Apple's Next Money Maker
By David Dorf on Jan 25, 2011
What kind of company is Apple? A computer manufacturer? A software developer? A consumer electronics company? A retailer? In order to answer that question, you first need to ask, "as of when" because Apple continues to reinvent itself. I guess the more important question is, what kind of company will Apple be? That's where things get interesting.You thought QuickTime was cool until you saw iTunes, and you thought the iPod was revolutionary until you saw the iPhone. While those products have produced a steady stream of revenue for Apple, its a drop in the bucket compared to the potential of capturing fees on payments. Apple's payment infrastructure inside of iTunes is waiting to be unleashed. Step one was taking payments for songs, movies, and books; step two is enabling in-app micro-payments; and step three is offering payments inside of retail stores.
But Apple is not in this race alone. Google and PayPal are trying to do the same thing, and the banks aren't sitting still either. Everyone is trying to figure out the best way to allow consumers to use their mobile phones to make payments, and possibly replace cash altogether. The obvious technology is NFC, but it will require a large-scale roll-out of NFC readers to stores, which will be expensive. Apple needs to partner with one or two large chains (like Target or Best Buy) in addition to the Apple Stores to get the ball rolling. Once people are introduced to the convenience of NFC payments via their iTunes account, they will push the rest of the industry forward.
Eventually Apple will divorce itself from the underlying credit cards associated with iTunes accounts and introduce a closed-loop payment system that debits directly from consumer bank accounts. The money saved from avoiding interchange fees will go to Apple's bottom line and they will become a full-fledged payment processor.
In five years Apple could be making the bulk of its revenue from payment fees, and that's a long way from Breakout.