The One Product That Makes Apple a Trillion-Dollar Company Overnight

http://www.launch.co/blog/the-one-product-that-makes-apple-a-trillion-dollar-company-o.html

by petesoder • 14 years ago

106 70 14 years ago

ctdonath• 14 years ago

He gets into the "there's an app for that" mindset. Limiting factor there is having to get the iDevice out, turn it on, exit whatever app it was on, find the app, start the app, wait for the app to start, then do whatever is needed to approve the transaction. This must be simplified as far as possible; yes none of it is difficult, but to win it must be easier than a credit card's "open wallet, find card, grab card, swipe card[, sign here]" model. I don't know much about the state of the art in POS transactions, but do know to beat using my CC it must be no more than "grab device, wave near target[, clerk verifies picture]".

danudey• 14 years ago

Unless it's built into the OS. For example, NFC communications could function just like a PayPass-type card. Unlock your phone, tap it to the reader, a confirmation pops up (optional), and you're off.

It's actually much easier than your CC, because you have to dig that out of your wallet, which you have to dig out of your jacket/purse, etc. Most people keep their phones handier than their wallets, and even if they don't they don't have to take anything out of it and juggle the components in both hands.

cloudwalking• 14 years ago

I've been thinking about Apple as a payment company for a while, and one roadblock that's occurred to me is this: I can't see Apple ever making an Android app. It will be tough to dominate the offline payment space without an Android app.

kilovoltaire• 14 years ago

As I interpret the article, it's not about the offline payment market, it's about being able to buy -anything- as an "in app" purchase, e.g. in the Etsy app you'd be able to just buy stuff with no friction because it would use your iTunes account.

joejohnson2• 14 years ago

I think it's about both. For example, the article mentions Restaurant sales. This would have to take the form of an iOS app that somehow interfaces with the restaurant's POS operation.

Drbble2• 14 years ago

Like Google Checkout, or PayPal.

eli• 14 years ago

Maybe. Not so long ago there were a lot of smart people who insisted Apple would never port iTunes to Windows.

jimmyvanhalen2• 14 years ago

the real roadblock for Apple becoming a payment company is resistance from the carriers. The carriers have competing products. Google's thinking about sharing Google Wallet revenue with carriers to work around the issue.

pepdek• 14 years ago

If they buy Square, they'll be 30% of the way there with the infrastructure along with market penetration. Make the Square app a native app, and change it's name to iPay and you're golden. Also... no more dividends.

drawkbox• 14 years ago

My first thought is that they would buy Square as it is a very Apple like design and Paypal just launched their square competitor: http://www.theverge.com/2012/3/15/2874647/paypal-here-credit...

They would have to compete at microtransaction rates to hang with Paypal or Amazon outside the native appstore probably unless they tack on some digital content/storage costs to get 10-30%, i.e. iCloud surcharge.

joejohnson2• 14 years ago

There's a reason why crack and apps are the same price

I don't think there's sound economic reasoning behind this.

chc4• 14 years ago

It's a little baffling how he thinks that Apple might charge up to 10% to handle payments when they already charge 30% for handling payments.

brandoncor• 14 years ago

I took it as "up to 10% for a non-virtual good" as opposed to 30% for apps and in-app payments for virtual goods.

bicknergseng• 14 years ago

Yah this is what I was wondering. It's rather amazing to me that so many businesses complain about the 3% or whatever that credit card companies take while it seems like few app developers complain about losing 30% to Apple.

Follow up question... how many app developers would suddenly be profitable if Apple only took 3% (or even 10) instead of 30%?

Steko2• 14 years ago

30% isn't for handling payments, it's for building a store and bringing in tens of millions of affluent customers. Although the percentage may vary you may have seen a similar business practice in every store you've ever been in in your life.

chc4• 14 years ago

No, 30% is also for handling in-app payments.

jasonmcalacanis2• 14 years ago

I do say you're not going to be able to charge 10% for a flatpanel TV, but for a Groupon or movie ticket? Well folks already get 10% commissions on those items (i.e. Fandgo or Groupon affiliates).

But if not 10% let's just say 2%... it's still an AMAZING business.

Retric3• 14 years ago

2% after a little fraud and customer support becomes a terrible business.

jdq• 14 years ago

Tiny correction: As of March 2011, iTunes has 200 million credit cards.

http://techcrunch.com/2011/03/02/apple-200-million-itunes-ac...

dos12• 14 years ago

I love my iPhone. As an appliance it works great. But I must be in the minority when it comes to using apps. I use two, maybe three, on a monthly basis. Safari, Maps, and sometimes a weather app. I was floored when he said he spends $50-$100 a month on apps. What is he buying?

