Schmidt on Android and NFC: A dream come true

Yesterday, at the Web 2.0 Summit, Eric Schmidt started his “discussion” with Tim O’Reilly and John Battelle by Android and NFC. And what he said about the technology is like a dream for many NFC stakeholders, who have been waiting for signals from big players.

First, the upcoming Nexus S will support NFC. This is big, because one of Google’s objectives (the main one?) with Nexus phones is to provide a reference design for Android devices. And now, NFC is part of that reference design (and of Gingerbread, Android’s upcoming release).

Then, Eric Schmidt talked about NFC. He started by a tag reading demo; of course, it didn’t work, because the network was too slow (typical in such environments). He gave a little description, and then switched to contactless payments, even mentioning the use of a secure element. Now, that was nice: Google is not only thinking about reading tags.

Later in his speech, he mentioned how the combination of location-aware, tag reading and mobile payment could change the way commerce works, using terms that would have been largely appreciated at a NFC conference.

To please me even more, he even threw in a mention of voluntarily provided information, which is of course limited by the fact that Google is an unlikely VRM supporter. But yes, if the system is able to integrate that I am actually looking for a new pair of pants, it may provide me with very useful information.

Finally, Eric Schmidt went as far as mentioning security several times, and even saying that “the technology has to be secure,” which is nice to hear for many of my colleagues. And his reason is rather simple: there is money involved directly, so security is a must.

One of the best parts of his vision is to remind us that mobile is personal, secure, and an aggregating technology. So when we think about what we can do with NFC or whatever we add to that, we need to figure out what it brings to the big picture, and how the technology can best be used with all the other mobile technologies.

OK. Enough ramblings. Here is an approximative transcript of what he said about Android (a bit raw, so if you have 10 minutes to spare, take a look at the video):

Q: There has been a lot of talk about a new operating system aligned with a potential hardware device, coming from Google. We’d love to see it if that was possible.

ES: OK. How about instead a demonstration of some software.? So, I happen to have here an unannounced product that I carry around with me. That is an Android device, and we have taped over its origin.

You see, this is a placemark [showing a placemark panel, obviously with a tag in it]. The neat thing you could do with this new technology called NFC (which stands for Near Field Communication), and we think that Android should support that. It’s been around for a while, by the way.What you do is, these are chips that are embedded in things, eventually in clothes to prevent people from stealing. These chips are senders, and we are incorporating support for the reader-writer, so the way it works is you turn this thing on and you basically just tap like that, and it tells you, in the particular case, where you are.

What’s neat about the NFC chip is that the whole notion of location takes an entirely new meaning, because now I can just tap, I don’t have to take a picture, I don’t have to scan a barcode.

Q: So this is basically gonna be in presumably many of the new Android phones.

ES: It’s actually gonna be in the new operating system called Gingerbread that comes out in the next few weeks. So we think that the overall mobile market, which is already extraordinarily excited about these payment systems, will benefit from having those, because it is a secure element, and the secure element really is very hard to steal if you will.

Q: So, the secure element allow you basically to do payment.

ES: One way to think about this is that is that it will replace your credit card. The term of the industry is called tap and pay. The theory of the case is that you will be able to take these mobile devices from everybody, to walk into stores, do commerce, you’ll be able to figure out where you are, again, with your permission, all that kind of stuff.

Q: Effectively, bump for everything.

ES: Yes, bump for everything, and eventually, replace credit cards.

Q: It also turns the phone into a much more powerful form of identification.

ES: It’s an example of what I have talked about for a while, which is “mobile first”. I don’t think that people understood how much more powerful these mobile devices are going to be than the desktops. You think of the desktop machine as having all this power and tremendous network, beautiful screen, but because these things are so highly personal, and because they are location aware, …

Q: They also have network

ES: Yes, with LTE networks coming to the United States, first in the world, for a change, roughly in January-February around the country, it is a really really god day for mobile.

Q: With the theme of points of control, it strikes us that one of the points of control is having tons and tons of credit card numbers; Amazon has tons, Paypal has tons, Apple has a lot. Combined with this kind of technology, it strikes me that it could possibly change the game. Do you agree with that, and where does Google stand with that.

ES: Well, we see ourselves as a technology provider in this, we’re not trying to compete in those spaces, but ultimately this technology is personal, it’s secure, and it’s an aggregating technology. So it makes sense that you put everything in it and carry it around. It has to be secure, because it’s obviously going to be used as money repository.

Q: But still, if you are doing payment, somebody is doing the payment processing.

ES: There are industrial partners for all the initiatives in the industry, with very sophisticated payment processors, and regulations, and all

Q: You expect to be a partner there rather than …

ES: Absolutely.

Q: But you do have Google checkout.

