- Briefing Room
- Consumer Engagement
- Commerce 3.0
Okay, Nick Holland – I’ve taken the bait. Your NFC media advisory today refuting the notion that NFC isn’t to cards what Betamax was to video was simply too good to pass by. You actually selected the perfect analogy. Here is my argument as to why it could end up just like it.
1. The Betamax was a “superior” recording option – if all you are talking about is the quality of the picture. But Sony failed when it tried to turn that superiority into a standard that was going to control the ecosystem. Rather than comply, competitors created something new – even though it was admittedly less “superior.” On the NFC front, the big difference is that NFC is a technology standard already, with others working to persuade the ecosystem to adopt it via SIM-based wallet. That “control” is not something that all players in the ecosystem are willing to cede right now, so, rather than comply, competitors are emerging all over the place.
2. And just how “superior” was Betamax: it could only record an hour at a time! That meant that guys who wanted to record a football game were SOL. So were moms who wanted to record a movie – who the heck wanted to get up in the middle of the game or a movie and switch cassettes, even if the quality of the recording was better? Utility, ease of use and convenience ruled over quality. Turning to NFC, consumers are now used to whipping out their cards and using them just about anywhere they want – utility and convenience. Tap and pay sounds good and may be a superior proposition, but not if you can’t tap and pay anywhere you want to. NFC seems to have a long way to go before getting that sort of coverage. Until then, consumers will just use something else that is more convenient, whether that is a mobile app, their plastic cards, or good old cash. The risk to NFC is that consumers will standardize on a mobile solution that enables them to use their phone at most of the merchants that they visit regularly and once NFC becomes available to them, there won’t be enough benefit to make the switch.
3. The VHS – Betamax wars started in the early 1980’s and by 1982 was in a knockdown, drag ‘em out fight. By about 1984, Sony was losing share but still selling units – actually peaking that year. It was all downhill from there though. That year, ironically, marked the tipping point for VHS. Three years later, VHS accounted for about 95% of the market and Betamax was officially declared dead by Rolling Stone magazine. Turning back to NFC, it very well may be that having POS terminals that enable NFC causes some merchants to activate it. It still means that consumers have to buy in (literally, as in buy new phones with chips) and the business models among the players in the ecosystem have to work themselves out for deployment to get to any sort of scale. The longer that takes, the more risk to NFC that another solution tips, and moves like wildfire to gain so much share that NFC becomes a technologically superior but irrelevant payment alternative.
4. Betamax also ran into another problem. As consumers became disillusioned with the lack of recording capabilities, the other side of the market – video rentals – began to take notice and fewer video rentals became available in Betamax format. That meant that the demand for Betamax recorders declined since consumers couldn’t rent the movies they wanted, leading to a downward death spiral – fewer movies to rent, less demand for recorders, meant fewer movies to rent leading to less demand for recorders, etc. The corollary for NFC is twofold. First, fewer merchants accepting NFC means fewer consumers are interested in using it. Second, fewer merchants, and consumers interested in NFC mean fewer developers and entrepreneurs interested in developing cool apps that leverage it. It really could become the Betamax scenario almost to a tee.
Nick also projected that there would be $355 billion in NFC payments transaction volume worldwide by 2016. Wow, that’s like 4 (well, 3.5 to be exact) years from now from sort of nothing today. Holy ignition Batman! I take the point that there are parts of the world where NFC technology is a little more entrenched, like some parts of Asia Pac and Europe, but their overall share of the payments market pales in comparison to the US where getting scale seems still elusive. Nick’s prediction is, by far, the most optimistic I’ve seen. InStat predicts $9.9 billion in the US in 2014 (which means the rest of the world would have to REALLY ignite to make Nick’s numbers pan out) with others topping out at $50B in 2014 – even that seems ambitious given where things are and in less than two years’ time.
Nick concludes his piece by saying that “card networks, banks, MNOs and hardware vendors must work in unison to create a positive and compelling case for merchants around NFC, particularly underscoring its long-term benefits." Totally agree but his stated differentiator, “tap and go” payments, just doesn’t seem to have the appeal that it did once upon a time. And so, far, that seems to be the only value proposition that anyone selling an NFC solution talks about. It may be “technically superior” and in an ideal world convenient and easy, but it needs a serious ignition strategy and soon. Otherwise, well, I’ll let you finish that sentence.
So, now you’ve heard my take on this … what do you think?
Great article. Agreed with you, that NFC is just not so interesting, since it's just a payment transaction - while other solutions leveraging "the cloud" can do so much more (location, loyalty... to name a few). Exciting times...