The New Economy: Small Wins

I’m more passionate about this topic than anything I’ve ever written about. As an eternal optimist I don’t see a world dominated by Google, Amazon, Chase and Walmart…. But rather a new economy where millions of small businesses thrive. Where every person can employ their creative talent in collaboration focused on value creation. A world where capital flows to great ideas across geographic boundaries lifting the stifling poverty of most emerging markets. Continue reading “The New Economy: Small Wins”

Browser Tokens – Payments in OS Part 4

My last articles on this topic were
I’ll forgive you if you didn’t see the big news out of Google I/O. There is a MUST READ article in Android Police that is spot on. Summary? Google (Chrome/Android) and Apple (Safari) are ready to integrate payment tokens in the browser.. Buy buttons will be integrated into ads, product listings, or a single “pay” button with no subsequent user information to fill out “quasi one-click”. From Android Police

Continue reading “Browser Tokens – Payments in OS Part 4”

The “Stripe” of Identity

16 April 2015

Making Payments easy is a very hard thing to do (see post).. the same can be said of authentication. Apple has created a new standard for biometrics/identity and authentication with TouchID.. and platform security (with iPhone 6). Problem for entities needing to authorize using Touch ID (ex Banks) is that Apple doesn’t pass the raw biometrics.. its actually against the law in Europe (which makes sense as fingers are rather hard to re-issue). 

How can banks leverage Touch ID for authentication/authorization of their bank app? There are 3 parts to the problem:

  1. integration with Touch ID (Trust of TouchID),
  2. Trust of the Phone (phone ID)
  3. Authorization for the Service. 

I can’t believe I’m going to write this next part.. it breaks most of my rules.. but a Bank Consortium has actually innovated!!  Early Warning’s purchase of Authentify may be the best bank innovation of the last 10 years. With Authentify, banks now have a consistent way to implement biometrics, manage trust, and authorization across iOS, Android and other platforms.  See press release below. 

http://www.earlywarning.com/news/press-releases/2015/early-warning-to-acquire-authentify.html

Early Warning’s other components include Payfone (jointly owned by US Banks, US MNOs and Amex), and the US banking industry’s top secret fraud fighting utility (which has migrated from ACH, Checks, Debit into Credit and lending) .

Early Warning has completely remade itself over the last 5 years.. becoming a the US Banking Industry’s best consortium for innovation and value creation. Congrats to CEO Paul Finch and his fabulous product, M&A and Tech team.. and to all of his bank members for making this possible. 

Google Creating Platform for a New Mobile ECONOMY

16 March 2015

How can Google, Samsung or anyone else ever hope to catch Apple? It depends on what they are chasing!

My view is that Google has just begun a major transformation to the physical (offline) world with Android as the key enabling “platform” (beyond search to orchestration) for a new business network. This transformation involves 5 primary vectors:

  1. Enable Android as the secure platform (SE Linux, Trustzone)
  2. Create participant incentives for commerce “network” to invest and transact on “platform” (Advertiser, MNO, Bank, Retailer, …)
  3. Improve physical world insight/data collection to enhance targeting and attribution
  4. Capture and manage consumer identity
  5. Create/enhance consumer engagement platform for commerce

Mobile Industry vs. Mobile Economy

Apple is the #1 company in the world. (A very BIG period). Apple’s position is well earned through focus and hard work. Operating as a  consumer champion that captures a mind numbing 93% of the mobile industry’s profits.  The most obvious question to address in this blog: what could ANYONE do to dent this? (operating from a basis of under 7%). In other words, what could Google do that would possibly matter?

Answer: The “Mobile industry” is not what Google is chasing (nor are Amazon, FB, Twitter, …). “Industry” is an old world classification that does not account for most aspects of the MOBILE ECONOMY (advertising, beacons, shopping, shipping, social, payment, identity, …etc). The mobile economy is about commerce. Perhaps my favorite “stat of the year” to exemplify the impact of mobile outside of the traditional “industry” came from January in Tech Crunch. Amazon’s business has shifted from 5% mobile to 60% mobile in 5 years!! (see Convergence Blog for more detail).star network

As mobile and IOT encompass ever larger roles/touches which impact our behavior, Google is moving to support both: Android as the embedded OS (connected everything) and Google core as the center of commerce (the orchestrator).  This blog focuses on mobile commerce and I will try to outline a few of Google’s strategic moves that are redefining the mobile economy.

