Will Apple Pay Be the Last Straw for Windows Phone?

The launch today of the new Apple Pay service for users of the newest iPhone and iPad -- and ultimately the Apple Watch -- is a stark reminder that Microsoft has remained largely quiet about its plans to pursue this market when it comes to Windows Phone or through any other channels.

If smartphone-based payments or the ability to pay for goods with other peripherals such as watches does take off in the coming year, it could be the latest reason consumers shun Windows Phone, which despite a growing number of apps, still is way behind the two market leaders.

So if payments become the new killer app for smartphones, is it too late for Microsoft to add it to Windows Phone? The bigger question should be is it too late for Microsoft as a company? Perhaps the simplest way to jump in would be to buy PayPal, the company eBay last month said it will spin off. The problem there is eBay has an estimated market valuation of $65 billion -- too steep even for Microsoft.

If Microsoft still wants to get into e-payment -- which, in addition to boosting Windows Phone, could benefit Microsoft in other ways including its Xbox, Dynamics and Skype businesses, among others -- the company could buy an emerging e-payment company such as Square, which is said to be valued at a still-steep (but more comfortable) $6 billion.

Just as Microsoft's Bill Gates had visions of bringing Windows to smartphones nearly two decades ago, he also foresaw an e-payments market similar to the one now emerging. Gates was reminded of the fact that he described possible e-payment tech in his book, "The Road Ahead," by Bloomberg Television's Erik Schatzker in an interview released Oct. 2.

"Apple Pay is a great example of how a cellphone that identifies its user in a pretty strong way lets you make a transaction that should be very, very inexpensive," Gates said. "The fact that in any application I can buy something, that's fantastic. The fact I don't need a physical card any more -- I just do that transaction and you're going to be quite sure about who it is on the other end -- that is a real contribution. And all the platforms, whether it's Apple's or Google's or Microsoft, you'll see this payment capability get built in. That's built on industry standard protocols, NFC and these companies have all participated in getting those going. Apple will help make sure it gets critical mass for all the devices."

Given his onetime desire to lead Microsoft in offering digital wallet and payment technology, Schatzker asked Gates why Microsoft hasn't entered this market already? "Microsoft has a lot of banks using their technology to do this type of thing," Gates said. "In the mobile devices, the idea that a payment capability and storing the card in a nice secret way, that's going to be there on all the different platforms. Microsoft had a really good vision in this." Gates then subtly reminded Schatzker the point of their interview was to talk about the work of the Bill and Melinda Gates Foundation.

But before shifting back to that topic, Schatzker worked in another couple of questions, notably should Microsoft be a player the way that Apple is looking to become (and Google has) with its digital wallet? "Certainly Microsoft should do as well or better but of all the things that Microsoft needs to do in terms of making people more productive in their work, helping them communicate in new ways, it's a long list of opportunities," he said. "Microsoft has to innovate and taking Office and making it dramatically better would be really high on the list. That's the kind of thing I'm trying to help make sure they move fast on."

For those wishful that Microsoft does have plans in this emerging segment, there's hope. Iain Kennedy last month left Amazon.com where he managed the company's local commerce team to take on the new role of senior director of product management for Microsoft's new commerce platform strategy, according to his LinkedIn profile. Before joining Amazon, Kennedy spent four years at American Express.

Together with Gates' remarks, it's safe to presume that Microsoft isn't ignoring the future of digital payments and e-commerce. One sign is that Microsoft is getting ready to launch a smartwatch within the next few weeks that is focused on fitness. While that doesn't address e-payments, it's certainly a reasonable way to get into the game. According to a Forbes report today, it will be a multiple operating system watch.

It's unclear what role Windows Phone will play in bringing a payments service to market but it's looking less like it will have a starring role. As a "productivity and platforms" company, despite Gates' shifting the conversation to Office, it may not portend that Microsoft has  plans for the e-payments market. If the company moves soon, it may not be too late.

Posted by Jeffrey Schwartz on 10/20/2014 at 1:49 PM