Why Apple, Despite Low Profit Opportunity, Might Announce Mobile Payments at WWDC 2014

The first, and by far the strongest, reason that Apple might not be in a rush to deploy a mobile payment/wallet solution is that the margins are extremely low. They're even lower if you're paying with a credit card since those companies already take a cut.

Google Wallet hasn't exactly taken off. Square is growing in larger cities, but it is far from ubiquitous. So why would Apple bother? If there isn't much money to be made and previous attempts are less than successful, what's to be gained?

Apple's strategies rely heavily on their ecosystem and stickiness to that ecosystem. Getting users into the walled garden, then keeping them there, is the Apple way. The other fundamental technique that Apple uses is to quietly and slowly introduce infrastructure or software or something subtle that no one pays much attention to, then a few years later - BOOM - it is the foundation of something big.

It worked with iTunes for the iPod, iPhone, App Store, and eventually the iPad. Once those credit cards were on file sales in the ecosystem kept growing, which grew the ecosystem, which sold more devices. Those successes have driven other parts of the business too as Mac sales continue to grow.

I think they began the next phase years ago. People noticed when they added Bluetooth LE (low energy) to the iPhone 4S in 2011, but it didn't make too many waves. Only the geeks noticed when iBeacon (BTLE) support was announced in iOS 7; sure the MLB is adopting it, but it isn't a household name. People noticed when they added TouchID to the iPhone 5s in 2013, and that one made waves but some argued it wasn't exactly profound.

What happens when you combine all of these though? You've got hundreds of millions of phones that already support BTLE. You've got an ultra-cheap infrastructure piece (iBeacon transceivers) that can very easily be deployed, or has been already. You've got 800 million credit cards already on file, and you've got lights-out security to authorize payments with TouchID. Suddenly a lot of the major problems have been solved.

Adoption is much less of an issue because the products that people already own will support it, they're already being used 24/7, and their credit card information is already plugged in. There is a level of trust with Apple that is higher than many other technology companies because Apple doesn't profit off of user data, in fact they profit off of NOT profiting off of user data. The same can't be said for all of the other players in this product segment.

The biggest speed bump here is that while phones as old as the 4S support BTLE, only the 5S (and presumably upcoming 6/6c) has TouchID. It isn't clear if they'd only roll out mobile payments to this latest set of hardware, or if they'd just require password authentication for older devices. However, I think their user-base (either way) is large enough that 2014 could be the year.

There is, without a doubt in my mind, no one better positioned than Apple to release a mobile payment solution that will finally break through.

Oh, and I'd say this meet's Tim Cook's "new product segments" promise, wouldn't you?

How Successful Will A New Apple Product Need to be to Considered Successful?

The iPod, iPhone, and iPad are unequivocally considered to be profound and world-changing technological breakthroughs that forever changed the world we live in. They sell by the millions and account for staggering quarterly revenues.

The funny thing is, none of them really sold well on the first generation. The first iPod is barely a blip on the sales radar coming in well under a quarter million units.

Image credit: Wikipedia

Okay, so what about the iPhone? Nope - 270,000 units in their first quarter. Sales did pick up a bit for a total first year sales of a little over 5M, but they sell that on opening weekend now.

Image credit: Wikipedia

Fine, but surely the iPad was a grand slam, right? Comparatively, yes (at 3.27M units the first quarter). But by today's standards? Not so much.

Image credit: Wikipedia

So what exactly are "today's standards"? Every time there is a new sales record, that seems to become the new standard. If a company returns to their previous normal revenue, normal sales, or normal product volumes it is usually viewed as the end of days for that company. Growth is important, don't get me wrong, but Apple's repeatedly mind-boggling quarterly revenues are dismissed because some of the growth numbers are flat.

I've written about the flat iPad growth and so has Ben Thompson, so I won't rehash it, but suffice it to say they're selling a lot of iPads. The speculation for their next product is, well, creative to put it nicely. Many things are products that could certainly be interesting, but often many don't address a real problem like these iDevices did. This tweet from Benedict Evans hits the nail on the head.

Before the iPhone and iPod we knew the problem but not the solution. With smart watches we don't know the problem

— Benedict Evans (@BenedictEvans) April 19, 2014

Apple's next product could be a health wearable where the total addressable market is technically every human, but realistically far, far smaller. It could be a watch. It could be television. Each of these has inherent problems, but did many of their past breakthrough products, all of which were overcome.

