Thoughts on Apple Pay

Credit cards became an instant success because they removed the friction in purchasing and created unbelievable value for consumers. In simple economic terms, the benefits of credit cards exceeded the costs. For Apple Pay to succeed, in needs to do the same. After a few weeks of using Apple Pay, here is what I found.

• Most businesses still don’t support it. I live in a large college campus, and none of the businesses in the area support it. Of course, this is not Apple’s fault, and the liability shift in 2015 should fix this, but consumers don’t care who's fault it is. They just want it to work.
• When the retailer does support it (the ShopRite, Wegmans, and Walgreens near me all support it), the technology is glorious. Payment is quick and easy. There is no need to carry a wallet with me. I feel like value is created because I can get in and out of the store quicker.

Most major banks and credit card issuers already support Apple Pay, but it’s the merchants who are holding out. I won’t delve deep into why, as Ben Thompson already covered this topic, but the effect is nonetheless the same: consumers are not able to use Apple Pay everywhere, seriously diminishing its value. Meanwhile, the merchants are also creating a mobile payment solution, a cute play on words called CurrentC, but it’s unlikely to gain any traction. 

Despite merchant opposition, I predict that Apple Pay (and Google Wallet, for that matter), will become the victors in the mobile payment space. Every iPhone 6 and 6 Plus comes with a NFC chip that enables Apple Pay, as will future all Apple devices. Consumers will come into stores wanting to use them, and the stores will budge. At the end of the day, it's money we are talking about, and merchants will accept it in any way possible. 

Twitter's New Strategy Statement

I’ve written quite a bit about Twitter in the last month, beginning with my External Anaylsis, followed by my recommendations for the company. Yesterday, the company announced their long-term strategy to allay investors who are worried about declining growth. That strategy?

Reach the largest daily audience in the world by connecting everyone to their world via our information sharing and distribution platform products and be one of the top revenue generating Internet companies in the world.

Pointed out by many, this new strategy doesn’t even fit in 140 characters. It is a sign that the company is just as unfocused as before, if not worse. Every internet company wants to be one of the top revenue generating companies in the world. Just stating so doesn’t make it so. Fortunately, investors weren’t duped by the new strategy, and Twitter stock fell the day after the announcement by about 6%. What this announcement means to Twitter users is a different, although similarly depressing, story. The story is a simple one, it’s more ads. 

Twitter doesn’t charge users to use the service, so the only way investors can expect greater revenues is through more ads. I’m a user of Tweetbot, a third party Twitter client that doesn’t display any ads (yet), but most people use the official Twitter app. I would expect lots more ads in your Twitter feed if you use the official client. 

Twitter is my favorite social network by far, so I’m extremely saddened by the unfocused management team. The latest strategy statement only makes matters worse, indicating the company is yielding to investors instead of coming up with new innovative ideas. I always believed that Twitter should have stayed private and raised equity through other means, but now, it looks like it's learning how harsh the realities of being publicly traded really are. 

Microsoft Makes Office Free

This week, Microsoft did what was unthinkable just a year ago. It made its Office apps free for everyone (premium features still require an Office 365 subscription, but those features are for advanced users which most are not). This is important for the following reasons:

A. They needed to compete with free services from Apple and Google. While the document editing services of those competitors are getting better, Microsoft Office is still king. This move to make Office free just confirms it. 

B. Indoctrinate the young. Microsoft needed to get young people using their products from an early age, so that they may become lifelong Microsoft users. Without a free tier, these young users would be indoctrinated into Apple's and Google's ecosystems instead, which would be terrible for the future sales of Microsoft products. Hooking these young people early is an investment for the future, when they grow up and have disposable incomes to purchase other Microsoft products. 

C. Separate the consumer business from the enterprise business. Ben Thompson put it best:

On the consumer side, Microsoft hopes to make money from devices and advertising: they sell Surfaces, Lumias, and Xboxes with differentiated OS’s, hardware, and services, and they have ad-supported services like Bing and Outlook. The enterprise side is the exact opposite: here the focus is 100% on services, especially Azure and Office 365 (to use the Office iPad apps for business still requires a subscription).

Microsoft needed to clearly delineate its two major businesses - one aimed at consumers, and the other at enterprise. Offering the Office apps for free makes their consumer business stronger. In turn, these consumers will expect the same services from their employers (many large businesses already pay for Office 365, but this is about those who don't, such as small to medium sized companies).

Overall, this is an excellent move for Microsoft. As of this writing, Microsoft Word is third most downloaded app in the App Store. The investment has already started to pay off. 

Taylor Swift v. Spotify

Preface: In an effort to write more often, I will start posting shorter pieces that do not require as much research and forethought as my previous ones. Although I will certainly post longer, more intricate articles, quick reflections will be more common on this blog. If it makes you happy, I suppose you may call it a link-blog type of thing. 

There’s been a ruckus in the music industry these last few years, but its hit full stride this week. Taylor Swift first pulled her latest album, and then all of her music, from the most popular music streaming service in the U.S, Spotify. She doesn’t think Spotify pays enough to musicians. Nor is she convinced music streaming is the answer to declining CD and MP3 sales. Oddly enough, she left her music on other streaming services like Beats Music and Rdio. Now I’m not a Swift fan, so I could not care less, but this is a sign of a disruption waiting to happen in the music business. Here’s a quote I read in the stories today that is worth reposting:

Mozart didn’t sell one fucking copy. (Philip Kaplan on Medium)

Musicians get to do a job they love, which cannot be said for the majority of us. Some even go as far as to say that the music they create is overvalued, while the delivery system is undervalued. I’m not saying I fully agree with Dustin Curtis, but there is surely a grain of truth in that. It is hard to say if the delivery mechanism, Spotify, deserves to keep more royalties than the musician who created the music. I don’t know what the answer is, but I do know things will change. The music industry has been profiting salubriously from CD sales, and then iTunes, but it’s obvious the music streaming business will not be as much so. It can’t afford to. My guess is that musicians will eventually cut out the middleman (the music labels) and deal directly with the delivery mechanism (the streaming services), but that may be too far off in the future. And it’s foolish to think the labels will let artists get away with that so easily. Whatever happens, it is worth pointing out that consumers are getting unprecedented value from streaming services, and the consumer almost always wins.

Wearables

Smartphones and to a certain point tablets have finally saturated the U.S. market. And although these two products still remain extremely profitable businesses, companies like Apple, Google, and Microsoft are already searching for the next big thing. It looks like that will be wearables - specifically smartwatches. 

The smartwatch market is currently dominated by Pebble, Fitbit, Jawbone, and Motorola (although it’s Google really, since the Moto 360 is running Android Wear). There are dozens more, smaller companies that compete in this space, but their market share is negligible. In fact, the whole smartwatch market is extremely young.  

Most people use smartwatches as fitness trackers, and fitness enthusiasts are only a tiny subset of the market as a whole. They're the niche. The Fitbit and Jawbone Up compete here not because they don't make a more powerful watch, but because they can't. Making something like the Apple Watch requires incredible engineering, doctorate, programming, design, and supply chain talent, which these smaller companies can't fund. When the Apple Watch was announced, many pundits mentioned that unlike other Apple products, this one does too much. But that’s precisely what only Apple can do, and other smaller companies cannot compete with. There is money in in the fitness wearable market, but not enough money for all of these competitors to divvy up. Once Apple enters the wearable market, many fitness enthusiasts will leave the fitness wearable niche in favor of the consumer smartwatch market, making it even more difficult for the little guys. It’s classic disruption theory.