I read books on my iPhone nowadays. There are two main reasons for that
I love taking notes while reading. It helps build a note system which refreshes my memory quickly all the points that I deemed worth remembering. With physical books, I can’t do the same
Admittedly, I pay for books once in a while, but mostly I use gen.lib; which is a website that offers free ebooks in various genres. After I download books to my Mac, it usually doesn’t take long for iBooks on my phone to sync and have those books ready in the app
Much as I like the experience of reading on iBooks, I wish it had a feature that’d allow readers to quickly store or buy books referenced by authors. Take a look at the example below
With the current iBooks, I have to highlight the name of the “The Tao of Warren Buffett” book and save it in my notes section. Later on, if I want to buy the book, I’ll have to exit what I am reading, go to the Search function, type in the name from my memory and buy it. There is so much friction and the experience is anything, but ideal. What I’d love to have is that once I press on the name of the book, a pop-up will show on the screen that has the book information from Apple’s bookstore and I can just tap on my phone screen to add it to my to-read list. The list should be able to sort books by added date or alphabet.
In fact, links on iBooks are clickable as you can see below. So, I wonder why there isn’t such a feature for iBooks. If friction is removed, I think readers are more likely to buy more books; which means more revenue for Apple and publishers.
Structured procrastination means shaping the structure of the tasks one has to do in a way that exploits this fact. The list of tasks one has in mind will be ordered by importance. Tasks that seem most urgent and important are on top. But there are also worthwhile tasks to perform lower down on the list. Doing these tasks becomes a way of not doing the things higher up on the list. With this sort of appropriate task structure, the procrastinator becomes a useful citizen. Indeed, the procrastinator can even acquire, as I have, a reputation for getting a lot done.
If you follow tech Twitter, you likely won’t miss one of the big stories today: Hey’s fight with Apple. Hey is a new email service developed by Basecamp and was launched a couple of days ago. Right now, the only way to use Hey is to get invited on its website and pay for a subscription. The app was rejected by Apple twice because there is no in-app purchase option through which users could pay to use the service and through which Apple could financially benefit by taking its standard 30% cut. Apple issued an ultimatum: comply with our rules or get removed from App Store, along with access to millions of people who own Apple device. There are a few issues at hand here, so I’ll go through it one by one.
Before we begin, a bit of disclaimer right upfront: I own Apple’s stock in my portfolio, but I don’t think I am too partial to the company here. You’ll be the judge.
So, what are the rules?
Here is what Apple says in their guidelines
3.1.1 In-App Purchase:
If you want to unlock features or functionality within your app, (by way of example: subscriptions, in-game currencies, game levels, access to premium content, or unlocking a full version), you must use in-app purchase. Apps may not use their own mechanisms to unlock content or functionality, such as license keys, augmented reality markers, QR codes, etc. Apps and their metadata may not include buttons, external links, or other calls to action that direct customers to purchasing mechanisms other than in-app purchase.
3.1.3(a) “Reader” Apps: Apps may allow a user to access previously purchased content or content subscriptions (specifically: magazines, newspapers, books, audio, music, video, access to professional databases, VoIP, cloud storage, and approved services such as classroom management apps), provided that you agree not to directly or indirectly target iOS users to use a purchasing method other than in-app purchase, and your general communications about other purchasing methods are not designed to discourage use of in-app purchase.
3.1.3(b) Multiplatform Services: Apps that operate across multiple platforms may allow users to access content, subscriptions, or features they have acquired in your app on other platforms or your web site, including consumable items in multiplatform games, provided those items are also available as in-app purchases within the app. You must not directly or indirectly target iOS users to use a purchasing method other than in-app purchase, and your general communications about other purchasing methods must not discourage use of in-app purchase.
I am not a lawyer, but based on the text above which was referred to by Apple in correspondence to Hey indicates that consumers can still use services from apps like Hey, even though they are not acquired in-app, provided that in-app purchase is an option and not discriminated by app creators. My understanding of the issue here is that, barring any unpublished behind-the-scene details, Apple wanted Hey to add in-app purchase, but the email service refused to.
