Apple, until recently the single most valuable company in the world, held an event last week to demonstrate how it would once again dominate the landscape of personal technology. The headliner of the launch, which the company always saves until the end of the show, was the Apple Watch, an undeniably slick device that stores much of the power and utility of an iPhone on your wrist (though it doesn’t actually work without the help of the iPhone). The gathered crowd roared in response to the unveiling, but the real star had already been announced. It was Apple Pay, a mobile payments system that promises—or threatens—to remake how we interact with money.
How Apple presented the new tool played on an old cliché of financial technology innovation. A video showed a woman rummaging endlessly through her purse to find her credit card, like b-roll from some strangely high-budget late-night infomercial. Her hand finally emerged holding the card, which the cashier had to stare at, ask for ID, then swipe, before the woman could finally go on her way. So arduous! So demeaning, to have to move a physical object through another physical object in order to transfer funds!
The idea of companies creating monopolistic economies is far from new—one comparison might be the company stores that mine operations ran.
Apple is turning any semblance of physical money into an anachronism. In the contrasting Apple Pay video, the woman simply taps the phone she is already holding in her hand to a cash register device on the counter below the smiling store clerk. The money is exchanged and the economy heroically continues its inexorable movement. The trick is accomplished by means of a near-field communication (NFC) chip embedded in the new iPhone 6 as well as the Apple Watch that uses radio signals to securely transmit data over short distances.
Like other digital wallets, Apple is taking a skeuomorphic approach to getting you to spend money on your phone. The Apple Pay app will contain a selection of credit cards—tap one, and that’s the account you’ll pay out of. Yet the company is solving many of the problems that other attempts at digital money are still balking at. Unlike Square, Apple already has so many devices in the field that it won’t have to hustle to get them into stores or the hands of merchants. Whole Foods, Macy’s, Walgreens, McDonald’s, and Sephora have already signed on to the system. And unlike PayPal, it already has the trust and dependence of millions of daily users—instead of a niche platform, Apple Pay is positioned as a mainstream tool.
Throwing out our wallets is going to be very tempting as Apple Pay gets rolled out over the next year. The initial slew of retailers will likely give way to a much larger set as the NFC devices replace the usual registers. And as good as it could be for users—we fumbling card-holders—it’s even better for Apple. Mobile payments is a huge, growing market that reached $235.4 billion worldwide in 2013 (a figure only slightly higher than Apple’s annual revenue). It has the potential to be a much larger business than Apple’s devices: the company stands to make a commission of 0.15 percent on every purchase carried out with Apple Pay.
Rather than technology, Apple is leveraging its body of users as its central product. Similar to how phones are discounted to get new buyers enrolled in cell and data plans, Apple is using its products to draw customers into the Apple ecosystem, where phones and watches are a gateway to products like iTunes, the App Store, and Apple Pay. Once inside the Apple economy, where money flows from one Apple product to the next, users will have little reason to leave, let alone pull out their credit cards.
This is what positions Apple uniquely as the champion of mobile payments. Rather then just building a tool for moving money around, they also own an entire marketplace in which and through which money can be spent. The construction of a community of users and a closed, paying economy has become the ultimate goal of many technology companies.
The idea of companies creating monopolistic economies is far from new—one comparison might be the company stores that mine operations ran. Miners were paid in “scrip”—metal or paper tokens that were only valuable within the economy of the mine to buy clothes, equipment, and food. As in any monopoly, the company was able to charge whatever prices it liked for the goods on sale because its customers had no alternative.
While Apple’s system is not such a closed loop, the comparison makes me wonder how the company might in the future protect its economy with such strategies, by introducing its own forms of currency, for example, or manipulating prices with the same intentionality of Amazon driving down the sale prices of books. As one Twitter user responded, this economy of economies is “capitalism on the back of every turtle, all the way down,” referring to the Zen koan of infinite regression. The ultimate beneficiary is the company who controls the economy, not the user who feels the illusion of freedom within it.
This growing economy of economies drove another recent technology business move. Microsoft acquired the video game studio Mojang, the creator of the massively popular sandbox game Minecraft for $2.5 billion. The game is already extremely profitable as a product, but the acquisition is far more about the older company gaining access to Minecraft’s built-in paying audience of young gamers, who form potential converts to Microsoft’s larger ecosystem of products. Get them early, and they’ll buy in to the economy for life.
All businesses are turning into Disney. First, cultivate an audience; then, figure out any and all ways to monetize them. Why stop at just selling a watch?