by Nicholas D. Evans

8 classic (digital) business strategy moves from Apple Pay

Jun 09, 2015
AppleDigital TransformationMobile

Apple’s recent announcement at its Worldwide Developers Conference of giving shoppers even more ways to pay via its Apple Pay service is an interesting example of a set of eight classic (digital) business strategy moves the company has executed over the course of launching its service.

I’ve put the term “digital” in parentheses because these are classic strategy moves that apply to both traditional business strategies as well as modern-day digital business strategies.

Here’s the list of eight moves that I believe have been key to the adoption and success of the Apple Pay service:

  1. Improve the (digital) customer experience: Customers typically adopt new technologies and approaches because they are faster, better or cheaper. This is the key to any disruptive change whether it’s a new product, service or entire business model. The new product or service doesn’t have to have the most features and functions, but must simply be “good enough” and compelling enough to drive adoption and a departure from the status quo. In this case, the customer experience was improved by a radically easier way to pay as simple as the touch of a finger. The starting point for any digital transformation is taking this outside-in perspective, looking at things from the customer’s point of view, and making things simple and elegant.
  1. Transform the (digital) business process: In conjunction with the first move, it’s important to also re-think and re-design the business process in the new context — in this case the context of mobile payments. An improved customer experience isn’t all that great if it’s built on top of an old, outdated and complicated process. In this case, the ability to pay via the touch of a finger made the process about as simple as it could possibly get when compared to the traditional, physical wallet approach, while at the same time making it work with other Apple products such as the Apple Watch, prior versions of iPhones such as the 5, 5c and 5s (via the Apple Watch) and the iPad.
  1. Address the (digital) barriers to adoption: As with most emerging technologies over the years, security and privacy are often at the top of the list when it comes to barriers to adoption. The Apple Pay system addressed this head on in both areas. In terms of security, the Touch ID feature enabled Apple to biometrically authenticate users as part of the payment process itself and remove the need for cashiers to see your name, credit card number or security code. Privacy was addressed by Apple deciding not to collect purchase history and not knowing what was bought, where it was bought or how much you paid for it.
  1. Leverage your (digital) installed base: As opposed to attempting to introduce a new product or service to a new set of customers (“new product/new market”), it’s always safer to bring a new product or service to your existing installed base, or to bring an existing product or service to new customers. That way you’re dealing with one unknown instead of two and it’s more of an adjacency play. By leveraging their installed base of over 200 million iPhone 5 users (at the time), together with customers already planning to upgrade to the iPhone 6 and 6 Plus for various other reasons, Apple was able to offer the Apple Pay service without requiring customers to invest or make any changes solely for the service itself.
  1. Use existing (digital) infrastructure and standards: When launching a new product or service, it’s important to not require partners to make huge investments in infrastructure or to require customers to make changes that would detract from the overall value proposition of the offering. By leveraging the NFC standard, Apple wasn’t requiring merchants to install dedicated or proprietary hardware and could ride on the contactless payments trend already in play.
  1. Time your (digital) move: Another classic strategy move is to let your competitors make any first mover mistakes, let the market and/or technology mature a little further, and wait until the market timing and customer appetite is just right to launch your offering. This is a strategy that Apple has utilized time and time again whether it is music, smartphones, tablets or smart watches. Apple hasn’t necessarily been the first to bring technology innovation to the table, but has innovated with design, simplicity and elegance to make its products and services highly compelling for its audience.
  1. Leverage partners for (digital) credibility: In the case of a technology player making an entrance into a vertical industry ecosystem, it’s important to team with industry partners to establish credibility and acceptance within the market and to complete the integrated value proposition. When Apple announced Apple Pay in September 2014, it had lined up support for credit and debit cards from the three major payment networks, American Express, MasterCard and Visa, issued by some of the most popular banks, so that it could address 83 percent of the credit card purchase volume in the U.S. It also had support from leading retailers so that it could address 220,000 merchant locations across the U.S. that had contactless payments enabled.
  1. Innovate (digitally) then radiate: One of the final steps in any strategy is to expand to other geographies, customers and partners. You might call this an “innovate, then radiate” approach. Apple’s announcement at its Worldwide Developer Conference on June 8th 2015 was exactly that. The company announced support for rewards programs and store-issued credit and debit cards with iOS 9. In addition, they announced expanding merchant acceptance to over one million locations in July 2015 and support for Discover in the fall. In terms of geographic expansion, they announced expansion to the UK where they will work with 250,000 retail locations and the London Transit System.

There are a number of lessons to be learned from looking at Apple’s strategic moves related to Apple Pay. One of them is that the bulk of these moves where conceived and executed pre-launch. By the time the service was announced in late 2014, it was essentially a case of methodical execution. The announcement at WWDC15 was simply one more step in a classic (digital) business strategy.

Finally, “disruptive” new offerings always get a lot of debate as to the type and degree of disruption. It’s interesting to note, that while the Apple Pay service can be considered disruptive when compared to former payment techniques such as use of physical wallets and credit cards, as pointed out by Juan Pablo Vazquez Sampere in Harvard Business Review, the business model itself is more a reseller model since it still relies on the credit card ecosystem and does not disrupt the industry model itself.

This raises the question and possibility of perhaps more strategic moves down the road — possibly targeted at this very same industry model.