Almost 6 weeks ago, LTP was the first to report that Softcard was on it’s deathbed. We provided another update a week later, and then moved on to other more alive topics in the industry.
Google has now completed the last rites by announcing that it’s buying some Softcard assets and has distribution deals with the carriers for Google Wallet (- it had to be 3 separate deals to avoid antitrust scrutiny).
This development calls for a quick eulogy, especially because there is a lot of pent up disappointment in the industry that people have been sharing with me all day, so attempting to verbalize a collective view here. We don’t speak ill of the dead, so this rather long (yet in summary form) perspective will also attempt to remind you of the positive contributions made by Softcard/Isis to the ecosystem.
Firstly, what does this mean for the parties involved? As we had shared earlier in detail, that is a mixed bag:
- This is a late yet slightly positive win for Google. It gets to preload Google Wallet on all Android devices, at least on those of these 3 investor-carriers, but the others will likely follow. We don’t know exactly how much Google paid, but let’s assume it was tens of millions of dollars and some rev-share. Worth it? Only if they make a few more back! (Note that it won’t cause even a nano-blip in the share price for GOOG one way or another.)
- For the mobile operators who invested in the Softcard venture, this was yet another expensive failed experiment. It probably makes no material difference to the companies whatsoever, even after spending hundreds of millions of dollars - I don’t remember the executives of any of the companies having to answer a single question regarding Isis/Softcard from Wall street in any analyst call since this joint venture was announced. Again, do not expect even a femto-blip in the share price of any of the operators. It actually worked out pretty well for them, because if the investments were larger than the size required to report on 10-Q’s and 10-K’s, there would have been some very uncomfortable questions given the opportunity cost and lack of accountability.
- For Softcard, this is face saving closure for whatever and whoever was left in there. After having lost credibility a long time ago, this provides them one last opportunity to walk out the door gracefully without causing any more damage to the ecosystem around them. It’s easy to blame the politics and the bureaucracies of the large companies who funded Isis/Softcard, but the management in the JV had mastered the art of pointing the finger at the very entities who kept them afloat, to hide their own disingenuous approach and lack of understanding. In fact, Google probably paid a few million less than they would have been willing to pay just to include these words in their official blog announcement - “We’re also acquiring some exciting technology and intellectual property from Softcard to make Google Wallet better.”
- As far as the actual people involved, it really depends on who you talk to. A large number of consultants and so-called experts benefitted from the lack of payments expertise in the operator world to pull off this grand experiment. In the carrier teams, people’s career gyrations were amplified, positively or negatively, because of the frustrations in dealing with the ‘errant child’ that Softcard turned out to become. We sympathize with them as well as with the rank-and-file employees of Softcard because many of them had joined this shiny new ‘startup’, only to be let down by their management. This deal does not seem to be an outright acquisition by Google, perhaps because they did not value the talent as they usually do at $1m per engineer, so the fate of many Softcard employees is not going to be secure.
- And let’s not forget the consumer! Well, nobody knew of Softcard until Apple Pay came to the fore. Even the millions of free Jamba Juices and thousands of PR “wins” could not attract anyone to even care. Google Wallet had raised some hopes early on in this regard, but hopefully, Apple Pay gets the average consumer psyched up about mobile payments soon. Looks like Google will now try an encore later in the year. In fact, even though this particular deal makes no difference to the American consumer, Softcard definitely hurt consumers during its existence by blocking the NFC Secure Element and depriving them of mobile commerce innovations that would have otherwise been possible.
The mobile payments or specifically the NFC ecosystem, broadly speaking, is not exactly a party to the deal, except that this is the end of a long sad chapter for many companies involved. Tens, if not hundreds of companies, big and small, were involved in keeping Isis/Softcard relevant, most of them without having seen any return on their contributions to the experiment. The smarter ones raised money from opportunist investors and exited before the lack of value from their “big mobile contract” became apparent. Most of them simply withered away. The largest ones used their learning to make Apple Pay successful, and Apple reciprocated by working with them (as opposed to snubbing them), albeit on its own economic terms.
In some sense, we might not have seen Apple Pay today if Steve Jobs had not shooed away the Isis+investors leadership from his office after he was pitched the concept in the early days. In fact, that was exactly the right time for Softcard to get into bed with Google, who was was willing and able to cut a deal, but that was not meant to be. Even NFC pioneers like RIM and Nokia were given the cold shoulder, let alone the Isis 1.0 bank partners, viz. Barclaycard and Discover Card, who invested significant amounts of goodwill and resources into creating the “5th payment network” when it was first announced in 2010. Of course, Durbin was the real culprit in Softcard’s failure (sarcasm intended!)
Seriously, what led to Softcard's failure? The comprehensive list could be much longer, but in the interest of brevity, here's my consolidation of the Top 3:
- Lack of Self-Awareness - The Isis organization was initially populated with carrier personnel, who are not typically technology or product people. They have a service provider DNA, which is very different from what's required to build and rev a successful tech product, let alone a new complex product in an ecosystem where other stakeholders hold the keys to the enabling platforms (such as chip makers, OS providers, etc.). That DNA was eventually spiced up with a little payments DNA, but never replaced with true technology talent, even from the payments industry. For a long time, there was hardly any real engineering or development within the organization - almost all of it was with borrowed partner/vendor resources. How could such an organization ever produce a new cutting-edge technology product?
