Google Wallet Is Leaking Money; Google is having a hard time breaking into the $12.8 billion mobile-payment market, even with $300 million in acquisitions

June 7, 2013 Leave a comment

Google Wallet Is Leaking Money

By Mark Milian and Ari Levy on June 06, 2013

http://www.businessweek.com/articles/2013-06-06/google-wallet-is-leaking-money

Google Wallet (GOOG), the mobile software that allows Android users to pay for purchases online and in stores with their phones, has become a money pit. The company has dedicated hundreds of developers to Wallet and spent about $300 million to acquire digital payment startups to help develop the app. But consumers aren’t sold. Wallet has been downloaded fewer than 10 million times in the two years since its launch, according to Play, Google’s app store.

For Google, the goal wasn’t to generate fee revenue from the transactions, as banks, PayPal (EBAY), and other companies do. The idea was to collect data on consumer habits and target ads to them. Google pays such high fees to the credit-card companies it works with, though, that it loses money on every transaction, says Osama Bedier, who stepped down as head of Wallet on May 20 and will shortly leave the company.Google declined to disclose how much it’s invested in Wallet, which uses a phone to store credit- and debit-card information. More than half a dozen people close to the company say it’s reconsidering or has abandoned projects designed to broaden Wallet’s appeal. Chief Executive Officer Larry Page in March gave advertising head Sridhar Ramaswamy control over Wallet. Google is weighing whether to scrap a Wallet credit card it’s developing, according to three people familiar with the project. It’s already changed its plans to build a Wallet-compatible Android tablet that can read credit cards for brick-and-mortar retailers, intended to rival Square’s card-reading tool, according to four people familiar with that project.

Bedier, a former PayPal executive who joined Google in 2011, says the streamlining is a big shift and that he was encouraged to spend freely to develop Google Wallet. “Payments are a big part of what people do every day, and we’re committed to making them easier for everyone,” says Nate Tyler, a Google spokesman. Tyler wouldn’t say whether investment in Wallet has shrunk or if Google expects the app to ever turn a profit.

After two years, most consumers still can’t use the app. Of the four largest U.S. wireless companies, only Sprint Nextel (S)supports it. Verizon Wireless, AT&T (T), and T-Mobile USA (DTE) block Wallet on their phones and have teamed up to develop their own software, called Isis. MCX, a consortium of retailers including Wal-Mart Stores (WMT) and Target (TGT), is also working on a similar app. Forrester Research (FORR) estimates that U.S. mobile payments will top $90 billion in 2017, up from $12.8 billion last year, but successful companies like PayPal and Square make money by charging retailers fees in excess of what they owe to credit-card companies.

To succeed, Google Wallet must do more to show advertisers that shoppers who see its digital ads as they stroll they stroll down a store aisle are actually buying their products, says Dana Stalder, a former PayPal executive and a general partner at venture firm Matrix Partners. Facebook (FB) is expanding a program to track when any of its billion-plus users buy something advertised to them on the social network, says spokeswoman Elisabeth Diana. Jason Gardner, the CEO of loyalty-card startup Marqeta, says brick-and-mortar payment information is too lucrative a possibility for Google to ignore. “The amount of data at the point of sale is so significant that they’re not going to throw in the towel,” he says.

The bottom line: Google is having a hard time breaking into the $12.8 billion mobile-payment market, even with $300 million in acquisitions.

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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