Coin Labs Weekly: Apple's Business Chat Opportunity

Last week, 52% of CLW members opened the newsletter with 20% of clicks going to this article on the R
Don Richard
Coin Labs Weekly: Apple's Business Chat Opportunity
By Don Richard • Issue #7 • View online
Last week, 52% of CLW members opened the newsletter with 20% of clicks going to this article on the Rise of QR Codes in China. Each issue contains my weekly article, my top 5 fintech and mobile commerce reads from the past week, and a past Coin Labs article that I think you’ll enjoy. If you enjoyed the newsletter, please forward this email to 3 of your colleagues and friends who might enjoy it too. 

Apple's Business Chat Opportunity
On June 9th, Apple will unveil “Business Chat for iOS”, a new feature that will allow businesses connect with iOs users from Safari, Maps, Spotlight and Safari and jump directly into an iMessage thread. During a Business Chat, businesses will be able to collect payment in-thread from customers via Apple Pay. We’ve seen similar “conversational commerce” and business messaging efforts from Facebook Messenger, Twitter, and a host of other companies over the last few years. None of these initiatives have quite captured the attention and wallets of consumers at scale.
Having spent time as the Head of Partnerships at LiveNinja, a business messaging startup, I saw first hand the challenges of trying to create a new consumer behavior around chatting with businesses. One of the biggest takeaways from that experience was that messaging a business can be just as unappealing to consumers as chatting on the phone with customer service. In theory, business messaging combines the best of two worlds: convenience and intimacy of messaging and the existential urgency of businesses to build and maintain customer relationships.
But here’s why this theory is fraught: Consumers have little to no relationship with most businesses and brands these days. Messaging is one of the most, if not the most, popular uses of smartphones today, occupying a private and personal place for consumers. It’s hallowed ground, that which may not be sullied by a business looking for a direct communication channel with its customers. Messaging services looking to bridge this gap must foster a platform where consumers will proactively engage in conversation with a business, that is secure and private, and provides the necessary tools for businesses to pull of this experience well. In hindsight, Apple may have always been the company best positioned to make this user experience work at scale.
Marketplaces, Ads and Irony
The reason Apple can be a major player in business messaging boils down to this: iOS is home to the most valuable customers on mobile. Average Revenue Per User is an incredibly important statistic for any platform looking to generate services revenue. Over the last several years and earnings calls, Apple has touted itself as a services company. And the company might be right. It’s services revenue grew $1 billion dollars YoY in Q1 2017 to a total of $7 billion. Back in January 2017, Ben Bajarin pointed out on Twitter that iOS ARPU is growing fast:
ARPU is important because business messaging, at its core, should function like a marketplace. As the mobile app economy matured and diversified, it has been difficult for most businesses to invest in and maintain mobile apps. Reach and brand awareness is key to activating consumers and building a customer relationship with them. Businesses struggling in these areas may have a new ally in iOS Business Chat, aggregating them into the supply side of the business messaging marketplace.
It’s a commonly held belief that one of iPhone’s moats is iOS and the stickiness of iMessage. For iOs users, that blue chat bubble is another reminder of the value of their iPhones. It’s a reflection of the iPhone as a status symbol and Apple as the world’s most valuable lifestyle brand. iMessage’s stickiness and brand affinity makes it one of the largest social networks in the world. It is advantageous for Apple to leverage its relationship with iOS users to match them with businesses, facilitating customer service, commerce and brand loyalty.
Business Chat also provides Apple an opportunity to get more iOS users to sign up for Apple Pay. Currently, only 13% of iOS users are signed up for Apple Pay, let it alone active Apple Pay users. With Apple Pay integration in Business Chat, Apple presents a clearer value proposition for iOS users to use the payments service and more incentive for merchants to sign up for Apple Pay service across their commerce channels. This strategy won’t automatically create a significant bump in Apple Pay sign-ups, but Apple can afford to take a longer term view on Apple Pay since they own the platform (and can change it to make it more beneficial for their initiatives) and their business model is predicated using differentiated services and software to sell more hardware products.
From the user perspective, Apple’s business messaging service has several advantages over competitive experiences from Facebook and Twitter. First and foremost, Apple is a hardware and software company focused on selling physical products. Users are the customer, meaning Apple’s incentives around the user experience are directly aligned with users. User need not worry about Apple’s business messaging service being a vehicle for generating more advertising revenue and Apple tailoring the user experience for more B2C interactions than is desired by users. This means that Business Chat will be a user-initiated experience. More on this later.
Though this will limit how much reach businesses have in connecting with iOS users, the experiences well be better-received by users and may even lead to more accurate data in terms of what consumers actually care about in regards to a business’ products and services. Apple’s position as platform owner may even make concerns about limited reach moot, as it plans to make Business Chat interactions available across iOS and its default services.