Suppose Apple does the Apple thing and overcomes the battery life or content delivery or whatever hurdles stand in their way. Suppose they introduce the next leg of their product stool at WWDC in a few weeks. What happens then? Is there any sales number that would draw a positive result from the masses? They sell 50M iPhones per quarter, so do they have to beat that? It sounds insane, but after seeing the 50M number, 1M doesn't sound so good to those that are so hungry for something, for anything new, that they live with blinders on and won't stop writing about how innovation is dead at big companies like Apple.

If it isn't the sales number that gets people, perhaps it'll be the revenue. As Ben Bajarin has pointed out several times, for any product to even show up on their revenue pie chart it would have to make many billions of dollars. That's a stretch, even for Apple.

I certainly hope a new product is met with new (and realistic) sales volume expectations, but I'm not holding my breath. News agencies are pushing this sense of urgency that a monumental breakthrough is absolutely required for Apple as we know it to stay relevant. Once the stimulus bar has been raised, it (apparently) can never go back down.

What is the magic number of unit sales or revenue they've got to hit? Will it even matter, or will the next round of pessimists start immediately beating their tired drum? Only time will tell.

Additional Considerations for Gassée's Conclusion for Declining iPad Growth

To proclaim understanding of such a young tablet market is a fool's errand, but I think there are some additional considerations to be made beyond Gassée's article where he concludes that the iPad is a tease and it cannot fulfill the duties it promised to fulfill.

To evaluate the tablet, it is worthwhile to consider smartphones. Smartphones replaced their predecessors entirely, and with ease. It wasn't a "good enough" solution and the way we use phones didn't have to change. Sure we got all sorts of new ways to use phones, but the same old ability to make calls and send SMS usage was fundamentally still there. All of the things people needed to do, they could do.

The same cannot be said for tablets right now when you measure them as PC replacements. Tablets enable us to do a lot of work, a lot of the same work, and a lot of new work, but it doesn't allow us to do all of the work we can do on a PC. If there is even one critical task you must accomplish that isn't possible or realistic on a tablet, you suddenly need a computer. One tiny little thing can throw a wrench in the gears that easily. Sure a new piece of software with a unique way of interacting with or producing data to fulfill the same need is possible, but it might not be adopted at your company or it might have shortcomings.

So why this massive difference in how things turned out? For starters, the phone industry was an infant when smartphones replaced them. Okay not technically an infant but they never really added usage-changing features, for all intents and purposes people just needed their phones to make calls and send messages. The computer industry is a lot older and has some extremely entrenched workflows. It is much easier to dethrone something so young (dumb phones), especially if you (smartphones) are vastly superior in every single way. Computers aren't young, they aren't dumb, and they are absolutely critical in just about everyone's job, if not their life.

The other thing that complicates this discussion is that tablets are being framed as needing to replace traditional PCs to be successful. I think that is a misguided notion. There is certainly a lot of overlap between the two, but surely it isn't realistic to expect tablets to eliminate the PC industry. It isn't clear where this will all end up. Even though iPad sales growth is declining with no obvious explanation, the tablet market is nicely establishing itself in peoples' lives and won't be going away any time soon. 

(My thanks to Jordan Hendry for a thought provoking discussion that lead to this train of thought.)

UPDATE: Updated the title to reflect the tone of the article more, I'll leave the URL to keep links live.

Heisler: A spoiled generation of tech observers yearn for Apple innovations on-demand →

This piece by Yoni Heisler is the most refreshing thing I've read in a very long time. Do yourself a favor and go read it (and don't miss the embedded Louis CK video - so accurate). 

Apple does one thing, and it does it very well. In Yoni's words:

Apple may be an immensely private company, but its modus operandi is hardly a well-kept secret. The company releases finished products that it believes will fundamentally have a positive impact on the way people interact with technology, and in the process, make them truckloads of money. 

This also stood out to me:

The "what have you done for me lately" attitude is pervasive amongst talking heads who seemingly employ a running counter that precisely measures the last time Apple released a game changing product.

Yoni, thank you. I am equally excited about what comes next while being equally thrilled about how great technology is today.

