Yahoo! is for sale: why banks should care

Yahoo! is for sale: why banks should care
The rollercoaster that is Yahoo! continues. Yesterday, the company officially announced that it was putting itself on the selling block, in a move aimed at holding off an aggressive activist hedge fund called Starboard Value. It was only in December when management shared the stunning news that Yahoo! was planning to spin itself off (more precisely its core Internet businesses) to its shareholders. The announcement in December came on the heels of a nearly 12-month project aimed at spinning its 15% interest (worth $30 billion) in Alibaba, the Chinese e-commerce company, to its shareholders, a transaction that has been abandoned over tax concerns. By spinning out the Alibaba stake to Yahoo!’s shareholders, Marissa Mayer and the Yahoo! board hoped that shareholders could benefit from the Alibaba investment while Yahoo!’s management could focus on rebuilding the company’s core Internet businesses. Rebuilding is the correct word here. Founded in 1994 and going public in 1996, Yahoo! once lived a charmed life as the so-called “originator” of the search engine. In fact, Yahoo!’s original business represented a searchable directory of websites curated by Yahoo! staff. It was Google that improved on Yahoo!’s original idea by deploying technology that could automate the building of a website directory by using bots to crawl the web, catalog the content of websites, maintain an searchable index of the result, and most notably calculate the importance of a website that reflected the number of inbound links from other websites. Ironically, Yahoo! responded to Google’s innovation quite awkwardly, first partnering with Google, then walking away from the partnership in 2004 as it sought to exploit the technology of acquired businesses such as Inktomi (2002) and AltaVista (2003). After a dalliance with Microsoft’s Bing in 2010, Yahoo! finally came back to Google earlier this year, signing a three-year partnership in October. What can banks learn from Yahoo!’s adventures? It’s very simple:  innovation is a game that is played for a full 9 innings. Yahoo! was a public company for two years before Google was even founded, and the company at one point enjoyed a market capitalization of more than $100 billion. Today, Google’s market cap is more than $480 billion while the market cap of Yahoo! is less than $30 billion, which is slightly more than the current value of its holdings in Alibaba. So with full benefit of hindsight, Yahoo!’s original idea to offer a curated list of interesting websites was itself innovative, but it was Google’s use of automation in capturing and cataloging the rapidly growing content of the web that fueled the revolution that drives much of the global economy today.  As the legendary British venture capitalist Sir Ronald Cohen once argued in his book The Second Bounce of the Ball:
“We can all see where the ball in bouncing today, but few of us try to anticipate where tomorrow’s bounce will be, and even fewer will attempt to take advantage of it. “
The forward-thinking banks that heed the lesson of Yahoo!’s current troubles will stop worrying about the pressure coming from the current crop of Fintech upstarts and will focus on that second bounce of the ball, the place where the real opportunity lies.  There is still plenty of time left in this game.

Towards an OS/device-based mobile wallet

Towards an OS/device-based mobile wallet
Over a year ago, we published a 2014 edition of our annual Top Retail Payment Trends Report (2015 edition is here), in which we distinguished between app-based wallets – majority of mobile payments solutions in the market at that point – and device-based wallets. We suggested that payments would become ever tighter integrated into the device and the operating system (OS) and that we will see the emergence of device-based wallets, “which store securely on the phone a token associated with payment credentials, which can be discovered and summoned as needed by any app or a site reached via mobile browser.” Then Apple Pay came along and demonstrated to everyone the beauty of a payments solution tightly integrated into the OS and the device itself. There is no separate wallet app; customers can configure the solution via the Settings page and store their cards in Passbook. And the token of the credentials can be summoned for an in-store or an in-app transaction. Apply Pay raised the stakes for everyone in mobile payments. The challenge for Google is that the Android ecosystem is nowhere near as tightly controlled as Apple’s. Yet, in the last couple of weeks, we’ve seen a few interesting moves that indicate steps towards OS and device-based wallets in the Android ecosystem. First, Samsung, the leading Android device manufacturer acquired LoopPay, which uses Magnetic Secure Transmission (MST) technology to enable mobile payments at the existing POS devices. Then, Google announced it was buying Softcard’s technology. Finally, the news just emerged that Google would be launching Android Pay at its Google I/O conference in May. LoopPay’s wallet today requires additional hardware, such as phone cases or fobs. I am convinced that Samsung will seek to get away from that and would integrate the technology into its devices. The big question is – why continue to invest into “mag-stripe technology,” and isn’t it a step backwards? It certainly feels that way, although I don’t think it indicates Samsung’s shift away from NFC; my view is that this is a pragmatic move recognising that even with EMV migration underway, the US will continue to accept magstripe-like transactions for the foreseeable future. After all, Visa has also invested in LoopPay back in the middle of last year. The big question with Google’s purchase of Softcard’s IP is whether Google would go back to SIM-based secure element, now that the mobile operators would finally play ball. My guess is that it won’t. HCE gives everyone more flexibility, and leverages the investments the issuers and networks have been making into tokenisation. Visa just announced yesterday that it has been partnering with FIs around the world to enable HCE-based digital services. HCE is also what would enable Android Pay, which would allow third parties to build in payments features into their apps, either for in-app or in-store purchases. Instead of going back to SIM-based SE, I suspect Google will make use of Softcard’s loyalty functionality and will gain access to the MNO distribution networks. According to the announcement, Google Wallet will come pre-loaded on the handsets sold by the operators, which I assume will get paid a distribution fee. As various solutions get tighter integrated into device hardware and operating system, it will be interesting to watch how they would co-exist. Could the latest Samsung Galaxy device support a PayPal app with biometric authentication, LoopPay, Google Wallet and Android Pay without at least confusing the customer? Or are the two giants in the Android ecosystem on the collision path here? Clearly, there is no respite from interesting developments in mobile payments. I am sure we’ll see another wave of interesting announcements next week at Mobile World Congress in Barcelona. I had the privilege to serve as a judge for GSMA Global Mobile Awards, and I am certainly looking forward to the ceremony and the rest of the Congress. I’ll make sure to blog my impressions when I am back. In the meantime, drop me a note if you would like to meet in Barcelona next week.