Here is the communication between the two
Clearly, when a consumer is presented with an option to buy goods or services in app, he or she will jump at it. Apple prohibits languages that discourage the use of in-app purchases. As a consequence, text such as “you can subscribe here, but it will help us more if you do on our website” will likely be banned. Because of those two factors, it’s understandable that Hey doesn’t want to have an in-app purchase. Most of the time, consumers will choose that option and Hey will have no choice, but to give Apple the commission. From Apple’s point of view, without forcing apps to include in-app purchase as an option, what app would voluntarily shoot itself in the foot and lose 30% of revenue? Also, it’s certainly not a good user experience to juggle back and forth between a website and an app, especially for new users that don’t subscribe yet to an app.
What I think is problematic are
The inconsistency in their handling that makes the rules look arbitrary and their enforcement look like an abuse of power
By making users, after downloading an app, go to a website to subscribe and then come back to use the app, Apple creates friction; which becomes problematic in the context of an app competing with Apple’s own service such as Spotify (which I will talk about later).
“Why do we have to pay while some others get a special treatment?”
One of the main arguments from the CTO of Basecamp is that there are other apps that get a special treatment from Apple and can bypass the rules on in-app purchases. Why is there such an inconsistent enforcement of the rules?
This is indeed frustrating. I tried Fastmail and Spark on my phone. You have to pay for Fastmail on a browser first before you can log in on its mobile version. Spark app is available to use, but there is no in-app purchase option that I can find. The same applies to Netflix. While it’s not a fair comparison between Hey and a household name with bargaining power like Netflix, being treated differently than your peer email services is unfair and I can see why Hey folks are frustrated.
In fact, I think Hey did the exact same thing as those two email apps did. The app only has these screens
How is that different from the likes of Fastmail, Netflix or Spotify (I’ll talk about it later)? Yes, by not having an in-app purchase, Hey violated Apple’s verbatim guidelines, but since other apps and especially some offering the same service get exempted, you can’t help but feel for Hey for being singled out. Worse, Apple threatened to delete Hey app from the App Store
Apple told me that its actual mistake was approving the app in the first place, when it didn’t conform to its guidelines. Apple allows these kinds of client apps — where you can’t sign up, only sign in — for business services but not consumer products. That’s why Basecamp, which companies typically pay for, is allowed on the App Store when Hey, which users pay for, isn’t. Anyone who purchased Hey from elsewhere could access it on iOS as usual, the company said, but the app must have a way for users to sign up and pay through Apple’s infrastructure. That’s how Apple supports and pays for its work on the platform.
I still don’t see why Hey isn’t allowed on the App Store when Netflix and Spotify should have most of their users as consumers. The inconsistency in enforcement of its own rules makes the rules arbitrary and the double down makes the company look like an outrageous bully.
Does Apple deserve to earn the 15-30% commission?
A lot of folks argue that there is no reason for Apple to generally take 15-30% commission from subscriptions and digital services sold through App Store. I tend to disagree on this. Without knowing the exact details, I still think there are expenses that go into maintaining and building the App Store. Somebody will have to review apps, keep the servers up, police content, fix bugs, authenticate payments and keep the marketplace secure. You don’t want an app that uses your data for reasons unknown to you without your consent, do you? You also want to feel that your credit cards are secured when making a payment on App Store, don’t you? None of those is born out of thin air. If Apple already invests in the App Store and makes it work well with Apple devices, why can’t they reap the fruits of their labor? While 30% commission may be too high; which is a legitimate argument, saying that Apple shouldn’t take commission at all is a bridge too far for me. Why shouldn’t they profit from their own investment? Wouldn’t you feel the same way if you were in their shoes?
Some may say that the App Store increases the value of Apple devices from which Apple already profit handsomely. Hence, the company shouldn’t be too greedy by profiting on developers. Well, maybe. But another argument is that Apple also invests a lot in designing and manufacturing their hardware. They deserve to profit from their own investment, whether it’s hardware or software. To answer the question whether Apple deserves the commission, my answer will be yes. How big that commission should be is another discussion.
In fact, Apple argued, in its response to Spotify, that the majority of apps on App Store don’t pay to Apple
If you look at this point objectively, you can see from Apple’s perspective, it makes sense to “ask” apps that use their secure payment method to contribute to the ecosystem. The problem stems in part from how Apple “asks”, as I mentioned above, and how their policy can be argued to favor its own services at the expense of others. Like Spotify…
What about Spotify?
