Google Commerce Chief: We're Making A Huge Bet On NFC As A Company

in New York City with a focus on this area. Thank you so much for coming and being with us today.

So the reason I put this panel together, and Alex helped me, is there seems to be a lot of experiments with, especially with mobile, turning mobile ads essentially into something that is more, something you can track better, and one way to track the loop from impression to action is, what better action than a payment, right?

And I just wanted to talk a little bit about, you know, what are the different ways that companies are thinking about linking those two things: the ad or the offer, and the payment, and how does mobile change that? So maybe we can start with you Stephanie. Google has a lot of experiments in this area.

you've got an offer determined in Portland.

Right.

And then there is also an offers product that is linked to Latitude. Just give us a frame of what they're doing at Google.

So, we believe that you're going to see a real transformation in the mobile local space and how consumers interact with merchants, with service providers. You know, I think that we call it the age of molo - mobile local. And, we envision that consumers will be able to walk around and get offers nearby, and so we have several different offers products.

We have check-in offers that you can get. We have lots of big brands doing that today like McDonalds, quick-serve kind of restaurants. We also have a trial we're doing for prepaid offers similar to what Groupon and LivingSocial do today. We're testing that in Portland and other cities and ramping a sales team to go out and apply our SMB deals, large merchandisedeals and at the end of the day, you know, we believe that consumers are going to have a platter choice around them, and they're going to want to be entertained, helped.

There's a push-pull aspect to it, some things we push to them, some things we pull and it will be very easy for them to find things in their way local area.

Do you mix the inventory or will you mix inventory of prepaid offers like the Groupon-style offers with the mobile offers which. You're already seeing, you know, with some a lot of mobile applications are taking advantage of, but there is Groupon or Livingsocial you check in and then it tells you things nearby.

We have lots of different properties. So you are going to see us embed offers throughout our experience and consumers do not distinguish between different types of offers.

Right, so Louis, even for speaking about this recently in the batsman team of yours right. How do you see this whole space, what do you think is a big opportunity?

Yes we look at it from a venture perspective. We look at Online ads are projected to go from 26 to 50 billion. That's about the same course that Amazon was on from the commerce, and it takes all of e-commerce at $180 billion. It's about half of what Wal-Mart does, one company that's on predominantly offline with some online.

And you look at the size of now what may be influenced by online activity to offline. Forester and others are estimating up to 50 percent, 1.2 Trillion of consumer spending is happening by influence of online to offline. So when we talk about connecting the two with or without mobile.,there are a lot of different subsegments, and we are taking a venture perspective, as opposed to be one of the big leaders in the industry like Google.

The startup companies are looking at ways to enable that activity. It could be retargeting a consumer who went in a retail store, leveraging LBS. Retargeting them on their mobile device to get them back into that offline store. It could be driving somebody from a pure online experience to go pick something up offline, like Groupon.

A lot of different ways to do it, the the trick, I think, from the venture perspective of the start-ups that are here today is you want to, it's definitely go to where the puck is going to be. It has been for about a year. The problem is are you going to be facing an empty matter or are you going to be facing a 6'7" Russian who's going to clean your clock, right?

Is that - are you calling Stephanie a 6 foot Russian?

It could be.

Alex, in your mind is sort of figuring this out the Holy Grail of, you know, not only mobile advertising, but sort of, advertising in general?

Yeah, I mean, if you look at the local advertising, I mean, Google is a tremendous company. And local advertising; it's very hard to make that work in an online context, because the local bar doesn't want to pay per click. The local tennis instructor doesn't want to pay per click. He wants to pay per customer and the best way of closing the loop is actually not sending a click, but sending a check or sending a payment.

And I think eventually advertising and payments really become one and the same. And it's kind of interesting, if you look at any merchant they hate paying Visa, Mastercard, American Express the two, three percent. They love somebody thirty percent. I mean programs have been pull that off, and it's not just about the deal of the day concept.

That worked very well. It's more about you merge these two so that you're not sending an offline merchant click. We are actually sending them a customer and you can close the loop. So, I think that there are two or three reasons to be a payment company. One is to just markup interchange and I think that is going to go the way of the Dinosaur, Two is data.

Look at what Amazon does; people that bought this also bought that. American Express can do that better than anybody because they have all of your payment history the third is vertical integration or closing the loop. And I think that is where payments are headed. That is also we are off on advertising side.