Google acquires Motorola mobility: ripple effects

Google acquires Motorola mobility: ripple effects
If anyone was in doubt about Google’s seriousness about mobile, those thoughts can now be laid to rest. Their $12.5 billion bet on mobile is reflective of the fact that Google sees about one in four of its searches starting from mobile. They also announced an agreement with Citi, MasterCard, First Data and Sprint for a payments and marketing initiative. One of the key issues around NFC payments is controlling the secure element. Owning Motorola gives them control of the device. And remember that while Apple might be leading the smartphone market, it is nowhere near the largest device manufacturer for the US market as shown below. phone-share1 Source: comScore, Dec 2010 In the payments world this acquisition also gives Google the ability to place a secure element on the device which they control. A secure element is a place where sensitive information can be stored such as credit card numbers. If you don’t have access to a secure element, you can’t manage payments. One secure element sits in the SIM card issued by the mobile network operator (MNO). There has been speculation that Apple will put their own secure element on the phone itself. Would Google do the same? The ripple effects of this acquisition are only beginning to be contemplated. They will certainly reach the payments world.

Win Win Win

Win Win Win
Walter Wriston, former Chairman and CEO of Citi once said, “Information about money has become almost as important as money itself.” Google gets it. Up to this point I have been skeptical of the NFC business case and have blogged about it. Thin Isis Making a Bad Business Case Worse: Durbin and Mobile NFC Google has the ability to make this happen. Why? Because they don’t care about the payment. They care about the information around the payment. Who am I? What am I searching for? What do I buy? They don’t need a piece of the payment pie, because they will get a piece of the advertising and promotion pie, which is what pays the rent at Google. Any new payment initiative needs to make three parties happy: the consumer, the bank (or credit card scheme), and the merchant. This works for all three. The bank will be able to drive more purchases through their system, without giving anything up. They can also provide, with permission, payment data. Retailers can focus their offers on the most interesting customers. Google is partnering with MasterCard, Citi, First Data, Sprint, and retailers such as American Eagle Outfitters Inc., Macy’s Inc. and Walgreens. American Eagle might want to target customers who spend more than $100 per month on clothes. They may want to target those who spend more than $200 a month on clothes and are less than a mile from one of their stores. They will pay to be able to focus their advertising dollars on such a consumer. The merchant is happy. The consumer loves the offer. More targeting means consumers can get better offers. It’s a win win win.

