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Companies that can provide quick and robust authentication mechanisms will be in a strategically important position in the digital economy, and this is sparking an arms race among the major Internet ecosystems – Apple, Google, Facebook and Amazon. This race is intensifying as biometrics and wearables promise to make two-factor authentication easier and more cost-effective. What are the strategies of the internet players, and where do they need help?
The authentication arms race
To reduce both fraud and friction, the major brokers of digital commerce, including Google, Apple and Facebook, are all trying to develop authentication mechanisms that are reliable, secure and easy-to-use. For these Internet players, enabling effective authentication (both for their own services and within the broader ecosystem) is strategically important for four major reasons:
- Enable digital commerce: Reliable, fast authentication is fundamental to any two-sided digital commerce proposition. Marketers want to know that their adverts and direct marketing were seen by the target audience, rather than random consumers or automated bots, while merchants need to be able to authenticate the identity provided by people making purchases through their web site or app.
- Encourage usage of core services: Slick and secure authentication mechanisms can encourage usage of the Internet players’ own core services. For example, Facebook users want to be able to login fast, but they also don’t want other people to access their account.
- Point of differentiation: An effective authentication system can increase the utility of the core product or service. For example, Apple is using innovative authentication mechanisms to differentiate its devices over those of rivals.
- Data collection: For Google, Amazon and Facebook, the collection and usage of data on consumer behavior and buying patterns is fundamental to their core business of matching buyers and sellers. A widely used authentication system can generate a lot of precise and, hence more valuable, behavioural data, which can be used to better target advertising and direct marketing.
In essence, for the major Internet players, fast and secure authentication oils the flywheel at the heart of their two-sided business models, enabling the wheel to spin quicker and gain more momentum. Effective authentication mechanisms also engender trust, stimulating greater usage of the platform and the related ecosystem, encourages sales and gathers data, all of which can be used to refine and expand the core service proposition (see Figure 1).
Despite its strategic importance, the major Internet ecosystems haven’t yet perfected authentication. As building scale is usually the prime strategic imperative, most Internet players put ease of use ahead of security and verification. They, therefore, don’t fully verify the profile information, such as gender and age, provided by consumers. Facebook, for example, is used by large numbers of pre-teen children claiming to be 13 years old – the minimum age to use the service. In other words, Facebook’s identification process, which precludes the authentication process, is open to abuse.
Moreover, digital commerce brokers can’t always be sure that consumers are using a payment card that belongs to them. Apple has ended up refunding parents whose children used the payment cards associated with their parents’ iTunes accounts to make large numbers of in-app purchases.
Figure 1: Effective Authentication is at the heart of the Internet players’ flywheels
Source: STL Partners
Extending the authentication ecosystem
The leading digital commerce brokers want to be able to track consumers’ activities well beyond their own ecosystems, so they can better target ads and marketing messages through their ad networks. Facebook also appears to earn some revenue by selling third party web sites and apps profile information about people who log into their services using its Facebook Connect authentication mechanism.
Over the past five years or so, Facebook and Google have been slugging it out to be the leading provider of authentication services to third party web sites (see Figure 2). Facebook overtook Google in late 2010, according to figures from provider of customer identity management technology Janrain, and then built up a big lead in 2012. However, over the past few years Google has clawed back some market share as its push to persuade consumers to use a single identity across all the Google services, including Search, Gmail and YouTube, has gained traction.
Janrain, which claims to track social login trends across tens of thousands of web and mobile sites, attributes Facebook’s strong performance in the first quarter of 2015 to the social network’s adoption of a more consumer-friendly approach, which gives users more control. “As of March of this year, all sites have been migrated to the new app version that features an anonymous login option and line-by-line sharing controls,” Janrain notes.
In the run up to the launch of the new authentication app, Facebook asked web sites and apps to explain why they’ve chosen to collect certain pieces of customer information in their data payload. Facebook said it would deny access to information if it deems the company’s rationale insufficient. This move reflects Facebook’ changing business model. Rather than focusing on selling third parties consumer profile information, Facebook is increasingly concerned with building out its advertising network. If a consumer logs into a third party web site using Facebook Connect, Facebook can show a targeted advert, which is more likely to be clicked on than a generic advert earning both Facebook and the third party web site commission. This is also the business model that underpins Google’s authentication-as-a-service. In other words, both the advertising broker and the web site can benefit if a user logs in via the broker’s authentication service.
