Think Strategy: How can Google Pay increase its market share?
Being a technologist at heart and a Product Manager by profession, strategy is very close to me. My usual news feeds consist of articles from Stratechery, The Verge, WSJ Tech News etc. and this forces me to ask questions like “What if XYZ happened”, “Why did A acquire B”, and “How does P impact Q” etc. The following article is part of the “Think Strategy” series where I express my opinions on some technological long-term strategies. All of the following content is my personal opinions based on my knowledge and understanding of the business.
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When we talk about digital payments and their competition, Apple Pay has around 92% market share while Google Pay has only 5% in North America. In retrospect, the primary reason Apple Pay dominates the market is not its software but it is their hardware (iPhones).
Talking about the mobile operating systems, iOS enjoys a market share of 57% in North America while Android has only 42% and if a majority of the people have iPhones then Apple Pay would definitely be their default method for payments. As we know, Google had an $8Bn contract with Apple to make Google Search the default search engine for Safari. Google was able to afford that deal because making it the default search engine for Safari generated 4x the revenue for Google — meaning if Google spent $8Bn for being the default search engine, it generated approx $24Bn via Ads on search hence the deal made sense.
You would then ask — why can’t Google have the same deal with Apple for Google Pay where the primary payment system in iPhones is Google Pay? The $8Bn was worth investing in the search deal because Google knew that it would lead to higher ROI via ad monetisation but imagine leveraging users’ spending data and using it to generate ads — this will not only create political and regulatory concerns but also have adverse effects on user privacy. Hence, the lack of sustainable high ROI would be one of the reasons Google might not be able to make a similar deal with Apple for Google Pay.
While Android does enjoy the majority of the market share in Europe (64%) and India (94%), it will be interesting for Google to focus on North America primarily because the adoption of digital payments is faster and the spending habits are very different from Europe and India.
What can Google Pay do?
Hardware “domino” effect: The low hanging fruit, in my opinion, to increase market share for Google Pay is to focus on increasing Pixel Phones’ market share which will have a domino effect on Google Pay.
As we know, Google Pay is hardware agnostic which means it can run on Samsung, Xiaomi and any phones that run on Android but it comes with its own risk. The above mobile companies can develop their own payment system (eg. Samsung Pay) which runs on Android and make them as default option that can eventually cannibalise Google Pay’s market — meaning Samsung coming out with Samsung Pay and making it the default payment system on their phones even though the phones run on Android OS.
Hence focussing on Pixel phones will enable Google to integrate vertically and give them complete control over making Google Pay the default payment system on Pixel.
Increasing Pixel phone adoption can also help them increase their Google Cloud usage similar to how they found synergies between sales of Chromebooks and usage of Google Cloud. Increasing phone adoption leads to more people clicking high-resolution pictures/videos and wanting to save them which ultimately leads them to increase their cloud storage plan — this is just one of the ways how phone adoption impacts the Cloud business
One of the other areas for improvement can be advertisements. Google spent approx $18Mn on TV ads for Pixel phones while on the other hand, Samsung and Apple spent $98Mn and $163Mn respectively.
Even with Pixels’ competitive features, speed and performance — without enough marketing efforts, it is easy for Samsung and Apple to increase their sales and thus their market share. Investing in advertisements and partnering with media influencers can help Google quickly scale their marketing outreach. One caveat here is that Google, from the company’s vision and mission perspective, wants to focus on Cloud, AI, ML and entering the mobile phones market can have an adverse effect on Google’s partnership with mobile companies that are currently running Android OS
To summarize, focussing on Pixel phones will not only lead to an increase in the adoption of Google Pay but also help accelerate Google Cloud business. At the same time, there is a risk of weakening the partnership with the mobile companies that are already running Android OS as Pixel will be one of their competitors.
This is it for today’s article, don’t forget to comment on what YOU think is a good strategy for Google to increase their Google Pay market share.