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The $US40 Billion Reason Apple Is Giving Away That U2 Album For Free

From Business Insider (source link):  You might be wondering why Apple is letting anyone with an iTunes account download U2′s new album for free, until Oct. 13. The promotion does not require that you buy an iPhone 6, iPhone 6 Plus, or an Apple Watch. In fact, it doesn’t seem to have any link at all to yesterday’s product releases.

So why is Apple bothering?

Turns out, there are about 40 billion reasons Apple might want to bankroll the promotion of Bono’s new opus.

Here is one possible theory: the more people Apple can get into its iTunes system, the more credit card numbers it is likely to collect from them. And the more credit card numbers it has, the more attractive Apple’s new mobile payments system, Apple Pay becomes to those users.

Apple Pay is way more important than iPhone 6

Make no mistake: Of all yesterday’s announcements, Apple Pay will likely be the most important in the long, long run. The new iPhone 6 models are just new phones. The Apple Watch is interesting. But the iTunes/Apple Pay system can be spread across a number of devices and can be used in any situation where you might need to buy something.

Which is to say, virtually every possible situation you can imagine.

And Apple intends to take a cut of every payment made via Apple Pay. That’s a lot of payments! Bloomberg estimated that Apple Pay will give the company entry into a $US40 billion marketplace:

Under deals reached with banks individually, Cupertino, California-based Apple will collect a fee for each transaction, said one of the people, who requested anonymity because terms aren’t public. While that gives the tech company a share of the more than $US40 billion that banks generate annually from so-called swipe fees, lenders expect to benefit as consumers spend more of their money via mobile phones and other digital devices, the person said.

Apple is collecting 1 billion credit cards

This is not trivial. Few people know that Apple is already well on the way to collecting 1 billion credit card account numbers in its iTunes system. That’s more accounts than Amazon. To use Apple Pay, you have to add a credit card to your iTunes account. To get the U2 album, you have to create an iTunes account … the dots don’t need a lot of joining. iTunes, and its credit card database, is the heart of Apple’s new payments business.

iTunes is also incredibly important to Apple, financially. In the nine months through June 2014, the iTunes segment of Apple’s business was the fastest growing of all its businesses. It grew 14% year on year (to $US13.5 billion). iPhone sales growth was only 9% in the period (although much greater in total dollars, of course).

As anyone who has an iTunes account will tell you, after a while it just becomes super convenient to buy apps and music via iTunes rather than fishing around on Amazon or somewhere else. And if that ease-of-use can be extended to brick-and-mortar store sales, you can see how massive this could become. (You can use iTunes without a credit card, but it’s pretty limited.)

The iPhone’s Touch ID lets this all become incredibly secure. Because Apple Pay will not work until it has confirmed your fingerprint on your iPhone, consumers can rest assured their credit card numbers won’t get stolen if they lose their phones. (Business Insider actually predicted this would be the real use of Touch ID a year ago.)

The Apple Watch will also likely get a payments role in all of this too. Re/code reports that the watch will come with NFC, the contact-free shopping mechanism used on iPhone 6. And the watch’s “taptic” touch-sensing technology may be able to identify your unique identity from your pulse patterns, just like a fingerprint.

So don’t be surprised if, in the future, Apple gives away something kinda cool on the Apple Watch, too.

Royce Christyn
About Royce Christyn (3467 Articles)
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