Payments, Screen Size and Skinny Jeans: Apple's Local Angle

This week has been all about Apple. That’s included some decent analysis, and a whole lot of overblown adoration that “they’ve done it again.” Larger iPhone screens are great but I’m not sure they’ll fit into the skinny jean pockets of the millennial target audience.

In all seriousness as an Apple fanboy, longtime user, and industry watcher, I see implications for larger screens to jumpstart lots of cool app development. I’m bullish on what this will do for content and ad delivery, but downright skeptical about Apple Pay.

Building on our pre-launch analysis, let’s take those one at a time, putting aside the Apple Watch for another post.

Size Matters

Larger screen iPhones are important for lots of reasons. But let’s be clear that this is one of the cases where Apple isn’t leading but following. The SamDroid world is way ahead on this one. Regardless, the marketplace demands larger screens so that’s where we are.

This is also interestingly one of those times when Apple is going back on a vehemently drawn line in the sand. Few people remember Steve Jobs’ fastidious stance that 3.5 inches was the canonical sweet spot for a smartphone (size of original iPhone through the 4s).

Part of the marketplace demand for larger screens goes back to other macro factors such as better connectivity and Moore’s law-driven hardware improvements. These have converged to enable the age of social sharing through Instagram, Snapchat, etc..

Capturing and sharing multimedia via increasingly powerful optics is commonplace. So larger screens to consume that media is a natural progression that aligns. And we’ll see the app development community do some cool things to utilize a larger screen.

The Ad Angle

For the same reason, the ad ecosystem just got a lot more interesting. As we discussed in our last video roundtable, and Peter Krasilovsky’s post earlier this week, larger screens have lots of implications for ad delivery.

But importantly, this won’t just mean more real estate for larger banners. Successful ad strategies will take more of a holistic approach to delivering brand messaging in ways that are more native to a bigger screen… rather than making existing banners larger.

And the ad implications go back to the social sharing point.  We’re moving past mobile advertising’s first few phases which were all about banners. Content marketing is gaining lots of steam from the above cultural and technological trends around social sharing.

This translates to advertisers sharing multimedia to communicate a message. For brands, that’s Instagram images (cold beer against a sunset, etc.); For SMBs, it’s capturing experiences in and around their locations via Instagram, Vine or Yelp’s new video feature.

The point is that larger iPhones are cohesive with these macro trends so it should play well. Again, Samsung is already there, but a larger iPhone is notable given its  leading share of ad impressions — despite a disproportionately lower share of device ownership.

Hucksterism at its Best

Here we go again with the overblown excitement over mobile payments, and the inability to learn from recent events. Perhaps there’s the implicit feeling that Apple will do what others have failed to do — which it has done numerous times (tablets, MP3 players, etc.).

I don’t believe payments is going to be one of them, and for one simple reason: It continues to be a solution in search of a problem. Generalist tech media (and mobile payment providers), continue to contrive a problem that doesn’t exist: plastic credit card use.

Even Apple’s video to pitch Apple Pay had a comical “before” rendition of consumers fumbling with credit cards. It was the stuff of bad infomercials that show pasta sauce spattering all over the counter and walls; enter the magic snapping lid to solve all problems.

As I keep saying, the value proposition for mobile payments has to be something greater than reducing my wallet by the atomic mass of a credit card. Those could include tangible benefits like skipping store lines, saving time, or substantial monetary rewards.

We’re talking about deeply entrenched payment habits for which there are high psychological switching costs, due to inherent security concerns. And that might be the only place Apple went right in its Apple Pay pitch: leading with the security advantages.

As background, Apple Pay is encrypted at the point of sale, not revealing payment information. That’s more secure than plastic credit cards, given that store associates or restaurant servers absolutely can see that info — the number one source of credit card fraud.

But not sharing and tracking that information is also one of Apple Pay’s downsides. This eliminates one of the often-repeated endgames for mobile payments… to facilitate rewards programs via shopping history. That isn’t going to the the case, at least for now.

What Came First?

Finally, my reticence about Apple pay comes straight from NFC. We’ve seen this technology’s implementation struggle for years due to one main factor: the chicken and egg problem.  Merchants won’t invest in costly POS terminals without a critical mass of usage.

The thought is that Apple has jumpstarted the latter. But has it really?  We’re at least a year from ubiquity of NFC enabled iPhones — at least a level that’s going to cause a dent in retailers’ business case to upgrade POS terminals. It’s a compatibility issue.

The mismatch in this two sided marketplace — needing scale and network effect to get over that compatability hump — will be further dampened by the original argument above… no one is clamoring for a digital solution to an analog problem that doesn’t exist.

In fairness, Apple has signed on lots of retail partners already. But that’s the classic Apple halo effect… the same reason iAd had top brands lining up to run campaigns after the first shiny announcement. We all saw what happened when that died down.

Apple Pay will be a ghost town for at least several months, during which you can expect to see more than a few YouTube videos capturing POS mishaps and confusion. That won’t be quite as good for PR as the sparkling keynote address that launched it.

And Why?

Whether or not they work, let’s get straight Apple’s intention for launching these features.  It’s not ads, payment processing revenues, or anything else as others have speculated. It’s all about selling more iThings.

Apple’s core revenue stream is hardware. That is how it makes money and how it has positioned itself to derive massive margins and a stratospheric market cap.  All moves it makes are to protect and grow that revenue stream.

Making its devices more attractive via greater functionality and gadgetry is the reason for this week’s announcements (the same argument applied to its mapping acquisitions). That’s where iWatch comes into the picture. But again, that’s a post for another day.