The App Wars: Amazon’s vs. PayPal’s Strategy

Will MasterCard and Visa Fight Too?

 

Amazon and PayPal have both announced aggressive efforts to persuade developers to use their payment technologies. Each of them has opened up a gateway into their payment platforms. They are providing developers with tools for writing applications that use their payment technologies. And they are “evangelizing” their payment platforms to encourage lots of developers to take them up on this.

Both of these alternative payment systems are adopting the “Invisible Engine” strategy that I discussed in What’s Next in Payments: Invisible Engines and in my book with Hagiu and Schmalensee, Invisible Engines: How Software Platforms Drive Innovation and Transform Industries. The platforms include services in that many developers can use. They then make these services available through an Application Programming Interface which allows developers to link into the technology without having to do much work. Here’s how Amazon describes it:

“Amazon FPS offers developers unmatched flexibility in how they can structure payment instructions, including standing instructions that can remain in place for multiple transactions. These instructions impose conditions and constraints on money movements and can be set by both senders and receivers of funds. For example, a sender might set a spending limit per week for a particular named recipient. Only that named recipient would be able to withdraw funds and only up to an amount per week equal to the spending limit. Amazon FPS offers easy-to-integrate, lightweight APIs that are categorized by use cases into interoperable packages called Quick Starts. With enhanced documentation, SDKs and sample code, it will now be faster and more convenient to enable payments on your application.”

PayPal held a developer’s conference on November 3rd to stoke interest. eBay’s President John Donohue said , “Bottom line: Working together, we will drive the next wave of payment innovation. You, the developer community, will create it. We, PayPal, will support it. Most importantly, millions and millions of consumers and merchants worldwide will benefit.” The more developers use one of these payment platforms, the more innovative applications they develop, and the more consumers and merchants that will end up using that platform. This is a strategy that Apple has used most recently to ignite the iPhone. As I mentioned in my last post on this subject (Mobile App Wars’ Impact on the Payments Biz), developers have written more than 100,000 applications for the iPhone. Of course, Apple and Microsoft both used this strategy almost two decades ago to popularize their operating systems. Microsoft hit it out of the ballpark with Windows, which became the software platform of choice for developers for a long time.

Amazon and PayPal are great examples of how payment providers are using platform and invisible engine strategies to develop large ecosystems around themselves.

It is too soon to tell how each will evolve. A lot depends on whether Amazon and PayPal offer developers a compelling set of services, and whether these developers create applications that in turn are compelling for consumers and merchants. Much also depends on whether other platforms enter that provide more compelling propositions. There’s room for this.

Although each has done well, neither Amazon or PayPal has gone gangbusters outside their own core properties (Amazon and eBay). History also says not to call the race too soon. Apple seemed to be ready to conquer the world when the first spreadsheet package, Visicalc, was developed. But the PC with DOS and then Windows became a more attractive platform for developers.

An interesting question is how long the big payment card networks will sit out the “Invisible Engine” wars that are beginning. Will they sit back and watch PayPal, Amazon, Apple, and others race to develop applications that will lock vast numbers of consumers and merchants up?