The Apple Watch: More Evidence the Gang of Four Are Becoming Banks

The Apple Watch was just introduced on April 24th with much anticipation and fanfare. According to early user reports, there is a steep learning curve, but once users get passed the curve, it exceeds expectations.

Since many are focusing on the elegant design and capabilities of this new product, I would not add much value to do the same. I prefer to discuss the Apple Watch as another step in Apple's game plan to turn itself into a bank. To better understand this plan, it is also important to recognize that Apple shares this same goal with its rivals -- Amazon, Facebook and Google.

The Real Objective of the Gang of Four

Eric Schmidt, Google's Chairman, coined the phrase the Gang of Four in reference to Amazon, Apple, Facebook and Google -- the companies he believes will define the Internet economy from now into the future. Notice the word "economy" is used. These four companies have a market capitalization exceeding $1.3 trillion. If you read between the lines, it appears that this "Gang" is really striving to turn themselves into banks as Warren Buffet and IBM did with their businesses. Once you have a bank you have the cash to earn interest, invest, and do all sorts of wonderful things.

Different paths

Of course, each member of the Gang of Four has focused on different paths to reach this goal. Amazon is focusing on commerce. Apple is creating elegant devices. Facebook is dominating social media. Google is the king of search. There is overlap and convergence between what they do with all members of the Gang being involved with devices, software, cloud computing, and commerce. However you slice it, all are focusing on different ways to get to the same place.

Apple Watch To Facilitate Apple Pay

Along with the iPhone 6, the Apple Watch makes it even easier for Apple users to pay bills using Apple Pay. Apple Pay, in turn, is Apple's first step in becoming itself into a bank. Unlike its device rivals, however, Apple makes good money on the devices it sells. According to the latest figures, Apple earned 89 percent of the smartphone profits in the last quarter of 2014. Two years ago, Apple was processing 575 million iTunes accounts with one click payment capability. It is putting the pieces in place to be an online bank that initiates banking transactions using the Apple Watch, iPhone and Apple Pay.

Amazon introduces Kindle Fire as a loss leader

Three years ago, Amazon introduced the Kindle Fire at a price below its cost to employ the Gillette product strategy and loss leader pricing strategy to rapidly grow sales and market share. Why would they do that? The Kindle Fire is a device to drive business to Amazon's store and away from other online stores, such as iTunes/iBooks, Google, and Barnes & Noble. Of course there are differences in the stores. Amazon sells just about everything and Apple is more focused on its products, digital entertainment, and education. The Kindle fire is also not positioned directly at the iPad (at least for now) since just about everyone that has tried that approach has gone down in flames. Even after more competitors have entered the tablet market and bigger phones have cannibalized tablet sales, the iPad is leading the market with a share of roughly 32.5 percent. Rather than directly compete with the iPad, the Kindle Fire is both an offensive and defensive move to drive digital business away from other stores and toward Amazon. Every purchase on iTunes and iBooks is a sale that Amazon does not get. Conversely, every sale on Amazon is money that does not go to Amazon's Gang of Four competitors. Unlike Apple, Amazon is not using devices to make money. Its strategy is to drive commerce to its Web site where customers can pay using money from the Amazon bank.

Bank of Facebook

Some were surprised when Facebook introduced a buy button to its site. It is really no surprise. Once introduced to a product by friends, family, or an advertiser's ad, Facebook wants to make it as easy as possible for its huge and growing user base to buy what they want without having to leave the Facebook site. At the same time, Facebook can collect revenue from its advertisers who are realizing a greater return on their Facebook ad investment than they would using more expensive media. According to Jack Marshall in Digiday, if you invested $4 million (which would buy you 30 seconds on the 2014 Super Bowl), you could get 14 billion Facebook ads, which would give you a new ad every second for 469 years. With this money transacted on Facebook, the endgame is to become a bank. According to Bloomberg, "Facebook is on the verge of winning approval from Ireland's central bank to allow its users to store and exchange money."

Google Bank

When Google introduced Google Wallet, they began to signal that they are serious about turning the search engine giant into a bank. Accenture did a survey and found that a significant percentage of respondents would be comfortable doing their banking online with a technology company such as Google, Apple or Amazon. Facebook was not part of the study. A post by John Adams in the Technology section of Payments Source reports that Gmail bill pay is even a bigger threat to banks than Google Wallet. Whatever source Google uses, you can be sure they will be in the banking business in a big way sooner than later.

Real banks are driving consumers to these alternatives.

The Gang of Four are creating alternative forms of money and payment systems that will enable consumers to easily purchase whatever they want using GOF mobile devices. PayPal and other online banking alternatives have also been attracting users with more convenient ways to pay bills and manage money. If the big banks are not careful, they will drive more and more customers into the arms of these competitive alternatives. This appears to be where the battle is headed. The Gang of Four will continue to find ways to cut out the "middle people," deliver greater value, and make more money. Turning themselves into a bank with their devices, commerce, search and social media is the direction in which the Gang appears to be moving. The Apple Watch is the latest piece that facilitates this move. Stay tuned. It is likely to get even more interesting.