Recent issues with Facebook, Equifax, GDPR compliance, … have brought us to a tipping point in data. The basic structure of how data is: permissioned, shared, used, accumulated, analyzed, sold, regulated, … must change. Google and FB operate in a Big Data 1.0 architecture powered by the “virtuous cycle”. Edward Snowden showed us how the NSA also acts in this centralized model as a data vacuum (not so virtuously). Literature and entertainment have created broad awareness of the dangers of centralization and loss of privacy: 1984, the Borg, The Circle, Black Mirror, … etc. Continue reading “Data Tipping Point.. Good things will happen”
Traditionally the core of bank margin is in risk management. The core of risk management is data.. thus Banks have been the among the best data businesses (as IBM knows). Banks “learn” about their customers through bank interaction: payroll, card transactions, lending. This has helped banks make better risk decisions (both credit and fraud/identity). Within the bank data cycle the traditional use of data is for an internal benefit: risk and cross sale of the bank’s products and services (not that of consumers or merchants). However the “virtuous cycle of banking data” is very different from that enjoyed by Amazon and Google, both in the scale and type of data and consumer facing use. Continue reading “Banks as a Data Business – Example Amex Advance/Acxiom”
I was hoping to see rollout of a long rumored payment innovation at Facebook. All I can gather is that they must still be in testing.. but the idea is just brilliant.
Facebook has a tremendous advantage over just about every other advertiser.. its consumers log in before use. Facebook is rumored to be in the midst of integrating payment tokens into advertising. This means when you click on that beautiful North Face Jacket, or those Climbing shoes that the payment instrument (and even the authorization) is integrated. The only thing that the consumer would need to do is confirm shipping address. Wow.. talk about end running the payment specialists.. this is “one click” for ads.
The very idea that there is a “payment specialist” needed between the ad and the seller is going away.. payments are becoming a generic infrastructure services that no one cares about. See Payments in the OS. In this case IDENTITY TRUMPS everything.. if I know who you are.. everything else is just accounting. Someone should go out and write a patent on a similar flow using blockchain.
My guess is that Facebook would be the beta launch for VBV/MSC and the new 3DS 2.0 spec. So not only would this be a great experience, merchants using this would have a liability shift onto the bank and a 20-30bps rate advantage over traditional eCommerce payment acceptance. (see my blog on Civil War). This flow would hold on both mobile and desktop.
The other implication here is for the banks using TCH token vault.. sure you can vault your own tokens.. but this also means that you must keep up with the fast changing specs in EMVCo and the other users of the specs in MasterPass and Visa Checkout.. doing your own vaulting may mean that consumers can’t do some of this other really cool stuff.
Great article in the New York Times this weekend: Jamie Dimon Wants to Protect You From Innovative Start-Ups. Believe it or not I agree with Jamie.. consumers have NO IDEA of what they are giving up. There must be a chain of control on regulated data.. Continue reading “Data Leakage”
2 Dec 2015
Happy ‘After’ Thanksgiving everyone, I’m coming out of my tryptophan coma and thought I would go for a mental stretch. This is a pretty big topic, and I won’t do it justice. Thanks in advance for your comments and perspective. [Note I’m not naming the titles of my reference blogs and used only URLs.] Continue reading “Changing Economics of Payments”
29 Sept 2015
Money 2020 in 4 weeks! My session is on Tuesday at 11:35. We are talking data and collaboration. Look forward to seeing all of you.
I’ve been on the hunt for a good article on the impacts to “eCommerce acquiring” from tokenization, new rate tiers, authentication, mobile… and I’m still looking. Payments is a very enigmatic space! Its just hard to believe that top 10 payment players have no idea of what each other are doing. Industry consortiums and utilities are much more political than they are threatening.. as their support at the CEO level and at the operating level are completely different. Example “Real time payments”.. A regulatory driven initiative that no top 10 bank wants to say no to.. but with no business case. So it just plods along on a 10-15 year cycle. Why would anyone in their right mind want to work on this initiative? Particularly when Square, Facebook, Google and Paypal all do real time payments for free through debit networks.. NOW.