Also - is there a huge market for mobile purchases? I must be getting old, but I certainly prefer buying things online on a laptop or a desktop.

gtCameron• 14 years ago

For purchases where I need to type in credit card info, yes I prefer desktop over mobile anytime. But I use the Amazon app on my iPhone all the time because its just one click to purchase something. That is the driver behind this idea, if buying on mobile can become simpler than buying on the desktop, why wouldn't people do it?

dos12• 14 years ago

I can already buy something with one click on Amazon.com from my laptop and desktop. And have been able to for some time. Adding that feature to a mobile phone will help, certainly, but that alone would not make a better shopping experience in my mind. I would still have to have that company's app, or browse their site in my mobile browser, which will always be slower than using a full fledged laptop or desktop.

I agree that if someone could make purchasing simpler on a phone than on a laptop/desktop (possibly through NFC or something) then it could be a preferable approach. But just storing credit cards isn't going to cut it in my opinion.

Ineffable• 14 years ago

Yeah, seriously, the average smartphone user probably uses about 5-10 apps regularly (by which I mean more than once or twice a month).

I can definitely see the logic in what he's saying, though - less effort == more sales. I'd love to be able to route payments through my phone in shops instead of using cash or card. My phone's easier to get at in my pocket and would let me use apps to interact with that payment data more easily (finance apps, budgeting, etc.).

jimmyvanhalen2• 14 years ago

Another killer feature would be if Apple offered rewards on purchases on iDevices as an incentive for people to use their iDevices vs. credit cards or cash.

ImprovedSilence• 14 years ago

I actually make quite a few purchases from amazon on my phone. It's pretty easy for me, especially because I have a lot of items I want to buy vetted out, and in my wish list already. Also, there are times when I'm on the move and dont have internet besides my phone, or spur of the moment purchases I'll make as I think of it, that I use my phone for.

Edit: "moving at the speed of business" is actually kinda applicable here, think it, get it done, move on, kinda mentality when I use my phone. On a laptop, I have a tendency to dilly-dally around my purchases and over-think/read too much into reviews and what have you.

omerta2• 14 years ago

I have a few apps I use on my iPhone everyday: reeder for rss, alien blue for reddit, news:yc app for hacker news, tweetbot, and instapaper. These apps alone make me not want to leave iOS for android, otherwise I already would have.

easp• 14 years ago

1. His app spend estimate is for his entire household, not him individually.

2. He isn't just talking about buying things online. Note mentions of Square.

wtvanhest4• 14 years ago

Bank Account -> Debit/Credit Card -> Apple -> Merchant = 10% loss to merchant.

Bank Account -> Debit/Credit Card -> Merchant = 1.5% loss to merchant.

Bank Account -> Google Wallet -> Merchant = 1.5% loss to merchant.

Bank Account -> Paypal -> Merchant = 1.5% loss to merchant.

Bank Account -> Most payment startups -> Merchant = 0.5% loss to merchant.

I'm pretty sure Apple doesn't take 10% in this environment.

wtvanhest4• 14 years ago

Hotels are the worst example since they are also low margin and the consumer makes the purchase over the phone or online with their debit card handy or paypal account ready.

roc• 14 years ago

And, generally speaking, infrequently.

That's why mobile-based payments tend toward small, frequent purchases. Those are the situations where a few moments of additional convenience can be the difference between a fleeting thought and an impulse purchase.

jasonmcalacanis2• 14 years ago

My understanding is hotels are actually high margin in the travel space. That's why all the airlines and travel sites ram and jam you into booking a hotel. They make $10-30 per night hotel commission but only $1-5 on a airline ticket.

Also, it's a fixed cost business in general. So, if a hotel gets those last three or four rooms rented a night that can be their profit. That why Hotel Tonight and Hotwire, etc. are able to get sick, sick deals.

smackfu• 14 years ago

"If iPhones did just 10% of the revenue of movie tickets sold in the U.S. via this method, it would be $1.2B of the $10.17B spent in 2011 on tickets. ... That's a billion in pure profit."

So all movie theaters need to switch over to online ticketing, every ticket needs to be sold on an iPhone, and the credit card costs have to be neglible... but once that is done, a billion of pure profit!

Fandango isn't even charging 10% and they're the online ticketing company... think they are really going to give Apple another 10%?

epicviking• 14 years ago

I thought this was going to be about an apple printer...

blhack• 14 years ago

All they need to do is build a totally new business model on top of something that already only kindof loosely supports it!

SO SIMPLE!