ES: Remember, Google checkout is just a piece of this. Payment processors do something different. They actually deal with the merchants, moving the money around, you know with fraud and so forth. The reason why this NFC dhip is so interesting is because the credit card industry thinks that the loss rate is going to be much better, because they are fundamentally more secure. And ultimately, the money that brings us all to this wonderful venue comes out of commerce in one way or another; advertising in Google’s case. My guessis that there will be 500 new startups in the mobile payment space as these platforms emerge, with all these new and interesting things that we can do.

Q: What I’ve been fascinating by is the idea that this is gonna change is shorten the loop between the search and acquisition of a product. Right now, we see this in buying an app: you search for the app and then you buy it on the phone. But this really makes it possible in the real world. You can search for something, and …

ES: But, forget search. Well, I shouldn’t exactl say that, but that’s a joke. Imagine I am walking down the street, and instead of typing my search, my phone is giving me information all the time, and it happens to know that I need new pants or something. You can imagine all sorts of linkages between autonomous search, and location-based search, where you are, where your favorite stores are, what your preferences are, again if you opt in to these situations. Its likely to drive a very very large mobile commerce business and mobile e-commerce business. And the scale of commerce is 14 trillion dollars, which is the global GDP, so some large amount of money is to be gotten in these new platforms over time.

Q: And you can really how this could be a fabulous tie with groupon, because it tells you that there is a crowdsourced offer.

ES: Again, if you look at groupon as a very good example of a very very successful local merchant, they today use e-mail as their primary acquisition mechanism, but they have competitors which are using other techniques. What we know is that people like a deal.

Q: One last question on Android. What are you dissatisfied about with regard to the platform, and what do you think need to be fixed, if anything.

ES: You score Android against the historically leader in the space, which is the iPhone, and I do this as a proud former board member of the Apple world. There is a set of things that the iPhone really did a brilliant job of bringing out in a closed system. Brilliant design, the app store, the platform and so on. So most people judge Android by how we are doing relative to that. And it’s clear that from a reach, choice, and so forth, we are in great shape. The next real focus is at the applications layer. So I think that if I want to be critical, I would have liked to put more emphasis on the application side earlier. It’s hard, because remember, the application decisions are made based on developers, who do it based on volume. So you have to establish volume first, which is something that I think we have done with Android. And for all of these players at the third-party level, and again I know that we have a lot of developers here in the audience, it’s fundamentally about the math of the platform. So we understand platforms very well, we think that Android will be, if not the leading platform, a leading platform.

Q: That brings up a question that I have been thinking about. As there are more and more applications, it becomes a search problem to figure out which one to choose, and that’s one of your sweet spots. But you don’t have some of the same mechanisms for identifying the best apps. How are you thinking about search as a competitive advantage as the application space grows, where the Android Market is the Google of the app space?

ES: We don’t think of it as a competitive edge, we just try to do it better, and the competitive environment will win. As a comment, I think people are obsessed with the competitive landscape, where what they should really be focusing on is how much bigger the market is getting. And because it’s, including the leadership that you guys did with Web 2.0 so many years ago, this is a very large universe, that is getting much larger very quickly, bringing more and more people into it. So the competition is healthy, what’s really happening is you’re growing the market. So with respect to the applications and application search, there’s all sorts of interesting ways of doing that; Admob, for instance, is doing on the order of a billion ad impressions a day now, and that kind of information, in theory, is useful as part of a search problem, because ads have a real value, and we really believe that. There are many many ways in which the information people are using, usage patterns, can be used to provide better choices. But you’re correct that these markets tend to overcorrect; They have millions of apps, whatever, but then ultimately, the leaders emerge.

Q: One of the things that Steve and Apple did right is the about divorce from the carriers, the ability to pretty much say: I don’t want your stuff on my phone. Do you think that Android is ever going to be truly free of that …

ES: I certainly hope so, in the sense that the Android model is different from the Apple model, very distinctly on pretty much every point. It’s open system vs. Closed system, and closed systems have their advantages, and open systems have their advantages. Google made a bet on open systems. We are willong to let the vendors, the carriers, and so forth, set their pricing, set their distribution terms, and so forth. I think that ‘s the right model.

2 Comments

  • Like the idea of a “reader-writer” nfc phone.

    Could be like telling the pants : “do not make the bell ring at the exit, you’re sold & paid”

  • Yep. Some people may be disappointed or even worried to hear that tag writers will soon be everywhere. Like usual, when a new technology arrives, it can be used for something illegal, possibly making some security technologies obsolete.

    But in many cases, attacks do not seem to cause enough trouble to change anything. Printers can be used to print barcodes of cheap wines and put them on expensive bottles, but apparently, supermarkets still use barcodes and sell wine, and printers are not illegal.

    Time will tell how NFC phones will be used. These phones are also contactless card readers, and we can imagine a number of exotic uses for them.

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