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Apple's New Product Storm May Uproot Long List of Companies


News » Technology/Innovation
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IMAGE: Apple Inc. »

September.11.2014

Apple learned early on that it doesn't always pay to be a pioneer. While it largely created the modern personal computer, the company lost out (at least for a few decades) to Microsoft and its hardware partners.

Ever since then, Apple has made a killing by waltzing into markets established by others and quickly taking over, leaving behind a trail of losers. Remember Creative Labs or Diamond Multimedia in the pre-iPod days? Or Nokia, RIM and Palm before the iPhone came along?

Apple’s trifecta of big announcements yesterday — big screen iPhones, the Apple Watch and the Apple Pay payments system -- put a new crop of companies in Apple’s way. Here are the ones that could lose ground if Apple gains with its latest offerings:

Samsung, Google

OK, Samsung Electronics is already very much in Apple’s way as the world’s largest maker of smartphones. But much of that success came from Apple’s lack of larger-screen iPhones or phablet-sized devices. Apple filled those holes with the iPhone 6 and the iPhone 6 Plus.

Besides appealing to middle-aged reporters with fading eyesight, these models will also be popular with corporations, Aaron Levie, CEO of Box, said while chatting in the demo room after Apple’s keynote. “The more screen real estate you have, the better it is for the enterprise,” whether it’s for use by doctors or for salespeople tracking orders.

Samsung has tried in recent years to make its Android-based phones more popular with the corporate set. That job just got a lot harder.

Speaking of Android, Google is another potential victim. Its Google Wallet payments plan has languished as merchants failed to invest in the required hardware en masse. Should Apple Pay take off, that’s a lot of customer data that Google will not get. And Google Glass’s day in the sun as the world’s most famous wearable has now officially ended.

Samsung didn’t immediately respond to a request for comment. Google spokesman Christopher Katsaros declined to comment.

Jawbone, Fitbit, Pebble

The clock will begin ticking for some makers of wearables once the Apple Watch hits the market next year. Apple could sell between 15 million and 20 million units in its first year, said Cowen & Co. analyst Timothy Arcuri in a recent note. That compares with the 6.3 million wearables sold globally in the first half of 2014, according to Canalys.

That could put pressure on Fitbit, Pebble and scores of other Kickstarter-born makers of stand-alone wearables. Jawbone has already announced it will make its activity-monitoring software available on other devices, including the Apple Watch, a sign that the maker of the Up wristband wants to ride on the Cupertino giant's coattails rather than solely be a competitor.

FitBit, which dominates the U.S. market with a 69 percent share, is betting that there will be plenty of room for new competitors. FitBit CEO James Park told Betty Liu on Bloomberg TV that “the market is much, much wider” than the high-fashion, high-priced demographic the Apple Watch will appeal to. He also noted that FitBit software runs on 120 different devices, including Apple’s when it gets to market.

Pebble CEO Eric Migicovsky said his company had been working on creating wearables for six and a half years, and there’s plenty of room left to innovate. Apple’s entry into wearables “is a massive validation of the space,” he said. “Our feeling is that smartwatches and wearables are the future of computing and there’s a lot more work left to do.”

For bigger players such as Samsung and Lenovo, neither of their fortunes rest with their smartwatches. Lenovo, which recently bought device maker Motorola from Google, got mixed reviews for its Moto 360watch.

PayPal, Square

If hundreds of millions of Apple customers will soon be able to purchase things with their iPhone or Apple Watch, why would retailers or other merchants want to bother using payment systems from companies such as PayPal and Square? Especially if it means potentially losing business from Apple’s affluent customer base to the impressive ecosystem of partners that have already thrown in with the tech giant. This group includes Visa, MasterCard and American Express, leading card issuers such as Citibank and Wells Fargo, and retailers and food chains including Target, Subway and McDonalds.

Merchants will like that Apple earns a fee from banks and card issuers, not from the businesses themselves. That's different from Square, whose model relies on merchant fees incurred each time a card is swiped.

