Will payment pluggers push Google to step in?

Efforts by payment services providers to provide alternatives to the cumbersome billing mechanism Android Market users face, may push Google to build its own payment platform, say analysts, but note the company will first need to weigh its options.

Users purchasing apps on the Android Market are currently limited to using Google Checkout or manually keying in one's credit card details.

Shaker Ibne Amin, industry analyst from Frost & Sullivan, told ZDNet Asia in an e-mail that "the hassle" of signing up for a Google Checkout account and logging in thereafter to make payment, may discourage many potential users from buying apps. This is particularly cumbersome when users have to do so on their handsets.

In contrast, Apple's App Store allows users to buy apps with a single click because their payment information are stored within their iTunes account.

A number of mobile payment startups have stepped up to fill the void for Android users. Zong and Boku, for instance, offer tools to allow in-app transactions made on the Android platform to be billed through the users' mobile carriers. Bokulast year launched a payment SDK (software development kit) that allows developers to monetize any Android app with in-app purchases via mobile carrier billing, with app charges included in the user's monthly phone bill.

More payment companies are likely to emerge to tap the lucrative market of in-app purchases, Amin said.

However, the analyst also noted that alternative payment offerings from third parties are likely to drive Google to build its own solution for in-app purchases.

Speculation has been rife that the Internet giant and mobile payment vendor, PayPal, are in talks to launch an integrated payment system for Android users.

If confirmed, this move would positively impact app sales on the platform, as well as make the payment experience much easier for app buyers and sellers alike, Amin said.

Sandy Shen, research director at Gartner, concurred, adding that that the current Android billing system can frustrate some users when they want to buy apps off the Market and result in them sticking to free apps.

But while Shen agreed that a Google-PayPal tie-up would be advantageous, she noted that Google generates revenue from advertisement, rather than paid apps. "Therefore, [its] focus remains on how to expand the ad business on smartphones and mobile apps," she said in an e-mail.

Boosting Android ecosystem
Amin, however, noted that Google's dominance in Internet search and its strong ad sales should not provide any less motivation for the company to focus on the app store business.

In fact, the Frost & Sullivan analyst explained that Android Market is a means for Google to diversify its business and achieve alternative sources of revenue required to stay relevant and continue growth. In addition, Android is gaining a strong foothold in the smartphone market, he said.

He reasoned that PayPal already offers its payment tools as apps that Android users can download for free. Furthermore, because PayPal is a widely-accepted payment platform, it will indubitably help increase Android Market's reach, he added.

He also pointed out that users would appreciate the convenience of not having to give out their credit card details to several outlets. According to Amin, the benefits are multi-fold: a smoother payment system would motivate more developers to create paid apps as well as attract more buyers, hence, boosting paid app sales across the Android ecosystem.

When asked about its rumored deal with PayPal, a Google spokesperson told ZDNet Asia in an e-mail: "We're always looking to improve Android Market, but we can't comment on rumors or speculation".

According to Shen, app developers are most affected by the app store's bumpy payment system because it impacts their ability to monetize their apps, with the exception of those that run their business on an ad-funded model.

Amin said the sales of paid apps would certainly incentivize app developers. However, this does not necessarily result in the emergence of free apps which are shoddy in quality free apps simply because developers feel they cannot make money out of such apps.

He noted that the sticking point of Android's payment system may have hindered sales of paid apps, but added that its characteristic of being an open source operating system "attracts the sort of developers who enjoy giving away their works".

According to Dutch mobile analytics firm, Distimo, Android Market currently offers the most free apps among its competitors at 57 percent of overall apps.

Remco van den Elzen, co-founder and CCO of Distimo, though, explained in an e-mail that there are other factors contributing to the huge pool of free Android apps. This could be due in part to the fact that developers cannot publish and consumers are unable to purchase paid apps in some countries, he said.