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[Dear CVS CEO: I wouldn’t give up on ApplePay just yet]
[This letter was emailed to CVS Caremark CEO Larry Merlo this morning.]
Dear Mr. Merlo,
According to sources, you’re looking to build a system that allows you to circumvent credit card processing fees. I’m not a betting man, but I promise you that your solution will do no more than waste your company’s time, and money. Over the rest of this letter, I’ll try to prove that to you, as well as why you should re-enable Apple Pay.
cvs pharmacy apple pay ceo
First of all, your solution assumes that retailer and consumer interests are aligned. Even if you offered the savings back to customers, in cash, most would still choose to pay cash or credit. Many people are loyal to their loyalty programs, and credit cards are significantly more convenient than bank accounts. There’s also a barrier of privacy that you may not realize exists. Consumers are far more comfortable giving out their credit card numbers than their bank account numbers.
Paypal founder Peter Thiel says that in order for a product to change existing consumer habits, it must be an order of magnitude (10x) better than what it’s displacing. This was true of Facebook, of Hotmail, and of the iPhone, and this is true of Apple Pay. This isn’t true of the proposed “Current C” scheme, or anything you’re capable of producing without direct control over hardware.
In fact, hardware is Apple’s most distinct advantage. Not even Google, with its strong influence over the Android platform, and billions of users, could create a compelling wallet-replacement. Using Google Wallet simply required too many steps. Apple’s direct control over its hardware has allowed it to build competitive advantage directly into the product. Proprietary access to the NFC chip, and the touch-ID security chip means that only Apple Pay could possibly succeed on the iPhone.
To make this even clearer, I’d like to provide some illustrative examples. Here’s the payment process as it stands. It starts by handing the clerk your items, and taking out your wallet. You choose cash, or a credit card, and hand it to the clerk, or swipe it yourself. You’re given a receipt. You sign it. You take the receipt, and stick it in your wallet, or in the bag of the item you’ve purchased, and then you place your change or your card back into your wallet, and put that into your pocket. The entire process only takes a few minutes, so to improve upon it by 10x requires significant work.apple-pay CVS letter
As it stands, when you go to an Apple-Pay compatible store, you simply give your fingerprint to authorize a payment. It’s a quick, painless process that probably saves you around 30-40 seconds, and doesn’t even require locking your phone. You can pay with nearly any credit card, and earn all of the bonus points that your particular card provides. Since all data is transferred over NFC, rather than cellular, it’s quick and efficient. Even more importantly, secure data never reaches the retailer. Thanks to Target and Home Depot, big chains have become synonymous with loose lips. Many consumers have lost faith in retailers to keep their data safe. These security scares have led to a rash of new security products that consumers are really embracing.
Your solution, as it’s been described, is quite a bit more clunky. To pay, users must unlock their phone, and open a dedicated app. Then they must scan a QR code, confirm their purchase, and type in a pass-code. Then they have to use another scanner to scan yet another QR code to complete the transaction. Those using mileage credit cards earn no miles, and those concerned with privacy are forced to hand their bank data to a group of retailers. Once you get the hang of it, it may save you a few seconds, but not more than that. It’s not 10x better. If you think that your system stands a chance, you’re dreaming.
A bit of honesty
In the short run, disabling Apple Pay is not going to cost you much money, but in the long-term it might. As Apple-Pay finds its way into more and more retail locations, consumers may start leaving their wallets behind on occasion, and, knowing that CVS doesn’t accept Apple Pay, make shop with a competitor. It’s also a massive waste of time and resources. Technology and mobile payments is not your core competency, and should be low down on your priorities list.
As I see it (and as just about any millennial sees it), there are two possible futures. In one, customers and retailers quickly adopt Apple Pay. Millions of hours of productivity are saved, as consumers save time at the register. Purchasing of impulse-buys soars as the energy required to purchase some decreases, and retailers enjoy a bit of extra business. Google releases their own updated solution, and mobile payments come into vogue.
In the other, life remains the same. Customers pay with cash or credit, and checkout lines grow. More and more customers decided that time spent at the local pharmacy isn’t worth it, and turn towards Amazon for quick delivery of their necessities. Under no circumstances will a payment solution that you control come into vogue. You don’t possess the technical control, nor the economic control to create a product consumers would adopt. You can either help adoption, or hurt adoption of Apple Pay. There is no third scenario.
Personally, I’d recommend re-enabling Apple-Pay and NFC in general, but that’s up to you. Good luck.