As I outlined earlier this year in Structural Changes in Payments, there are 6 key areas that are impacting all payments:
- Risk and Identity
- Data/Commerce Value
- Consumer Behavior/Trust/Acceptance
- Issuance/Customer Acquisition/HCE
- Regulatory/Rates/Rules (Fees)
- Mobile/Payment in the OS
Today’s blog is on how these structural changes, and new solutions, are driving changes within eCommerce (payments). eCommerce is a “lumpy” business with 4 “payment” players managing 70%+ of the $190B in eCommerce transaction volume:
- Cybersource US $80-100B
- PayPal + GSI $50-60B
- Amazon $90B
- Walmart.com $14B
Obviously adding these figures up shows volume greater than the $190B in eCommerce sales, so a little more detail is necessary (Example I believe Chase Paymentech clears for Amazon, part of WMT and PYPL). What do each of these players do? For example Cybersource nits together acquirers, fraud services and methods of payments. Amazon and GSI layer on Logistics, shipping and website hosting. These are 4 very different companies. There will be some VERY large changes in eCommerce Payments which positively impact merchants, but will be detrimental to pure-play intermediaries. What was a specialized service (fraud mgmt, cards on file, checkout hosting, … etc) is becoming a commodity. Due to the improved ability to authenticate and consumer moves toward mobile.
I was amazed that I couldn’t find any articles that go through eCom intermediary services, and the impending changes that will impact payments in eCommerce. The payments industry is certainly one of the most opaque… not only is there a lack of academic courses on the subject, you can’t find any public articles that articulate what is happening. For example, a logical question for investors: What will impact PayPal US margins in next 3 yrs? How does Cybersource compete against PayPal? How do the services compare? I challenge you to find this in the press.
Before I start a discussion of the disruption and margin, I’ll give you my view on the history of eCommerce. The entire founding team of Paypal knows this much better than I do.. but let me attempt to summarize. In mid 90s consumers could buy things on the web.. the challenge was that banks had no way to manage card no present risk and fraud. Paypal and CYBS created CNP risk models. The key change here is that perfect authentication destroys the need for most risk and fraud (exceptions are credit risk and 1st party fraud… like taking your grandmothers card and using it).
Early stage companies don’t have time (or capital) to invest in large payments teams. In the eCommerce world, online stores went to gateway providers, In the mobile world Stripe and Braintree serve this function. What do Gateway’s do?? I would love to see a service matrix for the industry.. but since I couldn’t find one .. here is my list:
- Checkout page (hosting)
- Fraud services
- Management of cards on file
- Distribution of merchandise (example GSI)
- Acquirer integration
- Payment acceptance
- PCI compliance
As small companies grow up their needs change. In phase 0 most start ups can’t afford to create a payments team. As they mature and go global they can’t afford not to. How do I accept multiple currencies? Paypal? Alipay? JCB? Qiwi?… Then there is global cash management, tax, compliance, … AND THE TECHNOLOGY CHANGE.
One of the big lessons we learned at 41st Parameter (now part of Experian) was that the market for eCommerce fraud services was very small. The big merchants (Amazon, Walmart, …) created their own tools, as did the big Gateways (Cybersource, Paypal, Digital River, etc) to serve the SMALL MERCHANTS. It was the medium size businesses that were too big to outsource to a specialist, and too small to create their own tools, where there was a market (example Airlines, Banks, Top Retailers, …).
eCommerce Service Providers – Long Tail Impacts
Of all the areas of payments, eCommerce is undergoing the most radical transformation. The reasons? All of the structural items listed above AND new entrants.
I like PayPal!
I am not a paypal hater, however I will continue to poke them for silly moves (like Xoom and Paydiant, and Kingsboro’s POS push). They are well positioned for 25%+ CAGR for years…. But they must change focus back to their core SMBs and “long tail” merchants.
Why long tail? Frequent readers of my blog know that roughly 60% of Acquiring profits are generated by the bottom third of the merchant base. Small merchants are where the margins are. If I were CEO of Paypal this is where I would focus my complete attention, as this is where Paypal has excelled (and it is where profitability resides). No one has proven an ability to acquire SMBs at scale other than Paypal in eCommerce.. NO ONE. Most of their competitive threats deal with consumer “Front End” components of the gateway value propositions (ex ApplePay). This does NOT address the merchant side (back end).
Paypal is by far the best in class SMB eCommerce Acquirer…. BUT
1) traditional acquirers are beginning to break in as the barriers to entry are disappearing AND
2) front end solutions like Apple Pay/Microsoft One Pay and VPP are coming to market AND
3) consumer behavior mobile shift
4) Payments are costs are moving to 0 and being bundled (ex. Google offering free shipping too)
5) Authentication is killing their core risk management asset
6) Networks are creating a new rate tier and shifting risk to banks for eCom (160 bps and no risk, vs Paypals 375 bps and merchant borne risk)
All these are threatening their existing base and growth. However most of these items DO NOT impact Paypal’s merchant acquiring directly. Paypal is a natural alliance partner of: MERCHANTS, CHASE, AMEX, and Private Label. I believe that something will happen here… the issue isn’t financial it is focus/alignment. Paypal is a super efficient on us network, that prices at Amex rates. Chase and Amex have this same strategy. Merchants want payments for free.. hence the challenge in working their directly without some other massive value proposition (see paypal at POS). My recommendation to Paypal is the same as the original founders: Stay focused on long tail merchants… forget about dragon slaying wal-mart… there is no margin at the high end merchants.
