PYMNTS.com wrote about why Android Pay isn’t really about payments at all.
Which means that it has a huge fragmentation problem staring it right in the face – a huge obstacle when trying to replicate an Apple-like strategy.
At its launch, Google announced that Android Pay would be supported on devices running KitKat and higher. That’s roughly 44 percent of Android enabled devices, and none of those that operate a forked version of Android, like the Amazon Fire phone, for instance or Samsung’s Tizen.
Device fragmentation. Android’s familiar foe.
In the U.S., as of March 2015, comScore says that 187 million people own smartphones.
Android has a 52.4 percent of that market – so some 97 million phones run the Android operating system.
That actually beats Apple by a whole lot – like 17 million.
But only 44 percent of those handsets run a version of KitKat and higher. Less than 5 percent run Lollipop, its most current version.
That reduces the number of phones with KitKat or higher to roughly 42 million phones.
A rough guesstimate of how many of those 42 million are NFC enabled – and therefore ready to rock it with Android Pay – is 6 million. (In 2013, 18 percent of all handsets shipped were NFC enabled – and 80 percent of those were Android. So, 18 percent of 42 million and then 80 percent of that number is 6 million.)
How does Apple fare then?
Kantar’s latest reports say that 18 percent of the 80 million iPhones in the U.S. are 6’s – that’s 14.4 million phones ready and able to enable Apple Pay. That doesn’t translate to Apple Pay usage, we estimate the number of active users to be ~600k – but simply estimates the size of the addressable market for Apple Pay.
That means that out of the gate, Google Android Pay has about half (57 percent) of the addressable market that Apple Pay has.
But being able to use a particular payment mode doesn’t translate to actual spending power. So let’s look at spending power analysis.
According to Pew’s latest study of smartphone demographics- which was done before the iPhone 6 was released – and before all of the stats about Apple’s ability to attract “switchers” were too – the differences were stark.
- 31 percent of adults earning more than $75k owned a phone running an Android operating system, compared to 40 percent with Apple phones;
- 28 percent of adults earning under $30k own Android phones, compared to 18 percent with Apple phones;
- 29 percent of Android users are college educated, compared with 38 percent of Apple phone owners;
All of which suggests strongly that the commerce advantage goes to Apple.
Not only are there more Apple users in the upper income categories but more of them are concentrated in their peak spending years. In fact, we estimated a year or so ago, that roughly 66 percent of retail spend in the U.S. is driven by those who own iPhones.
So what drives Google to push for Android Pay then?
A New York Times article last week extracted data from a Goldman Sachs report on Google’s search revenue challenges. In it, it was reported that this year – 2015 – Google’s ad revenue will be split 58/23 desktop to mobile. In 2016, that’s expected to adjust further to 54/27. It isn’t hard to imagine that by 2020, those numbers will not only flip as “mobile” expands to become wearables, cars and a collection of other connected devices that consumers own and use but change entirely as search becomes less about using search engines and more about consumers using apps to find the things they want to buy.
That detail suddenly becomes pretty important since mobile ad revenue, on a good day, clocks in at a lot less than desktop revenues. More mobile search means less search revenue even if volume is increasing. All you have to do is review Google’s last couple of years of earnings reports to see the impact that it’s already having on its revenue.
The shift to mobile search poses a bigger threat when you look at the sources of these searches:
Approximately 75 percent of Google’s mobile search revenue is the result of people using iPhones and iPads to find things on their path to purchase. A search initiated via Safari is actually powered by Google.
I see it as a matter of when, not if, that Apple would replace the default search in Safari with another search engine, such as DuckDuckGo.