9999• 14 years ago

Don't forget, they also need to hire hundreds if not thousands of people and enter a market that is notorious for fraud/abuse, with extremely low profit margins. Gee, I'm shocked they haven't done this already!

biot• 14 years ago

  > Remember, Visa and American Express still get their take and they
  > still handle all the billing. Apple is just charging a convenience
  > tax that would be well worth it to internet brands and retailers.

One of the "Steve Jobs lessons learned" I read about was when they were behind in handling music on computers (unable to burn CDs on the iMac), they didn't just catch up with everyone else by just introducing a CD burner; they leapfrogged everybody by creating an online music platform in iTunes.

Similar for payments, what are the odds that Apple leapfrogs everybody and becomes the equivalent of Visa and Amex, taking it all for themselves? If they offered better discount rates, they could piggyback off of the existing credit card companies but encourage merchants to directly accept iPayments and get a few percent knocked off of the discount rate. For example, instead of N% for Apple's fee plus $0.30 and 2.75% for the credit card fee, it would be a flat N%, whatever value N is.

kul• 14 years ago

Apple's patent for iWallet: http://www.patentlyapple.com/patently-apple/2012/03/apple-wi...

nickler• 14 years ago

Actually, there are movements already in place by carriers to do the same thing, with many of the larger carriers setting themselves up as banks with regulators well in advance of this strategy.

While Apple could introduce a complete payments solution in house (arguably they already have), it's still only in goods you'll buy from an apple platform, and if they gouge too much, it will open it up for disruption by someone else.

Commerce and payments will always be tied to the frictionless exchange at the point of sale, and while iphones could easily transition into iwallets, the carriers currently have the upper hand, as they're sitting in the same position, and many are somewhat platform agnostic.

There might be an app for this, but i'm not sure it's Apple's best play....yet.

angryasian• 14 years ago

this article is the epitome of someone with too much disposable income and time. Who tries out a new app a day, and how can you really find any utility by giving a new app a day a try ? Paying $3-5 a day on an app really ?

gcb• 14 years ago

wow, people really buy 3-5 apps a month?

i set up my phone with a few apps (2 or 3 paids) and never think about it again. Let alone 3-5 times a month.

omerta2• 14 years ago

I ha

ary• 14 years ago

> Apple will sell $5B in apps this year and make $1.5B from their 30% stake. Almost pure profit, as the App Store can't cost more than $100M to operate. In fact, the marketing of the App Store is probably 10x the cost of running it (someone in advertising please fact check my ass on that one).

It has been widely suspected that the App Store and iTunes are loss-leaders for Apple. The company itself has reported that it ekes out a profit from those divisions. The App Store and iTunes exist to sell iOS devices and Macs.

A payments API makes sense just like the in-app purchases API does. This is a lot of hand-waving for something that has probably always been on the table.

refurb• 14 years ago

That was what made Steve Jobs brilliant. He didn't just create great products, he created great _support_ for those products, so when they launched, it was revolutionary from day one.

jrockway• 14 years ago

he created great _support_ for those products, so when they launched, it was revolutionary from day one

Like MobileMe? (Or really, any Rev. A Apple product?)

dubya2• 14 years ago

But what does "ekes out" mean for a company making as much money as Apple? They're probably impossible to separate, but it would be interesting to compare iTunes store profits to those of other retailers.

simonh• 14 years ago

It means they are features, not products, as Steve said to the founders of Drobox. They exist to support the true products where Apple makes money. The same will be true of iCloud. They charge money for larger storage allowances, but will never make real money on it - it exists to strengthen the ecosystem that supports the real cash cow.

Thank you for asking that question. I only realy, fully understood what Steve meant, what his thinking was by his comment on Dropbox when writing this reply.

jonnathanson• 14 years ago

What's to stop Facebook from going after this exact same space? Frankly, I'd be surprised if they weren't already working on something to this effect. Via Facebook Connect, they've already got the back-end infrastructure "trojaned" into a large percentage (maybe even a majority?) of all iOS apps, web apps, sites, and so forth. Feels like they could carve out a more defensible and expansive position in web and mobile payments than Apple could.

[To be fair, they don't currently have all the stored credit card info that Apple does. So that's a big hurdle to starting up.]

dj_axl• 14 years ago

> What's to stop Facebook from going after this exact same space? (snip) [To be fair, they don't currently have all the stored credit card info that Apple does. So that's a big hurdle to starting up.]