Google’s core is centered on connecting businesses  and consumers, delivering services to all.  At the center of this star network is the indisputable “data” utility which becomes more efficient with every insight they gain on both sides (consumer and merchant).  Today millions of businesses and billions of consumers are investing “energy” to connect to Google (all with unique incentives)

Businesses, Banks and Consumers are all wondering if the beautiful simplicity of Google’s bright shining star [network] is a Faustian Bargain, much worse than Apple’s walled garden. Google’s position today is quite a feat given its humble beginnings as a free Open Source mobile OS that Google bought in 2005.

How is Google building platform and network? Moving to a model of shared incentives and partnerships?  Before we go deep here, let me first attempt to paint the picture of Apple’s dominance (and weakness).

Apple

Apple’s success is completely driven by the consumer, logically this means their organization and investment are focused on delivering great consumer products which operate within a giant walled garden. This walled garden works well in a small world (individual’s control: telephone, music, calendar, pictures) where Apple can control, but not very well in coordinating interactions outside of the garden. Stated differently, Apple’s approach of “my way or nothing”, means it has few friends.

As I outlined 2015 Predictions blog, competition is no longer about camera resolution, storage, and screen size, that enable you to manage items in your small world.  The visible (obvious) attributes of mobile competition have become a commodity; as well as the small world problems that your phone solves.  My view is  Apple’s greatest assets are consumer trust and its unique ability to change consumer behavior (see blog Apple and Physical Commerce, and Consumer Behavior). These assets allow Apple to assume a leading role in connecting and orchestrating consumers in the real “connected” world , however they are 5 years behind Google, Amazon and Facebook in their ability to execute here.

Why is Apple falling down in IOT/Connected Commerce? Apple has 4 primary strategic weaknesses: 1) it does not partner well (closed network and proprietary standards) and 2) it relies primarily on hardware for revenue, 3) its entire organizational culture and focus is on hardware 4) it locks consumers into its walled garden. Today pointing out these weaknesses is like telling Peyton Manning that his singing was out of tune, or Albert Einstein’s flaw as dancing. These shortcomings just don’t matter in a world where Apple is 3 years ahead of everyone else in profitability, quality, loyalty, integrated OS and Hardware.

Apple’s business model is perhaps the best example of how closed networks win through the domination of a benevolent “channel master” (see iPhone 6 – Apple’s Strategic Opportunity). Cisco, Microsoft, Intel all operate in this model. Apple’s star network is much smaller (ie connected business) but its bonds are much stronger. However, their success may become a hindrance.. as merchants, banks and others want to “own the consumer” too.

Compared to Apple, Google’s world is much more democratic, it wins by delivering value through customer choice every day (search, maps, mail, play, HCE, …).  Google is a commerce enabling, which tilts toward the consumer (on the phone) and toward the merchant (in advertising). Where Apple has a walled garden; Google is a semi open platform that supports many gardens and clusters.  Where Apple’s business is driven by hardware margin; Google’s is driven by daily consumer and merchant choice. Where Apple delivers value to consumers and itself; Google delivers value to every merchant, bank, MNO and almost every consumer (even on iOS). What other businesses are enablers of consumer and merchant? My list is fairly small…

Apple’s inability to make the iPhone work outside their garden, means that they are dependent upon device only margin (currently a fantastic business model). Critics will point out that Apple runs a fantastically successful App Store Platform that is 8x-20x more profitable than Google’s (with less than one quarter of the handsets).  However this is Apple’s walled garden.. where Apple made 30% from $2B from App store sales benefiting 500k odd top app developers, Google’s US Ad sales last year were $30B driving at least 20% of $185B in US eCommerce Sales. Google’s role was much more impactful to the overall economy (and almost all businesses).