So just to give an example so people would understand what you do, you told me this backstage that you know, some body might have bought a movie ticket on Pandanggo and then the gap wants to target certain subset of those people to go to the gap. So they give him an offer for the gap.

Right.

That was a real offer that you did was very successful.

Right.

Can you talk about that a little bit?

Yeah. A lot of what we do is transaction level targeting. So there are different ways of targeting an offer. One is purely Push which is what initially goggle office product is giving it's also what Groupon has done very successfully another way is pull so I see what near by me another way is check in based so this is force and others are giving what we do is a little bit of more trans cation base ;we know you just brought two movie tickets ;your email and the movie theater that you are going is right to next to a Gap; here's forty percent off at The Gap.

And doing stuff like that its actually, its very relevant to the consumer. But it's also sending somebody like Gap A very high quality customer because they know there's no adverse selection problem there. This is a person that just spent a requisite amount of money somewhere else. It's not somebody who is looking for a deal is that best people that you can find are not ones that are motivated by coupons or discounts.

Right.

And that generated a million dollar for sales one day?

Yeah.

That 's amazing.

So, and you can do that, but it's a million dollars of sales from good customers. And it's not to say that very good customers, where you have some percentage.

Is any sale from a customer a good customer?

It depends on how you discount your product, so I know a guy who's a dentist and did a group on i said buy large, the vast majority of groupon merchants are very happy. Because I would say there is no such thing as a bad lead. It is usually a badly priced lead.


Right.

You discount your product below your cost and you do it because you think the LTV is going to be very high. The lifetime value is going to be very high. And it does not pan out because you have very promiscuous customers that will go to this dentist this time, the next dentist, the next time no loyalty there.

It's not gonna work out for you. So, different customers have different lifetime values and different qualities, the best type of customer is one that isn't motivated by a discount but where a discount can change their behavior.

Well, Stephen, what is your thinking on this, I mean, weren't you on the team that tried to buy Groupon?

I can't comment on any activity at Google. I agree, I agree with Alex that it.

It's just in terms of, there's a model here right, the Groupon model which kind of took of, right, and that may or may not be the The only models we're discussing.

I agree, I think Groupon was, is a great company and congratulations to them for getting a foothold on the local space and starting this whole wave a long line to offline, or lower, however you want to term it. I definitely think that there's gonna be a ton of innovations in space. But Groupon is tapped into One alumina and it ultimately is going to be about customer management, so big brands, small brands they want to manage the lifetime value of the customer.

And they want to know who that customer is when you walk in the door, they have geolocation technology and they can figure out who it is. And I think it's very similar to what Alex said in the sense that if you know that customer is, you can target the promotion at them that actually gets them to do a certain thing that valuable to them and the merchant.

So it's symbiotic. And what you are seeing today is, you know, retailers spend so much money on promotions that they have no way of targeting that, and they don't actually know how to target the customer that comes in the door.

And, and What are the different ways that you are experimenting with targeting customers?

Especially, in a mobile context, what do you You know, what do you know about potential consumers that you can offer to merchants or brands?

Right. I think if you look at the statistics, Forrester basically says that 50% of commerce is going to be affected by the mobile phone. Everyone, you know 50% of the phones in the US are smart phones. People carry them, they use them for shopping today. You're going to see them look for inventory.

For example, today we have 70 of the top 100 retailers integrated in our Google shopper app. We have over five million downloads and people use it to actually find local inventory. You're also going to see consumers going to a store and if the inventory's not there, they going to be able to tap, you know, scan a bar code or tap on an SE tag and just order the item online and have it shipped to them.

So you are going to see the integration of online and offline inventory. And these merchants will actually be able to target promotions and inventory to consumers.

Let's take it one step further, Google is making a big bet on NFC, NFC payments right and android or just NFC chips, which we use for lots of things like the payment. sort of that's the one of the biggest potential apps there. Can you paint a picture for, you know how an NFC-enabled phone might work as a payment vehicle as well as how it might tie into some of what we were talking about in terms of offers?

Yeah, there's a lot of applications for NFC which is why we believe it's a really important opportunity for Android and we are making a bet on it as a company. You can tap on a poster in New York City and find information about a movie. You could get an offer from an NFC tag. You could walk into the Gap and if they don't have your size jeans, you could tap on an NFC tag and have it shipped, have those jeans shipped to you the next day.

