The most closely watched technology is called “near field communications,” and it's a cousin to RFID technology. NFC chips embedded in mobile devices—and they will be coming to a mobile phone near you soon—make conducting a variety of e-commerce transactions, from making payments to mobile ticketing, as easy as waving a phone through the air.
Howard Wilcox, a Juniper Research analyst, has researched the potential of the NFC market. “It enables the phone to become a mobile wallet,” he said. “[But in the end], the phone will become much more than a wallet. It will contain coupons, loyalty cards and enable you to download information on products [on the shelf] to smartphones.”
Google is one player that has been trying to jump-start the NFC market. The search giant embedded radio chips in its Google Nexus S device. It also plans NFC support in future versions of its Android platform and is expected to begin NFC trials in New York and San Francisco soon.
Google CEO Eric Schmidt talked about the potential of the technology at a recent trade show, describing the power to “combine an ad and an offer, presumably at the point of sale.” In this formulation, there appears to be an opportunity for mobile devices to become conduits for point-of-purchase advertising messages.
While Google plays a cheerleader role for NFC technology, Apple has played it coy. The company has hinted that NFC may find its way into its upcoming iPhone 5. More recently, the company cut a deal with mobile payment startup Square Inc., which sells a device that plugs into a smartphone and accepts credit card payments. It could represent an NFC alternative.
Decisions by Apple and Google on NFC will help decide the fate of this new technology. Meanwhile, Amazon, Microsoft, Nokia, Sprint and others are rumored to be eyeing NFC payments as well.
Even in these early stages, some companies are beginning to experiment with the technology. In late April, Rovio Mobile, maker of the popular mobile game Angry Birds, announced an upcoming version that will let users click their NFC-enabled phones together to open up new game levels.
Mobile financial services vendor Tyfone delivered one of the industry's first NFC banking solutions. The company aims to sell the product to banks and other financial services companies as a turnkey mobile payments solution. And in France, a startup called Think & Go is experimenting with NFC-enabled shopping applications.
While b-to-b applications have yet to emerge, business users are already heavily dependent on their smartphones. It is not difficult to imagine b-to-b marketers using NFC to enable instant payments on trade show floors or for “bumping” information between users in meetings.
There's a lot at stake with mobile payments. Juniper Research estimates the mobile payment market will reach about $630 billion worldwide by 2014. Wilcox predicts 20% of mobile phones will be NFC-enabled in the next three years.
The next question turns to the other side of the transaction equation. Will merchants and businesses—perhaps enabled by payment players like Verifone or Mastercard—have platforms capable of accepting NFC payments in that same time frame?
Another roadblock may have emerged as mobile marketing and payments speed down the road to reality. Concerns about privacy practices by mobile players such as Apple and Google could send mobile marketing and payments on a detour.
A Senate subcommittee focused on technology privacy issues has called the two companies to Washington, D.C., to testify at a May 10 hearing to discuss mobile privacy concerns. Meanwhile, a similar House committee sent out letters to companies involved in this area, requesting additional information.
The issue flared up following news that Apple and Google track and store a user's location and other personal data on mobile devices. It's hardly surprising they would do so: Such information represents the lifeblood of the emerging mobile and local advertising industry, which is attempting, for instance, to serve targeted ads based precisely on a user's street location.
But the discovery that the companies were storing that information unencrypted on phones, and without clearly letting users know they were doing it, raised concerns.