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Why would Amazon become a virtual operator? It already is one

Kevin Fitchard — Tue, 29 May 2012 21:08:35 +0000

Reports are coming from Japan that Amazon is forming a mobile virtual network operator, or MVNO, an arrangement that would allow it to sell mobile voice and data services under its own brand while riding over another carrier’s network. If true, it would be an interesting experiment for Amazon, expanding its mobile business beyond selling devices, apps and e-books to selling connectivity itself. But I suspect this is nothing more than an experiment.

Nikkei first broke the news Amazon would begin selling prepaid SIM cards with 500 MB of data access over NTT DoCoMo’s LTE network, The Verge reported, though, according to PC Magazine, Amazon is denying it has any MVNO plans.

Assuming the initial reports are accurate, you would think Amazon was testing the waters for a big global push into the mobile operator business. But I don’t think Amazon is interested in becoming an MVNO, for the simple reason that it already is one.

Amazon has relationships with more than one hundred operators all over the world, which deliver its e-books and other content to Kindles via their 3G networks. It’s not the traditional MVNO relationship — Amazon only charges customers for the e-book download, not a monthly subscription fee — but it’s an MVNO relationship just the same. It also happens to be the MVNO scenario that best fits Amazon’s retail business strategy.

Why content and connectivity don’t mix

Amazon is a product retailer. It wants to sell you books and music, either electronically or through mail order; it wants you to buy apps through the Amazon App Store; and it wants you to buy Kindles so it can in turn sell you more e-books and apps. All of its efforts in wireless — including developing its own Android tablet variant for the Fire — have been aimed at furthering that simple goal.

I suppose you could argue that becoming a carrier would support Amazon’s retail businesses as well, that providing access is the ideal way of steering customers to its app and content products as well as its new cloud-based services, Drive and Player. But becoming a full-fledged MVNO is a big undertaking, requiring it to set up provisioning, billing and customer-management infrastructure.

What’s more, the economics of being a carrier don’t jibe with the economics of being a retailer: In fact, the two are often working a cross-purposes. Amazon wants you to buy as many e-books and digital music tracks as possible. It doesn’t want you to hold back on your purchases for fear of exceeding your data cap. Conversely if Amazon gets into the carrier business it will have to start acting like a carrier. That means maximizing its voice and data revenues. Amazon could except its own services and purchases from its own data caps — letting that traffic ride toll-free over the network — but it’s much easier for it do so without going through the trouble of becoming a full-bore MVNO.

Why MVNO lite is a good model for Amazon

Amazon could simply extend the shadow MVNO model it currently uses for Kindle e-book downloads to its individual purchases, apps and services — no matter whose devices or networks they run over. Operators like AT&T and Verizon Wireless are floating the idea that content providers and app developers pay the network carriage charges for their customers’ mobile data consumption. This is the exact same arrangement Amazon already uses for the Kindle, and it would be one the retailer could easily extend beyond its e-reader.

And if Amazon wants to pair its future devices — whether a 3G/4G version of the Fire or a forthcoming smartphone — with wireless connectivity, it could do so easily with partnerships. Amazon already resells the major operators’ phones, tablets and service plans. It would be relatively easy for it to start offering the SIM-card-only services of T-Mobile, AT&T and international operators. If it wanted to get creative it could start selling the SIM card plans of other MVNOs such as Simple Mobile, TracFone’s Straight Talk or H2O Wireless, which offer steep voice and data discounts over the big 4.

If Amazon really feels it has a future as mobile carrier, independent of its other businesses, then more power to it. I would be very curious to see how it would innovate in the market that could frankly use a competitive kick in the pants, but I doubt that is truly Amazon’s ambition. All signs point to Amazon’s interests in wireless being ancillary to its primary digital retail mission. Going through the expense and headache of creating a new wireless MVNO merely to bolster your core business is a stupid idea, especially if a lot of people have already done the work for you.

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Why retailers want to take the wheel on mobile payments

Ryan Kim — Fri, 02 Mar 2012 20:41:49 +0000

When cellular carriers, banks, credit card companies, web giants and start-ups eye the opportunity in mobile payments, they imagine themselves making gobs of money by selling retailers on the merits of their technology. Turns out the retailers might have their own plans.

According to a report in the Wall Street Journal, Walmart, Target and a couple dozen major retailers have decided to work on their own next-generation mobile payment system that will compete against the likes of Google Wallet, Isis, PayPal and many others. It could throw the nascent mobile payment market into even more chaos and make it harder for consumers to know which mobile wallet they’re supposed to carry in their pockets.

It’s unclear when the initiative would launch, how it will operate and how widely it would be deployed. But the companies involved, which include big-box retailers, fast food restaurants, drug stores and vending companies, have a combined annual revenue of $1.38 trillion, a huge pile of money that they would like to defend from the salivating technology and payment industries.

The report says that retailers have surveyed the first crop of mobile payment services and have found them wanting, specifically in regards to security. I think there may be some legitimate concerns about the payment players, but what this comes down to is a basic power play. The retailers are being increasingly hit up by Google, the carriers in the Isis joint venture, PayPal and other financial institutions trying to sell them a mobile way to pay. But retailers already have to deal with a lot of middlemen and aren’t crazy about potentially sharing revenue and data with outsiders. Google, for example, isn’t taking a cut of Google Wallet transactions but covets the payment data to better target users with deals.

Retailers think there’s a real opportunity to create a payments, discounts and loyalty platform built by the people who know their businesses the best: themselves. Instead of relying on another provider to come up with ways to attract, engage and retain consumers, they’d much rather develop that expertise in-house. That’s made possible by the fact that there are new ways to move some of the old payment structures onto the Internet, allowing companies like Square, Dwolla, PayPal or others to create next generation payment systems that don’t abide by the old rules and restrictions.

If start-ups can do it, the retailers are probably thinking they can too. I just wrote about LevelUp, which created their own barcode-based payment system from scratch last year.

A retailer payment system could still be funded through existing credit cards and debit cards, but it could keep them front and center. And it could be built on their terms: designed to increase loyalty, eschew a one-size-fits-all approach to their unique customers and avoid big upgrades to point-of-sale hardware. If the retailers came up with their own version of Square, PayPal or Starbucks’ system, they might be able to get away with a lighter payment system that they can control themselves.

Starbucks may be the model here for the retailers. The company recently said that Starbucks users loaded $500 million into mobile accounts in December alone and conducted more than 26 million mobile transactions last year. That’s money and data exclusive to Starbucks. And like Starbucks, if the retailers can build its own system, they can also choose to not support other wallets. That should be a concern for mobile payment players.

Much attention has focused on Verizon possibly holding back Google Wallet on the Galaxy Nexus as it waits for Isis, which it co-founded, to get underway. But the retailers are the ultimate gatekeeper here. They could come out with their own app-based system and then wait and see if they need to outsource. It’s also practical: with so many jockeying for mobile payments position, it’s hard to make an expensive bet.

But while retailers might be excited, it could just add more uncertainty for consumers, who are facing a mobile-payments marketing onslaught. And when consumers are confused by new technology, they avoid it. But if other large retailers can mimic Starbucks with popular apps and keep people interested with good deals and discounts, they’ll continue to own the customer.

Are these retailers serious? After all, this could just be a threat to get better deals or terms with the payment platforms. But I see a real potential for retailers to take this step. They’ve got a lot to gain and a lot to lose from a shift to mobile payments: why leave it in the hands of others?

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