What Happens When Hardware Makers Can Make No Profit

It is starting to be quite apparent that smartphone OEMs will no longer be able to earn profits. Ben Bajarin put together an excellent piece (paid article) on this in which he questions;

What is the “product” in the Android ecosystem? Specifically where are the revenue generating opportunities? As the answer inevitably becomes “not hardware”, the product offered must evolve. This is where the basis of competition will shift in the Android ecosystem. This shift will disrupt incumbents and open the doors to new entrants.

This is a typical case of what Clayton Christensen has called “The Law of Conservation of Attractive Profits”. I have described this previously in this blog.

As technology progresses and solves the most pressing problems in smartphones, the profits move away from the hardware assemblers to adjacent stages. Hence the predicament that Samsung now finds itself in. At this point however, it is not yet clear which adjacent stages will reap the profits. In particular, it should stress that is no by no means obvious whether Google services will become this stage or not.

Benedict Evans has also written about this on his blog.

It seems pretty clear now that the Android OEM world is starting to play out pretty much like the PC world. The industry has become unbundled vertically between components, devices, operating system and application software & services. The components are commoditised and OEMs cannot differentiate on software, so they are entering a race to the bottom of cheaper and cheaper and more and more commoditised products, much like the PC industry.

So what we are seeing can be summarized as follows;

  1. Hardware is no longer a profit generating opportunity in the Android ecosystem.
  2. Attractive profits will shift to adjacent stages in the value chain.
  3. We have seen something similar happen before in the PC industry.

Therefore, in order to understand how the Android ecosystem will evolve, it is important to revisit the history of the PC industry and to review what happened when profits could no longer be made in hardware.

There are actually quite a few independent things that happened. Here I would like to highlight “crapware”.


Ken Segall describes the situation beautifully;

“Crapware: the search for lost profit”

It was only about three years ago that I attended an advertising meeting with the chief marketer in Dell’s consumer division. He had crafted his plan to meet sales targets for the coming year.

At the proper point in the meeting, Mr. Marketer made mention of the crapware on Dell computers. And yes, he called it crapware. He pointed out that margins being what they were, crapware actually accounted for just about all the profit on each sale. He invited the agency to come up with new suggestions for companies who might want to join the club — and pay Dell for the right to clutter up their PCs just a little more.

What’s a smartphone seller to do? Crapware to the rescue!

Mike Jennings reports his crapware findings for PC Pro. In a wide range of Android phones, he found a treasure trove of crapware installed by carriers: multiple app stores, security software, game demos, etc., etc. While you can remove this stuff from PCs with a little effort, not so with smartphones. Most of it is here to stay, installed in such a way that it can’t be removed by the user.

Quite simply, if hardware makers (or carriers) can no longer make profit, crapware will proliferate. Since the attractive profits have moved to the crapware owners, they will be willing to pay to have their stuff put in front of customers.

iOS App Store Revenue Growth is Outpacing Google Play Revenue Growth

App Annie has just released their report for Q2 2014. In their accompanying blog, they emphasize large growth in Google Play’s downloads in Brazil, Thailand and India. However, in contrast to the most recent report where they noted marked growth in Google Play revenue, this time they do not mention revenue at all in the blog.

This suggests that Google Play revenue was not too good. Here, I will try to reverse engineer the data that App Annie disclosed. I will try to figure out how Google Play revenue grew in relation to iOS App Store revenue growth.

What App Annie’s report reveals

Regarding revenue growth, App Annie’s report (the one that you can download for free here) only provides us with the following information;

iOS retained a strong lead in app store revenue over Google Play. In Q2 2014, the iOS App Store provided around 80% more revenue than Google Play. Mobile powerhouses China and Japan were the primary drivers of iOS revenue for Q2 2014. Up-and-coming countries Taiwan, Kuwait, and Turkey also contributed significantly to iOS revenue, each growing more than 30% quarter-over-quarter.

An accompanying press release actually has more details;

In Q2 2014, the iOS App Store provided around 80 percent more revenue than Google Play, down from 85% the previous quarter. Mobile powerhouses China and Japan were the primary drivers of iOS revenue for Q2 2014. Taiwan, Kuwait, and Turkey also contributed significantly to iOS revenue, each growing more than 30 percent quarter-over-quarter.

