Apple Could Be Huge in Mobile Commerce, But Will It?

Will Apple, though universally considered one of the most-important potential influences in mobie commerce, decide that the mobile commerce experience is big enough to matter, and is conducive to the creation of devices that are the best possible approach to that problem?


It's an important question. For starters, Apple makes products. To be interesting, an unmet need has to lead to the creation of a device that offers a dramatically better experience. 


"Our goals are very simple, to design and make better products," says Sir Jonathan Ive, Apple’s SVP of Industrial Design. "If we can’t make something that is better, we won’t do it." 

Apple's approach therefore requires identification of a mobile commerce problem that can be solved by a product. Also, Apple creates consumer products. That doesn't mean those products are not used by people in their business roles. It's just that Apple doesn't do "industrial" products. 

In many cases, there's a problem which is clear, such as Apple's belief that mobile phones and TVs offer experiences that are terribly sub-optimal. 

In a startling number of cases, though, Apple tackles problem people are not aware of, or for which nobody has articulated a need. That's one reason Apple does not do focus groups or other market research to uncover unmet needs. 

"It’s unfair to ask people" how well they would like a product they have never seen and do not know they need, he argues. 

Tablets are Changing Content Consumption Habits

Consumer and business content consumption patterns appear to be changing as tablet and e-reader ownership grow super fast. In fact, one might argue that tablets and e-readers are being adopted faster than any other consumer electronics or communications products of all time.

The share of adults in the United States who own a tablet of some sort nearly doubled from 10 percent to 19 percent between mid-December 2011 and early January 2012. That’s a doubling of mass market adoption in just 30 days, from a significant base.

The ownership of e-readers also surged from 10 percent to 19 percent over the same time period. Tablet ownership doubled in two months

That is an unprecedented growth rate for any consumer electronics device. Tablet ownership also had been on a strong adoption path earlier in 2011 as well, but doubling in 30 days from a base of 10 percent seems never to have occurred before.

And it appears that strong adoption is occurring both in the consumer and business markets.
Fully 51 percent of IT decision-makers surveyed by IDG say they “always” use their iPad at work (and a further 40 percent say they sometimes use it at work), IDG reports after conducting a survey on tablet use for work. Tablet business use

Though iPads seem to be used for a variety of purposes, content consumption seems to be a dominant business application, though significant percentages of business users also say the tablet displaces some amount of smart phone use as well.

Web browsing, reading and news consumption are the top three usage contexts identified by professionals worldwide.

Whether tablet ownership “revives” the print newspaper and magazine market remains to be seen. But it already is pretty clear that tablets and e-readers are changing the function of “reading.”

The survey suggests that tablet computing is transforming patterns of content consumption. iPad-owning IT and business professionals are rapidly migrating away from newspapers and printed books, toward digital alternatives.

Nearly three quarters of iPad owners say that owning an iPad has reduced the frequency with which they purchase newspapers and books. Whether that helps or harms print content providers remains to be seen.

What is very clear, though, is that tablets and e-readers are being adopted faster than any other personal device, period.Historically, 10 percent adoption of a consumer product has been an inflection point: it is the point in an adoption process that represents critical mass, after which adoption accelerates.There are some caveats. Not every innovation succeeds. This chart only shows you what happened with the most-popular consumer electronics services and products.

The point is that it can take quite a significant amount of time, between three and 10 years, for a successful and mass-adopted innovation to reach the crucial 10-percent-of-homes threshold, which seems to be the point at which any innovation really begins to accelerate, in terms of adoption.Tablets not only reached that level in a couple of years, they then exploded, doubling from 10 percent to nearly 20 percent, in literally 30 days. That is unheard of.

Also, it appears that Amazon might be winning its bet that if it sold Amazon Kindles almost at cost, it could grow content sales substantially.

RBC Capital analyst Ross Sandler polled 216 Kindle Fire owners and concluded that Kindle Fire tablets are making Amazon more money than was originally expected. Sandler originally had estimated that each Kindle Fire unit would generate about $136 in content purchases over the useful life of the device. Content purchases on Kindle Fire

But Sandler’s most-recent survey of 216 Kindle Fire owners suggests content revenue might be higher than that.

