The Catalyst Code

Ignorance could delay contactless-payments adoption according to a heading in Cardline, which quotes some wags who suggest that contactless isn’t going as fast as it might because of “the technology’s unfamiliarity among merchants and consumers.” (CardLine, subscription required).Of course it is hard to tell whether potential customers don’t choose something because they are ignorant or because they actually don’t see the value.

I’m afraid that the problem with contactless is that most merchants - and the ones that account for most of the dollar volume of sales - don’t seem to see the value in contactless at the point of sale. It costs money to install those terminals and things work pretty good at the checkout line now. Maybe consumers would see value if enough merchants took cards but therein lies the chicken and egg problem that has stymied so many who have tried to introduce their great “must have” innovations in the payments business.

Maybe contactless will ignite as a result of mobile or some other killer contactless app. But then again by the time mobile rolls around in the U.S. the current contactless technology that’s being pushed may not be the best solution. The experience with contactless—so little success after so much money and effort—is an object lesson to anyone who wants to ignite a catalyst reaction in the payments industry.

Card rewards are going to disappear and fees are going to return according to a recent research report Disruption in the Payments World. That’s a distinct possibility. Between the interchange fee lawsuits and Congressional pressure for the card associations to get rid of interchange fees it is possible that the US could go the way of Australia and Spain—two countries where interchange fees were slashed and fees were raised. (A technical paper of mine documents what happened in Australia—The Effect of Regulatory Intervention in Two-Sided Markets: An Assessment of Interchange-Fee Capping in Australia.)

Unfortunately, it is hard to predict what is going to happen in the US. It is possible that the interchange fee lawsuits and legislation will force interchange fees down, but it is also quite possible that MasterCard and Visa will dodge this bullet. The law is arguably on their side and it is hard to understand why American Express should be able to charge a merchant discount while MasterCard and Visa can’t. What we can say, however, is that there is a significant risk that interchange fees will fall and banks need to be prepared for that scenario.

In the meantime, interchange fee revenues provide a strong incentive for banks to offer reward programs and schemes for getting people to use their cards and drive this revenue stream to them. Just because there might be a tornado doesn’t mean we should live in the basement, and just because there is a risk that interchange fees will go away doesn’t mean that we should act like they are already gone.

In its latest stick ‘em in the eye approach to the mobile industry Google came out swinging at a recent forum sponsored by the Federal Trade Commission Google Pushes Open Mobile Platform at FTC Event.

According to Rich Miner, who’s heading their Android mobile software platform initiative, when someone controls a platform “it stifles innovation” and he gives the example of the desktop PC.  All Google is looking for is a “level playing field.”  Of course it is all a bit more complicated than that.  Without debating whether the world would have had more innovation or just more confusion without Microsoft guiding the industry, all one has to do is to look at Apple to see that closed platforms can be quite innovative. The iPod/iTunes platform is about as closed as one could get but it hasn’t stood in the way of bringing lots of innovations to the digital media business. That’s continuing with the iPhone. And of course Google’s search/advertising platform is hardly open. Sure, they made some APIs available for developers but Google tightly controls the search ad ecosystem.

The problem with the mobile carriers is that we get sort of the worst of all worlds: on the one hand they haven’t been very innovative and have been, it seems, more concerned with “protecting” their investments in mobile capacity than in advancing creative ways to use that capacity; on the other hand, by closing their platforms they have made it difficult for people to innovate around them. Google isn’t pursuing Android because of some ideological belief in “openness” or because it’s decided that it’s made enough profits and wants to become a charity.  Rather, it wants to maximize its ability to run ads on mobile phone. Its been frustrated at the slow pace of the mobile business and wants to do to mobile what Microsoft did with the PC industry back in the 1980s: make it a highly competitive commodity business.  While we should be dubious of Google’s motives we should applaud their efforts.

With the abrupt stop of the mating dance between Microsoft and Yahoo we can talk about other questions about the future of the online ad business.

Here are some of mine.

