Big Opportunity: Apple CEO's Revealing Comments on Mobile Payments

Earlier this afternoon Apple announced quarterly earnings. The company reported record revenues of $57.6 billion, as well as record iPad, iPhone and Mac sales. However iPhone sales figures disappointed financial analysts, who were seeking higher numbers. 

Apple sold 26 million iPads, 4.8 million Macs and 51 million iPhones during the quarter. 

During the earnings call Apple CEO Tim Cook was asked about his company's interest in mobile payments. Cook praised TouchID as a security feature of the iPhone 5s that does trigger digital content payments today. He added that Apple was “intrigued” by the mobile payments broadly -- although he's called the space immature before. But he said Apple saw it as a “big opportunity on the platform.”

This seems to lends further solidity and credibility to recent reports that Apple is actively pursuing mobile payments.

First there was a mobile payments patent filing. Then last week the Wall Street Journal reported that two key Apple employees were involved in creating a mobile payments business inside the company:

  • Eddy Cue, Apple's iTunes and App Store chief . . . has met with industry executives to discuss Apple's interest in handling payments for physical goods and services on its devices, according to people familiar with the situation.
  • Apple moved Jennifer Bailey, a longtime executive who was running its online stores, into a new role to build a payment business within the technology giant, three people with knowledge of the move said.

Apple has roughly 600 million consumer credit cards on file in iTunes. 

Apple CFO Peter Oppenheimer also discussed iBeacon on the earnings call. He mentioned Apple's intended rollout at all the company's 250+ retails stores and described a number of use cases and applications based on indoor location awareness.

While mobile payments and indoor location aren't necessarily overlapping, they're certainly related. For example, location can be used as an added security measure to verify a shopper's presence in the store and provide additional transaction security (along with other factors, such as TouchID).  

As I've argued I think Apple will initially get into mobile payments via an API that allows third party developers to incorporate a "pay with iTunes" capability into their mobile apps. This would likely extend to developers with apps that service or cater to "offline" users. 

Study Shows Conquesting Power of Mobile Ads on Car Buyers

A new study from Cars.com and location analytics provider Placed offers some very interesting insights into how car buyers are using smartphones both before and during visits to dealer lots as part of their research process. I wrote generally about the study this past weekend.

At the highest level the report shows that a large majority of new car buyers are activly using smartphones. Indeed many more smartphones than PCs are being used in the process now.

Among the many interesting findings in the report, which is based partly on survey data and partly on behavioral observation, is the fact that smartphone owners are doing almost exactly the same things on dealer lots that they're doing in retail stores: price comparisons, looking up reviews and so on.

Below is the hierarchy of research activities happening on dealer lots, according to the study:

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For purposes of this post, I want to focus in on a particular aspect of the study: the role of mobile advertising in influencing these shoppers.

The Cars-Placed report found that 52% of what I'm calling auto-showroomers left the lot they were on to visit another dealer (within 24 hours) based on information discovered on the smartphone. That's a very high percentage; and for 33% of these people mobile ads were a key factor.

auto-showrooming 2

Below is the hierarchy of sites and mobile apps used by these auto-showroomers on dealers lots. Vertical sites and apps such as Cars.com and AutoTrader lead the way with 56% of users consluting one or more of these sites. That's followed by carmaker sites, dealer sites, search engines and consumer review websites. Although it's close the mobile web was preferred by a small margin over apps.

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It's striking though not surprising that search engines were used by only a minority of these car buyers. Vertical and specialized sites offer more immediate access to information and a better overall experience than Google on a mobile device. 

The sites list above is a potential guide for mobile advertising by dealers and automakers. And very likely that's one of the objectives of the report: to suggest where marketers in the automotive space should be spending their mobile ad dollars. However if the data are sound then the implied advertising recommendations are reasonable. Selected mobile ad networks (specializing in location) should probably also be included. 

In all smartphone-enabled car buyers are doing more research than others, including on the dealer lot. I would expect sophsiticated auto dealers and even OEMs to start incorporating geofencing and conquesting into their mobile ad strategies and tactics -- if they aren't already. 

Starbucks: 5M Mobile Payments Transactions Weekly

Last week Starbucks announced its quarterly earnings. Most interesting to us about the announcement and related conference call was the company's discussion of mobile and specifically mobile payments. 