There is a lot of bad blood between Apple and Spotify. The music streamer even created a website detailing their complaint on Apple’s unfair practices. One of the main complaints is that by forcing Spotify to have an in-app purchase option and, as a result, handing over 30% commission to Apple, Apple is abusing its power to make Spotify’s service uncompetitive compared to Apple Music.
There are two contrasting views through which you can look at this issue. On the one hand, if Apple gave Spotify a pass because one of Apple’s services competes with the Swedish company’s, 1) the argument seems arbitrary and weak, and 2) we’d go back to the point of inconsistent application of the rules.
On the other hand, does Apple commit anti-trust practice on Spotify? Well it depends. On Spotify iOS app, users can still log in with an existing account without having to pay anything, meaning that Apple will receive no revenue from Spotify
I logged in successfully, and when I tried to upgrade my plan, here was the screen
There is no option to upgrade in-app. The only instruction is to go to Spotify website. I am not sure if the change took place recently to placate regulators, but if this has been the case, existing users can still access Spotify and new users can choose to either go to pay for subscriptions on Spotify’s website or leave. Also, while the approved language (“please go to Spotify’s official website to learn more”) here doesn’t discourage any possible in-app purchase, normal users may not understand what is the issue here. They may as well just feel discouraged to have to go to a website, subscribe and go back to the mobile app. One can argue that this extra step creates friction for potential users to sign up and subscribe for Spotify, in contrast to the virtually frictionless experience with Apple Music, which is Spotify’s competitor. Another argument is that if Spotify wants to eliminate friction, it has to pay up; which hurts margin; or it has to increase prices; which hurts its competitiveness.
You can see both sides’ points in this argument.
With regard to Hey, Apple can technically enforce the rules which clearly state that there needs to be an in-app purchase option. It gets murky because they have applied their own rules so inconsistently that Hey can’t help but feel singled out for following the exact same companies that got an exemption from Apple. The double down feels like either Hey is unfairly targeted or Apple wants a payback for the PR attack that Hey caused on them. There is a sentiment that Hey knew the rules of the platform beforehand, and likely a possibility that things would come to this point. Yet, they chose to do this and piggyback on the current public narrative against tech giants’ anti-competition behavior for publicity gain and to strong-arm Apple. I don’t know for sure, but I can certainly see where such a sentiment comes from.
The price of taking advantage of a platform is that you have to follow the platform’s rules and be at its mercy. But if Apple decides to use its power in this case, it should give a better explanation as to the inconsistent application of its own rules and start being more consistent. Otherwise, it will create bad blood between itself and a key party that contributes so much to the ecosystem. Plus, well, that’s exactly the behavior of a bully. Exert power just because it can.
Regarding the “Apple Tax” on services that compete with Apple’s, I think it will be debated and decided in court. We can have many folks argue on each side’s behalf, but like other controversial issues, we likely won’t have a solution unless a court renders a decision.
In this post, I’ll try to deduce the reasons why Apple and Goldman Sachs decided to collaborate on Apple Card. What follows in this entry is my deduction from available information and based on my experience working in the credit card industry. First, I’ll touch on the concept of cobranded credit cards and what brands and issuers often get out of a partnership. Second, I’ll talk a bit about Apple Card. Last, I’ll give my thoughts on why Apple and Goldman Sachs may benefit from their relationship. These are my own thoughts only and if you have any thought or material that can contribute to the topic, I’ll appreciate it that you share with me.
Cobranded Credit Cards
You probably have seen a few cobranded credit cards before at popular stores or when you fly with domestic airlines
So, what exactly do brands and issuers get for working on cobranded credit cards?
Every brand wants to establish as close a relationship with consumers as possible. One of the popular methods is through a credit card with exclusive benefits. However, brands would be subject to a lot of regulations if they issued credit cards on their own. There would be also a lot of expenses that’d go into servicing accounts. No brand wants that extra burden in addition to running their own business. That’s why they need financial partners.
To compensate an issuer for bearing the risks and operational expenses, a brand usually takes care of the cost of exclusive brand-related benefits. For instance, shoppers receive 5% cash back at Target when they use Target credit cards. I don’t know the exact detail, but my guess is that Target will be responsible for most of the cash back, if not all. Additionally, brands can assist issuers with acquisition costs. Issuers spend thousands of dollars, if not much more, every year to acquire new customers. Brands have an already established relationship with their customers, brand awareness and financial resources that can help issuers in this regard.