The survey found that roughly 80 percent of users already have purchased ebooks, with 58 percent of respondents buying more than three e-books within the first two months of owning the tablet.

Averaged out, that’s five e-books per quarter, which nets Amazon $15 per Fire owner per quarter, assuming an average selling price of $10 for ebooks. That further implies revenue from e-books of about $60 a year.

About 41 percent of Fire owners also say they have bought at least three apps. This will put another $9 per Fire owner per quarter into Amazon’s coffers, or $36 a year of net revenue (after splitting gross revenue with content owners).

That implies possible gross sales of about $30 a quarter worth of apps, assuming Amazon’s share of revenue is 30 percent.

Those figures suggest annual Kindle Fire revenue of about $96 a year. Over three years, that suggests $288 of revenue for Amazon, even if users do not buy any video or audio products, which seems unlikely.

Citi Launches Kindle Fire App for Mobile Banking

Citi is expanding its mobile repertoire with the launch of a Kindle Fire application that lets consumers track, analyze and plan their finances.


The Citibank Kindle Fire app lets consumers access their finances no matter where they are. 


In addition to the new app, Citi has also rolled out two additional mobile banking capabilities, mobile check deposit and Citibank Popmoney.


Through the Mobile Check Deposit feature, consumers can take photos of the front and back of their check and submit it for verification. 


The Popmoney feature lets users send money through the Citi Mobile app to people they have set up as payees on Citibank Online.


There's a broader question bankers themselves, and others in the mobile commerce space, always ask. Namely, what is the return on such investment? The key problem for a bank is that it is not clear whether a bank actually grows its revenue when it invests in the mobile channel. 


It might be a key cost of doing business. There should be some benefits in terms of customer satisfaction, stickiness and churn retention. There could be some operating cost implications. But it remains unclear how big those effects might be, in terms of revenue. 


The problem is akin to the similar issue telecom service providers face when offering voice over Internet Protocol services that displace older voice services. The problem is that incumbents typically have found they cannibalize the older services with the new, investing heavily in return for less revenue. 


Bankers might find something similar is the problem with mobile commerce, banking and payments. Citi Kindle Fire App

What Ails Video on Demand?

According to a new report released by The Diffusion Group (TDG), video-on-demand services provided by PayTV operators should be, but are not, generating significantly higher viewing and advertising revenue. Total VOD use is small, representing only one percent of all U.S. TV viewing.

By some measures, VOD is doing better. Magna Global has estimated that U.S. homes with VOD, a "category that includes both traditional multichannel VOD offerings and over the top services," will hit 70.1 million homes, about 57 percent of all TV homes at the end of 2016.


But note the conflation of traditional VOD and over the top services and apps. Some of us would not classify over-the-stop streaming as VOD, just as time-shifted viewing on a digital video recorder is not VOD, and Netflix streaming is not VOD. 


Still, even availability is not the same thing as "usage." Hundreds of TV channels are available on cable, satellite and telco subscription video services. That doesn't mean those channels are viewed by most people. Much as fixed line voice service is available to most homes, but isn't necessarily purchased by all those homes, so too for-fee or ad-supported VOD is available relatively widely, but isn't used much. 

TDG attributes that failure as a reflection of VOD's inadequate advertising support and awkward program guides that limit availability and viewing of ad-supported video-on-demand content. VOD hampered


Some of us might argue that "inattention" not withstanding VOD never has gotten much traction in the U.S. market and that the problem is lack of interest and demand on the part of consumers.


Service provider lack of attention to ad-supported VOD is the problem, TDG argues.


According to Bill Niemeyer, TDG senior analyst, "operators have failed to take advantage of VOD to build subscriber satisfaction, generate ad revenues, and head off competition from over-the-top (OTT) providers like Netflix." 


Niemeyer estimates in the fourth quarter 2011, Netflix U.S. subscribers watched 80 percent more streaming video hours than were viewed in the same period on all U.S. PayTV VOD.