Networks – Card holder present
Tokens in Mobile, will make their way to tokens in browser and create a new form of mobile authentication which will enable payment networks to create a MUCH improved version of VBV/MSC, shifting liability onto the bank with an interchange rate between CNP and CP. Who can take advantage of this rate and liability shift? Entities that can authenticate the consumer on the mobile device (Apple, Google, ?MNOs), securely manage a token and broker identity with other parties (see Authentication in Value Nets).
How will Visa/MA roll this out? There are many, many lessons learned in the prior 3DS (VBV/MSC) roll out. Already V/MA have been talking to major issuers and eCommerce service providers. Token issuance is currently a bit of a hang up as the issuers want to get their own TSP services up and running, and the Google/Amazon, … want to run their own TSPs. If everyone would agree to use the V/MA TSP services this could happen quite quickly. But because this is NOT the case, ApplePay and Visa Checkout seem to be the only services positioned for this move.
As I outlined in December 2014 mCommerce/eCommerce Converge, there will be a new rate tier: Cardholder present. When? Next 12 months is my guess. What does this mean. Merchants that accept tokens in eCommerce will get a reduction in fees (assuming acquirer/gateway passes on) AND liability will shift onto issuing bank (aka VBV/MSC circa 2006). In the US this means 140-180 bps AND liability shift….
As I stated previously in my ApplePay blog, when this new rate tier hits, it will free Apple (and others) to transfer the token to the merchant across a greater number of protocols. In store this means that NFC will compete with a BLE experience, with NFC carrying a CP rate and others carrying a Cardholder present rate (and bank liability) that is very close to the CP rate.
I must end here.. I have been working on this silly blog for 4 weeks (part time).
Sorry for typos
As I wrote back in my May blog Internet 3.0 Collaboration in Commerce, Communities and Networks, we are transitioning to a new era of collaboration. The industry buzz word is “sharing economy” but this is a little too altruistic a moniker for my liking. If an elephant was taken down by 1 million ants there would indeed be sharing… of the carcass!
Indeed the implications of collaboration and reduced Transaction Cost Economics (TCE) are much broader than “sharing”. As Uber demonstrates, existing industries will be taken apart and re-assembled through external orchestrators. How can companies deal with the “unstructured complexity” of new market based orchestration, open APIs with unstructured requests for their data across thousands of new partners? This is our focus at Commerce Signals.
I’m currently reading the works of 2 Nobel prize winners in economics: Oliver Williamson (2009) and his mentor Ronald Coase (1991). Both were focused on the factors governing the “nature of a firm”. (particularly Transaction Cost Economics). Here are a few of the books I’m reading (for those interested):
- The Nature of the Firm: Origins, Evolution, and Development
- The Transaction Cost Economics Project: The Theory and Practice of the Governance of Contractual Relations
- Misbehaving: The Making of Behavioral Economics
- Wikipedia – Theory of Firm and Transaction Cost
There is no way to summarize the work of 2 Nobel prize winners in a blog, but I would like to focus on one element: Transaction Cost Economics (TCE).
Transaction Cost Economics (TCE) dictates the structure of a company
Ronald Coase, used a TCE framework for predicting when certain economic tasks would be performed by firms, and when they would be performed on the market. From this Williamson Paper
Ronald Coase posed the problem more sharply in his classic 1937 paper, “The Nature of the Firm.” He, like others, observed that the production of final goods and services involved a succession of early stage processing and assembly activities. But whereas others took the boundary of the firm as a parameter and examined the efficacy with which markets mediated exchange in intermediate and final goods markets, Coase held that the boundary of the firm was a decision variable for which an economic assessment was needed. What is it that determines when a firm decides to integrate and when instead it relies on the market?
Today, our network, and services, are evolving in a way that supports new mechanics for transacting: Authentication, reputation, coordination, contracts, risk, discovery, trust, …etc. Uber is the best example of this. We all agree that Uber’s success is reallocating the “assets” of production in a more efficient form.