On the other hand, issuers are responsible for dealing with financial regulations and servicing accounts. That’s why issuers try to sign as many partners as possible to leverage economies of scale. A small number of partners wouldn’t make operational expenses justified.
Issuers also have to compensate partners for leveraging their brand names. Agreements between issuers and partners vary on a case-by-case basis, but I wouldn’t be surprised if an agreement featured:
An issuer pays a partner for each new acquired account and a smaller fee for a renewal
An issuer pays a partner a fixed percentage on total purchase volume
An issuer pays a partner a fee when accounts make the first purchase outside partners’ locations
What do issuers get in return?
Issuers, of course, keep all financial charges and fees such as annual fees, cash advance fees or late fees. Besides, issuers can generate revenue from interchange fees. In every transaction, a merchant bank which works with a merchant has to pay an issuing bank which issues a credit card to the consumer who shops at the merchant a small fee for accepting credit cards as payment. Payment networks like Visa or Mastercard act as a middle man between a merchant bank and an issuing bank, and decide how big the fee, which is called interchange, should be. What I just describe is a gross simplification of what transpires behind the scenes in a couple of seconds or less in a transaction. There is a lot more to it. Essentially, for the sake of simplicity, just imagine that for every transaction, an issue bank receives 2% of the transaction volume in interchange fees. So if an issuing bank handles $1bn in transaction a month, that bank will get $20 million in interchange fees. Lastly, as mentioned above, issuers can also leverage partners in terms of acquisition costs.
– Service accounts and handle regulatory compliance – Bear risks of charge-off – Compensation to partners
– Additional rewards expenses as selling points to consumers – Assistance in acquiring new accounts
– Financial charges and fees – Interchange fees – Marketing leverage from partners’ outreach
– Deepen relationships with customers – Compensation from issuers
Apple Card is an Apple-branded credit card issued by Goldman Sachs. You can only apply for an Apple Card via your wallet app on Apple-produced devices such as iPhone or iPads. The Card is so synonymous with Apple that you can barely hear about Goldman Sachs.
Apple Pay’s selling points include:
Simple application process
Premium look and feel
Unlimited 2% cash back when you pay with Apple Card using your Apple Watch or iPhone
3% cash back from select merchants such as Uber, T-Mobile, Nike, Walgreens, Duanereade and of course, Apple itself
Security as each transaction must be verified either by Touch or Face ID
Apple and Goldman Sachs promise not to sell consumer data with a 3rd party for marketing purposes
What’s in it for Apple and Goldman Sachs in launching this Apple Card?
Goldman Sachs isn’t know for consumer banking. It’s known for its investment banking business. Apple Card is the first attempt at consumer banking from the renowned company. As the issuer, Goldman Sachs (GS) will have to deal with all regulatory and security challenges while bearing the risk of charge-off. They will also take part in servicing accounts, but the work is shared with Apple as Apple Customer Service agents handle upfront communication with users. Since Apple Card has no fees whatsoever, what GS can benefit from this collaboration, I allege, include
Insane marketing power from Apple and its global footprint in the form of millions of installed iphones
I imagine that if this collaboration succeeds, GS will want to sign more partners to achieve economies of scale, leveraging what they learn from operating Apple Card
Apple allegedly wants to launch Apple Card for two reasons: 1) to deepen relationship with users, to motivate them to buy their hardware more 2) to generate more service revenue. As a technology partner, I don’t imagine Apple will have to deal with fraud, regulatory or security concern. In exchange, Apple provides marketing outreach and technical assistance in incorporating Apple Card into its ecosystem. Additionally, from what I read, customers who need technical assistance will reach out to Apple Customer Service agents. Hence, that’s also what Apple brings to the table. Also, the company may allegedly be responsible for Apple-only rewards and interest free payment plans when customers buy Apple products. In terms of rewards with 3rd parties such as Nike or Uber, I can’t find any relevant information. If I have to guess, my money will be on Apple taking the bill for extra rewards as well.