CEO Howard Schultz said on the earnings call that, "together mobile and Starbucks card payments represent over 30% of total U.S. payment." He added that roughly 10 million customers are using the company's in-app payments capability. Schultz also reported that nearly "5 million mobile transactions [are] taking place in our stores each week." 

There are several things interesting about this. First the volume and scale are considerable. These are Starbuck's best customers generally speaking -- Schultz said that 50%+ of the mobile payments customers are "gold status" members -- but the convenience of mobile payments is also helping reinforce their loyalty to the chain.  

Unlike "horiztonal" mobile wallets (e.g., ISIS, Google Wallet) this is the kind of scenario driving mobile payments in the market today: a very specific use case with clear benefits to consumers. On the strength of these data and general recognition of the opportunity we'll see more and more QSR and similarly situated restaurant chains adopt an app-based mobile payments model this year. 

New Facts Argue Apple Payments May Be Closer than Thought

It appears the question is no longer whether Apple will break into mobile payments but when. A payments-related patent application recently surfaced that indicated Apple is quite serious -- at least over the long term -- about mobile payments. After all, it's a natural for the company. 

Yesterday the Wall Street Journal reported additional details that indicate Apple may be preparing to enter the market sooner rather than later. Here are some of the key facts from the story:

  • Eddy Cue, Apple's iTunes and App Store chief . . . has met with industry executives to discuss Apple's interest in handling payments for physical goods and services on its devices, according to people familiar with the situation.
  • Apple moved Jennifer Bailey, a longtime executive who was running its online stores, into a new role to build a payment business within the technology giant, three people with knowledge of the move said.

These moves don't guarantee Apple will enter the space but they're strongly suggestive of it. Apple has roughly 600 million consumer credit cards on file in iTunes. It also has a consumer trust advantage over other competitors in the segment. (Wall Street would celebrate an Apple move into payments.)

Apple's fingerprint sensor could become a key security feature of a Pay with iTunes/iWallet service. However there's considerable complexity still "on the back end" with real-world retailers and merchants and their POS systems. Retailers also have their own mobile payments initiative, which could create resistance to Apple just as carriers supporting ISIS have resisted or blocked Google Wallet. Those factors would probably limit the immediate availability of an Apple payments solution for goods at major retail stores, though not necessarily at places such as QSR and fast-casual restaurants. 

It would be technically easier for Apple to enter e-commerce and create a PayPal or Pay with Amazon competitor. Perhaps most likely, however, Apple could enable app developers to incorporate a Pay with iTunes capability, which would in turn enable payments for offline services (AirBnB, Uber, Dash, etc.). This is where "mobile payments" has traction today -- in specific apps or "vertical" contexts with a stored credit card. 

Apple's Passbook app would probably get merged into or incorporate any Apple payments program. I would also expect that iBeacon (BLE) would be tied in to an Apple payments solution (as with PayPay Beacon). All this potentially adds up to a very powerful set of related capabilities including location awareness/indoor location, couponing/loyalty and in-app payments (for e-commerce and offline services). 

An Apple payments service could also operate as a meaningful differentiator vs. Android handsets for both app developers and consumers. Google Wallet's offline payments capabilities have so far failed to catch on. 

I also wouldn't be surprised if Apple made one or more (high profile) acquisitions before launching payments to bolster technical capabilities. Google would probably be motivated to compete for some of the same acquisitions -- for its own sake and/or to keep them away from Apple.

In the near term, a comprehensive mobile payments solution will probably require a hybrid approach to offer merchants and consumers a couple of ways to accept mobile payments and to pay. And while mobile payments have yet to gain mainstream adoption, Apple is one of the few companies that could really accelerate the market.

Email Marketers Should Assume 75% of Opens Will Be on Mobile By Year End

Email marketing and "mobile marketing" are now effectively synonymous -- or should be treated that way. There's no trend that illustrates the decline of the PC perhaps better than the consumer shfit from reading email on PCs to mobile devices.

In Q4 roughly two-thirds of all US emails were opened on tablets or smartphones, according to Movable Ink’s Q4 2013 US Consumer Device Preference Report. That's up from 61% in Q3 and it will probably continue to grow (perhaps to 75% by year end). Although these are US data, the trend directionally applies to other developed markets.