So in Q1 2014

  [iOS App Store revenue] / [Google Play revenue] = 1.85 (approximate)

and in Q2 2014

  [iOS App Store revenue] / [Google Play revenue] = 1.80 (approximate)

This alone isn’t enough to get a good picture. We need to know how iOS App Store or Google Play grew in revenue from Q1 to Q2. Since I couldn’t find this data, we assumed it to be in the range of 2% to 20% and analyzed the results for each assumption.

Absolute iOS App Store revenue growth exceeds Google Play if growth > 4%

If we assume that iOS App Store grew 10% from 1Q to 2Q and combine the App Store / Google Play ratios, we can derive the following table;

スクリーンショット 2014 07 17 20 48 26

Here we see that Google Play would grow 13% while iOS App Store would only grow 10%. However, since iOS App Store is much bigger, iOS App Store actually grows more in absolute terms compared to Google Play (18.5 vs. 13.1). This means that iOS App Store is widening its lead.

The above table assumes 10% growth for iOS App Store, but we don’t have any information to tell us if this is true or not. App Annie does not tell us what the growth was. Therefore, we tested various scenarios for iOS App Store growth, resulting in the following graph.

スクリーンショット 2014 07 17 20 45 57

Here we see that for any iOS App Store growth above 4%, iOS App Store growth in absolute terms will be larger than Google Play absolute growth.

App Annie previously provided us a chart for iOS App Store and Google Play game growth. Since the game category constitutes 75% of total iOS App Store revenue, this chart should give us an idea of what the growth of the total iOS App Store revenue should be like. From this graph, it is reasonable to estimate 10-20% quarterly growth for 2Q14.

Looking at our various scenarios, this indicates that iOS App Store absolute growth was 40-60% higher than Google Play. This means that the revenue gap between iOS App Store is widening quite rapidly.

Since the App Annie narrative for Google Play growth has consistently been that Google is catching up with the iOS App Store, it is understandable that App Annie is shying away from highlighting these numbers.

Free Wireless Data For Specific Apps

In many countries now, carriers are exempting certain apps from data charges. For example, even if you are on a pay-as-you-go data plan, the data that you use through the Facebook app on your phone will not count. You have unlimited access to Facebook free-of-charge.

Although I had been aware of specific cases, I had not know of a source with more comprehensive information. This data has now become available through Allot Communications (Summary on GigaOM).

Some things that I find interesting;

  1. This is now available even in the US. AT&T even has a program where the content providers themselves pay the consumers’ data bills.
  2. 49% of carriers worldwide surveyed by Allot Communications have this kind of data exemption plan.
  3. Of these, 65% exempt Facebook.
  4. This increases ARPU (average revenue per user) for carriers and also reduced the churn rate, making it very attractive for carriers.

Some of my thoughts;

  1. If you were an e-commerce retailer, you would probably want to have your app included in the data exemption list. You might even be willing to pay for consumer’s data if the online purchases made up for it. In fact, there might be many e-commerce retailers who want to do this.
  2. As a carrier, you could choose to partner with only one e-commerce retailer if these retailers were poorly differentiated anyway. By doing this, you might get very favorable terms. You could even pre-install that retailers app on the smartphones that you sell.

My thinking is that carriers could profit quite a lot from this scheme.

Simple Reason Why Google+ No Longer Requires Real Names

Google announced today that they will no longer require Google+ users to use their real names.

The rationale is simple. Google+, although originally designed to be a Facebook killer, never became a serious contender.

Moreover, Google itself knows exactly where you live, where you commute to, which websites you frequent, which videos you like, what search terms you use. It can probably guess quite accurately what your real name is and what your job position is through your connected Gmail account. Google doesn’t need you to add a real name to your Google+ account. They already know, and much more.

Microsoft Now Officially Weeding Out Chromebooks with Price Assault

I’ve been writing quite a lot on this blog about Chromebooks. This is because it is a case study into what qualifies for a disruptive innovation and what does not. This story also tells us that corporate history is one yardstick we can use to determine whether or not the incumbent will address the threat of disruption head-on, or whether they will flee up-market.

My position which dates back to January 2013, is that Chromebooks will follow the fate of Netbooks. In fact, since the sales of Chromebooks are significantly lower than peak Netbooks, it will likely end as a dud that only the tech industry showed any interest about.

The thinking was very simple, and all I did was say that;

This time, if Microsoft decides to fight back, they would start providing Windows 8 cheaply to low-spec models like the Acer. They would also add free SkyDrive capacity. It is also likely that they would include free Office 365 to compete with Google Docs.

Microsoft has now officially started to do this.

