The wars for being the payments vehicle of choice online is heating up with Facebook's enormous community being the latest battleground. Should Facebook care? Should Amazon sweat? And where's Google Checkout?
Paypal is helping retailers set up shop on Facebook and use PayPal's payment platform. They've opened up an a software hook connection — what's known as an API — that allow developers to link into PayPal's platform. Tthose developers can then easily develop a retail store on Facebook and customers can easily pay with their PayPal accounts. The PayPal API eliminates the need to do the nasty work associated with creating eCommerce functionality AND making it work on Facebook. Two birds with one stone — which means a faster development process, too. And, smaller retailers without a Web presence and who haven't a chance in H-E-Double Hockey Sticks to get a commerce-enabled app on Facebook now have just as much of an opportunity as any other merchant to hawk their wares.
Before we get too excited about any of this it is worth taking stock.
About fifteen years into the Web commerce consumers still often face the cumbersome process of pulling out their cards and entering loads of info, and many merchants have still obviously not found what their looking for in payment enablement since lots don't choose any of the existing providers. So there remains a massive opportunity for someone to develop a payment method that will get consumers, merchants, and Web destinations on board. Facebook is just one of the battlegrounds. PayPal would love to be the platform that enables ecommerce on Facebook, adding that massive community to what it already has with eBay. So would Amazon which has its own payment platform. Facebook no doubt envies eBay for the making tons of money from having its own payment method in the form of PayPal that has become the standard on eBay and it has started its own. And where's Google Checkout?
I wish I had an answer on where all this is going to go but I think in fact it is pretty uncertain and that many opportunities remain for others to get into the payments game on line and for existing solution providers to be worried. So here are some questions, depending upon where in that spectrum you fall:
- For Facebook: Developing a payment solution is very hard; it requires providing a compelling proposition to merchants and to consumers, to get both on board, and to get a LOTs of both on board, more or less at the same time. . All payment methods require getting used to and neither merchants nor consumers want to be bothered with one that isn't massively used by the party on the other side of the table. It isn't clear that this is a good focus for Facebook. Remember, eBay ended up having to buy PayPal because they couldn't develop a compelling proposition on their own. So Facebook might want to stick to its knitting of creating a great social network and stoking interactions between people and leave developing payments solutions to others. Encouraging PayPal, Amazon, and anyone else who has a good solution to develop a Facebook friendly app to my mind is the best approach. Consumers and merchants will vote for the one or ones that work the best. (That said, Facebook needs to focus on how to make money from all the folks creating great apps including the payments one. I haven't looked at their developer terms of service but I hope they have reserved the right to charge for access to the Facebook community at some point.)
- For PayPal: Facebook is a great opportunity to build mass and this is a smart move for PayPal. But an intriguing question is why PayPal hasn't done better. They created massive scale on eBay, have lots of eBay merchants, and more than 100 million account holders (how many are active is another matter). But it has been a struggle to get merchants and consumers off of eBay. There are still lots of merchants that just don't want to take PayPal. PayPal may not have the magic formula. So I think we need to go back to basics for Web commerce and think what's going to get massive scale.
- For Amazon and Google CheckOut: Both of these face the challenge of getting consumers and merchants to sign up. Both are well behind PayPal in terms of merchant and consumer acceptance. Is it possible to catch up—absolutely.
- For VCs and entrepreneurs: There is a fortune to be made in coming up with killer payment solutions for Web commerce and in particular ones that are suited to the rapidly growing social sites. The "usual suspects" — PayPal and Amazon — don't have this locked up and the “really traditional palyers”—Visa and MasterCard—certainly don't either. Consumers and merchants are looking for easy to use payment methods across Web properties and they clearly don't have one they like very much yet.
The whole area of social commerce is up for grabs. PayPal's move cemented the notion that there is gold in them there hills. Payment-enablement is one battle, but not the only one that wages on these networks. Once that capability exists, there remains great opportunity to deliver retail solutions that capture the dynamics of social, marries it with a compelling value proposition for retailer to sell merchandise and network member to buy, and has an incentive for the social network to support it. There’s stuff starting to surface that scratches that surface, so, it only gets more interesting from here, I think.
David S. Evans, founder of Market Platform Dynamics, is an economist, business advisor and a recognized global authority on the design and implementation of complex business strategies and business models. David is the co-author of several books including Paying with Plastic: The Digital Revolution in Buying and Borrowing (The MIT Press, 2005) which has been called the "definitive source on the payment card industry," and Invisible Engines: How Software Platforms Drive Innovation and Transform Industries (The MIT Press, 2006), which won the award for best business book of 2006 from the Association of American Publishers.