Evaluating If and How Apple's Strategy is Still Like a Startup

Apple has famously flown a pirate flag, dismissed conventional business practices, and run the company in nontraditional ways. It seems to be working so far. This isn't an argument that Apple is exactly like a startup, but there are some key indicators that highlight how Apple is run differently when compared to any other multibillion dollar technology company such as Google, IBM, or Microsoft.

The $475B Startup(ish)

Focus

The number of technology product categories that Apple participates in in shockingly small for a company that size. It could be argued that Apple's focus on their products has never been better. Their newer products are selling in record numbers with their older products outpacing their respective industries. This focus is far more aligned with a startup mentality - "If we can just do this one thing perfectly..." The focus is very apparent, even to a fault in some cases.

It is unfortunate that given this focus on products, often the services often come across as afterthoughts. iWork's overhaul last summer stripped several features from the Mac version to align it with the iOS version, and rumors suggest it was because they didn't have time to bring the iOS version up to align with the Mac version. iMessages have improved significantly, but there are still reports of problems when 2-3+ devices are involved (I haven't had a single issue since iOS 7 + Mavericks using iPhone/iPad/Mac).

Betting the Rent Money

With every hardware product Apple makes, they pour their heart and soul into it, and they don't have a Plan B. When they design a product there are plenty of other similar designs that were passed over, but they aren't Plan B. They weren't "perfect" and therefore will not be produced. 

Apple has had the "bet the rent money" approach ever since Jobs' return to the company when they literally were betting their final dollars that they could turn it around with stunning products. It is inspiring to see just how much of that still remains given the size of the wallet backing them.

Perhaps the same drive that used to be fueled by the possibility of going out of business is now fueled by meeting expectations. Apple has made it clear they hold themselves to a higher standard, so it makes sense that the world around them has done the same. Whatever it is, it has the outward appearance of them betting the rent money on each new product.

Product Comes First

Startups are concerned with monetizing their product eventually, but first they need to have a product to monetize. The overwhelming trend these days seems to be getting funding to allow you to work on the product, refine it, make it the best possible version you had in mind, then release it. Once it has a hold in the market, it is time to plan for long term monetization.

It isn't exactly an approach that works in traditional business historically, but times have changed. One million visitors to a new restaurant would be impossible, but one million users of a new app is just getting started for the new age Silicon Valley startup. 

Apple is similar, though not identical. The mechanism for profit is very clear. There are two ways to see that - it either means they're operating like a startup and saying "the best or nothing" without worrying about anything besides the product or they're in a privileged position and don't need to worry about anything besides the product. Apple fans want to believe the former, but plenty of people could argue the latter.

It might be too early to tell, but the strongest indicator I think of is what happens longer term. Apple has had plenty of money for quite some time now, if they keep the focus and keep the bar high, then it suggests to me that they're operating more like a startup, putting the product before everything. If they grow stagnant, uninspiring, or boring, then we'll know it was the latter.

Saying No

This is worth highlighting outside of the "focus" section because it is the cornerstone to how their design cycle works. There have been countless articles written about how new iOS devices are stagnant, uninspiring, and boring. In fact, just about every iOS device has been accused of such things. The sales of the devices suggest those people are wrong, but their comments have some validity.

For many, the length of the list of features is paramount. The key difference between those that believe iOS devices aren't progressing fast enough and the way Apple designs them is that Apple says "no" when competitors say "yes". It doesn't result in a product for everyone, but it does result in a beautifully simple product. No NFC, no big screened phone, no 3rd party access to Touch ID, no inter-app sharing, etc. All of these were carefully considered, but not implemented (some yet, some ever).

You can have the simplicity that has made Apple's products stand out and sell by the millions, or you can have the laundry list of features. I don't believe Apple's style of doing business would survive long term if they abandon their ability to say "no". One of my favorite quotes from Jobs highlights it nicely (notice how he calls them good ideas):

People think focus means saying yes to the thing you've got to focus on. But that's not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully. I'm actually as proud of the things we haven't done as the things I have done. Innovation is saying no to 1,000 things. - Steve Jobs

Only Time Will Tell

It is far too early to know how this story ends. Their rise from the ashes has been astonishing, but they haven't been at the top for that long. A decade in the technology industry is a long time, but in the business world it is not. It is at a time like this that their actions will tell us what kind of company they are - a hungry "startup" that picks a target and ferociously works to beat it (even if that target is a product of their own) or the complacent rich kid who doesn't appreciate how they got to where they are.