Boku Expanding From Mobile Payments For Virtual Goods To Real World Transactions

Boku, a startup that makes mobile payments for virtual goods easier, is moving into the real world.  That is, Boku has its sights on online transactions for concrete goods.

The markets for both mobile payments and virtual goods are huge.  Mobile payments will reach $633 billion by 2014.  In 2010, the U.S. market for virtual goods will be nearly $1.6 billion.

Considering that the virtual payment space will continue to grow, why is Boku expanding from payments to virtual goods to real world goods?  Zong and gWallet continue to go strong in facilitating payments for virtual goods.  Zong specializes in mobile payments for virtual goods and social networks, while gWallet focuses on promoting its own virtual currency platform for social media.

Boku sees an opportunity to capitalize on declining processing fees for mobile transactions.  While transaction fees for mobile payments have traditionally been around 30 to 40%, those rates are coming down to 10%.  At this lower rate mobile payments for tangible goods become more economically viable for payments providers.

Zong, one of Boku's competitors, also believes that lower transaction fees will spur more mobile payments.  Hill Ferguson, vice president of product and marketing at Zong, explains the importance of lower carrier fees for mobile payments:

We expect mobile carriers in the United States to begin lowering their fees, which will certainly increase demand for bill-to-carrier payments online.  Payments is a scale game, so we expect some industry consolidation as players without scale get acquired or go out of business.

Discussion

As more companies move into the mobile payments space, competition may lead to consolidation, though not in the near future.  Since consolidation will not happen immediately, this raises interesting questions about strategy and competition in mobile payments:

1. How big is big enough to obtain the benefits of scale?
2. Will there be a race to become the biggest, not just big?
3. How effectively can mergers or acquisitions provide scale benefits in the face of different business models and technologies?
4. Will scale have a greater effect on competitive outcomes than factors such as customer user interface design, security, and specialization?

For now, it is not clear that scale is the only, or most relevant, determinant of success.  Mobile payments companies should consider how they can prosper without being the biggest.

Douglas Y. Park

Twitter: @DougYPark

If you enjoyed this post, please subscribe to the blog by RSS feed or email.  You can find the subscription option on the sidebar to the immediate right.  Also, click the Facebook Like button below and Like the DYP Advisors Facebook page using the option on the far right sidebar.