– Service accounts and handle regulatory compliance – Bear risks of charge-off – Compensation to partners
– Market Apple Card to users – Offer technology to make the card work with Apple Pay and its devices – Help service accounts 3% cash back on Apple products and services – Interest-free payment plan for customers when buying Apple products
– Interchange fees – Leverage marketing power from Apple and its footprint
– Deepen relationships with customers – Compensation from Goldman Sachs
According to Apple, the number of transaction through Apple Pay has grown substantially since it was launched. As of Jan 2020, the annual run rate for Apple Pay reached 15 billion transactions. Not all Apple Pay transactions are through Apple Card. The card debuted only in August 2019. Since Apple doesn’t offer details on Apple Card transactions, let’s run some scenarios by assuming that the annualized transaction count for Apple Card is 500 million to 2 billion. If average ticket size (dollar amount per transaction) ranges from $20 to $60, the transaction volume will be as follows
Annualized Apple Card Transactions
Interchange fee rate varies depending on numerous factors. However, if we assume that the rate is 2% of purchase volume, based on the scenarios above in Table 3, GS would receive the following as interchange fees
Annualized Apple Card Transactions
As you can see, the more Apple Card transactions, the bigger the interchange fees for GS. Given that Apple has legendary marketing prowess, an installed base of millions of devices and rising demand for contactless payments, the numbers may even grow bigger in the near future.
On Apple’s side, it is reported that Apple takes 0.17% cut on each Apple Pay transaction. In terms of Apple Card transactions, I think the cut will be even bigger, but won’t be bigger than GS’ interchange fee rate. Since we assume that GS receives 2% in interchange fee rate, let’s say Apple receives somewhere from 0.2% to 1% on purchase volume. How much would Apple receive, using the lowest purchase volume for each scenario of transaction count (first row respectively in Table 3)?
Annualized Apple Card Transactions
A few days ago, Apple and Walgreens announced that new Apple Card customers would receive $50 bonus in Apple Cash after spending at least $50 at Walgreens using the card. The promotion is valid till the end of June. It signals to me that 1) Apple wants to acquire more customers for Apple Card and 2) Apple may also receive a fee whenever a new customer comes on board. I don’t imagine $50 bonus would be paid for Walgreens or GS. Why would they do so when there is no sustainable benefit? If Apple shoulders the cost of the acquisition bonus, or at least most of it, it will likely not make financial sense to just rely on fees from card purchases to recoup the investment.
In sum, I hope that the information I shared and my thoughts are useful in helping you understand more about the credit card world that is complex yet fascinating. I spent quite some time thinking about the collaboration between Apple and Goldman Sachs as the presence of a tech giant and an investment bank in the consumer banking area is quite interesting. There isn’t much information out there so I would love to learn from whoever has useful information to contribute to the topic at hand.
Disclaimer: I own Apple stocks in my personal portfolio
What I noticed in many businesses is that there are revenue makers and margin generators. Revenue makers refer to activities that draw in the top line numbers in the income statement, but small margin. In other words, these activities can bring in $10 of revenue, but about $1 or less of gross profit (revenue minus cost of revenue). On the other hand, margin generators refer to activities that don’t bring in as much revenue as revenue makers, but act as the source of most margin. Usually. these two complement each other. Let’s take a look at a few examples.
Apple sells their products and services that can only be enjoyed on Apple devices. Products bring in multiple times as much revenue as services, but products’ margin is much smaller than that of services. Take a look at their latest earnings as an example. Products’ margin is about 32% while services’ margin stands at 65%. Folks buy Apple devices mainly to use the services and apps that are on those devices. Apple continues to sell devices to maintain their own monopoly over their unique operating systems and ecosystem.
Amazon’s eCommerce segment is a revenue maker. They warehouse the goods and ship them to customers. It generates a lot of revenue, but the cost is high as well. Built upon the infrastructure Amazon created for eCommerce, 3rd party fulfillment is a margin generator. In this segment, Amazon acts as a link between buyers and sellers to ensure transactions go smoothly without having to store and ship the goods itself. Margin is significantly higher than that of eCommerce. Amazon takes it to another level with Prime subscriptions and AWS. While trying to figure out how to keep their sites up and running 24/7 smoothly, Amazon came up with the idea of selling unused IT resources. Long behold, AWS is now a $40 billion runrate business and Amazon’s arguably biggest margin generator.