Secondly, Apple’s focus on security and privacy make Business Chat attractive for commerce experiences. While user data is relatively safe with Facebook and Twitter (data safety is existential for their businesses), they still rely on offering businesses tracking, targeting and retargeting services to generate the majority of their revenue. On Facebook Messenger and Twitter DMs, businesses can pay to push message in user’s feeds in order to entice users to start B2C messaging conversations. Once that first conversation occurs, businesses can directly messages users, unless users opt-out of the thread. Apple, on the other hand, is limiting third-party ad-tracking on iOS 11. This would be antithetical to the business models of Facebook and Twitter’s business messaging services.
An aside on ad-tracking: consumers have become weary of ad-tracking and targeting because the ads they are shown lack context and creepily follow them across the web. Since these ads have poor quality and lack relevancy, consumers are opting for ad-blockers and welcome Apple’s stance on privacy. In a twist of irony, this has made ad-targeting more difficult for businesses, pushing them to rely more and more on the digital advertising services of Google and Facebook. A potential outcome in this scenario is that Google and Facebook continue to swallow up digital ad dollars, while making Google services on mobile devices more powerful because of its openness to using user data. Eventually, this may come back to bite Apple on the services front because of its insistence on “no user data-sharing” instead of “smart user data-sharing.”
Business Chat as a Trojan Horse to Make Siri Smarter
With the announcement of Apple’s Homepod, an AI-powered speaker, the arms race for the intelligent assistant dominance has officially begun. Naturally, Siri will be Homepod’s assistant, continuing Apple’s renewed focus on making Siri more useful, more intelligent and more central to the Apple user experience. Business Chat’s launch on iOS 11 will be no different; Siri will be one of several iOS default services that users can start a Business Chat from.
As I mentioned earlier, the Business Chat UX will be largely user-initiated, with users beginning B2C conversations in Maps, Spotlight or Siri (and other iOS services, I’m sure). This is a smart strategy as it makes Siri a focal point of B2C interactions, which means it will accumulate and process a tremendous amount of user data via user queries. My guess would be that Siri will accumulate more data than Maps and Spotlight combined. The popularity of Amazon Alexa and the announcement of Homepod may even play a non-insignificant role in getting iOS users to give Siri a second look as an intelligent assistant.
It’s no secret that Google Assistant and Amazon Alexa have leapfrogged Siri in terms of intelligence and utility. Those assistants are backed by the treasure troves of user data found in Google searches/services and Amazon’s ecommerce platform, respectively. Siri is tied to no such user database and is constrained by Apple’s privacy policies. Including Siri integration in Business Chat as a launch point and likely in-thread intelligent assistant is as good a strategy as any to increase Siri’s smarts. However, Apple’s culture privacy may end up making all attempts to make Siri truly intelligent too little, too late.
This Week's Top Commerce and Fintech Reads
Key Point: With today’s announcement, Amazon is trying to become Walmart faster than Walmart can become Amazon. In other words, Amazon is trying to expand its consumer base just as Walmart’s e-commerce business has taken off with the purchase of e-retailers like Jet.com and Modcloth.
Key Point: It’s cheaper to reach people on Facebook than it is on TV. On average, the cost of reach was 1.9 times cheaper on Facebook than TV. Facebook’s targeting abilities may be behind this, as it’s more effective for reaching the intended audience.
Key Point: China’s laid the groundwork to take the helm of the regional economy for decades. Its ever-wealthier investors have poured billions into everything from transport to real estate, transforming the region. China almost doubled foreign direct investment into the six biggest Southeast Asian nations in 2016 alone, Credit Suisse Group AG estimates.
Key Point: Agencies are spending a lump sum on Facebook, for instance, but they never plan intentionally to carve out a budget for mobile. Their ad budget goes where the audience is, and most of Facebook’s audience is on mobile.
Key Point: The best way to think about Blue Apron is as a “conveyor belt” business. Some consumers try the service and churn of course, but those that stick around end up reordering a substantial amount akin to Blue Apron having a conveyor belt to sell product into people’s kitchens.
Coin Labs Vault
Amazon could eventually be a more valuable identity platform than Facebook’s platform. Amazon’s platform gives merchants the ability to understand their customers, both in-store and online using historical and real-time purchasing data. As Facebook builds out a real world attribution system for its advertising products, Amazon already has the functionality to monitor and understand customers’ actions and preferences in both physical and digital retail.
Did you enjoy this issue?
Don Richard
Coin Labs Newsletter - The Business Strategy and Analysis of Mobile Commerce and Fintech
Carefully curated by Don Richard with Revue. If you were forwarded this newsletter and you like it, you can subscribe here. If you don't want these updates anymore, please unsubscribe here.