Google Takes a Bite of the Apple

Google and Apple made news last week when they announced their respective plans to help publishers monetize their content. Less than 24 hours after Cupid worked his magic on Valentine’s Day, Apple began a subscription payment service that lets customers pay for content that magazine publishers make available via the Apple app store. There are only two strings attached: Publishers have to offer their very lowest subscription rates, and Apple takes a 30% commission on the sale. (Related Article: Will Apple Get Us to Wave At the Point of Sale?)

A day later (merely by coincidence, they say), Google announced its One Pass program that does sort of the same thing, only for 10% of the subscription price and for consumers that use smartphones powered by Android. These two payment systems aren’t interoperable. You can’t use your iTunes account to buy Android apps content, and you can’t use One Pass to buy stuff in the Apple App Store.

All of the media coverage that ensued, I think, focuses on the wrong thing: 30% versus 10%. The real story in my view is about 160 million versus zero (or something close to that).

Apple has just made it easy for publishers and iTunes accounts holders to do business on the Apple platform. With 160 million account holders, it is now as easy to buy an issue of Sports Illustrated or The Economist in its App Store as it is to download Lady Gaga’s “Born This Way.” In exchange for providing access to these account holders, Apple takes 30%. And at 30%, it’s a better deal than Groupon and proof of what my colleagues and I have said all along – merchants will pay for traffic that leads to sales. And, if customer signs up on the SI website, the publisher pays zippo yet is still able to deliver its product via the App Store to that customer.

Google is starting from a totally different place. They have a bazillion eyeballs, and 50% of the smartphone market but bupkis when it comes to One Pass account holders. The incentive for One Pass accrues to the publisher, who pays less of a commission but not to the customer who has to go through a bunch of steps to set up an account with Google Checkout. Sure, there are some Google Checkout users but hardly enough to ignite One Pass for publishers anytime soon. And, yes, there’s also all this talk about how Google is going to share customer information with publishers, but it certainly won’t be at the exclusion of using it to drive more advertising spend for themselves, which we all know is their core business/cash cow.

When I first heard about this new service, I thought immediately that this might be an ingenious attempt by Google to ignite its tepid Google Checkout platform. If enough people got One Pass accounts tied to Google Checkout, it might make for a more compelling story to merchants who might think more seriously about adding it to their payment choices at checkout. I’ve since thought more and decided that One Pass is probably more of a digital content play pure and simple where some analysts have estimated the revenue from mobile gaming alone to reach $10 billion. If that is the case, they have chosen a potentially lucrative segment with a formidable foe in Apple, not to mention PayPal and Facebook Credits; the latter of which is slowly locking up the digital payments arena (starting with gaming) on Facebook where, Zynga reports that about 63 million people spend 15 minutes a day playing Farmville (and some even spend $100 a month to keep their fields plowed and farm animals cared for).

I guess the one thing that I find really interesting about Google’s move is how they appear to be going down the same path with One Pass that they did with Google Checkout – incenting the merchant. It’s great that merchants feel like they are getting value with Google’s new offer, but it’s the consumer that has to be convinced it’s worth going through all the trouble to establish an account with Google Checkout. We’ve all seen the roadkill in payments of the ventures who hitched their wagon to a low-cost merchant value proposition – forgetting that the consumer has other options. And, where there are bunches of customers with a ready way to pay, there will be merchants lining up to sell them stuff. Payments is and always will be that multi-headed beast that can only be tamed when value is delivered to all stakeholders in the ecosystem. (Related Article: Blast Off! How Two-Sided Platforms Ignited)

It will be interesting to watch how all of this unfolds over the coming months, and whether Google will adjust its strategy to include consumer incentives of some kind. Their executive leadership knows the story of PayPal pretty well and how that payment system ignited by solving a problem for consumers and merchants transacting on the eBay platform – and how the answer had nothing to do with making it cheaper for the merchant to do business.

Stay tuned!

Karen Webster is the President 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.