Google (Android) is probably more likely right now. Or PayPal. If Google or Facebook were to takeover PayPal, or PayPal (Ebay) were to takeover Square or whoever's huge in mobile payments right now, things might start to get interesting.

eth• 14 years ago

"Start doing the math and it gets scary: Apple would have massive margin, and vendors who didn't accept iPhone payments would be at a massive disadvantage..."

That's if we do Jason's bad math. His assertion that X% of $Y billion market is pure profit assumes that 100% of the X% of mobile are iOS purchases. Even still X% must be further drilled down to Apple's actual cut. So, assuming Apple could take 1% of the $600B restaurant market and facilitate $6B in transactions, their cut assuming his crazy 10% transaction fee would be only $600M. Common jCal sensationalism.

I'm the furthest thing from an Apple analyst, but it seems that all "built-in" Apple things like iCloud, the App Store, etc. are not simply cheap entries into a market to make money. Each deeply complements and satisfies a fundamental need with a piece of Apple hardware. A payment application of this nature doesn't seem to sit quite at the "essential" level of Apple's other apps/services.

doorty• 14 years ago

I think he's getting this idea from Asian countries where their payment information is linked to their phones, so that they can make purchases with the swipe of their mobile device. I think we're heading in this direction. Google Wallet is already thinking like this. It's not too far of a leap to think Apple will do something similar.

InclinedPlane2• 14 years ago

At the risk of being rude: this is dumb.

Think about the implications here. Why should Apple get into payments? A business they have no expertise in, that is nothing like any business they have expertise in, and that is only barely tangentially related to products they make?

More so, payments is all wrong for apple. Payments is about boring stuff like consistency, robustness, and low overhead. That's not what Apple is about. Apple is about melding good quality software with compelling aesthetics and design. Because software construction is very difficult to merge well with aesthetics and design they have a key advantage over many of their competitors. And they use that advantage to make products that people are hugely enthusiastic about and willing to pay high prices to purchase, providing high profit margins to Apple. This is precisely the opposite of what's needed for payments. Apple would need to dumb a huge amount of money to develop a payments system, and it would need to grow a very anti-Apple sort of team within Apple to be able to be competitive. The chances that they'd screw it up and lose their investment are high. The chances that they'd ruin their brand and cause a diminution of their core business is also high (imagine if people thought about the Apple brand the way people think about Paypal, or Bank of America).

In short, this idea makes no more sense than saying that Apple should run a nationwide chain of taco trucks.

sjtgraham• 14 years ago

"Think about the implications here. Why should Apple get into payments? A business they have no expertise in, that is nothing like any business they have expertise in, and that is only barely tangentially related to products they make?"

Just like they never had expertise in telephones, yet managed to completely shut that game down.

"More so, payments is all wrong for apple. Payments is about boring stuff like consistency, robustness, and low overhead. That's not what Apple is about…"

iTools, .Mac, MobileMe, iCloud. Email, Calendaring, Cloud storage, etc. Apple has been providing unsexy "consistent, robust, low overhead" services for years.

notatoad• 14 years ago

They didn't have experience in telephones, but they did have experience in building desirable hardware. And especially in pocketable devices. A phone was the natural evolution of the iPod.

All the examples of unsexy products you cited kind of suck. Apple does do boring stuff, but they arent very good at it.

InclinedPlane2• 14 years ago

They had expertise in portable electronics, small form factor high performance computing devices, dealing with the music industry, etc. In contrast, the ability to support voice calls and the ability to negotiate with phone companies are very closely related to things Apple had already done, already had expertise in, or could easily tackle.

As for the applications and services you list below, all of these pale in comparison to payments. Even cloud storage is a completely different beast than payments. Also, all of these things are value-add propositions which help sell Apple's extremely high markup other products.

Again, payments are a whole different ballgame. Payments are not about aesthetics or design or UI excellence, they're about robustness, reliability, fraud reduction, low overhead, and regulatory compliance.

Also, the idea that Apple could roll out a high-markup (10%) payments system and have it succeed in the marketplace is sheer and utter fantasy. Paypal is relatively cost competitive with merchant accounts precisely because cost of payments is the name of the game, every 1% matters when you're a business.

loceng• 14 years ago

Trust for quality, and their userbase is okay with paying a premium. In a way, they are dumb if they don't try, though they might not want to dilute their brand, and there are potential risks. Plus, the payment game is changing so rapidly, it doesn't necessarily make sense to divert people's attention to it.

languagehacker• 14 years ago

Can we please never, ever link to a blog post that mentions neuro-linguistic programming in its content ever again? I mean, seriously. That completely lost me right there. The author totally discredited himself.

The One Product That Makes Apple a Trillion-Dollar Company Overnight

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