PYMNTS Voice - Analysis: After Google Buys Motorola, What’s Next for the Payments Ecosystem?

Analysis: After Google Buys Motorola, What’s Next for the Payments Ecosystem?

by Karen Webster

Just when you thought things couldn’t possibly get more exciting in the mobile world, Google up and buys Motorola (view press release). Google’s planned acquisition of Motorola is just plain big news. Could it be a giant stepping stone on the way to creating a tightly integrated mobile ecosystem that will reshape commerce – or a misstep by now giving other handset makers more of an incentive to consider alternative operating systems?
(More: Google Does Cards)

A few quick thoughts:

This is Google’s first major acquisition of a company that produces physical goods. It just so happens that those physical goods are handsets that power their Android operating system, which accounts now for roughly 40% of all smartphones sold in the United States, according to Nielsen. The lack of Android integration into Motorola’s Xoom tablets has held sales back too, according to its CEO. But Android’s popularity and growth was a function of having it available across handset manufacturers. They may be betting that this move will make them look, feel and operate more like Apple (or DoCoMo). The big risk is that this sounds an awful lot like Nokia’s deal with Symbian, where Nokia owned Symbian but wanted competing handset manufacturers to use it, too. Interestingly, Nokia’s shares jumped the most they had in 1.5 years on this news. Of course, a big part of the problem with that was that Symbian didn’t really know how to be a mobile phone platform.

The notion, though, that Google can now more directly influence the shipment of phones with Google Wallet features – NFC or no NFC – is potentially pretty powerful. If you were Google and had control of Android + control of the handsets that shipped with Android already loaded on it, wouldn’t you also include Google Wallet features that users could just easily activate? It is a very efficient way to get millions of consumers walking around with phones with Google Wallets just ready and able to be used at physical merchant locations. And these wallets don’t just influence interactions at the physical point of sale. Having Google phones with Google Wallet features can make it incredibly easy for them to facilitate online transactions, too. (Do I hear a comeback in the works for Checkout?) Obviously, this will take some time, but it is potentially a way for them to more readily get the consumer side of their mobile payments platform on board.

Google phones with Google Wallets that include offers is also potentially destabilizing to Foursquare, GrouponNow, Facebook Deals and any other player that is banking on the combination of phones + GPS to power offers to consumers. And it’s not just because they have the ability to serve offers, as I’ve said before. It’s because they have the power to adjust their business model to make it more appealing for merchants to opt in, on top of now having millions of consumers with handsets and wallets to use at their locations.
(More: "Googling" mPayments Ignition?)

We’ll obviously know more as this takes shape and others react. And how are other players reacting? My predictions:

- In spite of Nokia’s uptick in stock price, Nokia and Microsoft should be worried. Besides Apple, they face another integrated software platform and hardware maker. But unlike them, one that has a highly successful software platform and a big American handset presence.

- The stock price went up supposedly because investors thought other handset manufacturers would turn to Microsoft. I don’t think so. First, I suspect that handset manufacturers will trust Google more than they trusted Nokia. Everyone knows Google isn’t interested in making money from handsets; they are interested in furthering their advertising and offers ambitions. Second, it isn’t clear why Windows would be more appealing than Android, given Microsoft’s tight connection to Nokia.

- ISIS might be a little worried today, too. While they have signed multiple payments providers to their wallet platform and multiple carriers, they have no real way to quickly diffuse their wallet. Now, Google does – with a compelling value proposition for consumers and merchants.
(More: Google, Apple, ISIS: Which Will Ignite NFC Payments)

- PayPal – now here’s an interesting one. Will PayPal customers be able to use their PayPal accounts on Google phones? No reason to think they won’t or can’t, at least online. But as part of a wallet that might come integrated into the phone and is able to be used at the physical point of sale, well, it seems doubtful, or at least not easily done.

- MasterCard is probably really liking this, especially since they are the only payment platform powering Google Wallet today. Depending on how things shake out and get distributed, this could be a huge advance for them in the mobile commerce space and could sort of make up for the fact that they haven’t much of a compelling mobile strategy at least so far.

- RIM – Yikes! I have this sinking feeling in the pit of my stomach that the days of tactile keyboards on mobile phones are coming to an end sooner than I’d like.
(More: First Blackberry with Built-In NFC Support)

Now, as exciting as this is, there is a lot that could go wrong. Google has clearly nailed the market for online advertising and search but has missed the mark on other things, like Google TV, Google Video and even Google Checkout. So, this is not a slam dunk by any stretch. But, it sure makes the mobile landscape interesting. So, what’s next for Google? Buying a payments system maybe? Can’t wait for next Monday!