 

Source: Movable Ink 

Here are some of the topline data coming out of the Movable Ink report:   

  • Mobile represented 65% of email opens and desktop accounted for 35% (down from 39% in Q3)
  • Roughly 16% of emails were opened on a tablet
  • Apple smartphones and tablets accounted for 50% of total email opens
  • Android smartphones and tablets represented 14% of all email opens (up from 10% in Q3)

Despite the steady climb in mobile email usage, far too many marketers still act as though their emails are being opened mostly on PCs. And even when HTML emails are formatted for mobile devices too often the landing pages and subsequent websites are not.

Report: "Mapping the Indoor Marketing Opportunity"

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Precis

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Offline analytics and indoor location will change the way that retailers, venue owners, manufacturers and brands think about operations, marketing and the customer experience. Opus Research predicts the market for indoor location and place-based marketing and advertising to surpass $10 billion by 2018.

To see a preview and view the Key Findings of “Mapping the Indoor Marketing Opportunity,” an Opus Research report authored by Greg Sterling, Senior Analyst - click here

Featured Research is available to registered users only.

For more information on becoming an I2G client, please contact Pete Headrick (pheadrick@opusresearch.net).


New Entrants in Indoor Location: Sensorberg and Datzing

The buzz around iBeacons continues this week with a couple new hardware and software technology vendors entering the market for indoor location.

Hardware startup Sensorberg, based in Berlin, Germany, has secured $1 million in funding from Technologie Holding GmbH and undisclosed angel investors. Sensorberg offers various packages to retailers that combine setting up Beacon sensors in stores to deliver mobile marketing campaigns and location features via software developer kits and management dashboards. The prices range from as low as $120 (€89) that includes 3 mini-beacons and an SDK to connect apps to an unlimited package that offers developer resources and enterprise support.

Founded in 2013, Sensorberg began as a startup in the Microsft Ventures Accelerator in Berlin and plans to use the new funding to further develop its platform and build an extensive iBeacon network.

Meanwhile, in Los Angeles, CA, Datzing is positioning itself as a new competitor to Apple's iBeacon with an Android platform for indoor location technology. Profiled this week at The Verge, Datzing is a software-based startup with patent-pending technology to turn a Bluetooth or Wi-Fi device into a beacon. Datzing doesn’t require purchasing any special hardware to set up an access point. The company plans to launch an Android beta app in March and doesn't rule out the possibility of an iOS option down the line.

While iBeacon is getting more than its fair share of press -- notably, a partnership between ShopKick and American Eagle (AE) Outfitters to outfit 100 U.S. stores with iBeacons and Apple's chain-wide deployment of iBeacons last year -- the push for in-store marketing and indoor location is still in its infancy. This year should present a good opportunity to see how the market plays out.

Pay with iTunes: Apple (Finally) Declares Intention to Enter Mobile Payments

For the past several years there's been speculation about whether and when Apple might throw its hat into the mobile payments ring. A new patent application (filed in Q3 2012 and discovered by Patently Apple) indicates that Apple is ready to move and introduce an iWallet. 

Here's the abstract, which indicates use of two or more technologies to enable the transaction:

A commercial transaction method is disclosed. The method first establishes a secure link over a first air interface by a purchasing device. This secure link is between the purchasing device and a point of sale device. The method further identifies a second air interface, which is different from the first air interface, and the second air interface is used to conduct a secure commercial transaction.

Multiple technologies are discussed, including Bluetooth Low Energy (behind iBeacons), near-field communications (NFC) and RFID The failure to incorporate NFC into the iPhone was regarded generally as a rejection of the technology by Apple in favor of others (e.g., BLE). However the patent application suggests that future iPhones (and iPads) would potentially be compatible with it.  

Apple's failure to build NFC into the iPhone is one reason it has stalled in the US. However, as the patent application suggests, NFC in the US may not be dead after all. We'll see.

The precise technologies and methodology described in the application are less important than the existence of the application itself. Mobile payments for offline services or goods are starting to happen but generally not in a "horizontal" context. They're happening today in very specific scenarios (e.g., Uber, Starbucks, parking apps, dining). Google Wallet and carrier-backed Isis, which are broad "horizontal" payments platforms, have largely failed. 

