Keeping up with Google: You Better Run Hard and Fast, Because They’re Everywhere!

by Tim Sloane 0

The rumors are swirling! Google is buying SoftCard and will create its own MVNO mobilecarrier. Perhaps the best phrase to comeout of this was from TechCrunch that states:

“If anything, Googleis not afraid to fail.”

But how existing mobile carriers feel about Google enteringthese markets is key. If the carriersfail to provide Google access to the Secure Element then the Softcard asset isof limited value. On the MVNO front,carriers typically vet partners to avoid direct competition, so it makes onewonder what Google is selling them. Regardless, Google has clearly given the carriers a lot to thinkabout!

The unconfirmed rumors that Google is in discussions toacquire Softcard were surfaced by TechCrunch. The benefit of a Softcard acquisition for Google would require theongoing participation by the current owners of Softcard, AT&T, T-Mobile andVerizon. That said, if Google became theTrusted Service Provider then perhaps Google would be better positioned toalign device manufacturers behind a common Secure Element implementation. The article in TechCrunchindicates that the opportunity to acquire Softcard may cost only $100 millionwhich raises questions about what exactly is being purchased:

“Applehas Apple Pay, and now it looks like Google may be fattening up its own wallet.According to people familiar with the situation, the search giant and maker ofAndroid is interested in buying Softcard, the mobile payments company formerlyknown as Isis.

Theprice may be under $100 million, according to our sources. That is either ahuge bargain or a testament to Softcard’s difficulties as an enterprise:sources tell us that AT&T, Verizon and T-Mobile — the three carriers thatstarted Isis in 2010 — have collectively invested hundreds of millions ofdollars in the joint venture.”

The two companies were asked to comment for the story, withGoogle giving the best non-response ever heard:

‘“Softcard is taking steps to reduce costs and strengthen its business. Thisincludes simplifying the company’s organizational structure and consolidatingall operations into its Dallas and New York offices, which involves layoffsacross the company,” a spokesperson said. “We believe these efficiencies willbest position Softcard in the marketplace while maintaining focus on servingour market.”

Googlealso declined to comment. “We don’t have a comment, background, deepbackground, off the record steer, nod, wink or any other verbal or non-verbalresponse to these sorts of rumors,” the company said in an emailed statement.’

The success of Softcard is also discussed in the article:

“Softcard,created as a unified front for the big carriers to come to market with a“contactless” NFC mobile payments solution (also what Apple Pay uses), saysthat there are over 200,000 merchants in the U.S. (including some biggies likeSubway and McDonalds) that can accept payments with its app, which is availablefor Android and Windows Phone devices but not Apple’s iPhone handsets.

Softcardapp users can activate payment cards from American Express, Chase, Wells Fargoand other banks in the app to then use their phones to pay for things withthose merchants.”

Apparently the burn rate for Softcard has become a burdenand multiple opportunities are being evaluated:

“Asource tells us that at one point the company’s burn rate was around half amillion dollars per day, or around $15 million per month.

Google’sinterest in the company had been rumored elsewhere (see here and here, wherePayPal is also named). Our sources note that both PayPal and Microsoft havealso approached the company.

Anotherpossibility, if an external sale is not achieved, would be JV partners AT&Tor Verizon taking it under one of their wings, although they have also beenlooking at developing their own wallet services for mobile devices.

Oursources say that one of the reasons for Google’s interest is Softcard’spatents, or more specifically what appear to be applications for patents. Thecompany has just over 120 in all.

Thereare also existing relationships with the JV (joint venture) carriers, and therecould potentially be deals in negotiation to hold on to these, and their retailchannels, as part of the transaction.”

TechCrunch also delivered the storyabout Google’s interest in becoming an MVNO first published by TheInformation. Apparently Google istalking to Verizon now and has had similar discussions in the past withSprint. The ability to leverage GoogleFiber and the Nexus brand may be the impetus:

“Googleis exploring launching a wireless carrier service, according to TheInformation. The report cites a meeting between Google and Verizon officials inwhich the possibility of a Google MVNO was discussed.

Atthis point, with Google Fiber and ever-expanding Nexus brand, it would beirresponsible for Google not to explore the possibility of a launching such aservice.

In2013, Google reportedly talked to Sprint to launch a wireless carrier servicethat leaned on Sprint’s network. Google had long worked with Sprint, offering acomplete Google Voice package on its wireless devices.

Thistime around, Google could look to Verizon or T-Mobile to piggyback on.

Ifa Google MVNO does come to fruition, while the end game could be to take onmajor wireless carriers, chances are the initial offering would be small likein the case of Google Fiber. If the interest is there, Google would likely rampup the offering to better compete. If anything, Google is not afraid to fail.”

The challenge for Google is to properly understand theexisting value chains of the markets they plan to enter. Google Wallet failed this test and has forcedGoogle to re-trench.

Overview by Tim Sloane, VP, Payments Innovation for Mercator Advisory Group

Read full story at Tech Crunch

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