Google (GOOG) recently announced the first public foray of Google Wallet -- a service that lets users easily turn their Android phone into a payment mechanism. This has the potential to be a very significant development for Google, one that sets it on a new disruptive trajectory and effectively thwarts the competition from social startups. To understand why this is, it's worth taking a step back to see the big picture of how Google is positioning itself:
- With the acquisition of Motorola (MMI), Google owns handset manufacturing
- Via the Android acquisition, the firm owns the mobile operating system
- Via Google Places, Google Maps, and Google Offers, the firm is positioned for location-based commerce
- Via Google+, YouTube, Blogger, and Gmail, the firm has its own social network
- And last but certainly not least, Google has the largest ad network -- which is the company's most prized possession and the one it will most vigorously defend.
That last point, though, is why most of what Google does is not terribly exciting for investors; most offerings, including Google Wallet, are defensive moves designed to ensure the barriers to entry to the advertising network industry escalate, which in turn ensures that Google's revenue streams are protected from competitors. This is all good and well, but for shareholders, such defensive moves signal an ability to defend share price and maintain dividend issuance (a particularly sore point for Google, a company that does not issue dividends). For Google to grow, it must enter new markets, and the two markets it is best positioned to enter and disrupt are (1) energy and (2) banking.
And it is that latter opportunity -- banking -- that is the real chance at growth that Google Wallet can help the firm reach. Allowing all sorts of commercial transactions, loyalty programs, coupons, and even more yet unimagined offerings from third-party applications that leverage Google Wallet make this offering well positioned to disrupt the banking industry. Put another way, folks may choose to entrust more and more of their stored wealth with Google via Google Wallet.
This is a huge opportunity, and if pursued and achieved, has the potential to increase Google's share price in a way that only a disruptive, growth-oriented offering can. However, the regulatory hurdles Google will face here will be immense. As the firm wanders deeper into banking territory, it will find regulations that are designed to protect industry incumbents -- not firms looking to disrupt banking. Ultimately, Google will need to have its own virtual currency that can compete with nation-state currencies. If Google can provide such an offering, precisely at the time when nation-state currencies are in trouble, the firm's share price may explode -- and a new monetary world order may be upon us.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.