Microsoft COO, Kevin Turner is cited as saying;

“We are going to participate at the low-end. We’ve got a great value proposition against Chromebooks, we are not ceding the market to anyone.”


Microsoft is not invincible and there is no guarantee that fighting Chromebooks head-on will be net positive for Microsoft. It is possible that the low-end Windows devices will cannibalize Windows revenue without generating new revenue from Office 365, etc. What we do know however is that Microsoft’s corporate culture has repeatedly addressed low-end disruption head-on. It will undercut low-end disruptors if they ever gain a foothold.

This is simply a case of Microsoft doing what it has always done once again.

The Stupidity of Bashing the Failing

A recent article in The Economist was so stupid that I couldn’t resist writing about it.

Japanese electronics firms, Eclipsed by Apple

These kind of stupid articles are nothing new. As one would expect, the self-critical Japanese have been writing them years ago. I’ve criticized the logic that these articles use in this blog (1, 2 ).

It’s similarly easy to find the flaws in the logic that The Economist used;

  1. In the article, the author assumes that Japan’s culture of lifetime employment and the associated labor rules are at least partially to blame for Japan’s problems. In fact, this is the only hard reason that is cited. If this was true, then we should see a correlation between a countries willingness to fire workers, and the ability of that country’s corporations to bounce back from hard times. As a prime example of a country that doesn’t think twice about firing workers, we can use the US. Also, as another example of a country where firing workers is difficult, we could use Germany. Although we don’t have nearly enough data to make a statistical argument, I sense that we would have a hard time validating this correlation.
  2. Another problem with blaming it on Japanese corporate culture is that if you look back in history, back into the booming years (which was not always smooth riding, but instead had its fair share of bumps), the aforementioned culture was even more intense. In fact, Japan’s lifetime employment was once envied by at least some US authors. Unless you can explain how Japan’s lifetime employment actually seemed advantageous during the two oil-shocks, you aren’t really in a position to blame the current problems on it. Below I refer to a random article that I found on the web, but I recall that these discussions were abundant in 1970-80.
    > Coming at the peak of Japan’s industrial ascendancy, Abegglen produced his insider’s guide to competing against the Japanese challenge, Kaisha: The Japanese Corporation (Abegglen and Stalk, 1985). He repeated the argument that comparative advantages lay in the Japanese firm’s high levels of social integration around lifetime employment.

It’s easy to present theories why Japan maybe faltering. It’s actually just as easy to give a reason why Japan was booming in the 1970-80s. Being able to present a reason for either does not mean that you have a good theory, or that you have any real intelligence. It just means that you can look at two things that may or may not have any meaningful association, and conjure up some logic to say that one caused the other. It means that you have a bit of imagination. Even more embarrassingly, it shows that you’re not thinking with your head, but you are simply following the crowd.

To give a concrete theory that can be consistently used for a least a few decades (and will not look ridiculous after twenty years), it has to be applicable to a span of at least half a century. For a theory on Japan, it has to explain both the boom years and the current stagnation. It has to be a theory that can cause both the good and the bad, depending on circumstances.

For example, what you really want is a theory that can explain why the US consumer electronics industry, which invented the TV for example, is now very weak. Much, much weaker than the state that Japan finds itself in. Or you could try to explain why the company that invented the cell phone (Motorola) has been sold off to a China firm. Or you could try to explain what happened to PC makers in the US. Or you could try to explain what happened to the U.K. automobile industry. If you can come up with such a theory, then and only then will you be able to give some good advice to Japan. Then and only then will be able to predict what will happen to Samsung and the Chinese in the next 50 years.

It’s a bit like trying to understand why a split-fingered fast ball has a different trajectory from a fast ball. If you were only looking immediately after the pitcher released the ball, you would think that a split-fingered fast ball files straight. On the other hand, if you were only looking near the home plate, you would think that a split flies down. Neither it the truth on its own. To understand a single pitch that can change its trajectory so dramatically, you have to take a hard look at how the ball is spinning and how that interacts with the atmosphere. Instead of simply looking at the trajectory, it’s about time that business analysts started looking at spin and aerodynamics.

That is not what the article on The Economist was. It was just a bit of imagination.

Samsung Earnings 2Q14

Samsung’s earnings are in, and they were not very good (Bloomberg: note the original title in the URL slug. The title and tone of this article were revised from the pessimism in the original publication to a much more optimistic tone, which shows how worthless financial reporting has become).

