By Louis Bedigian
How do you compete in a highly competitive market? By eliminating the competition wherever possible.
I'm a big fan of competition. But I'm an individual – a consumer watching the battle from afar. Still, it's hard for me to put myself in Verizon's (NYSE:VZ) place right now. According to the Wall Street Journal, the company has decided to block Google Wallet (NASDAQ:GOOG) from new phones on its network, which means that Verizon customers who buy the upcoming Galaxy Nexus will be without a digital option.
For now, at least.
You see, Verizon isn't eliminating Google Wallet for some altruistic goal that involves protecting consumers from a world where our cell phones completely eliminate cash and credit cards (do I really need to list the reasons why that could be a problem?). Rather, Verizon has ousted Google Wallet because it wants to be the dominant player in this field. Computerworld, which first reported on the disappearance of Google Wallet on the Galaxy Nexus, points out that Verizon is in the process of developing a payment service of its own with AT&T (NYSE:T) and T-Mobile. Granted, neither Computerworld nor the Wall Street Journal could confirm that this is indeed the reason why Verizon has banned Google Wallet on the Galaxy Nexus (among other upcoming phones, apparently). But come on people – if that's not the reason why, then what is Verizon planning?
As the Wall Street Journal points out, Google Wallet's viability could be called into question if Sprint (NYSE:S) is the only carrier that doesn't block the service.
This is one of the problems a company faces when dealing with other corporations, particularly when those corporations have similar objectives. Verizon can ultimately choose to do what it wants. There is very little Google could do to persuade a cellular carrier except hand over the majority of its profits. But doing so would defeat the purpose of creating Google Wallet, which is to provide Google with another massive profit center.
While Sprint is not the weak and helpless carrier that many make it out to be, it doesn't have the money or the power enjoyed by its two biggest competitors, Verizon and AT&T. Recently, CNET reported that Sprint would not offer any 4G LTE devices until the second half of 2012. Verizon, meanwhile, already has 16 on the market and will add four more by the year's end. AT&T has three.
Sprint's biggest advantage is obviously its unlimited data plan, particularly now that the carrier has been given the iPhone 4S (and every iPhone going forward for the next few years, reportedly). But people don't seem to mind paying more for the other services, which is part of the reason why Verizon and AT&T will maintain their respective status as the number-two and number-one carriers.
One might argue that Google could have a greater role in the cellular market by acquiring Sprint the moment it becomes available. But that would still limit the company's reach to Sprint customers.
Ultimately, Google might find that this is one battle it cannot win. It may be forced to cave and give away the majority of its profits (and rely on ads and other Google Wallet extras to pick up the slack), or give up the dream of creating the first true digital wallet.
If you think Google Wallet still has hope, consider the following:
- At this point, Sprint seems like it's going to be the star of Google Wallet.
- If the Motorola (NYSE:MMI) acquisition goes through, Google could potentially include Google Wallet with every new phone from that manufacturer and attempt to force its way into Verizon's world. It's not likely to work, but if the phone was in high enough demand, Google could threaten to remove it from any carrier that blocked Google Wallet.
Those who believe that Google is screwed should consider these alternatives:
- Visa (NYSE:V), MasterCard (NYSE:MA), and American Express (NYSE:AXP) offer established payment options that aren't restricted by cellular carriers.
- AT&T, Verizon and T-Mobile have previously teamed up for Isis, a near-field communication-based system for NFC-ready smart phones.
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