So you want to buy an electric toothbrush. But where?
If you're like millions of people, you'll just head straight to Amazon.com and buy it there. Why? Because it's super easy.
Amazon is easy for three reasons. First, you know Amazon is going to have a good selection of electric toothbrushes. Second, you know they're going to ship it to you fast. And third, they’ve already got your current credit card and shipping address on file. You click a button and a box comes to your door.
If you go to ElectricToothbrushesRus.com, it’s not so easy. You'll have to enter in your whole credit card number, full name, expiration date and that three-digit number on the back. Then, you'll have to enter the different parts of your mailing address into a form.
So that’s why Amazon gets so much retail business. But that business will be under threat in the future when competitors make buying stuff on ElectricToothbrushesRus.com as easy as on Amazon.com. And that’s why Amazon wants to beat them to it.
Amazon's New Service Isn't Really New
Amazon this week launched a new service called Login and Pay with Amazon. The service enables people to use their Amazon username and password to log in to sites other than Amazon – say, ElectricToothbrushesRus.com -- then use the credit card they already have on file with Amazon to pay for things instead of using PayPal or a credit card.
Amazon charges up to 30 cents per transaction (depending on volume), plus 2.9 percent of the total. So if you buy something using Amazon's service that costs $100, the merchant will pay Amazon $3.20.
While the service is new in terms of it being a new web site and a new API for developers, in fact Amazon has enabled payments since 2011 and logins since the beginning of the year.
What Amazon.com really announced was a new program that unifies what Amazon already offered.
Amazon claims 215 million people have active Amazon accounts, meaning they have currently usable credit cards on file with the service. These customers will be able to buy things on sites that have "Pay with Amazon" buttons by simply entering their Amazon user ID and password.
Login and Pay with Amazon is an improvement over what Amazon used to offer for online payments precisely because it's unified. While some customers may enter a site expecting only to "window shop," the new program enables their log-in to enable very convenient purchase without additional hassle.
Consumers will love Login and Pay with Amazon. Online retailers? No so much.
Why Amazon Can't Win
From the consumer side, Amazon has a huge advantage. Online shoppers have awareness, confidence and knowledge about Amazon. However, Amazon has two major problems to overcome in the years ahead.
First, Amazon isn't the only tech company aggressively pursuing online logins combined with payments. All its competitors are powerful and innovative Silicon Valley companies: Apple, Google, Facebook, PayPal and dozens of scrappy startups.
Although PayPal is way ahead in online payments, Apple, Google and Facebook have much higher name and brand recognition. (And all three have log-in services which can be combined like Amazon's is with online payments.)
As these companies roll out their online payment systems, online stores will strongly prefer the Silicon Valley companies over Amazon. And the reason is simple: Amazon is a competitor.
If you're selling toothbrushes online, Amazon is probably your biggest threat. If they haven’t driven you out of business already, they’re working on it. Why would you partner with and help the company that is trying to kill your company?
It's telling that many of the sites the already use Amazon for payments are non-competitors. Sites like Kickstarter, for example. Normal online retailers have already rejected payments with Amazon and will continue to do so in the future.
The second reason is that ultimately Apple and Google will be able to better authenticate buyers than Amazon.
With Amazon's service, all a crook would need is your username and password in order to order physical goods (the shipping issue would require that they also know your three-digit security code).
But with Apple's upcoming online payment system, criminals would also need your finger, and your finger would have to be attached to your living body.
And if Amazon has an advantage with customers because of all those credit cards on file, Apple has an even bigger advantage. Apple CEO Tim Cook recently claimed that Apple has 575 million credit cards on file. While Apple is saying "credit cards" and Amazon talks about "active accounts," Apple does claim to have more than Amazon no matter how you define it.
Also: Apple's Passbook and iBeacons initiatives will drive the use of Apple for payments for services and physical goods, which will drive familiarity with and acceptance of Apple for online payments as well.
In addition to having better authentication and more credit cards, Apple has the advantage of not being a retail competitor to the online stores that will choose systems for payments.
Google is probably in a good position to become the number-two online retail payment system. The company already has a Sign-in with Google program, which is quickly becoming the leading way to log into sites of all kinds online.
As part of its Sign-in program, Google enables merchants to socially promote products on Google+. Buyers can click to buy directly from the posts. It's like the opposite of being a competitor to retailers, it gives them a viral way to promote their products combined with easy purchase.
Google also owns the world's most popular operating system. The Android OS is on more phones than any other, and this is a huge advantage for mobile payments -- and authentication, as Android OEMs benefit from Apple's creation of acceptance for fingerprint readers on mobile phones.
Google has been chipping away with mobile wallet and online payment programs for years. But Google's killer advantage is scale and integration. They get scale from the number of users they have both online (everybody's got a Google password) and on phones, plus they integrate Google passwords with Google Sign-in with Android with Google+ social product promotion.
The Other Silicon Valley Payment Competitors
Facebook, PayPal, Square and other Silicon Valley companies will also vie for the online payment space. But these are unlikely to succeed as well as Apple's and Google's programs.
Facebook has a trust problem, and for good reason: They're untrustworthy. (For example, they lie to users every day.)
PayPal struggles with making payments simple and appealing to the masses of consumers.
Square has a great thing going with its free card swiper gadgets at small, brick-and-mortar retails stores, but it's online payments program can't compete against the giants.
Ultimately, it's going to be Apple and Google that dominate the online payments business.
Amazon has the right model -- a clear system with APIs that combine login with payments. They have consumers' trust and confidence. And I predict that they’ll add fingerprint scanners to their future tablets and a future line of smartphones.
But they'll never overcome the fact that they compete directly against the very companies that will be choosing systems for login and payments.
Apple and Google, on the other hand, are more appealing partners for retailers. They both own the major platforms. They both have advantages in authentication and security. And Apple has more credit cards on file than anybody.
Sorry, Amazon. You can't win this one.
Photo courtesy of Shutterstock.