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Mobile Payments: The Next Battleground for Google, Apple

boland-michael
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As we enter 2011, one of the hottest mobile topics is shaping up to be mobile payments. Not only does it have the potential to stimulate growth in mobile shopping, but parallel areas of mobile development like gaming, social media, LBS, and even search.

This recently culminated in reports that Apple will integrate near field communication (NFC) into the iPhone 5, expected in June. NFC involves a chip that transmits a short range, high frequency signal in order to communicate with nearby devices or transfer payments.

This came after Starbucks last month installed point of sale (POS) mobile payment systems at 6,800 U.S. locations. Though it's not NFC, the easy to use system lets users swipe their phone screens under a POS barcode scanner to execute quick transactions.

starbucks-pos.png

Enter Google

But before all of this, Google was the company to get the ball rolling when Eric Schmidt announced at November's Web 2.0 Summit that the Android mobile OS will support NFC. This started in December with Samsung's Nexus S, running Android 2.3 (Gingerbread).

Near term, this translates to legions of Android users carrying around fancy NFC technology, with virtually nowhere to use it. It's a classic chicken and egg dilemma where compatible hardware is required for both users and retailers. Neither side is compelled to jump first.

But Google's intention is to essentially underwrite the user end of the equation so that retailers are incentivized to adopt and install the proper POS hardware. We'll likely see the Starbucks and Walmarts of the world get on board first.

But why is Google doing this? If it can have some degree of ownership of the mode of transaction, it can create revenue streams through payment processing (i.e. Google Checkout). This same concept drives many of the companies entering mobile payments.

But back to search, the bigger opportunity is for Google to tie transactional activity into its core search business. In other words, if it can show that finished transactions resulted from paid search campaigns, a clearer ROI emerges.

This translates to more attractive SEM during a time when advertisers -- especially local advertisers -- are demanding more clarity and tangible ROI than just paid search analytics. One company to recently teach us this lesson (among other things) is Groupon.

In this sense it's imperative for Google to evolve search ads with more actionable components -- especially in mobile with things like pay-per-call. This is underscored by the fact that 97 percent of its nearly $30 billion in revenue is advertising.

Near Field Communication (NFC) Nexus S

Here We Go Again

Back to Apple, it can be argued the company is better positioned than Google in mobile payments. This becomes yet another area where the two companies will compete.

Apple's advantage partly stems from the iPhone's popularity among buying empowered and technically astute individuals who are more likely to adopt new technologies like mobile payments. But its larger opportunity stems from one word: iTunes.

With 150 million credit card relationships, which far trumps Google Checkout, iTunes is a sleeping giant. Combined with its penetration of the smartphone and tablet market, Apple is positioned to continue selling iTunes' bread and butter (pictures, movies, music, etc.).

But that's not the monster opportunity. Consider the breadth and volume when you move beyond digital products to ones purchased in the physical world. In this light, Apple could be primed to tackle the $6.2 trillion in goods and services purchased in the U.S. every year.

Pay Day

Based on NFC, this could evolve into simpler debit transactions from users' bank accounts. This would allow Apple to shed credit card processing fees on the back end, similar to what PayPal has done online in linking into user's bank accounts.

It could also grow to include loyalty cards with retailers, and other ways to promote and reward purchase activity. And like Google's (speculated) move to tie transactions to paid search reporting, Apple could likewise use them to sweeten the deal for iAd.

Add this all up and it becomes clear that Apple could to do for mobile payments what iTunes did for music and what the App Store did for mobile apps. Its next area of growth, possibly its largest to date, could be that $6.2 billion we collectively spend whenever we leave the house.

Whether or not it will be Apple, this is a massive pie and we'll see a land grab over the next 12 months to develop and own the standards. Expect advertising -- including paid search -- to be tied to this value chain at some point of the sector's evolution.

More importantly, We'll all benefit from back pain relief and a general slimming down of our exploding George Constanza wallets.

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