For social networking: How much will eyeballs however measured sell for on social networking sites—will they be more or less valuable than the average today? How close are we to having an online advertising model for social networking that makes sense for advertisers, members of these sites, and site owners?
For search: Google seems to have pretty much conquered search on the PC for now. Will it lock up mobile, where lots of eyeballs are going to be going in the next few years, or does this provide the best opportunity for someone to take Google on in search-based advertising.
For display: Behavioral targeting gets so much hype you’d think computers were spinning masses of personal data behind lots of ads being served. That’s not true today, will it be, and when.

And, finally, how much online advertising can a human really stand in one day? I await your answers to any and all of these, neutral and obviously unloaded, questions.

Ok, all of you are probably sick of us writing on mobile. But I thought the recent article in the New York Times Mobile TV Spreading in Europe and to the US was pretty interesting.

The Swiss it appears are going crazy watching TV on their little screens—40,000 a day which might actually be a big number there. Now, my colleague Ms. Webster, naysayer as she is, can’t imagine anyone watching TV for any length of time on these little screens. But we Video IPod devotees know that if you have a good enough small screen, don’t have access to a big screen, and have better content available to you than on your large screen, a tiny screen isn’t so bad.

Stuck on the train, or waiting for a plane, the 100 second clips playing in Switzerland sound like pretty good entertainment to me. I’m less sure the mobile phone angle is going to catch on in the US—it makes a lot more sense for largely urban commuters in Europe than the suburban ones in the US and the last thing American drivers need, especially in Boston, is another distraction. That said, mobile content on mobile telephones—while it still faces significant hurdles—is well within our grasps. Most importantly, all of this will be supported by mobile advertising which will become another huge part of the online ad biz. What do you think, American readers, is there mobile television in your future?

My post last week Blah, Blah Mobile… Blah, Blah Mobile really prompted a lot of discussion about the topic of mobile payments – and maybe even touched a few raw nerves in the process. I thought I would follow up with a few observations given the discussions that took place last week on and off the blog.

There seems to be little disagreement that mobile payments at the point of sale is a longer term proposition even though we all believe that is ultimately the future of payments. Contactless as an enabling technology, at least here in the US, is a long way from being ubiquitous in spite of what many analysts say. I think we saw that validated last week too when Wachovia decided to basically take a bye on contactless until mobile is the enabling form factor. My point is that the hype re contactless at the point of sale is a long way from the reality, at least here in the US. (As an aside, I just read an article in a recent Mobile Payments news about how contactless is underwhelming UK merchants for essentially some of the same reasons that it is having difficulty generating momentum in the US.)

The more interesting discussion, I think, is the broader issue around mobile commerce, which I think of as a three legged stool – mobile banking, mobile marketing and mobile payments. It is a fair point that contactless is not the only route to mobile payments. There are some interesting applications being created in the mobile marketing arena that may make mobile payments an attractive proposition for consumers. These applications will only grow more viable as web browsers become more user friendly and begin to pull thru demand for shopping and buying via the form factor.

But, here again, the time frame for wide-scale adoption is longer term not because the technology isn’t available to make any of this possible, but because the consumer needs to be convinced that using the mobile to pay for things is better than the status quo. Consumer adoption is key. And getting enough consumers to adopt the next new thing is essential. The payments industry is littered with lots of neat ideas that relied on a value proposition of “neat technology that does lots of cool things” but collapsed because not enough consumers were willing to give it a whirl. Evolution and not revolution might be the way to crack the chicken and egg problem of mobile commerce. Think about it. The payment innovations that have been successful over the years were so because they created an experience for consumers that enabled their shopping experience – it made things better, not just different. The silver bullet for mobile isn’t so much about what is possible using that technology, but how it creates a willingness for consumers to change the behavior that has worked well for them for five decades.

Last week, The Capital Times, Madison Wisconsin’s 90-year old daily newspaper, stopped publishing the print version of its newspaper and announced that it will instead publish all of its news to the web. This move was made after it watched its circulation dwindle by more than half over recent years and its advertising revenue shrink as well. Its publisher lamented, “We felt that our audience was shrinking so that we were not relevant.”

