If it happens that Apple iPhones can act as contactless payment terminals, it will provide a clear example of something that happens in technology-shaped competitive markets: redefinition of market boundaries.
Colloquially, “firms that used to be outside one’s business wind up inside the business.” Telcos once competed (briefly) only against other telcos. Then it became more common to hear telco executives saying they “compete with Google.” That was often a bit of hyperbole, but then Google became an internet service provider, a mobile services provider, a messaging provider, a voice services provider, a linear video provider.
One might argue that Netflix “had no business” in subscription TV. It was a competitive disruptor of the videocassette rental business, after all. But the very improvements in home broadband that made internet access the key revenue driver fo the fixed networks business also allowed Netflix to change its model.
Streaming now undermines the legacy TV subscription business.
Earlier, telcos found they were competing with Skype in international long distance, while Facebook became a major messaging platform limiting demand for text messaging.
The bigger change came with the choice of internet protocol as a telco next-generation platform. That choice instantly broke the application and service “gatekeeper role” of any telco. No longer can a telco dictate what lawful applications can be used by customers of any telco’s internet access service.
To be sure, telcos still control the creation and offering of managed services on the closed telco platform. But most applications now are created for internet access, not as managed services on a telco platform.
To reiterate, deregulation and use of the internet have similar impact on industry structure: they enable new entrants from “outside the industry” to enter a market.
To be sure, transaction processor Square (now “Block”) has allowed iPhones to become credit card readers by adding a plug-in or wireless piece of hardware.
The move by Apple to incorporate the function directly into the iPhone removes the boundary between “transaction processing using credit cards” (payments) and “phones.”
To be sure, redefining boundaries is one growth strategy for any firm in any industry. In any competitive industry with weak barriers to entry, high profits will attract new entrants. That leads to downward pressure on prices.
But technology substitution also happens, a new form of competition where the traditional boundaries between industries become porous.
Also, the internet now functions much as deregulation does: it not only creates the potential for more competition, but also competition from possibly unexpected contestants.
As we have seen more unstable markets since the telecom wave of deregulation and privatization that began in the 1980s, we have seen even more disruption in the internet era.
Use of an Apple iPhone as a payment processing terminal is one example of how competitive markets, often enabled by technology, erase industry boundaries. When that happens, attacks by new competitors outside the industry become more common.
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