Ask the Industry: How do you think Google's acquisition of Motorola will impact the payments sector? Share Your Thoughts

Karen Webster is the CEO of Market Platform Dynamics (MPD), a consulting firm that helps companies find, implement and monetize innovation. She serves as an advisor and member of the board for a number of companies operating in the payment, technology and digital media industries. More info here.

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Comments

Google will probably search to purchase a payment gateway already connected to world wide payment solutions. Google is aware that domestic payment solutions are popular and credit card is not always the ultimate solution especial when it comes to small transactions.

Posted by Azriel Sandberg , 22/08/2011 10:06am (9 months ago)
Quite possible

Posted by Hussain M Bijli , 19/08/2011 10:05am (9 months ago)
I would be certain about this. If you look at Google strategy for the past 3-4 years, Android, Mobile Payments, Motorola... I think Google will be the largest mobile financial services provider...

Posted by Khaled Zamer , 18/08/2011 1:06pm (9 months ago)
So a partnership, or satellite in that space would work well, but no I don't think it suits who they are or how they operate. Compliance is a nightmare, and will be horrendously painful for a company addicted to speed.

As I said earlier. I never had Google as the large company acquisition type until a couple of days ago.

Posted by Simon Taylor, 17/08/2011 11:10am (9 months ago)
Base 24, are you thinking google with become an actual acquirng processor? Man does that bring them into a completely new rhelm of compliance and rigidity that certainly doesnt play well into their corporate culture. It makes sense but their world will change, at lease for that division.

Posted by John Smith, 17/08/2011 10:57am (9 months ago)
@John Smith.

Or being 'Open' may be the even better play. Pumping advertising revenue depends on finding a new value in payments.

I'm guessing Google's interest is driven by the fact they have found that golden nugget. Now they need either a network partnership model, or strategic partners who can help them exploit that

Posted by Simon Taylor, 17/08/2011 10:46am (9 months ago)
@John Smith.

Google is a consumer brand, consumer POS, bricks and motar purchases and credit issuing are the right play because:

1) They are by value and by volume the largest (with the exception of very low volume - high value, bank to bank wire transfers)
2) It gets the banks onside, since it allows the banks to protect their own brand
3) Commercial invoicing is remarkably complex and doesn't suit the core business of Google, purchase cards have never really caught fire
4) Acquiring is more consolidated at the service provider level, but also far more distributed in terms of the Merchant infrastructure and capability. Merchants are very cost driven. Although the Merchant Services side is interesting & acceptance will be key. Any sort of Merchant alliance is an interesting play - my argument here has been for a long time, why not drive this in partnership with the schemes?
5) e-commerce follows bricks and mortar quite neatly and is much simpler once you have a working wallet - especially if the Merchant Services side is covered. The big retailer conferences would be a great place to pitch up.

Also, how do Google get beyond sprint when there are competing mobile network operator wallets in the US and Europe? Unless they had the ability to be compatible with those services, whilst at the same time competing on price?

I think the problem is that Google don't understand the Payments market well enough to build a strategy yet. Being bought by Google could mean a defensive play by Google (see my earlier comments about patents and Motorola). Google can and should be talking to as many people as they can to learn about payments though.

Research won't buy experience.

If I were Google, I'd look to three main competencies
1) Base 24 switching
2) Payment processing (issuing and acquiring)
3) Merchant services

The best of breed in all of those, aren't in the same company. So there isn't a simple solution... but it's worth looking at the options with a knowledge of why a Base 24 hub gives significant leverage.

Posted by Simon Taylor, 17/08/2011 10:39am (9 months ago)
I'm sure they are doing plenty of research about companies that do mobile payments because mobility is going to continue growing by leaps and bounds. Ecommerce move over because Mcommerce is here to stay and it's growing.

Posted by Samara Kornitzer , 17/08/2011 10:37am (9 months ago)
HJi Karen,
You are so on target with your last thought. Google already invested in a payments system... it's called Corduro and they are poised to save Google millions in payment processing fees due to their optimized payment processing platform.

These are interesting times.

Posted by Michael Tobias, 17/08/2011 9:16am (9 months ago)
After the integrating both company's employees into cross-functional project teams, I believe Google will influence the standardization and governance of Greenlist registries to insure that its payment mechanisms are interoperable with ClearXchange, ZashPay/PopMoney and others.

Posted by Richard O'Brien, 17/08/2011 9:09am (9 months ago)