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At first glance, the nascent mobile-payments business doesn’t seem to be the major driver of Google Inc.’s $12.5 billion cash acquisition of cell-phone maker Motorola Mobility Holdings Inc. The deal, however, could spur payments using near-field communications (NFC) technology as software companies, phone manufacturers, and mobile-communications software companies jockey for position, observers say.
The proposed deal for the first time makes Google, developer of the Android open operating system for smart phones, the owner of a manufacturing company. Google already has plans with MasterCard Inc., Citigroup Inc., First Data Corp., Sprint Nextel Corp., and others to develop NFC mobile payments in the United States. Google will concentrate on its core advertising and marketing capabilities while the other partners take care of actual payment functions. But so far, only one phone model sold in the U.S., the Samsung Nexus S, offers NFC capabilities.
“The acquisition should accelerate NFC deployment if Google is serious about its mobile-commerce and [digital] wallet efforts,” George Peabody, head of the emerging technologies advisory service at Mercator Advisory Group Inc., tells Digital Transactions News by e-mail. “Owning Motorola means Google’s smart phones and tablets will become the de facto reference models for Android devices.”
The reason, Peabody explains, is that Google’s mobile-commerce plans rely on strong NFC penetration, which raises expectations that Motorola devices eventually will become NFC-enabled. Motorola, once the cell-phone leader, has only about 11% of the market. Peabody says. The company, however, has been a strong Android supporter since the operating system debuted in late 2007, and all its phones use it. Android has 39% of the mobile operating system market, according to Peabody.
Google’s acquisition of Motorola does raise the possibility that other Android-supporting manufacturers such as HTC and Samsung might jump ship to Microsoft Corp.’s open Windows Phone operating system, which lags Apple Inc.’s proprietary iOS and Android. But Android ranks second only to Apple in third-party applications. Other observers say carriers have issues with Windows’ costs. “It’s highly unlikely they’ll dump Android in favor of Windows Phone any time soon,” says Peabody. “That will put some pressure on the other manufacturers to include NFC. So, we see [the acquisition] as good news for NFC in the U.S.”
NFC enables smart phones to smoothly integrate payments and electronic coupons and loyalty programs. Its tiny presence in the U.S. so far is partly a result of the failure of mobile-communications networks and financial companies to agree on revenue sharing. Still, NFC is better than other technologies such as 2D bar codes and Bluetooth that also could combine payments and marketing functions, says Einar Rosenberg, chief technology officer of Narian Technologies, a Miami-based NFC software firm. While Motorola had done some NFC development work, it was “the only major phone maker that didn’t commit” publicly to the technology, he says. But Google’s ownership, he says, effectively places Motorola in the NFC camp.
Neither Google nor Motorola executives mentioned NFC and mobile payments during a Monday morning conference call with analysts to explain the deal. Besides the financials, including Google paying a lush 63% premium over Motorola’s share price on Friday, much of the discussion involved Motorola’s thousands of current and pending patents, patents that could bolster Android in Google’s ferocious fights with mobile-communications players such as Apple and Microsoft. Google chief executive Larry Page said Android is on more than 150 million devices made by 39 manufacturers and offered by 231 carriers.
