Apple Car, Apple Pay, or Apple Watch: Which Will be Apples Biggest Winner?

By Markets Fool.com


Source: Apple.

Continue Reading Below

The products that Apple has pioneered over the past decade have formed the backbone of the mobile revolution and transformed the way people interact. Yet as investors nervously look for Apple's next big hit, there is significant disagreement about which direction the tech giant should go. With an Apple Watch that stays in the mold of its consumer-product history, Apple Pay that aims to cash in on mobile payments, and the potentially disruptive but highly capital-intensive Apple Car project, no one is quite sure which would be the company's best idea.

Three Motley Fool contributors each made their case for one of those products being Apple's next big winner. Check out their arguments, and let us know which one you think is the most convincing.

Source: Apple.

Andrs Cardenal (Apple Watch). Apple is all about design and creating a smooth, high-quality user experience. For this reason, a smartwatch from Apple could be a big winner. Apple has turned smartphones and other tech devices into fashion accessories, so there is no limit to what the company can do when it enters the fashion business and leverages its differentiated brand value and extraordinary design talent.

Continue Reading Below

Apple CEO Tim Cook is obviously a biased source, but it's good to know he is quite optimistic about Apple Watch. From Apple's latest earnings conference call:

Development for Apple Watch is right on schedule and we expect to begin shipping in April. Developers are hard at work on apps, notifications and information summaries that we call Glances, all designed specifically for the Watch's user interface. The creativity and software innovation going on around Apple Watch is incredibly exciting and we can't wait for our customers to experience them when Apple Watch becomes available.

It's hard to know how many watches Apple will sell in the first stage of the rollout -- it will depend not only on demand, but also on production and availability in different markets. Needless to say, it's far too soon to speculate about profit margins.

However, it's not all about the numbers. If Apple can prove to investors with Apple Watch that it has what it takes to continue innovating and successfully entering new product categories, this should be a strong driver for the stock in the middle term.

Dan Caplinger (Apple Car): It takes a crazy idea to make a big difference for a company with a $750 billion market cap, and rumors of a possible Apple Car certainly sound crazy to many people. Yet when it comes to which product could be the biggest winner for the tech giant, the idea of disrupting the automotive business with a brand new entrant has the potential to open up an entirely new direction for Apple.

Will rumors of an iCar end up being just an expansion of CarPlay? Source: Apple.

Apple Watch will undoubtedly be successful, but as follow-on technology from the company's other electronic devices, it's unlikely to become a blockbuster for the company. Apple Pay will take advantage of the millions of users in the Apple ecosystem, but as a financial intermediary it won't have the margins of a highly valued product.

By contrast, Apple Car has the capacity to be entirely new, regardless of how it actually takes shape. Some think Apple actually moving into auto production would be folly, but with huge stores of cash at its disposal, the company has the financial resources either to start a facility from scratch or to acquire a company that already has the expertise to help it succeed. Alternatively, it could contract out its manufacturing to existing automakers, using the same model that earns huge margins on its electronic devices.

Automobiles have made huge advances in technology in recent years, so melding a tech leader to the production of a new car line seems like a natural next step in the industry's evolution. That's why I'm looking forward to seeing what Apple pulls out of its hat.

Tim Beyers (Apple Pay): Forget all the bad press about security issues with Apple Pay. Yes, it's a problem, but it's not so much with the software as the system's inability to identify and block stolen credit cards as they're entered. Miscreants have been exploiting a not-so-obvious loophole: Apple trusts its iPhone users.

Of course, banks aren't as forgiving; according to The Wall Street Journal, many will soon require additional authentication on Apple Pay accounts. Fraud should become more rare as a result. That's why I like Apple Pay in this debate: a press problem isn't always the same as a business problem.

Apple Pay also offers a bigger opportunity because it is software that can exist anywhere, on any device. Apple executive Eddy Cue recently demonstrated how the service would work on the new Apple Watch -- a quick double-tap is all that is required once the device is unlocked.

Just how many will buy the watch and use Apple Pay is unclear. But there were nearly 800 million active iTunes accounts as of last summer. More than a few of them seem to have taken to Apple Pay. In January, the Journal reported that $2 of every $3 spent on contactless credit card payments went through Apple Pay. (Specifically, payments made with Visa, MasterCard, or American Express.) Enabling the service on the Apple Watch should only add to the influx, making Apple Pay the company's biggest winner since the iPad.

The article Apple Car, Apple Pay, or Apple Watch: Which Will be Apples Biggest Winner? originally appeared on Fool.com.

Andrs Cardenal owns shares of Apple and MasterCard. Dan Caplinger owns shares of Apple. Tim Beyers owns shares of Apple. The Motley Fool recommends American Express, Apple, MasterCard, and Visa. The Motley Fool owns shares of Apple, MasterCard, and Visa. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.