As stated in my blog, the boundaries of [established] organizations will be changing as a result of changes in TCE and common facilities to construct agreements and partner outside of their organization. Modularity is the key technical term describing how business must structure boundaries (specifiability, measureability, predictability). What services do you want to make available? The answer to this question is NOT a technical problem, but a business one. Amazon is one of the clear leaders in modularity. The rules in which modules operate are “platforms” (technically) and “markets” (from a business perspective). After if everyone built their “API” in a different technology with no common directory it would be useless. For those interested, CommerceSignals is this neutral directory, never looking at the data.. but switching it as directed.
Collaboration what does it mean?
I guess it depends on your point of view (the elephant or the ant). Look at the Google Buy Now Button (see my Blog). Google gets everything I’m saying in this blog (guess they listen well). Google Buy Now is a Partnership Platform (see blog on Google’s Strategy) for advertisers and physical retailers. Local retailer uploads store inventory, google helps them get customers to buy.. and ships the goods to the customer’s door twice a day with an Uber like delivery services (shopping express). With all of these services Google will be in a position to guarantee sales.. For example if I’m a local specialty retailer Google could propose: I will drive $100k in sales for $1500… This is a MUCH bigger deal than Uber.
Who do you work with? Are you the lead? Are you the follower? Who decides? Who sets the rules? My favorite collaboration story at Commerce Signals is from the Chief Marketing Officer of a National Movie Theater chain. Brent said “Tom I’m the anchor tenant at 500 locations, I’m surrounded by 10-15 restaurants and 20-40 retailers in each of them, when I win they win. It is my community that competes with my competitor’s community, yet I have no facilities for collaboration. My data just falls into the trash can, how can you help us”?
For example every Fortune 100 company wants a “big data team”. These companies have internal plans based upon internal data driven by internal teams. While I agree that determining what products and consumers are profitable is a key area for everyone, the REAL VALUE to be unlocked is at the intersection of your data with something else. Afterall what company can compete with Google, Amazon and Facebook in consumer insight!?
One of the MOST SIGNIFICANT developments in last 5 years is that there is now a broad recognition that collaboration is necessary. For example Bank’s spent over $400M (EACH) trying to make CLOs work, MNOs spent $600M trying to make payments work, .. I could go on. Commerce is about markets. Markets are about connections. We are moving from an era where every Fortune 50 built their own closed market (where no one showed up) to a model where at 2 or more work together (Closed to semi open to …??open). The early battle in this shift to collaboration is Google, Amazon and FB (GAF) vs Everyone Else. What ONE COMPANY could possibly compete against GAF?
Collaboration is more than just advertising and demand how do you work with specialists? What parts of your organization are not best in class? When should you have your own internal team, vs an external one? When should you build and when should you buy? Technically we see this dynamic in great companies like Salesforce and Amazon Web Services. Uber and Google Buy Button have given us business led examples. The challenge for existing enterprises to adapt is tremendous. From a management perspective how do you manage a collection of suppliers vs a hierarchy of employees? If you have challenges managing internal compliance, how do you do it across many external organizations? How do you specify the “unit of work” to be performed and how do you measure it? What is a 1099 employee? In which country/State?
This is where trust, reputation, markets and the strategies of (distributed) modularity come to play.
My Fortune 100 recommendations (from previous blog)
1) List out your most valuable consumer insights
2) List your top growth opportunities
3) List the top sources of new revenue from existing customers
4) Where are your greatest threats?
5) What are you not acting on?
6) Who can act on them more effectively?
7) How can you partner one time?
8) How can you enable 100 companies to run with the opportunity?
9) What needs to be measured?
If you don’t take action.. the swarm will …
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:
- Enable Android as the secure platform (SE Linux, Trustzone)
- Create participant incentives for commerce “network” to invest and transact on “platform” (Advertiser, MNO, Bank, Retailer, …)
- Improve physical world insight/data collection to enhance targeting and attribution
- Capture and manage consumer identity
- 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).
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’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.
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.
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:
- Enable Android as the secure platform (SE Linux, Trustzone)
- Create participant incentives for commerce “network” to invest and transact on “platform” (Advertiser, MNO, Bank, Retailer, …)
- Improve offline insight/data collection to enhance targeting and attribution
- Capture and manage consumer identity
- 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).
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).
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.
Google has many, many efforts here:
- Google shopping express
- Plaso Pay with initials (Business Insider)
- Google Local Inventory
- Offer ad extensions
- In store mapping
- Payments in the OS
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.
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.
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.