Preparing an invite-only audience in California today for his big announcements, Apple Inc. CEO Tim Cook said, “This is the biggest advancement in the history of the iPhone.”
He wasn’t kidding. To accentuate his point, he even had legendary rock band U2 perform live during his presentation and then purchased U2’s new album for every single one of Apple’s more than 500 million iTunes users, immediately making history with the biggest album debut ever. And you thought Steve Jobs was a showman.
There is not one but two new smartphones from Apple, the iPhone 6 and the iPhone 6 Plus, both of which feature larger screens, higher resolution screens, more powerful chips, faster processors, more advanced cameras, barometers, and, most significant, near field communication, or NFC, chips that, combined with the smartphones’ Touch ID biometric fingerprint scanner, enable consumers to use their iPhones to securely pay for goods in stores. At the same time, Apple, No. 2 in the 2015 Internet Retailer Mobile 500, revealed that next month it will debut Apple Pay, a new mobile payments system, incorporated into the Apple Passbook mobile wallet, backed by American Express, Visa and MasterCard and card-issuing banks responsible for 83% of credit card transactions, Apple says.
Apple also has made available to developers a Touch ID application programming interface, or API, so developers can incorporate biometrics-secured, one-touch log-in and checkout in apps. That means retailers can create apps that enable an iPhone 6 user to simply press her finger on the home button on her device to complete a purchase with a single touch. Further, store retailers with terminals that contain NFC technology can accept Apple Pay. An iPhone 6 user merely holds her device close to the terminal while pressing her finger on the Touch ID-enabled home button on the device.
“It’s all about the wallet,” Cook said. “Our vision is to replace the leather wallet, and start with payments. Every day between credit and debit we spend $12 billion in the U.S., 200 million transactions a day. Scrambling for a card is an antiquated payment process.”
Beginning next month, Apple Pay, which will be released as a free update to Apple’s new iOS 8 mobile operating system, will be accepted at 220,000 merchant locations, including all Macy’s, Bloomingdales, Walgreens, Duane Reade, Staples, Subway, McDonalds (including drive-through) and Whole Foods locations. Further, Target, Groupon, Uber and Open Table soon will debut new versions of their apps with one-touch checkout for consumers making purchases on their iPhone 6 phones. Open Table, which up until now has only facilitated reservations, will begin accepting payment for restaurant checks at participating restaurants via its app.
To use Apple Pay, a consumer takes a picture of her credit card in the Apple Passbook wallet, which then asks her to authenticate herself with the bank that issued the card. Then Passbok stores information about the card on an encrypted secure element within the smartphone. But it does not store the actual card number or any identifiable information on the phone. Rather, Apple stores a device-only account number, and each time a consumer uses that card to pay via Apple Pay, Passbook generates a one-time payment number with a dynamic security code. So even if an iPhone 6 is lost or stolen, there is no need to cancel a credit card, Apple says. Further, iPhone users can use Find My iPhone to immediately suspend payments on their lost or stolen devices (or erase all content on the phone).
The iPhone 6 and iPhone 6 Plus will change the way people shop online and in stores, says Andrew Van Noy, CEO of Warp 9 Inc., an e-commerce platform provider and responsive design site builder.
“NFC in an iPhone is a game-changer,” he says. “Apple has more than 500 million iTunes account holders who trust Apple with their credit cards. They already have a monopoly. It will take a little while for consumers to wrap their hands around Apple Pay, and for retailers to get apps and sites and in-store terminals that take advantage of all of this, but now that Apple has made this move, change will happen pretty quickly. And easing checkout on mobile devices is perhaps the biggest barrier to better conversion rates on smartphones.”
In addition to NFC, of very important note are the new sizes of the iPhone 6: the iPhone 6 offering a 4.7-inch screen and the iPhone 6 Plus offering a 5.5-inch screen. The iPhone 5 and 5s both offer 4-inch screens and the iPhone 4s a 3.5-inch screen.
