Google Inc.’s Aug. 15 announcement of an agreement to acquire Motorola Mobility Holdings strengthens Google’s position in mobile payments, one observer says.
"The big issue for mobile payments has been the [the computer chip on a phone that would store encrypted payment card credentials]–the physical hardware that allows someone to own the mobile wallet,” notes Nick Holland, senior analyst with Yankee Group. “By having ownership of [the Motorola unit], which makes 10% of smartphones in the U.S., Google has the potential to put its own secure element in all those devices.”
Mobile operators typically choose the handsets they offer consumers. Owning Motorola Mobile will put Google in a position to negotiate directly with mobile operators instead of through handset manufacturers such as Samsung, Holland points out. Samsung is the only manufacturer of Google's Nexus S phone.
The mobile operators, most of whom have joined the Isis mobile-payment consortium, are likely to balk at allowing Google devices on their networks. However, because of Motorola’s 10% market share, they may be forced to accept them or risk turning away subscribers. Google even could make a radical move such as give away handsets to ratchet up market share for its phones.
Google has said all along that it does not plan to make revenue off of mobile payments; its revenue model is based on advertising. This is a key difference between the Google Wallet and other mobile-payment offerings and one that Holland believes gives it the upper hand versus Isis.
Google is offering space on its mobile wallet to card issuers for free. Isis intends to charge a rental fee to card issuers for space on its wallet.
Isis has strength in its number of partners. Besides the three major telecommunication operators who are members–AT&T, Verizon and T-Mobile–the consortium has signed on four credit card companies–American Express Co., Discover Financial Services, MasterCard Worldwide and Visa Inc.
For banks, it makes sense to consider both of these schemes and others, Holland says. "There's no reason for exclusivity," he says. "Citi is backing Google at the moment, but there's no reason they couldn't do Isis as well."
Where previously the Google Wallet was only set up to work with the Sprint Nexus S phone (most other telecommunication providers have joined the Isis mobile-payment consortium), Google now will be able to design, manufacture and distribute its own phones, presumably with Google Wallet software and mobile-payment technology preloaded
Google representatives were not immediately available for comment.
The company already has gotten Citigroup, MasterCard, Sprint, First Data Corp. and 16 merchants to partner on its Google Wallet mobile-payment scheme, which is still in test mode but will support contactless payments from Near Field Communication-equipped phones.
Google says it will acquire Motorola Mobility for $12.5 billion, a premium of 63% from the closing price of Motorola shares on Aug. 12. The choice is logical for Google; all Motorola phones use the Google-designed Android operating system. Post acquisition, the Android operating system will remain open, and Google will run Motorola as a separate business, Google says.
Some 150 million Android devices exist in the world today.
This acquisition gives Google a powerful platform with which to launch mobile software, but it could dampen enthusiasm for the Android operating system among other handset manufacturers and telcos.
In his blog about the purchase this morning, Google CEO Larry Page flashed a little paranoia.
“We recently explained how companies, including Microsoft and Apple, are banding together in anticompetitive patent attacks on Android,” he wrote. “The U.S. Department of Justice had to intervene in the results of one recent patent auction to ‘protect competition and innovation in the open source software community,’ and it is currently looking into the results of the Nortel auction. Our acquisition of Motorola will increase competition by strengthening Google’s patent portfolio, which will enable us to better protect Android from anticompetitive threats from Microsoft, Apple and other companies.”
The Google Wallet app works with a Nexus S NFC-enabled phone–meaning a phone equipped with technology that can send and receive data wirelessly within a range of a few centimeters–and MasterCard PayPass terminals, which some 140,000 merchants use. When the Google Wallet publicly launches on the Sprint network later this summer, customers who have a Citi-issued MasterCard or a Google prepaid card that they link to the downloaded Google Wallet app will be able to tap their mobile phone to pay for something at a participating merchant’s terminal.
Although Google, because of its strong brand and merchant relationships, is a formidable player in the emerging mobile-payment market, the company says its business model is based not on payments or financial services but on advertising and coupons it sells to merchants.
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