Some of us might argue that marginal failures to market and support VOD could be an issue. But there is a reason service providers do not market VOD so intensively. VOD simply does not contribute significant revenue for a service provider. 


VOD in recent years has contributed about $2 billion a year worth of revenue for U.S. video entertainment providers. U.S. cable TV companies alone booked about $98 billion in 2011 revenue. That doesn't include the sizable revenue earned by satellite and telco providers as well. 


The point is that VOD, as a service, has been a modest success, though it has had three decades to make its case. 

Amazon Bets on Buying, Reselling iPads to Boost its Own Business

Amazon is among the best marketers in the mobile commerce space, perhaps the boldest. While most other contestants consider near term return on investment, Amazon frequently goes for the long term opportunity, even at short term risk.

Amazon Trade-In, for example, lowest offers a trade-in program  iPad 2s, giving users $236 or more fore units in “good” condition. Apple is selling new iPad 2s for $399.

While other trade-in sites will give sellers cash, Amazon gives customers store credit. In essence, Amazon is simply buying a bit of business. For starters, the reconditioned iPads are in turn sold on Amazon for $360 or more.

By some estimates, Amazon might actually lose $14 after buying, reconditioning and reselling any single iPad. But that isn’t the point. It never is, with Amazon.

Users then buy stuff from Amazon, which begins to earn back that $14 of loss.

There’s a chance, though, that Amazon could get even luckier on you. If you use your trade-in money to buy a device or service that keeps you locked to the company for a long time, Amazon might end up making more money on you over time, especially if the user buys a Kindle, or joins Amazon Prime.

One analysis suggests that after joining Prime, the amount of money that a customer spends at Amazon jumps from $400 per year to $900 per year.

Proof of App Store Value for Devices

It is by now conventional wisdom that the success of a device ecosystem hinges on its application and content richness. 


The Apple iPod needs iTunes, Android requires Google Play. A study by GfK supports the notion.


Consumers are less likely to switch device brands the more applications and services they use on the device, GfK finds. 


GfK’s report on user experience and loyalty in the digital ecosystem, was undertaken across nine countries including Brazil, China, France, Germany, Japan, Italy, Spain, United Kingdom and the United States.

Some 19 percent of consumers that own both an iPad and an iPhone believe that changing types of smart phone is more difficult than changing bank accounts or gas or electricity providers, in fact. 

The study shows that their loyalty to their smart phone brand increases with the number of apps and services used. The research reveals that the tipping point for loyalty is when a consumer uses seven or more services on their device. At that point, consumers see themselves as locked in to a device ecosystem. 

Consumers in the United States are the most likely to use seven or more services (61 percent), followed closely by China (56 percent) and Brazil (53 percent). In comparison to this, European countries use fewer services on their smartphone; France and Italy (46 percent), Germany (45 percent), Spain (43 percent) and the UK (42 percent). 

How Do You Sell an Intangible Product?

For most of its 150-year history, the telecom business has had to sell an intangible product, with few proxies for value and few ways to create a "hot" emotional connection with customers. As value as "dial tone" might be, what consumer is emotionally involved with the product?

That changed with the introduction of the Apple iPhone. For the first time in its history, telcos have a physical embodiment of service with which consumers do have emotional connection. The problem, some executives will note, is that the bond is with the third party device, not the service provider or service. That's correct.

Still, for those who have been waiting for some way to create high emotional engagement with an intangible communications service, iPhone is the closest proxy in 150 years. And that matters. 

Recent data from Motista illustrated the top emotional drivers behind retail purchases in the fourth quarter of  2011 were more motivated by “fun” and “comfort in life,” reflecting an emotional need they want from their retailers. 

The data also compared satisfied consumers to emotionally connected consumers, and forty-six percent of emotionally connected shoppers indicated they always shop a particular retailer first compared to only 13 percent of “satisfied” shoppers. In other words, emotionally connected shoppers are four times more likely to shop a particular retailer first. 

Emotional involvement makes a huge difference.