More than half of smartphones shipped in the first half of 2014 had screens 4.5 inches or larger, technology research firm IDC reports. Consumer appetite seems to be shifting to larger phones (sometimes called “phablets,” for phones plus tablets). Flurry, a mobile analytics firm and mobile apps and mobile ads developer recently acquired by Yahoo Inc., says large smartphones now represent 10% of all devices (smartphones and tablets) in use in the mobile universe, up from 2% last year.
Flurry groups mobile devices by screen size as follows:
- Small phones (e.g., most BlackBerrys), 3.5 inches or under.
- Medium phones (e.g., most iPhones), between 3.5 inches and 4.9 inches.
- Large smartphones, or phablets (e.g., the larger of the two new iPhone 6 models and the Galaxy Note), 5.0 inches to 6.9 inches.
- Small tablets (e.g., Kindle Fire), 7.0 inches to 8.4 inches.
- Full-size tablets (e.g., the iPad), 8.5 inches or larger.
Consumers are hungry for bigger screens, Flurry says. For the last six years, smartphones and tablets have been replacing everything from TVs to magazines to PCs to books as the primary way people consume information and media; as mobile screens become even more integral to daily habits, it makes sense that people want more room on those screens, Flurry says.
Flurry uses personas in its marketing and advertising efforts. Its data show that compared with the average mobile device user, users of large smartphones overindex in the “social influencer” persona: 35% of large smartphone users tend to have a lot of influence with their friends compared with just 15% of mobile users across all devices, while 12% of large smartphone users are “entertainment enthusiasts” compared with just 6% of all mobile users, Flurry says. “Business travelers” and “business professionals” both overindex in the use of large smartphones by 1.5 times the average mobile device user.
Most important for retailers, though, is that larger screens likely will lead to increased conversion rates on smartphones, and thus more mobile commerce sales, m-commerce experts say.
“A bigger screen will lead to bigger conversion,” says Van L. Baker, research vice president, mobility, at Gartner Inc., pointing to the industrywide higher conversion rates on tablets compared with smartphones. “The bigger the screen, the easier it is for consumers to see details in product photos, for example, and the easier it is to fit more information of all kinds on the screen. These and other factors combined make it much more likely that shoppers on an iPhone 6 will convert on an iPhone 6.”
Apple shoppers consistently spend more time and money with mobile retail than Android shoppers, retailers and mobile commerce platform vendors find. For example, Apple device users were responsible for 64% of smartphone revenue and 90% of tablet revenue in August 2014 at 26 retailer clients of Branding Brand, the leading m-commerce platform provider to the merchants in the 2015 Internet Retailer Mobile 500.
In July 2014, according to web and mobile measurement firm comScore Inc., iPhones accounted for 42.4% of the U.S. smartphone market, with smartphones running Android at 51.5%. But it’s important to note that there are a great many smartphones running Android and only one iPhone (with a few versions). As a result, when measuring smartphone use by the most popular smartphone manufacturer, Apple owns 42.4% of the market share, with Samsung trailing at 28.4%, LG at 6.4%, Motorola at 5.7%, HTC at 4.7% and other manufacturers at 12.4%, comScore says.
Apple also debuted the highly anticipated Apple Watch, though it will not be available until early next year. Internet Retailer will provide additional coverage of the Apple Watch in other stories.
The iPhone 6 and 6 Plus will be available Sept. 19, with pre-orders online starting Sept. 12. The iPhone 6 will start at $199 for the 16-gigabyte version, $299 for a now 64-gigabyte version (rather than the former 32-gigabyte version), and $399 for an unprecedented 128-gigabyte version (all prices with two-year wireless service contract). The iPhone 6 Plus will cost $299 (16G), $399 (64G) and $499 (128G).
Follow Bill Siwicki, editor of the 2015 Internet Retailer Mobile 500 and managing editor, mobile commerce, at Internet Retailer, at @IRmcommerce.