate a strand of transaction and track it from click through to a sale. Its an entirely different problem to solve in retail commerce. There are ample problems today to solve around real time customer analysis, leveraging multiple contexts including location and brand affinity, coupon delivery and redemption at point of sale, and keeping the whole process end to end as frictionless as possible.

And what is the payoff for solving the last mile puzzle? Consider this: Google relatively earns about 80 to 90 cents on a per click basis from its advertisers. That goes up to $6 – $8 if Google can prove that the click resulted in a sale. And in local commerce, without a mechanism that can track a coupon from delivery through redemption, even if a bulk of its click thru’s result in a sale, Google has zero visibility beyond delivery and thus is effectively leaving money at the table. So what’s Google Wallet again? Google Wallet is a mobile payment system developed by Google that allows its users to store credit cards, loyalty cards, and gift cards among other things, as well as redeeming sales promotions on their mobile phone (source: Wikipedia). Do you need any more reasons as to why Google Wallet is central to its strategy for monetization and profitability in Android?

Google relatively earns about 80 to 90 cents on a per click basis from its advertisers. That goes up to $6 – $8 if Google can prove that the click resulted in a sale.

So to all who say that Google Wallet is finished, I say this. You are wrong. Google understands what is at stake here. And as curtain falls on Act I, one should not read too much in to its failings, as the best is predictably yet to come.

What do you think? Sound off below in Comments. And the Share buttons let you share easily with your peers

If you read this far, you should follow me on Twitter here. Connect with me on LinkedIn here.

Board of Advisors at SimplyTapp - creators of Host Card Emulation driving democratization and open access to NFC in Android. Mobile Commerce & Payments Lead at Experian Global Consulting, serving Experian's clients in Banking, Retail, Consumer Credit & Payments. A strategic adviser w/ over 17 years of international Tech & Business Strategy consulting, advising firms in banking, retail & asset mgmt that seek clarity & insight in to the myriad business models around payments, fraud & commerce. Founded DROP Labs, a mobile payments/commerce strategy & advisory practice. Tweets here. I'm on LinkedIn here.
Cherian Abraham
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  • I like your thinking on this, Cherian. However, I think that in the recent past, $GOOG has developed a ‘trust’ problem, and this is a growing perception for them to overcome. 

    • Alex, I didn’t say it would be difficult, just that they cannot afford to walk away. They got to stay and figure this out, if they have any hopes of transitioning their strengths from online to local commerce. And if they don’t, its not that Isis will figure it out either. They are but an incremental addition to GW, with an improved partner strategy. I am yet to see a serious differentiation with Isis, compared to GW

  • Bacfadeaway11

    i have a short on google

  • Cherian thanks for keeping me posted on GWallet and other developments in Mobile Wallets, hope mobile wallet takes off, there just seems to be too much red tape for everyone. Would love to have this for personal use. /Hans

  • Sukhpal Deol

    Cherian your blogs, though rambling at times, do articulate the key points that need consideration. GW, ISIS, Telefonica, Vodafone, Paypal the list goes on … their mobile wallets are/will be founded on the same set of market strategies and broadly the same kinds of service mechanisms. That is to provide the customer with a personalised incentive to use their wallet to receive merchant offers and pay for goods in a physical or mobile environment. I said a few months ago that this story was being replayed around the globe by all major players in mobile payments ecosystems. It may have been Google that started the idea, which is less important now, but my point is that the story is getting old and familiar and everybody believes that they can delver the required customer experience. Unfortunately nobody has launched a marketable wallet to date that can do the simple things and achieve reasonable penetration levels. GW recently discovered that the frictionless experience is not so great when personal funds are at risk and an organisation so focussed on the customer forgot about some security. All can be fixed, but it takes time. Another issue may be timing with most of the developed world either in or teeting on the brink of recession, retailing is suffering as people limit purchases. While they may try harder to go after fewer dollars, they often stick to familiar channels and methods and not new ones.
    Later this month Telefonica will launch its mobile wallet in the UK, but without NFC, despite a statement to the market that it would launch NFC services by late 2011, over a year ago. (this was a response to the Orange/Barclaycard launch of 2011) Their reasons are that the market was not sufficiently ready for NFC commerce, too few handsets and few retailers accepting NFC payments. The delays are not due to new problems, NFC could have been launched 10 years ago, but for the commercial model disagreements between banks, carriers and service providers. The same problems persist today and will tomorrow, because as you say other revenues are dwindling and mobile commerce/wallets are the new hope for all the participants in such an ecosystem. So if the exact same parties that need wallets to work are doing a fine job of preventing its development and adoption something will need to change – another NTT or DoCoMo is not viable in the new world, so an ecosystem of pars is required. A final point to observe is that in Europe a system that offers ubiquity and scale and ease of use for banks, merchants and service providers would probably fall foul of anti-competitive laws – Netherlands and UK platform projects are currently encountering this with the EU, who are taking their time in deciding on their policies for mobile commerce. Watch and see what happens here is a key indicator. 
    I think I have equalled your ramble levels, Thank you for sharing your insights and thoughts on GW. While in the US it is a big story I think in Europe it will be less so. Maybe I can end with a question to you. My clients, some merchants at least, ask me about an industry standard wallet. My reply to date has been there is no standard wallet there or emerging yet. What do you think an industry standard wallet is or should be.

  • David Jones

    thanks for the inciteful post on a landscape with too many stakeholders. given eBay has acquired several plays in ‘local’ and Paypal has delivered mobile wallet – i’d be interested to hear your thoughts on that too.

  • Card-linked offers are actually much more than digital coupons. The companies operating these programs have access to mountains of data, provided to them by the credit card companies, which they use to identify cardholders whose spending patterns indicate that they are not only likely to use an offer, but are also likely to spend more than the gift amount. So there is something for everyone here. Merchants get access to new customers, the issuers get some additional revenue and consumers get cash-backs on purchases they would have made anyway.

  • Pablo Castillon

    Tremendous piece, Cherian. Certainly a good head start for an upcoming whitepaper?

    You cover a lot of ground with a significant amount of depth, but in a nutshell I’d say that I learned two things today – the first, are the many reasons why discounting Google from the mobile payments space is a misread.

    The second, is that there are people out there who actually might be discounting Google out of this key platform in the first place.