Costco is a household name in the US. Families go to their warehouse-styled stores to stock up essentials and groceries. Due to the volume they sell every year, Costco manages to keep the prices low, but thanks to the cut-throat nature of the industry they are in, the margin is low, about 2-3%. That’s their revenue maker. To compensate for the low margin, Costco relies on their membership fees. Whatever customers pay to be able to shop at Costco is almost pure profit to Costco. There is virtually no cost to process an application and issue a card.
McDonald’s essentially has two business segments: their own McDonald’s operated restaurants and franchising. The brand’s own operated restaurants serve as references to franchise owners for how good McDonald’s brand is as an investment. However, it offers the brand way lower margin than their franchised restaurants.
Airlines make money by flying customers, but there are a lot of costs involved such as planes, airport services, food and beverage, fuel, etc…Airlines can generate more margin with their branded credit cards. Many airline-branded credit cards come with an annual fee. Plus, card issuers may pay airlines a fixed fee for new issued cards and a smaller fee for renewals. Plus, there may be a small percentage for first non-airline purchases. Agreements vary between airlines and card issuers, but it brings a lot of margin to airlines.
Ride sharing apps are notoriously unprofitable. Uber and Lyft lost billions of dollars in their main operations. Recently, they tried to launch a subscription service and in Uber case, a credit card, hoping that these services could help generate the margin they need.
We all know the saying in business: cash is king. Cash can only increase, from an operating perspective, when margin increases. Revenue is crucial because, well, a business needs to convince folks to pay for products or services first. Nonetheless, a business is more robust and valued when margin increases.
Tech giants reported their earnings this week and proved how resilient their businesses are amid arguably the most challenging environment ever. In this post, I’d like to demonstrate with visuals how important AWS is to Amazon, and how China, Wearables and Services are to Apple while it has become less of an iPhone company.
It has been a while since I took time on a weekend to watch some movies and series. I saw The Banker and Defending Jacob today on Apple TV+ and wanted to share a few thoughts
The movie is about two black men who wanted to take down the racism and segregation in the real estate and banking industries in America several decades ago. By their entrepreneurship, determination and talent, they managed to own a sizable fortune from their real estate business in California. After the success, Bernard Garrett set his sight on helping black people in his hometown Texas access capital which could, in turn, change their life. To do so, Bernard and his partner Joe Morris and Matt Steiner bought a bank in Texas. Since having colored folks as owners of a bank threatened its existence, Bernard and Joe did their work behind the scene with Matt as the front man. They started to make loans to the black community, true to their mission. The entire operation was put in jeopardy by a jealous and racist minor owner who was the son of the previous owner. The trio were put in a congressional hearing chaired by a Senator with a racist agenda. They were offered immunity deals to say what they were asked to say or they could speak their mind and go to prison. Truth was spoken, immunity deal was granted and a revolutionary law was passed to make banking fairer.
Working at a bank, I have come across laws that require equal access to capital a few times. Everything we do from issuing credit cards to lending out money has to be legal. Even if we want to use an attribute provided by our partner to make targeting more efficient, the attribute has to be investigated by our Compliance to make sure that there is no discrimination. It’s tedious and bureaucratic, but it’s necessary. Watching this movie brought me a new level of appreciation for some of the banking laws.
I enjoyed the movie and the story it told.
This is a new series from Apple starring Chris Evans. It’s about a Deputy Attorney District in a county in Massachusetts named Andrew Barber. One day, a high school student who went to the same school as his son was found dead in a park two blocks from their home. The tight-knit community was on edge. Andrew was charged with leading the investigation. The dead student was stabbed to death. Later, the investigation uncovered that his son bought a knife two weeks prior to the murder and was seen bullied by the victim. Andrew was taken off the case and his family’s world was turned upside down.
Only three episodes of the series have been aired so far, but they have been pretty nice. The drama is getting more exciting by each episode. The plot was set up to reveal more explosive twists later. I enjoyed watching the actors playing the Barbers bring out the struggle that their family had to go through. I think Chris did a good job. It’s refreshing to see him outside of his iconic role as Captain America. I suspect his son was dead, but don’t mind waiting for a few episode to find out.