What If Apple's Next Big Product Isn't a Gadget?
There's lots of clamor over what Apple's next innovative product could be -- an iWatch, an iTV, an iCarly. OK, maybe that last one came from somewhere else. But what if Apple's next great product wasn't a gadget, but a service?
It's been more than ten years since Apple opened the doors to its iTunes store, and it's been nothing but a success since day one. In that time, Apple has collected nearly 600 million credit card numbers. Apple is uniquely positioned to utilize its stash of credit card information and take on e-payment leaders like eBay .
Opportunity in mobile commerce
What if buying something from a merchant through your iPhone or iPad was as easy as downloading and paying for an app or song?
Currently, shopping on one's mobile device is one of the most popular activities. But when it comes to pulling the trigger and actually making the purchase, there's a certain amount of friction that prevents most would-be customers from following through.
The iTunes store doesn't seem to have a problem with friction. In the last two quarters, iTunes has billed more than $4 billion to its customers. About half of that revenue comes from mobile users, which makes it the No. 1 mobile commerce retailer.
Mobile commerce is growing as more companies step in to solve the pain point that customers experience when they go to check out. One-click checkout is all but necessary to convert shoppers to sales on mobile, which is a problem companies like eBay's newly acquired Brain Tree or Stripe are working to solve.
Apple clearly has a scale advantage over these start-ups. More importantly, people won't want to sign up for more accounts than they need, and iPhone and iPad users absolutely need an iTunes account.
Opportunity in stores
Starbucks has had tremendous success with mobile payments. In its fiscal third quarter, more than 10% of transactions in U.S. stores were made through mobile. Its secret: rewards.
People that download Starbucks' mobile app are automatically enrolled in the company's rewards program. This makes them more loyal customers, and moves them through lines quicker, which is good for the customer and same-store sales. (Long lines aren't usually attractive.)
Credit-card companies offer rewards, to entice new customers to sign up and use their cards. Apple, too, is in a position to offer rewards for using its payment service. It could be something as simple as a credit in iTunes, which I'm sure nearly any iTunes user would appreciate.
Additionally, Apple's newest iPhone 5s, with its fingerprint scanner, creates a more secure environment for people to store their payment information. Passwords are easily hacked or stolen -- fingerprints, not so much. A fingerprint scanner is much more secure than previous mobile wallets attempted use of near-field communication.
Furthermore, Apple already has strong partnerships with some of the biggest retailers in the U.S. -- Wal-Mart, Target, and Best Buy. eBay's PayPal has expanded its number of in-store partnerships in the last two years, including deals with Home Depot, Abercrombie & Fitch, Advance Auto Parts, Aeropostale, Jamba Juice, and J.C. Penney. So far, however, PayPal has yet to gain significant traction in brick and mortar stores.
Apple could be different. For one, every iPhone user would already have everything he needs to make an in-store purchase -- no need to download a new app or anything. Second, Apple has significantly more accounts than PayPal, which had just 132 million at last count. Third, Apple has the potential for a rewards program, which will make people actually want to use its payment system. Currently, there's no advantage to using PayPal over a credit or debit card.
The next big thing
Many investors are complaining that Apple needs a new gadget in order to grow its revenue. With the growth in mobile commerce, I think Apple already has a killer service on its hands that could allow it to collect huge amounts in transaction fees. If Apple releases a payment service, it could add significant amounts of revenue to its top line.
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The article What If Apple's Next Big Product Isn't a Gadget? originally appeared on Fool.com.
Adam Levy owns shares of Apple and Starbucks. The Motley Fool recommends Apple, eBay, and Starbucks. The Motley Fool owns shares of Apple, eBay, and Starbucks. 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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