Hardware becoming software is one of the key trends of this decade. As Apple (NASDAQ:AAPL) prepares to refresh its product line for the fall of 2019, it is selling its software as a lifestyle.
The key product launch investors need to consider is the Apple Card, the company’s entry into finance.
While Facebook (NASDAQ:FB) wants to create its own money and replace the current Visa (NYSE:V)-dominated payment infrastructure with something cheaper, Apple Card is a gloss on MasterCard (NYSE:MA), with personal finance delivered through an app and integration with existing wireless payment technology.
Apple’s strategy is coming into focus. It’s a lifestyle and an indenture. It’s a walled garden where, in exchange for promises of privacy, Apple controls everything you have, including your cash flow.
The Biggest iOS Launch
Apple’s biggest product launch is now going through its final beta test, iOS 12.4 beta 7. Its successor, iOS 13, was announced at the June Worldwide Developer’s Conference.
The key new feature supported by 12.4 is the Apple Card, on which Goldman Sachs (NYSE:GS) estimates it has spent nearly $275 million, transforming itself from an investment bank into a consumer bank. The card itself is designed around the app, with daily cash rewards and full integration with the Apple Wallet to track spending.
The card is thus meant to change behavior, which now favors physical debit cards for most transactions. The potential bonanza here is enormous. People who pay off their cards spend an average of $1,154 with them each month, and the average user carries $6,354 of credit card debt. Goldman expects to offer $1,000 in credit to those with credit scores as low as 600, and charge Apple Card customers interest rates of 13%-24% on balances.
Apple’s Ho-Hum Hardware
The iPhone 11 design itself looks like a greatest hits album from previous iterations. Its main improvement is a bigger battery. The same is true for the latest MacBook, which only received minor tweaks on existing designs.
But the hardware is the center of a software ecosystem that brings Apple profit from every corner of a customer’s life. Software and services are more profitable than hardware.
This extends to the Apple Watch. Given how many stores had the watch at clearance prices this month, including the Apple Watch 4, an Apple Watch 5 can’t be far off. But the hardware isn’t likely to change much. It will just be capable of running more software, especially health software. Health will follow cash into the Apple profit column.
Critics worry the emphasis on service revenue will compromise the user experience. But people who believe in Apple tend to go all-in. The most important point about the iPhone’s market share is its stability. They have half of the U.S. market and over one-fifth of the global market.
The Bottom Line
An Android is a phone, a utility that offers unlimited choice. An iPhone is a lover, seducing and then demanding increasing loyalty.
Once you’re in the Apple ecosystem, the company wants to make it a lifestyle, handling your money, your entertainment, even your health.
That’s CEO Tim Cook’s bet, that Apple products can be more than phones or watches or PCs, but a lifestyle for those seduced by its design and brand promise.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new environmental story, Bridget O’Flynn and the Bear, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AAPL.