The Apple Pay Problem No One Is Talking About

Tim Cook presenting at Apple's 2012 Worldwide Developer Conference. Credit:Mike Deerkoskivia Flickr under the Creative Commons license.

If Apple Pay proves anything, it's that a portion of the populace is ready to use a phone to make purchases.

Roughly $2 out of every $3 spent on credit card-backed contactless payments are being made with Apple Pay, The Wall Street Journal reported in January. The very next month, Tim Cook used the stage at the Goldman Sachs Technology & Internet Conference to tout new Apple Pay partnerships with Panera Breadand JetBlue, according a transcript supplied by S&P Capital IQ. In many ways, Apple Pay is one of the unqualified successes of the Cook era at Apple.

Less clear is why. eBay'sPayPal has long offered a wallet for making purchases on the go. So has Google. Why hasn't either of these taken off in the same way? There's good and bad news in the answer.

A tale of two ecosystemsTying Apple Pay to the iPhone is the key, I think, because it isn't the sort of device that can stand alone. To own an Apple handset is to be part of the Apple ecosystem, and with that comes a conscious commitment to use its products pervasively.

Think of it this way: You can be an Android user or a Chromebook user, but there's no such thing as a Google user. By contrast, you can't just be an iPhone user, or an iPad user, or an Apple Pay user. There are only Apple users and non-Apple users.

CEO Jeff Bezos wants you thinking of the same way most people think of Apple. And now, thanks to Apple Pay, he knows he needs phone commerce to complete the platform.

Much of the rest is already built. From its signature online store to the Kindle, Kindle Fire, and gaming-enabled Fire TV, Amazon has already created one of the world's most useful ecosystems for digital consumption. A growing portfolio of award-winning original series -- and a broad-based deal with HBO -- only adds to its attractiveness. Apple may have more branded devices, but Amazon has more reach. Mix in a growing product portfolio and you've got the makings of a business built to topple the iEmpire.

Learning to earn Amazon isn't without failures, of course. In December, Bezos took a beating on stage over lackluster sales of the Fire Phone, which promised the ecosystem richness of an iPhone in an affordable handset designed for smarter shopping. Consumers didn't buy it, and the e-tailer wrote off $170 million in unsold inventory as a result. Yet Amazon isn't giving up on the handset market.

"What matters is companies that don't continue to experiment or embrace failure eventually get in the position where the only thing they can do is make a Hail Mary bet at the end of their corporate existence. I don't believe in bet-the-company bets," Bezos said at the time, defending a new round of bets on the Fire Phone concept.

Shouldn't Apple investors be more worried about this? There's only one reason Bezos would want a handset: to make it easier for prospective customers to engage with the world through Amazon's lens. Steve Jobs wanted exactly the same thing for Apple, and to a large degree he got it in the form of the iPhone and iPad. Apple Pay and Apple Watch are meant to defend the ground gained since.

A huge threat years in the making I've little doubt they'll do well. (Or continue to do well, in the case of Apple Pay.) But let's not kid ourselves: Amazon is operating under self-imposed restraint by refusing to offer an on-the-go commerce alternative. Now that Apple Pay has taken off it could encourage Bezos to unhook the leash on his own efforts.

Right now, Amazon Payments is essentially PayPal for merchant websites. A future Fire Phone could take the existing platform further, offering what amounts to an Apple Pay lookalike connected to the same underlying payments processing system.

Say you visit a furniture store. A bit of browsing on your phone reveals that the retailer not only has the style of chair you want, but offers it at a price comparable to what you'd pay on So you tap a reader and buy with Amazon Payments. Later, Amazon sends you an email on behalf of the retailer offering an extended warranty you can purchase with a click. Call it e-commerce extended.

Sound far fetched? Maybe it is. What's important is that we haven't seen how far Amazon can extend its ecosystem. To listen to Bezos, I'd say we're still in the early stages. Apple Pay's success may have just accelerated his timetable.

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Tim Beyersis just tryin' to pay the bills, OK? He's also a member of theMotley Fool Rule Breakersstock-picking team and theMotley Fool SupernovaOdyssey I mission and owned shares of Apple and Google (A and C class) at the time of publication. Check out Tim'sweb homeandportfolio holdingsor connect with him onGoogle+,Tumblr, or Twitter, where he goes by@milehighfool.The Motley Fool recommends, eBay, Apple, Goldman Sachs, Google (A and C shares), and Panera Bread. The Motley Fool owns shares of, Apple, Google (A and C class), and Panera Bread. 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.

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