Apple, Inc. – Monetization Is Easier Said Than Done

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Apple Inc. (NASDAQ:AAPL) may have a plethora of opportunities present in its massive database of credit card information, but can the company really monetize that database? And are there other ways Apple might be able to monetize its users. Analysts have made so many suggestions at this point that investors have begun to expect further monetization from Apple Inc. (NASDAQ:AAPL), but Sanford Bernstein analysts say it probably isn’t as easy as most believe it is.

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Monetization possibilities for Apple

In a report dated Aug. 18, 2014, analysts Toni Sacconaghi, Jonathan Cofsky and Eric C. Garfunkel gave a list of the monetization possibilities that have been suggested for Apple Inc. (NASDAQ:AAPL). After all, the company has about 500 million iOS users, about 600 million App Store accounts, around 800 million iTunes accounts, most of which have credit card information attached to them, and “very high customer engagement metrics,” according to the Sanford Bernstein team. A benchmark from International Business Machines Corp (NYSE:IBM) said earlier this year that Apple Inc. (NASDAQ:AAPL) devices made up more than double the amount of online traffic and more than five times online sales when compared to Android devices on Black Friday and Christmas Day.

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In addition to those opportunities, Sacconaghi and his team say there are also plenty of other opportunities as well, like advertising, search and ecommerce. All of these areas tend to have higher margins and higher recurring revenue and profitability levels. Cook himself has been talking about monetization possibilities for nearly two years.

Apple’s efforts “notably unimpressive”

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The Sanford Bernstein team reported that historically, Apple Inc. (NASDAQ:AAPL)’s efforts in monetizing its installed base and developing services haven’t been that impressive. For example, the company launched iAd four years ago, but the service hasn’t had much of an impact. In September, the company revealed Apple Radio, but it appears like management wasn’t even convinced of success. They ended up buying Beats Electronics, which already had an established streaming radio business.

And then there are the continuing iCloud problems, the much-hated Apple Maps app, and the lack of monetization for Siri. Sanford analysts note that management hasn’t offered any comments on any of these offerings in the past three earnings calls.

Apple and the law of large numbers

The analysts also note that Apple Inc. (NASDAQ:AAPL)’s huge revenue base of $180 billion makes it hard for the company to make an impact with any of these types of offering. They say even the iTunes music store, which is probably Apple’s best monetization effort, has only about $6.5 billion in revenue annually, which is a tiny percentage of the company’s overall revenue.

And third, the analysts note that it will take some time for Apple to monetize its user base. They said that while there’s plenty of potential, it’s going to take a lot of time to realize all of that potential. For example, seven-year-old Twitter Inc (NYSE:TWTR) has only about $1 billion in annual revenues, despite its long life. Apple Inc. (NASDAQ:AAPL) rakes in that same amount through iPhone sales every three days.

Apple’s opportunity in payments

Out of all the opportunities Apple Inc. (NASDAQ:AAPL) has, payments is perhaps the most talked-about option. The Sanford Bernstein analysts suggest that the company could compete directly with eBay Inc (NASDAQ:EBAY) subsidiary PayPal. In January, Cook suggested that they’re interested in payments and incorporating the option in with the Touch ID fingerprint sensor. He added that they could go even beyond that at some point as well.

Of course the Sanford Bernstein team notes that Apple Inc. (NASDAQ:AAPL)’s credit card database makes it very well-positioned to “offer a seamless web and in-app purchase experience.” They believe the company could even offer lower fees to commerce companies compared to traditional credit card companies.  They suggest that a payments role including both online and offline purchases is also a possibility, especially if the iPhone 6 ends up having near field communication.

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Michelle Jones is editor-in-chief for ValueWalk.com and has been with the site since 2012. Previously, she was a television news producer for eight years. She produced the morning news programs for the NBC affiliates in Evansville, Indiana and Huntsville, Alabama and spent a short time at the CBS affiliate in Huntsville. She has experience as a writer and public relations expert for a wide variety of businesses. Email her at Mjones@valuewalk.com.
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7 COMMENTS

  1. 5S did more than great and will continue selling well even when the new phone is released.
    If I could photograph it and post it I could show you my receipt dated two weeks ago for a new 5S; replacing my cracked and water damaged 4S needing replacement along with the phones to prove you are wrong. Also; although I love the 5S; I like the 4S better for size and feel.
    For me the 5S is just a bit too long; and I have pretty big hands.
    Can’t imagine anything larger in a phone.
    Phablets are for people that cannot afford multiple devices for different situations.
    Interesting was a study just published saying 30 percent of people polled want a an AAPL Phablet. The number coincides perfectly with the percentage of Android users that defect to iOS. If AAPL makes it; it will be for them and not the traditional AAPL customer that owns iOS phone, tablet, and computer.
    However; heretofore, we don’t know that this is anything more than rumor. There is no announcement and no proof of life in an AAPL Phablet

  2. hahahaha… the author is probably on drugs. Apple is draining 80% of the money on the smartphone market and the “leader” android makes just 18%. Apple profits more than Google, Microsoft and Samsung Mobile together. If Apple needs to make money, Google, Samsung and Samsung are filing for bankruptcy.

  3. It is mind boggling to read an article denouncing AAPL’s ability to monetize it’s user base when they are the only OS making money. Android is bleeding along with most of their Branded partners. Windows is a patented joke.

  4. Sales figures reported during current fiscal year earnings reports paint a completely different picture of the iPhone 5S compared to your assessment. I also highly doubt the 5.5″ model rumor. It’s very un-Apple like.

  5. the iphone 5s did not sell that good is due to not much of a change from the 5. Also plus the fact that consumers heard wind of the iphone 6 and decided to wait for it rather than upgrade from a 4s, 5, to a 5s. I really think that the 4.7in iphone6 will be a hit as the 5.5 will only prompt moderate sales.

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