With all of the jubilance surrounding the release of the iPhone5, there was one largely overlooked feature omission that caught my eye. It was an omission that did not get enough attention in my opinion and one that holds a lot of strategic significance. By failing to include Near Field Communication (NFC) support, and instead opting to release the Passbook, Apple significantly slowed the penetration of NFC based mobile payments into the market. You might think this was done innocently, but in my mind this decision was carefully thought out as a means to extend the lead of the App Store over Google Play.
For years now, Google has been playing one of the fiercest games of catch up the world has ever seen; working to close what began as a massive gap between Google Play and the App Store. By most counts, the two app platforms are within a margin of error of parity. The truly staggering device activation numbers that Android is pushing out have helped to quickly close the gap on the rate of app downloads, with 64.1% of all mobile devices sold in Q2-2012 powered by the Android operating system. Both marketplaces are filled to the brim, with around 700k active apps a piece, and championing the rise of that number has become decreasingly relevant in comparing the marketplaces.
At the end of the day though, Google is still miles behind when it comes to one all-important statistic. Apple still leads the monetization race; the revenue generated per active user by top apps on iOS is four times higher than the equivalent number on Google Play. The majority of publishers don’t even bother to release paid versions of their apps on Google Play, opting to monetize using IAP and ad support, with the latter making up the lion’s share of profits. This difference between the platforms is one that heavily impacts the market. It supports a continuation of the mild but long present platform bias developers, publishers and big brands maintain in favor of iOS, and it will stand in the way of Google’s attempts to break past the App Store and take a seat at the head of the table.
This income disparity exists not because Apple users are wildly wealthy, snatching up billions of paid apps in the spirit of opulence. It isn’t because of the advantage Apple garnishes as the first to market. This lead comes down to the age old problem of friction. As I spoke about previously in Steve Jobs Taught Me Not to Steal, the willingness of Apple users to pay for content is heavily driven by the fact that most of their users established a payment method for their accounts through iTunes, and never had to do so on their mobile devices. The vast majority of Android users on the other hand have never associated a credit card with their Google account.
This is where NFC comes in. On both the payer and payee side of the table, critical saturation levels are very necessary in order to get mobile payments off the ground. Retailers won’t want to invest in upgrading their POS systems until it is clear what direction the market is going, and consumers won’t actually start using mobile payments until they can do so at the vast majority of stores (unless of course there are specific rewards – but I won’t get into the strategic differences between Google Wallet and LevelUp in this post). Mobile payments are really more a novelty until you can actually stop carrying a credit card altogether. My bet though is that the moment mobile payments start to reach an inflection point, as long as Google Wallet remains a major player in this movement you are going to rapidly see Apple’s monetization lead disappear.
Think about it this way. For a consumer to add their credit card in order to purchase content on Google Play, they need to encounter a single item that they want badly enough that they are willing to overcome the substantial friction involved in the payment setup process. There is so much free content on the platform that needs don’t tend to build up. But the advantages of mobile payments are significant enough that it is absolutely worth the time to set up the account, either online or on a device. And the beauty of Google’s single sign-on is, once you have payment set up in Wallet, you are primed for frictionless purchasing. The next time you run into a $0.99 app that looks awesome, the main blocker that has stopped you from making that mindless purchase in the past will be entirely removed.
Apple is not just aware of this, they are so nervous about the potential impact of rapid NFC proliferation that they are willing to omit an important feature from their line for at least another year without providing any actual alternative. It may mean that consumers are stuck using nearly dead technologies like QR codes and on-screen barcodes for the near future, but from a strategy perspective it is actually a pretty smart move. They know how to use their clout and market size to maintain their competitive advantages, and they are very aware that as long as both content producers and consumers continue to compare a mostly free, ad supported content experience on Android to one that harnesses the full monetization gamete of paid downloads, in-app purchasing, and ad support on iOS, they can continue to cash the biggest checks for years to come.