[Microsoft’s Steady Comeback Has Begun]
Microsoft was in bad shape when CEO Steve Ballmer left this year. It was very fiscally healthy, but it had failed twice in two years to release a successful tablet despite billions spent on marketing. Microsoft’s Windows phones picked up only a fraction of the global smartphone market. Microsoft’s most lucrative products, the Office Suite and Windows, faced steep competition from Google’s own offerings. Over the past decade, Microsoft had become the punchline of every tech industry joke. Sales of PCs were slipping, and Microsoft didn’t have a backup plan for when the PC gave way to the smartphone. In just a few months, Microsoft’s fortune has shifted.
A Hardware Turnaround
After spending billions on research, development, and marketing, Microsoft’s Surface tablets (now in their third iteration) are finally finding a niche. This quarter, Microsoft sold $908 million worth of Surface tablets. It pales in comparison to the $5.6 billion worth of tablets that Apple sold in the same period, but it’s something. That number is more than double their sales over the previous quarter and the quarter from a year earlier.
Since Satya Nadella took over, Microsoft has been more willing to take big risks. In just a few months, Microsoft has released several new products targeted at the tech-set community. In June, Microsoft revamped the Surface line, setting them up to compete with light laptops and ultrabooks, rather than tablets. This realignment, along with a serious display upgrade, helped to boost Surface sales. In October, Microsoft launched the Microsoft Band, a cross-platform fitness band with an LCD display and built-in GPS. So far, early reviews are overwhelmingly positive. In April, Microsoft launched a new personal AI assistant for its Windows phones named Cortana, which competes with Google’s Now, and Apple’s Siri.
The new Microsoft Band
In fact, under Nadella’s leadership Microsoft has been embracing the cross-platform approach. Early in his tenure, Microsoft finally released Microsoft Office for iPad and OneNote for Mac, two apps that Ballmer resisted releasing. Microsoft says that it is also working on a (long overdue) brand new version of Office for Mac that will fully take advantage of their Office 365 subscription service.
Microsoft has also made an effort to acquire some new products to complement those built in-house. In April, Microsoft finalized the $7.2 billion acquisition of smartphone-maker Nokia. In September, Microsoft acquired Mojang, the development studio behind the uber-popular Minecraft game, for $2.5 billion.
Despite cutting 18,000 jobs, employees have reported a positive cultural shift. Just the feeling of a new CEO, and a new mission has reinvigorated the company. Upper management has been far less combative and insular, according to reports. I know for a fact that Nadella even emails back and forth with interns on occasion. That positivity has carried over to Wall Street, where Microsoft stock is up nearly 50% since he took over.
Microsoft, at Nadella’s urging, has also made some progress in its strong enterprise business and in growing the Windows operating system. They’ve developed and iterated on their Azure cloud computing system, and put themselves in contention with companies like Google and Amazon. Nadella made the bold move to offer Windows 10, and Windows phone for free on devices smaller than 9 inches, and in the process, brought in over 50 new manufacturers.
It hasn’t been all good news for Microsoft. Amidst the massive success of Apple’s iPhone 6 and 6 Plus, Windows Phone’s US market share fell to a puny 4.3% this month. Microsoft has been widely mocked for its odd decision to skip Windows 9 in favor of Windows 10. More seriously, many of Windows 10’s top features were simply fixes to issues that arose in Microsoft’s hopelessly bifurcated Windows 8 OS. The Xbox One Console, which was supposed to be a top seller for Microsoft, has lagged behind Sony’s PS4 significantly, forcing multiple price cuts.
windows phone declining market share
Even Microsoft’s branding and advertising has improved, thanks in part to a reshuffling of top leadership by Nadella. Steve Ballmer hired Mark Penn, a top political consultant, to revamp Microsoft’s advertising, and unsurprisingly Penn turned to mud-slinging tactics, namely the cringe-worthy “Scroogled” campaign. Nadella removed him from that position, and obviously put someone more suited to the role into that post.
Is this really all because of Nadella?
No. Nadella’s entrance, and Ballmer’s departure has made a big difference, but it’s not the entire cause of the turnaround. Just the perception of a change in leadership has brought in new investors, customers, and employees. Many of the products that Ballmer approved for development towards the end of his career will be key to Microsoft’s current and future success ( with Windows Band, Windows 10, etc). The rest of the new management team, as well as the return of Bill Gates have probably helped as well.
Microsoft has a long way to go in adapting to mobile and the smart home, and bringing their company into the 21st century. It’s nice to see that a great American company is on the path to recovery.
My apologies for any spelling or grammar errors that may be present in this piece. I had oral surgery two hours ago, so my proof-reading sense is not as attuned as usual.
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