Apple Pay

Can Apple Push Past Early Adopters?

“I have not failed.  I’ve just found 10,000 ways that won’t work.”

-Thomas Edison

Thomas Edison, the Wizard of Menlo Park, is often compared to Apple founder Steve Jobs, a comparison intended to be simultaneously flattering and unkind.

Both men were tech visionaries whose ideas were literally epoch-making. They are also both renowned for being relentless bordering on ruthless when it came to protecting their intellectual property, even if that intellectual property was arguably the result of someone else’s work.

And while much could be written about the Edison/Jobs parallel, the common trait between them was an almost superhuman resilience in the face of apparent failure. Anyone can verbally affirm the learning benefits of failing — one really needs to genuinely believe in them to test 10,000 light bulb filaments before hitting upon the right answer. Or return to the company that fired you (and subsequently flatlined) and turn it into the world’s most profitable firm, mostly on the strength of introducing the American public to the idea of pocket-sized supercomputers with access to apps.

Because for some people, there is no such thing as defeat — there are just delays on the path to victory.

A dose of such determination is likely in order at Apple this week.

While defeat is definitely putting too fine a point on it, the numbers across the board this week are likely not what the home office in Cupertino wants to see.

Apple has seen two big stalls and falls this summer: its stock price has taken a beating and its market cap has lost over $100 billion in value. Apple Pay’s adoption is heading in the wrong direction as late comers to the iPhone 6 are showing little enthusiasm for paying with Apple. But there are some positive signs to report. Despite some doubts that Apple could make much of a dent in an already established music streaming environment, Apple says it has signed on 11 million users for its in-house subscription-based music service.

But on the whole it looks like Apple could be facing the first series of serious setbacks of the Tim Cook era. What’s the good the bad and the still to be seen? PYMNTS has the round up.

The End Of The Victory March

Any discussion of Apple’s problem should always be undertaken in the context of what a very, very good year Apple has had so far. Their main product launch, the iPhone 6 is heading toward 200 million units sold and by all accounts, expectations are high for the follow up “C” model anticipated later this year.

However, while Apple has sold many iPhone 6’s, they sold fewer in Q2 than expected, which started a stock slide that has stripped a tremendous amount of value from Apple’s market cap. By midweek, Apple’s share price was down a full 15 percent from its all-time high.

Investors — unsure of the success rate of the Apple Watch — are concerned that Apple is overly reliant on its the iPhone, particularly as it seems that phone life cycles are lengthening.

“We tend to avoid hit-driven companies. As great as Apple has been, they have to continue innovating,” Mark DeVaul, co-manager of the Hennessy Equity and Income Fund, told CNN Money.

Colin Gillis, an analyst with BGC Partners, put the point somewhat more sharply, noting that it seems we may be seeing the beginning of the inevitable slowdown of the global smartphone market.

“I’d like to see more recurring revenue streams from Apple. And buying back stock to appease investors like Carl Icahn? Investors may one day regret that this money was not used to invest in future products,” Gillis noted.

Apple’s stock price as seen some recovery — its overall swing has been $125 billion so far, or more than the entire annual economic output of Croatia. The price has leveled out some in the last few days, leaving some to predict the present course correction is running down, but concerned that the market won’t regain its full-blooded enthusiasm for Apple until it demonstrates diversity past the iPhone.

Apple Pay Not Popping

In other less than great news this week, it seems that despite the stratospheric hype throughout late 2014 and early 2015, Apple Pay is not catching fire with the user base.

According to the latest PYMNTS/InfoScout survey of Apple Pay use, the number of available users who are using the mobile payments platform is actually going in the wrong direction.

In March, survey data indicated that 15.1 percent of eligible Apple Pay users (meaning that they had an iPhone 6) had ever tried the service. When surveyed in June 2015, that figure had fallen to 13.1 percent.

Usage fell as well. When iPhone 6 users were standing in stores that accepted Apple Pay and were asked in March, “Did you use Apple Pay on this transaction,” 39.3 percent of consumers said yes. When asked the same question at the end of June, only 23 percent replied in the affirmative.

