Apple's Mobile Commerce Future: AuthenTec Just The Start
Look at Apple's proposed buy of fingerprint sensor expert Authentec alongside iOS 6 plans, App Store growth, and Android legal battles, and you'll see a long term competitive strategy.
The technorati have been talking about mobile commerce, the notion of using what were once called just cell phones as electronic credit cards, for at least 15 years. For a variety of technical, sociological and competitive reasons, the dream has yet to come to pass. So what does mobile payment processing have to do with Apple's proposed acquisition of AuthenTec, a mobile security firm best known for its biometric sensors? Perhaps more than meets the eye.
Much like a military commander trying to cut through von Clausewitz's Fog of War to understand enemy strategy by piecing together tactical bits of reconnaissance, as with all things Apple, one can't look at individual events and activities without considering them within the context of everything else it's doing. The dots that seem to best connect with the AuthenTec deal are the new Passbook feature coming in iOS 6, the explosive growth of the App Store, and Apple's longstanding battle with Android, currently playing out in the Samsung trial over the latter's alleged pilfering of iPhone design features. In sum, grabbing AuthenTec could yield not only short-term technological fruits, but long-term financial and competitive benefits.
As we initially reported, AuthenTec is best known for its fingerprint sensors; tiny scanners that are built into everything from laptops to smartphones. In fact, AuthenTec even makes its own line of standalone USB readers and authentication software for Windows. While biometric security would be a welcome improvement over the relatively lame four-digit PIN used by those iPhone and iPad users who care about protecting their private data, biometrics, or some other strong, two-factor scheme becomes much more important once you turn the phone into a form of payment for routine purchases. Who wants to type a long, cryptographically strong password every time you buy a hamburger?
For starters, Apple could certainly use its ample design savvy to improve the frumpy look and cumbersome user experience of today's fingerprint scanners. One look at AuthenTec's products, like this one used on a Docomo phone, makes clear that they are a great example of substance over form, a deficiency Apple would certainly correct. Turning the iDevice's home button into a fingerprint scanner just seems too obvious.
But aside from device security, biometrics could significantly enhance Passbook's utility as a platform for physical world commerce. Unlike Google's wireless NFC-based Wallet, Passbook uses the barcoded coupon metaphor to bridge the real and virtual worlds; think of it as a way to aggregate many different electronic versions of gift card or tickets. The problem is that Passbook, at least as initially unveiled at this year's WWDC, makes the user go through a separate process to actually buy said card or ticket. I've never understood the value of say a Starbucks card, which requires I setup an online account, link it to a credit card, and load money from one card to the other before ever buying my first latte. Why not use the credit card in the first place?
Here's where an uber-secure iPhone+Passbook could succeed where Wallet, Isis, and other mobile payment initiatives have failed; by moving the credit card transaction from the point of sale to the App Store. You see, as Tim Cook gushed at this year's WWDC, "We now have over 400 million accounts on the App Store. These are 400 million accounts with credit cards and one click buying, so it's simple and elegant to buy your apps. This is the store with the largest number of accounts with credit cards anywhere on the Internet that we're aware of." Think about that. More credit card numbers than Amazon has turned the App Store from a convenient way to buy Angry Birds into a bigger payment processor than eBay. And remember, iTunes and the App Store pioneered micro-payments; it efficiently processes billions of 99-cent transactions, all the while taking a 30% cut that makes even greedy Wall Street bankers envious.
So why not turn those Passport cards into more than just paperless boarding passes, by giving Passport the ability to actually create the virtual gift card or ticket via an in-app purchase? You want a quick Latte? Don't fumble for your Starbucks card, just pull up Passport, hit the Starbucks tab, enter the amount and it auto-generates the appropriate QR-code. The only missing piece is a quick, dirty, and secure way to authenticate your iTunes account. That's where your fingerprint, and hence AuthenTec, comes in by obviating the need to type long passwords. Biometrics even solves the problem of multi-user devices. Want an easy way to use separate Target accounts for you and your kids? No problem, just link Passbook to different iTunes accounts for the appropriate finger.
The AuthenTec deal does one more thing for Apple; it could keep the technology from one of the largest biometric arms merchants, with nearly 200 patents, out of competitor's hands. Although AuthenTec sensors are only in 20 million phones, i.e. about one quarter's worth of iPhone sales, it's customers read like a who's who of Apple's smartphone rivals: LG, Motorola, Nokia, and yes, Samsung. Sure, there are alternatives, but who knows what kinds of additional legal roadblocks Apple might be able to erect with those 200 patents.
With smartphones now our constant companion, holding more and more sensitive and financially valuable information, we need better device security than a four-digit PIN. For no other reason, Apple plus AuthenTec is a nice combination. But hardening and securely linking the device to its owner makes the notion of smartphone as electronic credit card much more viable and one more reason we'll all want the iPhone 6.
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