How Google and Apple exposed their Achilles heels this week
Mobile payments and advertising are rocky ground for the big boys
Analysis In the massive tussle between Apple and Google, it is easy to forget that neither giant (for all their successes) is infallible. They are almost unbeatable in their core markets – Apple in device design and user experience, Google in search, advertising and online software.
But once they venture out of their comfort zones, disaster can ensue, exposing Achilles heels for rivals to exploit. Both have stumbled multiple times in the TV market, and this week highlighted the risks both take to their precious brands when they get too power hungry and seek to extend their control over too many elements of the web ecosystem.
Google Wallet snafu
Google pulled prepaid cards supporting its Wallet payments platform temporarily but long enough to raise serious doubts over the initiative. Meanwhile, Apple was making desperate concessions to try to rescue its troubled iAd mobile advertising system.
Google was forced to disable the prepaid cards for its new Google Wallet payments system last weekend, following discovery of a major security hole. The search giant wants to kickstart adoption of NFC-based mobile payments by including Wallet in Android handsets in the US, and to ensure that platform vendors, rather than operators, have the upper hand in mobile commerce.
However, last week's intense attention to the security flaw in the software has been a setback, and Osama Bedier, VP of Google Wallet and Payments, acknowledged on a company blog that the prepaid cards were being pulled temporarily.
These cards allow users to upload money from credit cards to the virtual wallet on their phone, but Bedier said Google needed to "address an issue that could have allowed unauthorised use of an existing prepaid card balance if someone recovered a lost phone without a screen lock". He insisted the weekend's action was just "a precaution until we issue a permanent fix soon".
The hole came to light when blogger The Smartphone Champ outlined how a hacker could easily access a pre-paid card, which is connected to the user's device directly rather than a Google account. Crooks could therefore steal a phone and clear the data in the Wallet app, then log back in, at which point they would be prompted to enter a new PIN and Google account password. That would give them access to the card details and cash uploaded by the original owner.
Despite this, Bedier argued that Wallet remained a safe way to purchase goods, and better than "the plastic cards and folded wallets in use today". The app currently works on the Nexus S 4G device on Sprint's network and should come to other models and networks in the near future.
The whole incident aroused speculation that Wallet would prove to be another failed Google project, the latest in a string of experiments with hot markets where the search giant saw an opportunity to extend its influence – but was unable to deliver the required technology. There was a cull of such projects – including Google Labs, Google Health and Google PowerMeter – when Larry Page took the helm as CEO, vowing to "put more wood behind fewer arrows".
Wallet is closer to market than those, and is unlikely to go away altogether, at least unless it clearly loses the market to a rival. Any perceived security risks are the kiss of death to systems which involve users' money, but even before the recent problem, Wallet has not grabbed the support Google would have hoped for.
Verizon Wireless deactivated Wallet when it launched the latest Nexus smartphone, officially while it tested the capability – but many pointed to conflicts with the carrier's own participation in the Isis mobile payments initiative.
Six months after launch, Sprint remains the only carrier partner for Wallet and there are no signs of international plans. This issue is not unique to Google – all big NFC-driven plans have come up against retailer caution and consumer lethargy, which in turn has made the handset makers lukewarm about adding the pay-by-wave chips to their devices. The day of wireless NFC mobile payments is still a year or so away, and the question is whether Google will have the staying power to keep Wallet in the game until that day arrives.
Has Apple's iAd had it?
Advertising, unlike payments, is a core competence for Google, and its AdMob acquisition has extended this success to mobile. By contrast, Apple has repeatedly reduced the pricing and loosened the terms for its mobile advertising service iAd, in the face of limited uptake by customers, and now it has made its most drastic moves yet, according to Ad Age magazine. The report cites unnamed sources reporting that agencies now need to stump up only $100,000 upfront for an iAd campaign, a far cry from the $1m minimum demanded at launch in 2010.
Apple has also reportedly decided to charge brands only a single rate for every 1,000 ad impressions, rather than its unpopular policy of also imposing an additional fee for a click-through. Developers will also gain more favourable terms, getting 70 per cent of revenue generated from ads within their applications, up from 60 per cent.
All this is designed to claw back some market share from Google's AdMob unit, which had 25 per cent of the US mobile advertising segment last year, according to IDC, a growth of 5 per cent on 2010. By contrast, iAd's share dropped from 19 per cent to 15 per cent in the same period. Meanwhile, the third main player, Millennial Media, has grabbed the second place at 17 per cent (though another calculation, by eMarketer, puts iAd and Millennial virtually neck-and-neck in the US last year, on 18 per cent and 17.7 per cent respectively).
The market could become more crowded soon, with Facebook revealing in its IPO filing that it was not monetizing its mobile traffic effectively yet, but was likely to experiment with some advertising techniques – possibly leading to a full ad platform launch later this year.
The main reasons for iAd's problems, according to disgruntled advertisers, have been high prices, rigid contract terms, and Apple's famous demand for creative control of the ads themselves. It insists on making sure ads support the quality of experience of the iDevices and use rich media formats optimised solely for iOS.
This has driven advertisers to broader and more flexible platforms, particularly Android, and this tide will only rise as the Google OS comes closer to Apple in terms of app download volumes. This has led to Apple becoming progressively more flexible over iAd terms and conditions.
In December, The Wall Street Journal reported that the firm would now consider deals priced as low as $400,000, a floor that appears to have fallen further in 2012. Apple is also agreeing to install a cap on CPM costs and providing mobile marketing training for free to clients.
"Hordes of developers have activated iAd, but they say that Apple hasn't sold enough to make any meaningful revenue for them," the WSJ said.
Copyright © 2012, Faultline
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