At a high level, Facebook and Google face little competition from other large social networks, such as Twitter (5% market share), Yahoo! (3%) and LinkedIn (3%). However, in some specific segments, these smaller players do have significant market share. LinkedIn is a major player in the business-to-business market, while Twitter accounts for 10% of media social logins, according to Janrain.
Figure 2: Facebook and Google appear to dominate online authentication
New technologies, new business models
After years of over-reliance on user names and passwords, and subsequent data breaches, the digital authentication processes are now changing fast. One-factor authentication (reliance on something the consumer knows, typically a username and password) is being superseded by two-factor authentication (something the consumer knows combined with something the consumer owns) across much of the digital economy. Both the leading Internet players and major telcos are employing hardware to try and make authentication processes more secure. Bluetooth beacons, NFC (the short-range wireless technology Near Field Communications), biometrics and smart watches are among the technologies being used in conjunction with mobile phones and/or SIM cards to authenticate individuals both in-store and online.
Apple is at the forefront of the charge to use new hardware and biometrics, specifically fingerprint recognition, to enable three-factor authentication, which combines something the user knows, with something they own and something they are. By positioning itself as a trusted custodian of consumers’ identities and data, the iPhone maker is laying down the gauntlet to Google, Facebook and Amazon, which have largely relied on username/password combos, bolstered by fraud-detection algorithms.
However, fingerprint recognition, which is also being introduced by Samsung into its high-end smartphones, is unlikely to be the last word in biometrics authentication. Fingerprints can be reproduced as high-resolution photos and security websites have reported that Apple’s TouchID system has been hacked.
Some banks, such as Halifax in the UK, are testing heartbeat recognition systems, which work like this:
- The user needs to record his or her heartbeat pattern, in the form of an ECG (electrocardiogram), which is then stored on a Bluetooth-enabled wristband or smart watch
- When it comes to making a payment, the consumer’s taps the watch or wristband, which then sends a heartbeat scan to a mobile wallet app on the user’s phone. If there is match, the transaction is authorized.
The next section considers how these new technologies could change the way people are authenticated in several key scenarios.
- Executive summary
- The authentication arms race
- Extending the authentication ecosystem
- New technologies, new business models
- Planning for key scenarios
- Online shopping
- Low value in-store shopping
- Access to vehicles and buildings
- Remote control of machines and appliances
- How the Internet ecosystems handle ID
- Apple – Adding value to hardware
- Google – authentication improves targeting
- Facebook – needs more accurate authentication
- Amazon – in need of more transparency
- Conclusions and implications for telcos
- Figure 1: Effective authentication is at the heart of the Internet players’ flywheels
- Figure 2: Facebook and Google appear to dominate online authentication
- Figure 3: The number of data breaches in the US hit a record high last year
- Figure 4: Merchants employ multiple weapons in the fight against fraud
- Figure 5: Apple Pay has been integrated into Passbook to create a mobile wallet
- Figure 6: The consumer is identified via the iPhone’s fingerprint scanner
- Figure 7: Various apps allow consumers to make payments via Apple Pay
- Figure 8: SWOT analysis of Apple in authentication and identification
- Figure 9: TOWS analysis for Apple in authentication and identification
- Figure 10: Google Authenticator helps Google link users with mobile phone numbers
- Figure 11: SWOT analysis of Google in authentication and identification
- Figure 12: TOWS analysis for Google in authentication and identification
- Figure 13: Not all Facebook users take the service seriously
- Figure 14: Popular fitness tracking app Strava uses Facebook Connect
- Figure 15: SWOT analysis of Facebook in authentication and identification
- Figure 16: TOWS analysis for Facebook in authentication and identification
- Figure 17: Some Amazon users don’t trust the product reviews
- Figure 18: SWOT analysis of Amazon in authentication and identification
- Figure 19: TOWS analysis for Amazon in authentication and identification