Mobile Platform Wars: The VC POV
PYMNTS.com put Derek Pilling, a venture capitalist and Managing Director at Meritage Funds, in the Briefing Room Hot Seat to answer five burning questions on the mobile platform wars and its impact on the payments industry.
Derek weighs in on the varying and sometimes competing approaches to mobile commerce currently in play and the development of applications for mobile platforms.
What's the most significant payments application for mobile platforms that you've seen in the marketplace and why do you believe it is significant?
Most of the applications that I have seen have been simple extension of the Web-based financial services tailored for a mobile phone and delivered through a browser. I suppose it is no surprise then that I wouldn't yet call any particular mobile payment application "significant". I don't mean to be a wet blanket, but, even broadly defined, mobile payment is a space where there has been more smoke than fire thus far.
The most interesting developments I have seen are not the applications themselves, but rather the development of markets where the mobile phone is the dominant device for consumers to access the Internet. In those markets, the mobile phone doesn't compete with pc-based financial services, creating a window through which to deliver connected payment services that happen to be mobile.
What are the three most important applications that you believe will be developed and deployed for mobile platforms in the US in the next year? In developing economies?
Asking a VC to speculate on near-term developments is a bit dangerous; particularly at the application level. You see, we're often wrong but never in doubt, so I won't speculate at the application level just yet.
The developments I think are most interesting are not at the application level anyway, they are at the platform level. Certainly the iPhone and Android application development frameworks have democratized the playing field for mobile application development, inspiring a wave of innovation. Likewise, mobile browsers are becoming more and more powerful and have the added benefit of create once, deploy many. In the long-run, I'm a believer that the mobile Web will surpass mobile applications because of its flexibility and broad distribution capabilities.
But in order for mobile payment to take off, the same democratization that has taken place in mobile application development must come to payment. PayPal's launch of the PayPal X development platform is a potential watershed moment for mobile payment. Exposing the capabilities of PayPal's core online payment framework to application developers, including mobile application developers has the potential to greatly accelerate the development of mobile payment applications. Expect the incumbent card networks and core processors to respond in 2010 with initiatives of their own which target application developers, whether online or mobile.
As for the question of which applications will eventually resonate with the market; my view is that the answer is best left to the market.
In developing economies, it is much easier to imagine which mobile payment applications will take hold, because of the green-field nature of those markets. The basics like money transfer, mobile banking and peer-to-peer payment are obvious categories for markets that don't yet have ready electronic access to such services today.
Will mobile phones change how people shop at the point of sale and if so how?
Absolutely! But the changes I see at the point-of-sale are not because of mobile payment per se, but rather because of the real-time connectivity offered at the point-of-sale by the mobile phone and the rich applications that can be developed on top of emerging mobile operating systems. Much of the behavior changing capabilities I see can be disconnected from a mobile-based payment. For example, one does not require a mobile payment to deliver a mobile coupon or to perform comparison shopping.
Having said that, eventually, mobile payment can help close the data loop, tying out in store "shopping" behavior with actual point-of-sale data and loyalty programs and rewards, all of which will eventually be inherently associated with your personal mobile device.
How does Google's Android operating system and mobile strategy stack up to Apple's iPhone and does Google have any advantages?
From a developer's perspective, everything I hear about these platforms is that they are comparable. Where Android and the iPhone diverge is in their business models. Apple still commands a significant span of control over the applications that are developed on top of the platform and has frustrated some application developers with their restrictive policies. Google on the other hand has taken a truly open and open-sourced stance to Android. In the end, I'm a believer that open wins the mass market and that there is room for a more controlled, vertically integrated approach in a high-end niche.
Perhaps more importantly, Google brings assets to the mobile arena that Apple just doesn't have. In particularly, Google has a massive monetization engine that spans ad funded and payment (Google Checkout) and view mobile as just another distribute channel through which to push these monetization capabilities. Google Checkout hasn't lit the world on fire, but you can expect Google to promote it through Android just the same.
Despite Apple's acquisition of Quattro Wireless' mobile advertising network, Apple is in the dark ages of monetization when compared to Google.
Will the mobile platform wars make the widespread deployment of contactless at the point of sale more or less likely and why?
I'm a skeptic about contactless; or at least about the timing of contactless at the point of sale. I don't see the platform wars in payment acting as an accelerant, particularly as Google and Apple are first and foremost focused on monetizing the long-tail of mobile applications through mobile advertising, as opposed to payment.
Derek Pilling is a Managing Director at Meritage Funds, a Denver-based venture capital firm. Mr. Pilling describes his investment thesis as "all about platforms and services." As a result, Mr. Pilling focuses his investment activity on opportunities in mobile/wireless, financial services and Internet infrastructure. Mr. Pilling represents Meritage Funds on the Boards of Directors of IP Commerce and Crisp Wireless. You can learn more about Mr. Pilling on his blog, Non-Linear VC, and follow him on Twitter (@dpilling).
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