“These are people who have tried it, who just had a chance to use it because they were at their phone and were at a merchant who accepted it – but they just didn’t choose to use Apple Pay,” Jared Schrieber, CEO of InfoScout, told the assembled at R2 while explaining the figures.

The killer stat (and the really bad news for Apple)?

Apple Pay also seems to have seen a dip in its committed users.

In March, 48 percent of iPhone 6 consumers in a store where they could use Apple Pay did. In June, that number had dropped to 33 percent.

“Am I surprised? Not really,” remarked Karen Webster, PYMNTS.com CEO. “When Apple Pay launched, it did so with constraints on the user side – had to have the iPhone 6 – and the merchant side – had to have an NFC terminal – and nothing more than a way to pay as a consumer value proposition. When even the diehard early adopters didn’t go crazy for it at the start, it seemed a sure sign that their slog to ignition would only get harder. That’s certainly how it appears.”

Now Apple Pay is liked by those early adopters who rate the experience highly. However, those later to the party came in less aware of Apple Pay, surprisingly more suspicious of its security and less interested in changing payments form factors.

“I can’t say I’m surprised either. We’re competing with 50 years of muscle memory and if we’re just swapping a swipe for a tap, you’re only going to get the nerds like me to jump on board,” Paydiant CEO and self-professed payments nerd Chris Gardner noted at the PYMNTS R2 industry conference shortly after the results were announced.

And while payment nerds are wonderful, there are unfortunately not enough of them to ignite a new payments method, it seems. Apple, for all the hype, is having a hard time moving that ball up the hill.

Streaming Success

However, there does seem to be some success on the horizon in the form of its music streaming venture.

Potentially at least.

According to reporting in USA Today, Apple says that its music service has managed to hook a quick 11 million users into trial subscriptions of its music service.

“We’re thrilled with the numbers so far,” says Eddy Cue, Apple’s senior vice president of Internet software and services.

Cue further told the paper that so far 2 million of those members had signed onto the larger (and more expensive) ~$15 a month family plan that allows up to six users.  The base charge for Apple Music is ~$10 a month – and it allows users access to 30 million songs as well as human-curation playlists and a live radio station.

These users, of course, are not paying anything as there is a free three-month trial period. Were Apple to convert all these trial users (which they almost certainly won’t), they would start October with approximately half the number of paying users their main rival, Spotify, has.

Apple Music was not the only good news Apple got in the last few weeks. According to reports, the app store also saw record activity last month. All in, the app store brought in $1.7 billion in transactions in July, with particularly strong activity from China, according to Cue. That made it a good time to be an app developer for the Apple store, with developers taking in a total $33 billion, up from the $24 billion total clocked at the end of 2014.

Remaining Questions

With cash on hand at over $200 billion and a market cap still north of $600 billion, it is probably premature to start worrying too much about the fate of Apple.

And as much of this week looked like a setback, it might in future context merely look like the first few thousand attempts to find that just right filament. Apple Pay is down at present — as it turns out a service that only a fraction of a fraction of smartphone owners can use at a fraction of a fraction of merchant locations doesn’t have much chance of igniting. But Apple’s commerce integration efforts are bigger than Apple Pay, and as Passbook evolves in Apple Wallet it remains to be seen if the sum total of those efforts will be more important than any individual part. That is, if Apple can do with Apple Pay what it has done with every other thing it has touched: reinvent the experience. So far it has not.

On the flipside, the music streaming service is looking strong. But whether music or payments, Apple’s issue has not been creating that big upfront pop in users. They have a large and dedicated fan pool stuffed with early adopters. The challenge will be sustaining that pace going forward in a competitor-laden market, and actually converting those free trial users into full-blown paying customers.

The big takeaway on the week, however, is that as successful as Apple has been, the market is now ready to hear what’s next. PYMNTS will keep you posted on how that answer continues to take shape.

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Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. In the November 2019 Mobile Order-Ahead Report, PYMNTS talks with Dan Wheeler, Wahlburgers’ SVP, on how the QSR balances security and seamlessness to secure its recently launched WahlClub loyalty program.

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