Given these poor results, the blogosphere is awash with analysts telling us that they saw this coming. This is hardly something to brag about because it was so plainly obvious.

It’s also very easy to blame this on what Samsung does not possess; that is software and services. This is equally trivial to do. Giving a sound explanation of why Samsung is now in trouble, does not suggest that you have a clue about what is happening. Anybody can do that. It’s like saying the reason the New York Yankees are pretty weak right now is because their batters aren’t hitting the ball well.

To suggest that you really understand what is going on, you need to provide a coherent explanation of why Samsung was very strong a few years ago, and why it is now starting to fail. This explanation must consider that Samsung itself is mostly doing exactly the same things that there were before. Hence this explanation should not focus on factors that are internal to Samsung, but are external.

Hence the following explanations fail to suggest that the analyst who made them has a clue;

  1. Marketing as a reason for Samsung’s success: Strong marketing is no doubt a reason for Samsung’s ascent to dominance. However Samsung has not relaxed its marketing focus. Unless we have a good explanation of why Samsung’s marketing is no longer effective (external factors), it doesn’t explain the situation.
  2. Software & Services: Samsung is weak in software and services, but it has always been like this. In fact, Samsung knows this and has invested heavily into making itself better in software & services. The lack of strength in software & services does not explain Samsung’s problems because Samsung rose to dominance without them in the first place. Instead, we need an explanation of why software & services matter more than they used to or why Samsung’s efforts have become meaningless.
  3. Cheap Chinese vendors: There have always been cheap Chinese vendors. Hence their presence itself does not explain anything. What has changed is that the Chinese vendors are now capable of creating products that rival Samsung’s in both quality and price at the lower-end of the market. What we need to understand is why the Chinese can now do this whereas they couldn’t do so before.

Clayton Christensen’s theories explain all of these. That’s why I lean on them.

In this context, what is interesting in Samsung’s report is actually the following;

Profit at Samsung’s chip unit, which supplies its own devices and also rivals such as Apple, nearly doubled to 2.1 trillion won on sales of 9.5 trillion won, according to the Bloomberg News analyst survey.

According the “the law of conservation of attractive profits”, as smartphone production becomes more modular allowing new entrants into the market, the attractive profits will shift to somewhere else in the value chain. Although not certain at this point, it is likely that component suppliers will be one of the stages where the attractive profits will accumulate. If so, Samsung’s chip unit may profit (although there is intense competition here as well).

It will be interesting to see how the component industry (Samsung’s chip business, MediaTek, etc.) does in the next few years.

Android L Screenshots

Uzair Ghani has put up screenshots comparing Android “L” preview to Android KitKat and iOS 8 beta.

A few notes;

  1. Android L is definitely not yet finished. Even the calendar app uses the old Holo theme. Compared to where iOS 7 was when it was announced at WWDC, there still seems to be a lot to do. Maybe Google is planning to gradually update the Google Play apps; they may not yet be updated at the Android L release.
  2. Android L does not seem to use the “frosted-glass” effect that iOS 7 has had (and iOS 8 also). On the iPhone 4, iOS does not use “frosted-glass” either. Maybe the GPUs are not yet powerful enough on most Android phones. This is a bit interesting because a lot of the UI effects on Android L look like they would depend on a good GPU.
  3. The settings screen is no longer white letters on dark background. This is an important improvement in my opinion, as it sheds the final traces of Android’s geek-oriented history. It makes the setting panel much more approachable.
  4. I’ve always been concerned about the general disregard for consistency in Android user interfaces, even in the Apps that Google itself designs. Unfortunately, we can already see this in the few screenshots. Specifically, in the L phone app, we see the action overflow menu on the upper left. It should be on the right. The action overflow has always been abused in Android, starting life as a hardware key. It has always been a UI control with low discoverability. It would be sad if it is still not getting the respect it deserves.

Android OEMs and The Law Of Conservation Of Attractive Profits

A couple of days ago, I wrote a comment on an article on the Tech.pinions website.

The article (by Jan Dawson) was discussing how Samsung came to dominate the Android OEM market, but how it is now struggling with competition on the low-end and is also having difficulty in differentiating itself.

The comment that I wrote;

It’s very interesting that you call Samsung “exceptional”. This is because, at least in my interpretation, the trajectory of Samsung’s accent and decline is precisely what Clayton Christensen’s theories would predict.

I’ve been thinking more about what I wrote, and I think that this is such an important issue that I should put it up as a blog post. Here, I will copy my original comment and add a bit more to it.

