The Google Wallet News That Wasn't

Let’s face it, the only news that broke last week when Business Week published its story about Google Wallet was that it had been downloaded around 10 million times since its launch two years ago. Frankly, that was about 9,950,000 more times than I actually thought it had been downloaded given the lack of physical merchant acceptance and handset availability (so, I’d love to know how many of those downloads were to make purchases in the Google’s app store). The reorg of Google Wallet of two months ago was really the big news - and the public evidence that Google Wallet, as it was originally designed was a total bust. You can read my take on that reorg when it was announced here.

There are many reasons why Google’s Wallet whiffed and why even its pivot away from NFC to the cloud wasn’t enough to turn things around. The very cause celebre of Google as a company - data that could be turned into advertising - gave merchants the heebie-jeebies. Osama Bedier, Google Wallet’s lead guy, put it right out there when he said that Google was a-okay about losing money on every payments transaction, since it’s focus was to “collect data on consumer habits and target ads to them.” It may be that the business model of tomorrow in payments is related in some way to advertising or promotional revenues. But merchants didn’t really cozy up to the idea that signing on to accept Google Wallet meant that their customer data could be served up for their competitors and everyone else in the world to monetize. Even Bedier’s Money 2020 keynote assurances to the merchant community didn’t seem to help. Admittedly, that’s a tough story to sell when something like 95 percent of the company’s revenue comes from monetizing data.

So, I say let’s give Larry Page some credit for taking a bunch of steps back in payments and doing things like scrapping the Google credit card and any plans to enter the very, very crowded mobile point of sale space with its own branded reader. Both would have been throwing good money after bad - where the bad money was estimated to be about $300M already.

Looking ahead though, I see one of three options for Google and payments - and they are at very different ends of the spectrum.

Option One. Google Wallet remains an enabling payment method for Google Play and pretty much nothing more. That would make it really easy for people with Android devices - and that is the predominant operating system now worldwide - to buy apps. The big obstacle to overcome, though, is how to juice apps revenues, which is where Apple outperforms Android by a country mile - like nearly 5 times. Statistics published by Distimo at the end of May (which is the #1 source for tracking app applications and installs/downloads) show that daily revenue from the top 200 apps in the Apple App store was $5.1 million, compared to $1.1 million in Google Play. Since developers get paid every time an app is downloaded, to make Google Wallet’s revenue’s register (pun intended), it has to get more people to download more of those apps - which will incent more developers to write more of those apps which will bring in more people who want to download them - the virtuous circle in action! Google has to solve the fragmentation issue first since it is difficult for developers now to reach large numbers of users with a single instance of their app. Published reports suggest that as of May of 2013, more than 97 percent of Android users are on older versions of the operating system - writing an app to its most recent version would reach only a smidge more than 2 percent of Android devices in use. Google has said that it will solve the fragmentation issue -since it certainly does impact more than Google Wallet revenue - but if it does, a Google Wallet/Play combo will make it easier for more people to easily buy more digital goods.

Option Two. Make Google Wallet a defacto mobile money platform for developing countries. Until Apple releases a cheaper handset, Android has the market for cheap smartphones locked and loaded. Making it easy for smartphone users to activate a preloaded Google Wallet would seed the developing market with millions and millions of Wallet customers, in an environment where the tension over payments plus data for serving offers might not be as acute. This initiative could dovetail nicely with other Google initiatives too, like its initiatives to bring broadband to underdeveloped countries. Now, the downside here is that the revenue delivered would be more like a rounding error than a real money maker, but twenty years from now, probably sooner than we have driverless cars, these developing countries could be pretty well developed and start kicking in some real revenue.

Option Three. Stick to your day job and bag the idea of a digital wallet entirely. If the Google Wallet game was never about payments (not a core competency) but data (a real core competency) then just double down on that and forget trying to duke it out on the traditional payments battlefield. The real battlefield, just ask anyone in payments, is now data. And, there’s a treasure trove of revenue possibilities in mashing up transaction data with other data sources like location based, behavioral based, preference based data (to name but a few) that would enable payments providers and merchants and others in the ecosystem to create new business models and new customer and sales opportunities. If Google weren’t in the payments business, my guess is that being some sort of enabling data platform to the payments ecosystem would meet less resistance by everyone since it wouldn’t be coming from someone who was operating in payments directly and who obviously had an ulterior motive for being there.

If I were a betting woman, I would put it all on red that Google will pursue Option One - and try to expand outside of Play. That seems a shame and a real distraction. I’m not sure what would make them think that the next two or three or five years will be any different from the last seven years of trying to ignite a Google-branded payments platform (remember, before Google Wallet, there was Google Checkout which launched in June 2006).

If I were an exec at Google, I would plead my case for Option Three - and try to figure out what that might look like. It could be every bit as disruptive as they intended Google Wallet to be, without the road kill within Google or from merchants or payments providers. One could argue that the piece of the ecosystem that needs serious overhaul is the highly fragmented and inefficient part that is trying to reinvent the commerce experience for merchants and consumers. And, since consumers increasingly use their smartphones as part of the commerce discovery opportunity, and Google has the market cornered on the biggest discovery channel ever - search - it seems like there could be something of value to explore.

Since they say that three times is the charm, I guess we’ll have to wait and see what Google payments 3.0 becomes. Any bets from any of you on what option they are likely to pursue?



About: Accelerating The Real-Time Payments Demand Curve:What Banks Need To Know About What Consumers Want And Need, PYMNTS  examines consumers’ understanding of real-time payments and the methods they use for different types of payments. The report explores consumers’ interest in real-time payments and their willingness to switch to financial institutions that offer such capabilities.

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