Black Swan Farming

What can ApplePay teach us about innovation?

Many observers will look at ApplePay and misunderstand it. They will likely see it as another example of Apple coming late to the party with nothing that hasn’t already been done before – and dominating on the basis of superior “marketing”. (Presumably this is primarily thanks to their brand and those who would buy and use anything Apple happens to release.)

But this analysis misrepresents what Apple has already done with ApplePay, and perhaps seriously miscalculates the potential options for where this could go. Comparisons to Google Wallet, Softcard, LoopPay, PayPal and even CurrentC will tend to oversimplify. Indeed, some commentators seem to be most upset that Apple hasn’t made a move that takes out the credit card companies (which tells us they know little about Asymmetric Competition).

It is the timing – and patience – that most impresses me though. Apple has plenty of experience of mis-timing when technology was good enough and a weak go-to-market strategy – the Apple Newton the most obvious example. They appear to have learned very well the importance of adding patience to their formidable strength in creating a superior user experience. Those failed efforts were just like a newbie surfer poorly positioning themselves and paddling their hearts out for every potential wave. Now they have developed the maturity of a salty sea dog, surfing the waves of change with speed and patience.

As for the suggestion that there is no real innovation here – that all the parts already existed and were done by others – and that all Apple have done is put them together into a beautiful package, this is flawed analysis. This comment by Martin on Horace Dediu‘s blog at asymco.com captures it well:

Apple built a generic, almost foolproof device-level identity security system around TouchID, Secure Enclave, and custom secure element hardware at the lowest level of iOS that can be opened up to pretty much anyone Apple wants to let in. This is unique, and I don’t see anyone else who can replicate this.

Peering into the murky future, Martin goes further:

This is much bigger than mobile payments and Apple’s head start is enormous. I think some cheap clones of this system are possible within 2-3 years, but I can’t envision a path for anyone to match, let alone pass Apple.

Later, in a follow-up comment (both are well worth reading in entirety) he explains why:

I don’t think they can catch Apple so quickly, mainly because the partnerships that would need to form are among competitors. Almost every Android phone has 3 agents that can change the OS – Google, the OEM (Samsung, etc.) and the carrier. The carriers have their solution (Softcard) and have every incentive to undermine everything else. Also threatening them from Apple is that this security setup, with the secure element chip that Apple has added almost certainly will allow Apple to virtualize the SIM. Apple has a patent on that…

And isn’t the key word here “partnerships”? They may now be infamous in their handling of suppliers, but Apple have proven their ability to play well with others where the result is a win-win-win. Apple customers win, Partners also win, and (because the value pivots around the experience), Apple wins. As Ben Thompson astutely observes, the engine room of their ability to negotiate with partners is their unparalleled customer loyalty which comes from their focus on user experience.

Which brings me to three observations about what ApplePay can teach us about innovation:

  1. If  you think that the value of User Experience is “intangible”, or that you can over-serve on this particular performance criteria, you’re not paying attention.
  2. Go To Market strategy is perhaps just as important as the technology. The timing, alignment of all the needed partners and immediate scale for the introduction of ApplePay is a masterclass in GTM.
  3. If you think that ApplePay isn’t innovation, you may need to dig a little deeper and understand:
    • All the moving parts in the system (including the weakest link being the key and the holder of the key, not the lock).
    • How Apple have specifically developed and introduced all of the missing pieces required to make this work seamlessly
    • How Apple have leveraged customer loyalty to make all of this happen, where all others so far have failed.

Now that ApplePay has landed, it will be interesting to see where they choose to expand to beyond what we’ve already seen. Exciting stuff.