Given its installed base of users and credit cards on file Apple could potentially spark widespread adoption of payments by consumers. Apple has more than 600 million consumer credit cards registered. That's quite a bit more than even Amazon and more than PayPal as well.

The payments segment will consolidate in the next 12 to 24 months and there will be a number of additional acquisitions by the major players for technology or to remove competitors from the market. 

Ultimately mobile payments -- paying with smartphones for goods or services in the physical world -- will shake out as follows: mass-market/horizontal mobile wallets dominated by a few major players: potentially Apple, Amazon, PayPal, potentially Square and maybe Google. Banks are a wild card. 

Otherwise individual apps (including retailers) will offer to store consumer credit card information for faster checkout or frictionless offline payments. But the payments giants will also likely be options within these app/vertical contexts as well (e.g, PayPal, pay with Amazon, pay with iTunes). 

iBeacon Surging but a Hybrid Approach to Indoor Location Will Prevail

In partnership with ShopKick, American Eagle (AE) Outfitters is outfitting 100 US stores with iBeacons to power deal notifications when shoppers enter stores. ShopKick also has a similar but much more limited partnership with Macys.

Right at-the-door notifications are the full extent of the ShopKick-AE indoor marketing functionality. But later it will become more precise by area or zone within the store. 

Outside of Apple's own chain-wide deployment of iBeacons this is the largerst and most visible iBeacon launch to date. Clearly Apple's credibility and support of BLE and iBeacons is propelling the technology. However it's important to point out that iBeacons don't work with older iPhones and it only work with a few Android phones currently.

Over time that will change. But iBeacon is not a stand-alone or complete solution. 

The rise of iBeacon argues that it will potentially be one of several "winning" indoor location technologies. But there won't be a single technology standard that emerges. Retailers and others will need to employ a layared or hybrid approach to provide store coverage and accuracy. 

WiFi and closed circuit TV are the foundational in-store analytics and location technologies -- but WiFi in particular. Acousitc, LED lighting and magnetic may also make gains as retailers and venue owners come to see they need multiple approaches for success. For example, Rouse Properties has adopted acoustic technology from Sonic Notify to power indoor location awareness and marketing within its network of 34 malls in the US. 

While indoor analytics are driving the market, companies are quickly stepping up with consumer-facing solutions -- such as ShopKick-AE. And while consumers widely use their smartphones in stores and are generally interested in things such as deals and personalization, retailers will need to be careful about annoying or spamming consumers with too many messages. 

For example, research from ISACA suggests that an education process and gradual roll out of indoor marketing are in order. Too much, too soon may have the opposite of the desired effect:

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Half of Americans Own Tablets or E-Readers

We've reached a potent new mobile milestone: half of Americans own tablets or e-readers. That's according to new data from the Pew Research Center. 

Specifically Pew says that 42% of American adults now own tablets and 32% own e-readers. Some own both. Pew says its survey was based on a representative sample of 1,005 adults (18 and over). It was conducted in early January -- so after the holiday.  

Pew tablet numbers

The iPad is still the dominant tablet, driving roughly 76% of all North American tablet traffic according to ad network Chitika. The following traffic-share figures were captured just after the holiday:  

  • iPad: 76.1%
  • Kindle: 9.4%
  • Samsung: 5.9% 
  • Microsoft Surface: 2.3%
  • Google Nexus:  2.0%
  • Other: 4.4% 

There are roughly 242 million US adults according to census data. If we can extrapolate the Pew survey data to the entire US population of adults it would mean that there are roughly 102 million tablets and 77 million e-readers in the market, owned by 121 million adults.

Notwithstanding some anomalous comScore data, the overwhelming body of evidence is that tablets are much more commonly used for e-commerce purchases than smartphones. Consumers shop on smartphones but much more commony buy on tablets. 

Tablets will out-ship PCs this year. Pew says its survey revealed that 75% of US adults own PCs (desktops or laptops). That number is flat.

We may reach a point in late 2015 when there are an eqivalent number of tablets and PCs in the US market. The web design and marketing implications of this are obvious. But when one combines the number of smartphones and tablets in the market, they exceed the total number of PCs already.