The rise and fall of Samsung as a smartphone OEM

Jan Dawson lists the keys to Samsung’s success as the following;

  1. “On the marketing side, Samsung has vastly outspent all other Android smartphone manufacturers and become the default option for people in mature markets looking to buy a mid to high end smartphone.”
  2. “Its vertical integration has allowed it to compete very efficiently and effectively with screen and other component technology.”

Jan Dawson also outlines Samsung’s current problems;

  • Overall smartphone growth is slowing, putting pressure on Samsung’s other device categories to provide stronger growth
  • Samsung’s dominant position in Android is being assailed at the low end and in the mid market by a variety of competitors, many of them from China
  • Google is reining in Android and looking to reassert its own position and services in the smartphone market, putting pressure on Samsung and others to tone down their customizations. New flavors of Android for wearables, the car and TVs will provide even less room for customization
  • People are at any rate apparently tiring of Samsung’s customizations of Android and starting to look more seriously at smartphones which provide a stock Android experience or at least something more like it
  • Samsung’s marketing spend is starting to experience the law of diminishing returns, where each dollar of spending no longer conveys the advantage it once did. It has effectively saturated the market and can no longer derive the advantages it once did from its far superior ad spend.

I completely agree with Jan Dawson’s assessment of why Samsung was successful, and Samsung’s current predicament.

The problem is, how did Samsung transition so quickly from “huge success” to “quite problematic”.

Jan Dawson doesn’t go into explaining the transition in depth. That is what my comment tries to do by applying Christensen’s theories.

How the environment changed from favorable to hostile for Samsung

Christensen’s theories are build on the premise that continued innovation (sustaining innovation) will ultimately open-up the possibility of low-end disruption, and that it can be very difficult for some companies in some markets to counter-attack the disruptor.

Hence to understand what happened to Samsung, we should analyze how technical advances changed the competitive landscape, and allowed low-end disruptors to enter the market. That is what I tried to do in the comment;

  1. When the product is not good enough, the attractive profits flow to the integrator. This was the situation at the beginning. Samsung’s ability to integrate the hardware stack and to also put a UI (that was attractive in the sense that it more closely imitated iPhone) on top was the reason they had the best Android product.
  2. As technology improved, customized integration became less necessary. This caused modularity in the hardware stack. SoC vendors like MediaTek are prime examples of the hardware becoming more modular. Also, as Android got its act together and became less ugly, Samsung’s ability to put their UI on top became less important and even downright annoying. Hence the software vendor (Google) increased its power. In fact, integration within the software stack increased. In total, the Android value chain became modularized and Samsung’s strength as an integrator waned.
  3. Samsung tried to buck this trend by creating products that we much better than those assembled from modular parts (which is the same as Apple’s strategy). Hence they designed their own CPU and added features to their software. Unfortunately, both were unsuccessful. Neither created value that appealed to their customers.

The first item explains why Samsung rose to dominance. Samsung is very vertically integrated in hardware. It has top-level semiconductor technology, display technology, wireless technology, etc. Importantly, because Apple had to rely on Samsung for key components, Samsung learned of Apple’s iPhone plans many months before their competitors. None of their competitors had a similar advantage. This allowed Samsung to rapidly produce the best Android smartphone hardware

One thing I want to add that is rarely mentioned is that Samsung’s TouchWiz UI was well received during these early years. Before Android 4.0, the Android UI was pretty bad (Android 4.0 was a huge overhaul of the UI). Samsung’s TouchWiz imitated the iPhone UI much more closely than stock Android, and this was no doubt one of the reasons why Samsung was so successful. Hence in this context, Samsung’s ability to create a good UI skin was also a key factor in its success. As far as I can tell, yearning for a stock Andorid experience is post Android 4.0. Until then, stock Android was not “good enough”.

Going on to the second item, we start to see how technical progress changed the environment. Christensen has described how markets eventually favor modularity over integration after the products become “good enough”. As component technologies improve, it becomes less important to fine-tune the components to obtain the necessary performance. Customers are now satisfied by products that are simply assembled from “off-the-shelf” components (from SoC vendors like MediaTek for example). In many cases, even the assembly is outsourced to China. Because fine-tuning is less important, this allows low-end entrants without extensive hardware expertise to enter the market. Because the low-end entrants do not need much hardware expertise, their business models are often very different from Samsung’s. For example, Lenovo is a low-cost assembler of hardware, an operation that doesn’t require much R&D spending. Cherry Mobile, a fast growing smartphone brand in the Philippines is actually a carrier, not a hardware maker. Xiaomi, a fast growing fabless smartphone maker in China that sells mid-range phones with razor-thin margins, earns profit not through hardware sales but through service sales and reduced costs on marketing.