- Incredulous Business Model - The Isis board was sold on a business case that was consistently questioned at the highest levels (paraphrasing comments from some very senior executives who were involved): "Are you in kindergarten using play money?" "Are you a magician? Your business case is looking better after this new law has broken the very foundation of the thesis." The pitch might never have survived a SharkTank session. In fact, Sprint did say "I am out!" and left the coalition mid-way through the negotiations. Even on paper, the business case was hard to justify, except for the purpose of ensuring that it actually happened. Referring to some folks who were straddling between the investor and JV camps for a long time, one executive said, "The conflict of interest is palpable!".
- Languishing in the limbo-land between 'Completely Open' and 'Excellent UX' - You have to pick a philosophy and execute to it with integrity. Nobody faults Apple for not opening up the secure element because what they offer in Apple Pay works excellently even if it is completely closed. Nobody faults Google for the imperfections of Android because they believe in an open approach to the OS, and have allowed the ecosystem to thrive around them. Isis wanted to control the secure element and the branding and the device requirements, but had based the business case on everyone else in the ecosystem blindly embracing this closed model that everyone else was expected to contribute to. No wonder, Isis never made any friends, except the consultants, PR companies and lawyers.
In any case, this is all now history, and despite the shortcomings, Google has gifted them an honorable exit. From the carriers' stand-point relative to Apple, as one industry insider pointed out, this is somewhat similar to how Google bailed Verizon out with Android after the AT&T numbers started going through the roof with the new iPhone (after Verizon had proudly taken a pass on it).
We would like to to end this eulogy with a roughly chronological sequence of positive happenings from the birth of (secret pre-Isis project codename)/Isis to the death of Softcard:
- Circa 2008 - The pre-Isis project in a secret code name, under careful antitrust counsel, was conceived by the 5 largest mobile operators at the time (also including Alltel, that was later purchased by Verizon, and Sprint) as a market-making strategic initiative to jump-start mobile payments in the US. “Let’s Talk Payments”, we all said in unison! We did not know much about it, but we had a clear vision: to define collectively and consistently what a contactless tap meant for a consumer. The best news: the seeds for LTP were sown unknowingly - a few of us from the mobile world taught ourselves payments and commerce - we continue to be fascinated with the possibilities, and here we are!
- Circa 2009 - The initial joint venture was formed with the goal of creating a mobile commerce network that would not only do payments, but also offers and coupons and many other wonderful things. Perhaps too much, including the idea of a new brand! The silver lining: deep pockets were to be committed to an industry-wide cause in the interest of consumer innovation!
- November 2010 - The JV is finally was place and Isis 1.0 was announced along with the network partner (Discover), card issuing partner (Barclaycard) and other early technology partners. This was also the year that the Durbin amendment was passed in Congress, and the business model for decoupled debit, which was a key product in the Isis business case, became moot overnight. The silver lining: the device supply chain was re-invigorated because NFC was finally a requirement from the largest mobile operators. This was perhaps the single most important contribution by Isis and investors to the ecosystem!
- Circa 2011 - Google Wallet was announced with much fanfare before Isis 2.0 was announced without much fanfare, but also without any clarity on exactly why it would even have a shot at success. The silver lining: despite the rough and tumble of bad joint ventures, the investor group stayed together and continued to “train” the rest of the ecosystem on what not to do!
- Circa 2012 - Isis 2.0 launched in pilot mode. Many amusing and incredulous PR stories later, there was still a question mark on the future of Isis, but there was a silver lining: Google Wallet was not doing much better than Isis, despite Google’s own impending 2.0 announcement!
- Circa 2013 - Google Wallet 2.0 was official and launched with pay-by-email and other shopping/commerce integrations. Isis 2.0 ambled along with more PR entertainment. Apple Pay was definitely, but very quietly, on it’s way - enough people knew what was going on to not have to say much in public (not that they could say anything without being severely hurt by Apple). The silver lining: NFC was on life support, but still alive underneath the covers!
- Circa 2014 - Google Wallet was in hibernation. Isis was in denial - it even renamed itself to Softcard to try and revive its relevance. HCE (hosted card emulation) and tokenization were the final nails in Softcard’s coffin, and it’s death was imminent. This was really a slow suicide, but they will never accept it. We all know the silver lining: the misadventures of a few and the hard work of many others resulted in the launch of Apple Pay!
So, here we are. Now, the professors at fine academic institutions can take over and create Softcard/Isis case studies for others to learn from and hopefully future wastage of industry resources and more importantly time will be avoided - Softcard single-handedly slowed down the NFC ecosystem with it’s over-ambitious arrogance that was not supported by capabilities.
Finally, we also want to take a moment to acknowledge the tireless contributions of the many many individuals and companies who invested time and energy into this ecosystem, especially the mobile operator led joint venture, and perhaps did not get anything in return.
We hope everyone’s now a little wiser as we enter the next chapter of true technology-led innovation in mobile payments.