From Apple Pay to Apple TV, Leveraging a Lack of Knowledge

We are not in the business of collecting your data,” Apple senior VP Eddie Cue declared in announcing the Apple Pay mobile payment system. “When you go to a physical location and use Apple Pay, Apple doesn’t know what you bought, where you bought it, or how much you paid for it.”

apple_pay_ogThe line was clearly meant as a swipe at Google and other competitors in the mobile payments space, who do collect purchase data and use it in ways that can implicate users’ privacy. But Apple’s studied indifference to the details of purchase transactions is also central to Apple strategy in launching Apple Pay.

When a iPhone user adds a credit card to her Apple Pay account, the card information is encrypted by the device and sent to Apple’s servers, where it is decrypted to identify the issuing bank, and then forwarded to the bank in re-encrypted form. The bank then creates a unique Device Account Number, along with a key the device uses to generate transaction-specific data,  and sends it back to the user’s phone, again in encrypted form. Apple itself cannot — or at least does not — decrypt the number but stores it in a secure area on the user’s phone.

When the phone is used to pay for something it uses the bank-generated DAN and key to generate a new number unique to that particular transaction. That transaction-specific number is the only data the retailer captures from the purchaser. Thus, even if the retailer’s point-of-sale is penetrated and data stolen, Apple Pay transactions cannot be traced back to a specific credit card.

While the setup certainly enhances the user’s privacy compared with other payment systems, it was as much designed to appeal to the card-issuing banks and payment networks as to consumers. Since banks generally indemnify consumers against fraudulent purchases, they are the ones left holding the bag in the event credit card data is stolen. After the spectacular penetrations of retail POS systems at Target, Home Depot and other major chains, the banks are keenly interested in upgraded the security of POS systems generally.

Apple is counting on that interest to encourage the banks and payment networks to pressure retailers to adopt Apple Pay, helping to overcome the biggest single hurdle to mass market adoption of mobile payments. But the strategy — like the setup itself — would not work if Apple were intent on collecting and compiling purchase data.

Apple is willing to forgo that information in the interest of the broader payment ecosystem and its own strategy because, unlike Google for instance, data is not its core business. As CEO Tim Cook explained in a blog post,  “We don’t ‘monetize’ the information you store on your iPhone or in iCloud.”

Now, it appears Apple is embracing the same strategic disinterest in data collection in developing its planned over-the-top subscription TV service. According to a report by the New York Post Wednesday, Apple is offering it share viewership data with broadcasters to entice them to participate in the service:

The company is willing to share details on who its viewers are, what they watch and when they watch it to entice broadcast networks and others to go along with the service, sources said.

The information could help programmers better target shows to viewers and advertisers, who are increasingly chasing niche audiences.

Apple, which is known for tightly controlling its ecosystem, is taking a more hands-off approach with programmers, such as letting them decide whether they want to air ads.

It’s a shrewd approach. The networks are desperately in need of  real-time data on viewing behavior if they’re to remain relevant amid rapidly changing viewing habits. That’s particularly true of the traditional broadcast networks, whose audiences are both larger and more varied than those of nearly every other channel at a time when advertisers increasingly are shifting their spending to more targeted, programmatic platforms.

That need for data largely explains the trend among broadcasters toward making their linear OTT feeds available directly to consumers, such as CBS All Access, eschewing middleman bundlers. Dish’s Sling TV, for instance, does not currently include broadcast channels. In contrast, according to the Wall Street Journal, ABC, CBS and Fox are already on board with the Apple service, and NBC’s absence is apparently due to a particular dispute between Apple and NBC-parent Comcast.

As with Apple Pay, however, the data-sharing arrangement would not be possible — or at least less likely — if Apple had designs on monetizing those data itself, such as by establishing its own programmatic video ad platform. Once again, it apparently is willing to forgo its proprietary access to its user data in the interests of the broader ecosystem and its own strategic position within it.

It wouldn’t surprise me if Apple were having similar talks with the music labels around the relaunch of Beats Music. Even before Apple acquired the company, Beats co-founder Jimmy Iovine talked about the strategic value to Beats of sharing data with the broader music ecosystem.

“We have to make [Beats] user-friendly for the artist, they have to be able to build  build businesses on it,”Iovine said at the Wall Street Journal’s Dive Into Media conference in 2013. “They have to be able to have the information about who is using their music. Right now, [service providers] have all the information and the artist have no information. No one knows. I don’t know. I run a record company. I would die to know who bought my records on iTunes or bought my tickets on TicketMaster.”

Unlike in video, Apple currently does have a small radio advertising business in iAd. But it’s such a small part of Apple’s overall business it’s doubtful Apple would allow its proprietary interest in it stand in the way of the company’s broader strategic goals in music.

Even for Apple, it seems, a company notorious for its secrecy and exclusivity, sometimes it’s better not to know.

 

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