Platform is turning out to be an opportunity lost for Apple. The iPhone 6’s security has made it the first “convergence device” with the ability to broker interaction in virtual world and the physical world (NSA, CIA and everyone else are still working to break industrial grade security). Yet Apple has no plan to leverage this identity management outside of their platform (see Brokering Identity), or even use basic identity information to assist banks with identifying ApplePay fraud (until very recently).

How to combine assets in the new Mobile Economy?

We need collaboration! The last 10 years has seen every major fortune 100 build big data facilities that work with nothing else. Banks, MNOs and others have all invested billions in an attempt to build an advertising business to rival Google’s. JPM Chase has a new data division on par with the investment bank, Verizon has built PMI, Walmart has WMX. All are constrained by their partial views of the consumer. Advertisers are challenged to work within these new proprietary efforts. The market need surrounds incremental insight engaging consumers in the channel which they prefer .. which means combining data.Data options

US MNOs spent over $600M+ trying to make their NFC play work. As my good friend Osama said at a recent MNO event “in order to create value sometimes we must let go of the assets we treasure most knowing that value is only created when they are combined with the assets and interests of others”.

Google provides a massive closed market (Ad Words) with unsurpassed consumer insight and trust. No company can choose NOT TO participate in Google’s economy, after all advertisers and retailers must go to where consumers are (not where they want them to be). Google operates in discovery, awareness, engagement, selection, sales, delivery and support.

Google is perhaps the only company in the world that is both loved and feared by merchants, banks and consumers. Particularly as their traditional open source, closed market, and “do no evil” approaches become more proprietary and less transparent. Google’s insurmountable advantage is in using data and insights within its own organization, where everyone else must be diligent with sharing (externally).

Today that fear is not well placed. Few understand just how myopic Google’s current data dominance is. While Google knows most about you online (search, mail, maps), they know very little about you in the real world. Google indexed the internet to create a common directory of public data, yet it has very little insight into private data (even your actual identity).  Facebook, Apple and Amazon all have far greater consumer identity insight.  Physical world (off line) data is of far greater value than online data, and online eCommerce sales are only $185B (US) comparted to $2.4T in offline Commerce.

Google

Perhaps it’s easiest to start this section by outlining what has changed in the last 12-18 months?Google economics

As stated in intro paragraph, I believe Google has begun a major transformation to the physical (offline) world with Android as the key enabling “platform” (beyond search to orchestration) for a new business network. This transformation involves 5 primary vectors:

  1. Enable Android as the secure platform (SE Linux, Trustzone)
  2. Create participant incentives for commerce “network” to invest and transact on “platform” (Advertiser, MNO, Bank, Retailer, …)
  3. Improve offline insight/data collection to enhance targeting and attribution
  4. Capture and manage consumer identity
  5. Create/enhance customer engagement platform for commerce

Android as Secure Platform

Android is transition from open source Linux to SE Linux (which was oddly enough created by the NSA).  One of Androids major shortcomings was its dependency on OEMs (minimal say on hardware). While Apple worked to create innovations like touch ID that is stored within the secure enclave within the A7/A8, Google had to work with prime OEM vendors like ARM to build the equivalent (both Apple Secure Enclave and Google’s new equiv are based upon ARM’s Trustzone/TEE).  Android is making big bets in security, as managing information (and authenticating consumer) is key to orchestration (see  Authentication – A Core Battle for Monetizing Mobile).

Poor SamsungPay. These guys obviously don’t read my blog or they would have clearly seen the implications of Google’s new MNO deal. SamsungPay will not be pre-loaded onto Samsung’s own phone. Samsung not only lost in payments, but also in owning a proprietary security construct that secured the token (Samsung’s proprietary Arm TrustZone implementation). Even if a consumer loaded SamsungPay onto their phone, it will not work without Samsung leveraging the new Google/ARM firmware for secure credential management.

