The Incredible Shrinking Google Wallet

Seven years into the retail payments game, search giant Google has struggled to find its footing in the retail payments game.  The news that broke about ten days ago, as its Commerce reorg sent a huge signal about its plans to address this - at least for now. That announcement split Commerce into a couple of pieces and moved Google Wallet under Advertising, and longtime Google executive, Susan Wojciciki. In my mind sent a very strong message about its plans for the near and maybe not so near future, which is to stop trying to be a retail payments player for bricks-and-mortar stores.

Here’s a replay of the Google Payments movie for all you fans out there who want a bit more context as to why I came to the conclusion that I did. Sit back, relax and grab some popcorn!

Google Payments Scene One - Google Checkout.

Google launched its online payment ambitions in June of 2006 as Google Checkout.  Billed then as the “PayPal killer,” Google banked its payments and commerce ambitions on merchants wanting to put a Google Checkout button on their websites in exchange for free transaction processing and better search rankings triggered by product sales. One year and $60 million promotional dollars into that experiment, Google Checkout struggled to break through, racking up a mere one transaction to every 68 processed by PayPal, according to ComScore. By the end of 2011, it managed to secure ~13 percent market share in terms of acceptance by top internet retailers, but that was still less than half of what PayPal and Bill Me Later (a PayPal company) had at the time. On the consumer side, fewer than 10 percent of consumers had ever tried it, compared to PayPal’s 80-plus percent In the case of Google Checkout, 13 percent merchant acceptance didn’t seem to drive much consumer trial since there didn’t seem to be a strong value proposition for consumers to want to care (or many places for them to use it). This is the usual payments ignition failure—a sputtering failure resulting from merchants not being interested because consumers aren’t interested resulting in merchants being even less interested resulting in consumers being really a lot less interested ….

Google Payments Two  - Google Wallet.

Google Wallet launched in September of 2011 and was the beginning of the end for Google Checkout. In a go-to-market strategy that took Eric Ries’ Minimum Viable Product to a whole new (lower) level, Google Wallet’s first version was NFC, and available only on the Sprint Nexus S 4G using a Citi-MasterCard and/or the Google Prepaid Card loaded into that wallet. Any consumer who was even remotely interested in using the Google Wallet had to buy a new phone, live in one of the few areas with NFC density (Manhattan, for example) and either get or already have a Citi MasterCard - not just any MasterCard. Not surprisingly, adoption was slow.  Just ask any Duane Reade clerk in Manhattan whether they had ever seen anyone use Google Checkout—they were one of the few merchants who took it.  You will get a quizzical stare to maybe a “yeah, I saw a one person try to do that once.”

Four months later, in January 2012, Google announced what the media described at the time as one of its biggest reorgs to date. Google Checkout was folded into Google Wallet and Google Wallet would live in something called Commerce and Local. A bunch of top execs were shuffled around (and out).  Seldom a sign of success.

Eight months later in August 2012, Google Wallet, still a NFC-based technology and still slogging away to get merchant and consumer acceptance,  announced that it was open to all payment brands, leveraging the capabilities of its TxVia acquisition. But what solved one problem - a consumer’s ability to load any card into her Google Wallet - created another- the method by which those transactions were processed.  Although consumers’ card accounts were stored on Google's servers, purchases done in stores were via a virtual MasterCard card number that generated a Google Wallet Master ID linked to a consumer’s credit and debit account, and stored on the secure element in their NFC phones. This meant, for example, that Google Wallet transactions done on Visa cards were behind MasterCard’s front end - I can’t imagine that made for many happy campers up the road in Foster City, California.

And, merchants still didn’t seem to be happy campers either but for different reasons. They got pretty uptight about Google having access to (and monetizing) all of the juicy transaction data generated from transactions happening via the Google Wallet. Practically speaking, they didn’t have all that much to be worried about - with NFC technology still at the core, few handsets with NFC chips in them and few merchant acceptance outposts - there weren’t that many transactions being done. But still, the thought gave them pause and didn’t do much to get them interested in signing on.

Then, the much teased big “cloud” announcement anticipated in October 2012 never materialized, even though rumors of a PayPal-esque solution, a plastic Google card and strategy to gain offline merchant acceptance were swirling. By the end of 2012, it seemed that the only thing at Google Wallet that was getting traction were the rumors that its leader was jumping from the Google Wallet frying pan to the MCX fire to take on its CEO role.

Google Payments Take Three - Reset

So, that brings us to today.

On March 14, 2013 Google announced that it would split its Maps/Geo and Commerce group into two separate units. Jeff Huber, the SVP who was put in charge of Commerce during the last reorg, will move to Google X, the “startup lab” within Google that is doing, among other things, those totally practical experiments like devising self-driving cars and wearable computers (e.g. Google Glasses). Commerce will become part of Advertising, reporting to SVP Susan Wojcicki. Just to refresh your memory, Wojcicki is Google employee No. 16, and the person whose garage literally hatched Google in 1998. Her business unit drives 95 percent of Google’s revenue and she personally masterminded two of Google’s most critical deals - the Double Click and YouTube acquisitions. Further specifics on who will look after Google Wallet were not disclosed but it seems that person Page and Brin seem to trust most is now the person who will help them sort out its retail payments future.

How that future will look is anyone’s guess. My read is that Google has made a deliberate (and very sensible) decision to back away from retail payments in lieu of redirecting its payments use case towards something that more resembles the “iTunes equivalent” for Google Play and Adwords. Hardly an all out full blown payments strategy, this move will enable Google to provide an easy payment mechanism for consumers and businesses who want to buy online (and via the mobile device) with Google - digital goods and ads (for now at least).

After several hundred million consumers have done that, perhaps Google will be in a better position to consider its retail payments options. At that point, a lot of the uncertainty related to retail payments (technology, consumer and merchant value proposition, etc.) will likely be resolved. Of course, so will the competitive playing field, but at the moment, it’ really hard to see a plausible strategy for Google Wallet given what it is today and where it has placed its bets.

Will it be a while before we see Google Wallet as an offline or online consumer payment option at the places you like to shop? Well, let’s just say that I wouldn’t hold my breath. Are retail payments over for Google? I doubt it. As I mentioned during my opening at The Innovation Project 2013, the most exciting and disruptive thing about payments today is the blending of the on and offline worlds. Anyone with a great idea and a vision can give any offline encounter an online component and vice versa. Google has a ton of online experience and eyeballs, and a bunch of interesting assets to leverage, including all of the things that come with its Android platform and Motorola Mobility assets. Google could very well decide to turn its thinking about payments on its ear and approach the problem set and use cases in a very different way.  Google’s free cash flow - which for Q4 2012 was about $3.7 billion dollars -  could certainly fund a lot of creative thinking about just how to go about doing that.



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.

Click to comment