It is also important to note that many of the new entrants mainly have strengths in their local markets. Cherry Mobile (Philippines), Xiaomi (China), Lenovo (China), Micromax (India), Wiko (France), BQ (Spain) are some of the examples. Being local companies, they have some marketing advantages over Samsung and can better tailor their products to local preferences.

To reiterate, technical progress has allowed low-end entrants with a very different low-cost business model, to enter the smartphone market. Samsung’s integration and expertise in hardware is no longer a competitive advantage. In fact, it could even become a liability because it could make it difficult for Samsung to directly address these low-end entrants.

Technical progress has changed the initially favorable environment for Samsung into a hostile one.

Google’s increased power over OEMs

This is explained by “the law of conservation of attractive profits”, which I have described in a separate post.

It also explains why Google now has the power to reign-in Android. The negotiation power of the integrators has declined and has shifted to the OS and service vendor. Google did not have this power until the hardware stack became modular.

The law of conservation of attractive profits allows Google to have stronger influence over Samsung. However, as I described in the previous post, I tend to think that this is temporary and that the attractive profits will transition back to the OEMs who have alternative business models.

Looking into the future

One of the more interesting features of the recently announced Android “L” is the new ART runtime. This looks like it will significantly improve Android performance on low-end hardware. This will accelerate the shift in power away from Samsung and towards the low-end entrants. Combine this with the Android One reference platform, and we will likely see almost all value in low-end Android hardware sucked out. Samsung will have a very hard time competing in this market, and since their competitors are now asymmetric, it’s very hard to see how they can launch a strong counter attack. However, since most of the entrants are local, the spread of low-end entrants might be a gradual process.

On the high end, especially in markets where the cost of the smartphone is subsidized by the carrier, Samsung will continue to be the dominant Android OEM. Other Android OEMs simply cannot match Samsung in marketing and product features. Whether that is enough given the strength of iPhone is yet to be seen.

Importantly, Google’s strategy is providing absolutely zero incentive and zero profits for OEMs to innovate in hardware. With this market structure, it’s difficult to see how the low-end entrants could evolve to the point where they can overtake Samsung in the high-end, even Xiaomi or Lenovo. I don’t see this ever happening in the foreseeable future.

Actually, this could make Apple more dominant in the high-end, and Google probably won’t even care.

Mobile Money

Leo Mirani recently reported on how mobile money transactions are becoming popular in emerging markets. It’s an old story, but it is increasingly relevant as Google falters with Google Wallet and Apple is rumored to enter payments using Touch ID fingerprint scanning.

I’ll just list a few of my observations and thoughts.

  1. The technology for mobile money in emerging countries is very low tech. In fact, it is based on simple text messages.
  2. The US in particular is very slow to adopt mobile money, instead relying on credit cards (and sometimes paper checks).
  3. Although not as spectacular as countries like Kenya and Tanzania, Japan also has quite popular payment systems that are reliant on mobile.
  4. What we are witnessing is a general phenomenon. Countries acquire habits as they grow their economy and these habits persist as they mature. The technical and cultural environment during the growth period strongly affects these habits, and they can be difficult to change later even after environments change.

Africa is growing its economy in an age where almost everybody has a mobile phone. That’s why mobile payments are popular. On the other hand, the US credit card system emerged when magnetic cards were still high-tech (remember the days when we passed credit cards through a carbon copy roller?). Although almost everybody in the US now has a mobile phone, it’s difficult for the US to change its habits despite the benefits that it would bring.

Japan, happily enough, is one of few countries where you could carry large amounts of cash without worrying about being mugged. Because carrying cash was not a concern, credit card adoption was slow and was incomplete. Hence it was possible for mobile payments to thrive in certain niches.

It’s really simple to understand how each country is the way it is. However, it’s very difficult to change.

What this means is that each country has very different requirements for mobile payments. A one-size-fits-all approach is destined to fail. Working with local partners and customizing for the local situation is essential.

Returning to the question of how Google and Apple should approach mobile payments, it’s very clear that trying to be the payment system will only work for a certain market segment. It is more important to empower the system that each country already has through APIs or maybe something like HealthKit. Helping others to succeed on your platform and benefiting indirectly should be the way to go.