Apple’s biggest lead (with no apparent threat) is in touch ID. While SE Linux and Secure Storage are important… you must know WHO is coming in the front door. The Android approach seems to be more about behavior and forensic identification than biometric.

Incentives for participation

In 2011, the US carriers wanted an estimated $3B from Google for the “rights” to NFC (and the secure element). Google correctly responded.. “how about we figure this out together and see if we can make it work” (skin in the game approach). Last month we saw Google’s purchase of ISIS/Softcard for $60M with a new strategic partnership, with unknown revenue share, and unknown mandatory Android features (ie Wallet/Play/ ?) with the Carriers that redefines the “secure” standard of a new Android platform.

Whereas Apple has complete control over every aspect of iOS. Google has created a network for revenue/sales. Retailers advertise/engage/create, MNOs rev share, Banks manage payments.  You can only guess which platform Banks and MNOs would prefer to invest. This common platform may be a turning point for collaboration and Commerce 3.0 (my year of partnerships).

Offline insight

Google’s mission is to use the phone to cross the chasm into offline. The reason a new platform is needed has to do with offline data. For example, Mobile advertising will never work without an understanding of intent and behavior. This [private] information is locked up in millions of businesses (with a copy at the NSA).  data evolution

Today’s data business is just insane. Take a look at someone like CVS, Catalina is one of my favorite data companies (along with ADS), and Catalina works well with Nielsen to target and measure television ads. However they don’t work well digitally, thus CVS has to provide Datalogix (now Oracle) will all of it loyalty data (your SKU level purchase data) to play with Facebook (see my blog for background). Can you imagine having all of your data in multiple locations? Trusting these aggregators use it appropriately? Combining is with their proprietary models and other external data sets? What are they “gleening” from this data?

Google’s approach is to own the data and insights created from their services. Google now wants to create mechanisms to “share”.. the problem is that this “sharing” involves giving data to Google and getting customers back. This allows Google to create great experiences, but the price for data owners is loss of control.

Logically, nothing in biology or in capital markets has this amount of centralization. The title of this section is “combining assets”, is the only answer to combine assets giving them to someone else for unstructured use? This is what my NewCo Commerce Signals does: providing the plumbing for federated data where data owners retain the control over their data, determining not only who they should share data with, but also for what use (next blog). I’m fortunate to have a few big retailers, banks and MNOs that share this view (within Commerce Signals).

Capture Consumer Identity

Remember when you purchased that new iPhone? You couldn’t activate it until you created an iTunes account. That iTunes account required a credit card. What a brilliant Apple move!!  This year Google will finally catch up, as I believe a key facit of new MNO agreements is to make the Google Play account mandatory (with CCN/Token).

Knowing the identity of the consumer is important, authenticating them is quite a bit more difficult.  I believe third parties like Payfone will play a leading roll here. Payfone is jointly owned by top 6 US Banks, Amex, Verizon, RRE and a few other investors. They are tying together identity information of carriers, banks and platforms to score transactions and enrollment.

Customer Engagement

Google has many, many efforts here:

Retailers and Banks are loathe to give Google data, or let them assist directly in consumer engagement. However as long as Consumers choose Google’s services first, Google is in the driver’s seat. Companies that share data more effectively with them will reap greater benefits.

Wrap up

EVERYONE works with Google… it is where consumers are. Consumer behavior on mobile is changing much faster than anyone has anticipated. No one company can ever hope to compete with Google, they are moving fast to reshape the mobile economy.. where consumers spend 3 hr/day.

mobile_vs_tv_1_v1b-1

Android is a much easier platform to make investment. It’s a more predictable standards based environment compared to Apple (ex Sapphire glass or that darn lightening connector), with a strong partnership track record. Google’s democratic nature allows for experimentation. The path toward rewiring commerce is much easier in a Google world.

Having Google at the core of data is not without risks. Companies must work with many parties after all. How do you track the interaction between all of your partners today? Who has your consumer data? What will you share with whom? How can you accelerate trials and tests?

How do you combine your assets to create value in this new future? Without loosing control. This is the problem I am focused on.