So there's a lot of potential and the ease of use of tapping, and tapping it's literally seconds and it's so easy. We do believe in NFC. We also believe in bar code, you know QR codes. I mean there's a ton of things going on right now in the space.


Right.

Not just NFC.

In fact you're making an announcement tomorrow, right?

We do havethe partner announcement tomorrow. It's gonna be an NFC payment announcement.

I can't confirm what we are doing tomorrow.

My understanding is that you're going to make an announcement with Citibank, to enable NFC payments on Android phones.

We have a partner event and they'll be around local commerce.

Ok, you heard it here first. Lewis, do you think that this whole idea of The NFC payments is going to work?

Yeah, first I'd like to ask Stephanie if she can confirm she has either a We see, it's coming. It's a wave. It's going to be here. There are a lot of hitches within use cases and comes to play, Stephanie's rattling up a number that, are much, there's some that are very easy on the spectrum. A consumer standing by their own at a podium or add an ad get information, and get a discount of their mobile device much more simple, right?

When they're in a retail environment And a low average ticket, high volume environment.

POS being the cash register.

Correct, point of sale. Where 2 seconds make or break a product in speed of the transaction at the merchant level. There are still certain issues that need to be overcome, which is why we've been following mobile payments in these applications for years. We did a study about four years ago, five years ago.

Most of the companies stabling around mobile payments aren't actually processing the payment concentrating transactions, like a Groupon, right? What happened, the trip up points in some of the use cases are what if the consumer wants to integrate awards or royalty program? What if they have a gift card program and it's not integrated with that?

What if there's a line that they're on, and they're using their smart device for other activities like email or playing a game, and they don't want to stop at the second they have to pay and enable it? All of that will get worked out but what we have seen.all the excitement around it is there from a consumer perspective.

I think the excitement is from the technology companies perspective. Now that's picking up, absolutely would imagine for Google it's a lot more of the data than it is trying to be in a payments processing center.

Right and maybe a little bit from early adopted consumers but I guess my question is, to what extend is there a hurdle that you have to get local merchants to adopt these technologies, you know, local merchants are not, when they have to do something new that 's a barrier to adoption it seems to me.

How are you addressing the investment.

And they generally only care about two things, cost is number one and fore-number one, and number two is speed of transactions, if they are of the high-volume store like a coffee shop. And if NFC can conquer both of those for them, they will be much more receptive if there's no additional cost, either in hardware or in transaction fees, and you can expedite that line, that's what they first and foremost love the idea, and there's been lots of attempts about creating data-driven royalty programs for awards for local merchants, very very difficult to do, although now, we're with the adoption of smart phones, and the scale of the players, like MasterCard, like Google and others going in to promote NFC, It has I think it's first real chance of getting there.

Since floating an answer to some of the questions.

I think look these things always technology transformations always think in some ways longer than you think, but in some ways shorter than you think. I think, 10 years from now we'll all accept this as a reality I don't know how long it'll take to get there. If you look at Starbucks, I mean Starbucks launched a noble loyalty program and it's just based on barcode scanning and they just have over 3 million users like that, and then they just launched NFC in the UK, NFC payments.

With barcodes in orange you're seeing sort of momentum in this space. The stats actually speak for themselves. Look, I don't know if the analysts are right, but here is what the analysts are saying so there was 4.9 billion of local commerce in 2010, and the projections are that gets to 163 billion in 2015.

That's mobile commerce. Mobile payment, there was a 170 billion dollars of volume in 2010, and that's going to 630 hundred billion. So you look at digital, you look at, there's a ton of there's already a ton of activity in this space.

A lot of this is overseas though.

A lot of it is overseas but there's a lot of proof of overseas and Japan, Singapore contractors, you know.

Do they already have NFC in Japan like they have ?

Yes, Singapore, Japan, they have NFC everywhere, everybody uses it. You know, T points has 45 million wealthy customers using NFC .

How would, if NFC became widespread, how would that help sorta the whole, what you've been talking about tying offers to, to ads What I go back even one step to Louises comment of,there is a cost issue to a lot of merchants so why would merchants ditch their legacy hardware if everybody has a credit card anyway.

