Eons ago, in November 2014, Daily Fintech looked at Google as part of a series on big tech ambitions in Fintech (Apple, Facebook, Alibaba, Google). Our TL;DR summary on Google at that time was “quietly plugging away with massive ambition. This is the story of the dog that did not bark (yet)”. 15 months is officially an eon in a market developing as fast as Fintech. The Google big dog is about to bark in Fintech and the apparent retreat – closing Compare – may signal greater ambition that should worry incumbents and startups alike.
Misdirection, failure or tactical retreat?
From WSJ (paywall) one assumes the story is one of failure:
“Google is shuttering its comparison-shopping site for auto insurance, credit cards and mortgages after one year.”
Other financially oriented sites led with the same failure story. You can almost hear the sigh of relief as incumbents in Insurance, go “phew, thank goodness our business is too complex for Google”. Insurance Age reports on the losses:
“Compare site, reported under the Beatthatquote.com brand, also reported financial losses. In 2013 it posted a £12.64m loss after costs exceeded turnover. In 2014 it also posted a loss for the financial year of £19.4m.”
Lets put that in context. Google profit in 2014 was $3,720m. Convert that £19.4m at a generous rate of 1.55 (pre Brexit talk) gives us a $30m loss – which is about 1.24% of their profits. Given the scale of the opportunity Google could have patiently stayed the course as they have done in so many other big markets.
The best site on search is SearchEngineWatch and for this story they interviewed an expert (Carl Hendy) who said:
“I wouldn’t open the champagne too soon. Google has a habit of misdirecting everyone.”
I am with Carl Hendy on this one. It is time to dig a bit deeper. As we reported last year,
Banks can buy the Fintechs it is the Bigtechs they have to worry about.
Rounding errors and big needles to move
Google spent £38m in 2011 to buy Beatthatquote.com, which became the Compare offering and that division has lost money since then.
Google has a big needle to move. Google revenue in 2015 was over $74 billion. To get 10% growth (the prized double digit growth rate), Google has to find $7.4 billion of new revenue each year. The law of large numbers is unforgiving – and needs huge markets.
Now look at the size of the markets that Compare was going after (US only):
Auto Insurance: $186 billion in premiums
Mortgages: $13,700 billion in total loans outstanding
Credit Cards: $2,210 billion in total value of transactions in 2012
Compare could have also entered:
- Health Insurance
- Other Lending
- Other Property and Casualty Insurance
- Savings & Investments & Brokerage
It seems odd to exit massive markets when you need to move such a massive revenue needle.
Insights from the Google Ventures portfolio
Look at the Google Ventures Fintech portfolio. This gives them insights into these massive markets.
Oscar – health insurance
Ondeck – lending
CircleUp – crowdfunding
Gusto (if Zenefits stumbles badly, this is a similar model)
LendUp – lending
Google understands Fintech. It is only a question of time before they make their move. Expect it to be a game-changer.
Beware those European regulators
In Fintech we often contrast the unregulated Tech with the highly regulated Fin. The BigTechs are different. They are so big they attract regulatory attention, particularly in Europe. Google is particularly in the regulator’s sights. Insurance Age has the story as it affects Fintech:
Google may be thinking “if we are going to be regulated, we might at least go for a bigger prize”.
If Google’s core advertising business is threatened by adblockers, as this site reports, it would be smart to go to a more direct revenue model.
When Stacks Collapse
Compare was doing what Brokers do. As we reported on the story on Lemonade, the big value is further down the Insurance stack. Google could become a regulated Insurance company.
Key to a direct revenue model is a fully functioning payment system. Think of iTunes. In our analysis an eon ago in November 2014 we concluded that
“Google will keep plugging away at this until they crack it, like they have done in other markets. One statement from Omid Kordestani stands out:
“We’re developing a fully functional payment system.”
Daily Fintech Advisers provide strategic consulting to organizations with business and investment interests in Fintech. Bernard Lunn is a Fintech thought-leader.
“We’re developing a fully functional payment system” Makes sense for all Google users. Op-out of competing with Google clients in all other areas other than third party VC investment