Square said it's working to make its mobile-payment applications compatible with Apple Pay. Anuj Nayar, head of global initiatives at PayPal, didn’t indicate whether PayPal would work with Apple Pay. In an e-mailed statement to Bloomberg News, he said "if it takes off, there’s no reason why we couldn’t be another payment network" working with Apple Pay.

Apple’s timing seems just right. Mobile payments in the U.S. are expected to go from $1.6 billion in 2013 to $118 billion by 2018, according to market research firm Emarketer. It will take a boatload of devices to do all that shopping.

Softcard

It's not clear what effect Apple's push into payments will have on Softcard, formerly known as Isis Wallet until that name was co-opted by the violent Islamic State extremist group.

Softcard CEO Michael Abbott posted a blog yesterday saying his company was "actively working with Apple" on an Apple Pay solution. So stay tuned.

Merchants? Maybe

Many retailers have banked on mobile payments as a way to more easily capture information about the behavior of their customers -- what they buy, when they buy it, what kind of offers appeal to them. Trouble is, with Apple Pay, Apple becomes the keeper of that data.

That means Apple’s brick-and-mortar partners could be cut off from some of the mobile data collected on their customers' habits, said payments consultant Richard Crone. “The general rule for quick service restaurants is that 10 percent of the customers are responsible for 30 percent of the profit, but McDonalds doesn’t know who is in that 10 percent,” said Crone. “Now, they may never know.”

One obvious omission from the list of partners is Starbucks, which has pushed consumers to use its own iPhone and Android apps. Currently, more than 15 percent of its sales come via these apps. The question now is whether Starbucks will invest hundreds of millions of dollars to install the NFC gear required by Apple Pay in its stores.

If Starbucks doesn't join in, it may lose some latte sales to consumers who swoon for Apple’s new payment method, but that’s a safer bet than letting Apple be the keeper of its customer info, said Crone. Apple did not provide any details on what, if anything, it would do with the shopping data, but sooner or later, Apple will find a WAY TO MAKE MONEY ON that crucial bit-stream.

“If it can get merchants to drink this first glass of Kool-Aid, Apple will be in a position to extract monopoly rents for access to the customer data," Crone said. "I refuse to believe Apple intends to do this for free over time. They are very good about separating their business from their charities.”

Linda Mills, a spokeswoman for Starbucks, said that customers will be able to fund their [loyalty] card using Apple Pay. Also, the company will soon enable mobile ordering, so you can order that latte as you leave the office and skip the lines. As for making the investment in the NFC gear that could let customers easily pay without opening the Starbucks app at all, that is currently being looked at.

“We’re looking at what is the most relevant offering for our customers. It’s not just about payments for us. How do we do personalized offerings, give access to our rewards and loyalty programs and to other services. That’s what is on the forefront for us.”

Corning

The once-sleepy glass maker got a heavy sprinkling of Apple pixie dust when it created the Gorilla Glass that has protected iPhones and iPads from the start. Now, Apple is investing heavily to create its own touch-screen displays made of industrial sapphires. Apple, which is already using it for home buttons and to cover the camera lens, is now utilizing the nearly break-proof material for the face of the Apple Watch.

It won’t happen overnight, but at some point Apple will make Sapphire-based screens that are big enough for iPhones and iPads. The near-term hit to Corning won't be big, but Apple isn’t investing more than $500 million in a sapphire factory in Arizona just to make home buttons and watchfaces, said Creative Strategies founder Tim Bajarin, in an interview on Bloomberg TV.

Dan Collins, a spokesman for Corning, said that Apple continues to be a large customer. CEO Wendell Weeks has told investors previously that sapphire screens are ten times more expensive to produce than Corning’s Gorilla Glass and take 100 times more energy to produce.

Article Credit: Bloomberg

Updated 3 Years ago
 

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Tags:     Apple     Samsung Electronics     Aaron Levie     Android     James Park     Eric Migicovsky     Michael Abbott

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