The Economist also profiled a piece this week on this beleaguered industry. The article posited that the future of the industry depends on the “scope” of the paper’s coverage – national, metropolitan or local, suggesting that it is the metropolitan papers that have the most to lose by their inability to bridge both national and local coverage. And as we know, being “stuck in the middle” is a particularly bad place to be, especially if you are a newspaper. The article also went on to describe a few efforts that papers have made to reinvent themselves in the face of more news outlets and changing reader preferences.

The wildcard with any of these strategies is determining whether the revenue will follow. Being a “niche” or an “information connector” may save a paper from oblivion, but it might not be enough to pump up its bank account either. It’s a fact that ad revenue on the web is about 15x less than it is in print – meaning that relying on an ad strategy alone may not be enough to save the day. And, the jury is out on whether people will pay for content, even if they say they value it.

For more on what we’ve written on this topic, check out these links:
People Don’t Read Newspapers Anymore
The Gray Lady Staggers
Newspaper Next is Newspaper Not

Embattled handset manufacturer Motorola has recently announced its intention to develop a digital movie initiative that would offer full length motion pictures reformatted for their multimedia devices. Paramount Pictures has reportedly signed on as a content partner with others not far behind. Some say that the service could launch in May – although pricing options remain uncertain.

That not withstanding, I am really curious to know who in the world will want to watch a movie on their mobile handset. Can you imagine spending 220 minutes in front of 2” x 3” screen? Even it were free, I don’t get the appeal. Then again, maybe I am not “the target demo,” but given the array of other options available for watching feature length movies, like the PC and, heaven forbid, the TV screen, it seems more aspirational and PR-driven then user-oriented.

This announcement also raises a larger question about the intended purpose and utility of the mobile phone. Back in the stone age, mobile phones were a vehicle for calling other people when not tethered to a land line. Over time, they have become more functional as our lifestyles have become more mobile. The iPhone has opened our eyes to the power of a great web browser on a phone and deftly integrated music/video access with its voice application.

But, as good as that phone is, its glass touch screen gets low marks from the email user who prefers a more tactile keyboard for pounding out emails. Experts contend, and I agree, that most smart phones, tend to serve 2 out of 3 applications well, but rarely score a grand slam and perfect all of what is regarded as “essential” user functionally in one handset.

Now, we have Motorola trying to revive its handset business with a content play that may end up further frustrating its user base even if they get the business model right, which remains to be seen. Instead of trying to give us what I suspect most people would say that they don’t really need or want, Motorola might be better served by perfecting the basic applications of its mobile phones. Maybe offering its subscribers services that people value, created on top of a software platform that incents developers to write applications that will get more subscribers on board, is a wiser use of their limited resources. Motorola’s initiative strikes me as one driven by what’s possible instead of what’s practical.

What do you think?

How many of you are growing weary of the same old proclamations from analysts on mobile payments? Citing “the need to work together so that everyone can win” Javelin remains bullish on NFC technology and cites contactless as the enabler for e-wallets that contain everything from cards to photos to medical records.

A recent Gartner report suggests that use of mobile payments will increase by more than 300% over the next 18 – 24 months as NFC and WAP applications grow in popularity. That report suggests that the take up of mobile payments will increase more rapidly in areas where mobile is the only access to financial accounts and that NFC will be driven toward adoption in North America by convenience and the cool factor. Is there really anything new there?
Continue reading ‘Blah, Blah Mobile…Blah, Blah Mobile’

As he said in an interview with American Banker (subscription required), Wachovia’s Steve Boehm is taking the sensible man’s approach to contactless: wait and see if it takes off and get on the bandwagon when it does. Contactless–like smart cards–is unfortunately a technology in search of a business model to support it.

Some banks and card systems have spent a lot of money and effort trying to roll out contactless payment in the United States. Unfortunately, whatever business case they thought they had for this technology hasn’t played out in the real world.
Continue reading ‘Wachovia: No Contactless’