And this is actually one of the areas where offers can be helpful. So if you go to the local coffee shop and say "I will guarantee you a thousand new customers" into the next month but you have to add this device to your store we'll probably do it if it say if we tell them alright each customer is going to save 1.5 seconds paying and you have to pay five hundred dollars for this new device they probably won't do it so it's another area where offers not really offers in general but just getting people into the story, sending customers can be a very, very powerful motivator.

If you think about the mobile phone, one of my favorite companies in the world is called Catalina Marketing and and they dominate the space for, primarily supermarkets and loyalty programs in supermarkets and pharmacies. So you pay and at the end you have some offers on your receipt. That's very twentieth century.

What can you do on the phone? Alright, I pay with NFC, and then I might see a couple offers right there. I can save those offers offers to my online phone.

If I just got those offers. I mean, every time I go grocery shopping I see those offers and maybe I'm not the target audience but you know there usuallyat something I want to buy, and if you just replace those same offers on my phone, it just turns into digital spam instead of

It's better though,I mean, the key thing is that defective feedback so Catalina typically has over a ten percent redemption rate for one of the coupons that they give out because in many cases they're very there like they know that the supermarket has too much milk they know that you buy milk once a week and they'll say here's two dollars off milk.

So you know they have massive redemption rates for the offers that their giving away, but they don't know if you use it till another two weeks or another week at least on the phone I can say, I want this offer I'm going to save this to my phone and then I'm going to use it next week so there's a lot of neat stuff you can do now that you have a smart device as opposed to a piece of plastic .

Alright so Square just had an interesting announcement yesterday where they're turning their iPad app into more of a cash register in a sense and they also have this idea of square cards where its kinda like a wealthy card type of offer what do you guys think about that approach?

Yes, I will go first. I think they've definitely started moving toward some good pivots, right, where initially when it started out going after higher risk higher fraud merchants as volume and then they had their underwriting problem which was pretty clearly going to hit them and so they're very successfully to me evolving the model, going from what in smaller divots that would've been a huge, would've been a big divot instead they're going into pivots.

It's going well that's a good way to go. They're also talking apparently a lot about community driven aspects for the merchants of sharing the data across them to help drive more volume. And between them which really hasn't been done by a payments processor or POS system that's grabbing the data. So as long as they have the capital to support, which they clearly do, these ongoing activities, and now the partnership with Visa, there's probably some really cool stuff that will evolve out of it.

yet to be seen.

Were they having underwriting problems?

Well, they paused it for a while because of sponsorship and underwriting about a year ago.

I think that's another area where you can take a smartphone that can do pretty much anything and you can disrupt an old industry. And you put, like, square is really competing with cash and the best way to compete is not to display something that works pretty well but cash doesn't work. If you wanna make a five hundred dollar purchase at a flea market and all you have is a credit card.

Now you enable the flea market seller and the artist to actually accept credit cards, and I think what square is doing is pretty amazing. And I think they have a lot of success ahead of them. And plus with GPS coordinates and everything else, I think they can manage the fraud problem very effectively.

Paypal did it a long time ago. They've a different set of fraud parameters to look out for, but they've got a very smart team.

But it also opens up and once people are starting... merchants are starting to take payments via these, via their mobile phone and once consumers are paying, well that opens up the possibility for a peer to peer payments, right? I mean, for instance, for Google, Google has Google Check Out, right?

You already have the infrastructure to become you own payments...processor . To what extent does it make sense to tie that with some of these other which are more advertising and offer driven programs. I mean, is it better for the consumer or the merchant in the end if you can be the payments processor and lower the payments fees?

Yeah, I think there's a misnomer that Squares are actually trying to compete with Mastercard and Visa. I mean, you swipe your card, use your credit card. I think what they're competing with is cash. They're going into the small guys, and frankly Paypal did this very early on, and they're servicing really small merchants and displacing cash, which is actually good for Visa and Mastercard.

I think it's good to actually tie loyalty and offers to those things. And what really merchants care about is traffic. They want traffic and they want new customers into their store. The payment processing is a small cost on a relative scale. It's important, for big merchants it adds up. But the real important thing is driving traffic into Is Google doing anything on the loyalty side?

We don't have anything to announce at this time.

OK. Well, we're out of time. Please give a round of applause to our panelists. And thank you so much. I hope you learned something, I certainly did.

You guys can walk down the stage and we'll have our next presentation. I think we'll to do a stage