Apple's Trojan Horse: iMessage


In the video below, Eric Bleeker and Austin Smith discuss why iMessage has become a Trojan Horse that strengthens buy-in across iOS devices. A transcript is below the video.

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Austin: Now, lastly, you and I were talking about, we're both very happy iPad Mini owners, and we were talking about the sort of Trojan horse that Apple has potentially unlocked with the iPad device. What is that?

Eric: I normally wouldn't advise investors to follow the advice of 15-year old girls in your investments, but I'm going to do it today. There's actually an interesting blog post I can pull up right here. It was from Josh Miller, and it was looking for 10th grade tech trends.

I think there's actually something really insightful here, and key to what's going to drive the iPad Mini and the iPod Touch. Part of the success was always demographics that skewed younger, and people like to attribute that to games and the App Store.

However, one key advantage to that, you look at something like Facebook; it's obviously a social network, and a place that people go to stay in contact with each other, but you're also open to what's often 1,000 friends at once.

Having a platform like iMessage, that everyone [who owns an Apple product] on by default, turns Apple into a social network, especially for teens. The first thing that happens when you load up your iPad Mini, iMessages start rolling through.

FaceTime is the default application. Yes, you can go get any [video] messaging platform around, but you still have to go through the App Store. It's still not tied in as the default [video chat].

iMessage is becoming a kind of weird social network. It's becoming this Trojan horse that makes Apple that much more powerful for teens, and people adopting, buying their first smartphone, which locks them into the Apple ecosystem, which means, as they continue through life, they'll continue going through that.

It's really a nice sticky factor, and I think not enough people consider it. Yeah, there's all these messaging platforms; but having one as the default with such network effects like iMessage is just ... some people aren't watching, but it is truly a Trojan horse to be able to get in and get people sticky with a product.

Austin: I've been thrilled with the service, and you and I anecdotally were talking about how irritating it is when somebody messages us and they're not on iMessage, because then we have to pull out our phone. It's so laborious to respond to them.

It really is a really great experience, and it achieves what you want, without being too invasive. If you look at some of the once-hot and then not-so-hot messaging services out there -- things like AOL Instant Messenger, or even Facebook Messenger -- once they hit that level of invasiveness, they're not enjoyable anymore.

iMessage strikes the great balance of, it's never too invasive, but it's always convenient. You don't have to go through the App Store. It can be really irritating to try and close all those windows on Facebook, and things like that.

It struck the right balance; super integration, which of course plays well into the Apple wheelhouse of selling more Apple products in the future. I think it's a great Trojan horse. It hasn't been talked about, but people are going to keep an eye on it.

Eric: And it's right at the price point. An iPad Mini is $330. It's right at the price point to give as a gift in what used to be the iPod Touch range. It just really extends Apple's products down as still a relatively high-margin product, to being able to capture and fortify.

As I say, it fortifies the ecosystem because, as soon as you're using iPad Mini to iMessage, well, it just is logical you buy the iPhone, which has higher margins. People don't think about that virtuous cycle nearly often enough.

Austin: Yeah. A lot of people I've looked at, this is like a risk to Apple's margins because it's coming down from high-margin products, but the unseen benefit, or hidden benefit, is that there's actually a huge potential to upsell to the higher margin products and get those new customers in.

Eric: Exactly.

Austin: Eric, thank you so much for chatting about some key tech trends for 2013. Fools, thanks for watching, and Fool on!

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Austin Smith owns shares of Apple. Eric Bleeker, CFA has no position in any stocks mentioned. The Motley Fool recommends Apple and Facebook. The Motley Fool owns shares of Apple and Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Originally published