Google Mobile Wallet: A Big Step for Payments

Google Mobile Wallet: A Big Step for Payments
Yesterday Google announced a new mobile wallet in partnership with Citibank, MasterCard, First Data and Sprint. Is it significant? Yes, very. Why? For a number of reasons. First and foremost, mobile proximity payments are getting a boost from a large player whose primary interest is NOT payments. Paradoxically as it may sound, in my view this is key to finally getting some traction around much touted NFC payments. Celent’s view has long been that the payments industry on its own in the developed markets had little incentives to move to NFC. If it’s just purely about payments, then the customer already has a number of perfectly valid alternatives to pay at the POS, so why do something that potentially reduces your revenues (as you have to share them with more parties) and increases costs (as you need to invest in both issuing and acceptance)? Well, Google is not doing this for payments and confirmed yesterday that they would not be charging anything for the payments transaction itself. Instead, they expect to make money from services surrounding the payments transaction, particularly from drawing customers to merchants through targetted ads, coupons, loyalty point management, etc. This is consistent with Google’s strategy to-date where online ads drive majority of their revenues and their vision for the future (see my previous blog post “How Much Does Google Love Mobile?”) Second, while I didn’t hear it mentioned yesterday (I could have missed it), I remember reading in March in Finextra, which was quoting Wall Street Journal and Bloomberg that Google’s “plans also include terminal vendor VeriFone, which … will roll out NFC cash-register systems paid for by the search giant.” If that is the case, it will certainly help drive market penetration for NFC-capable terminals. I am not aware of any other examples where a player outside of a payments industry (i.e. other than acquirers and card schemes) would be investing in building out a payments infrastructure. Again, for Google it makes sense given that they need these terminals to achieve goals other than just payments. Finally, while it is true that partnering with one scheme, one issuer, one network operator, etc. limits the scale initially, Google neverheless has chosen an impressive list of partners – in MasterCard they have a major card scheme, in First Data, a major processor and in Citibank, a major issuer with an impressive track record of innovation. For Citibank this is part of their focused efforts to create significant value through payments for their customers. Last year they created a Global Enterprise Unit, spearheaded by Paul Galant for exactly that purpose and the unit is starting to deliver results. I saw some in the blogosphere questioning Google’s choice of Sprint as a network partner, but I don’t really have a view on that, so wouldn’t like to comment. Of course, the proof is in the pudding – over the coming months we will get to see if the consumers and merchants truly buy into this vision painted by Google and its partners. However, the sketches provided yesterday indicate that this could be seen as a masterstroke by all involved in years to come.

How Much Does Google Love Mobile?

How Much Does Google Love Mobile?
Yesterday morning London commuters reading a Metro, the local free paper, were hit with the front-page news about recent security issues on the Android platform and how Google had to use a remote ‘kill switch’ to delete up to 58 free apps from phones running its Android software without users’ permission. It was a somewhat ironic coincidence that some of us were actually coming to a Google-hosted event called “Google Loves Mobile”. So how much does Google really love mobile? The answer, at least judging by yesterday’s event, is “a lot”. Anyone who still thinks of Google as primarily an “online search” company should think again – the company now follows a “mobile first” strategy. One of the most frequently quoted phrases during the day was Eric Schmidt’s, Google’s Chairman and CEO, saying that “if you don’t have a mobile strategy, you don’t have a strategy”. Based on what I saw yesterday, it seems to me that there are multiple inter-related strands to Google’s mobile strategy: 1. Android ecosystem. As the owner of the initial developer of Android, a smart-phone operating system, Google has a vested interest in seeing it succeed. Android has a powerful competitor in the shape of Apple and its iPhones, but the range of applications and devices on Android, both phones and tablets, is growing rapidly. Occassional glitches and setbacks notwithstanding, it already represents a formidable alternative to Apple in the smart-phone market. 2. Apps. In addition to thousands of independent developers on the Android platform, Google creates apps itself, the most popular of which it makes available across platforms. Many of its flagship online apps are already on mobile devices (e.g. Google Maps) and the company is constantly innovating and bringing out new applications, that utilise the unique characteristics of a mobile device. Combine those with cloud computing, and you have a powerful new tool in your hands. Yesterday we saw how Goggles, a Google app, running on a mobile phone can be used to solve Sudoku puzzles, or how Conversation, an app still in development, will be able to help people speaking different languages to understand each other with the phone acting as an interpreter. And the apps are not just for fun; many FIs are starting to show interest in the app market, from basic mobile banking apps to remote deposit capture to car insurance. For example a car insurance app can allow you to record and transmit details of the accident to the insurer right on the spot. Google’s message to FI’s – now is the time to experiment, test and learn. 3. Mobile advertising, which unsurprisingly, Google is very keen to promote. Just like online, it creates a revenue stream for Google; however, the research indicates that mobile ads, if executed well, have better response rates than their online counterparts. Google continues to develop a wide range of various ad formats and helpful tools, such as “click to call”, which can populate the dialler automatically with a number, or “site links”, particularly useful to FIs, as it allows to have links to dedicated product pages within the main site (e.g. separate links for mortgages or credit cards). Google’s advice to FIs – separate your mobile and online campaigns and make sure you are using the most appropriate tools and ad formats. As a payments analyst, I couldn’t resist asking the question about Google’s ambitions in payments. While Google’s executives were understandably careful not to make any “forward looking statements”, it is obvious that Google already has many of the ingredients (NFC-enabled Android platform, Google Checkout, One Pass, etc.) to play a key role in mobile payments. Their competitors are clearly thinking the same way – Apple recently announced that more than 200m people have now registered their credit card details with Apple’s iTunes. For now, these services are targetting publishers of digital content, but for how long? Today a song, tomorrow a sandwich or perhaps a full meal, all on iTunes? Would you bet against it?