a16z Podcast | Apple Takes on Payments and Your Wrist

Apple released the iPhone 6 (4.7-inch display) and iPhone 6 Plus (larger "phablet" display), marking a strategic shift to address high-end market demand for larger screens after previously dismissing such form factors.

The new devices utilize higher pixel density to ensure backward compatibility; legacy apps scale up without pixelation, creating a seamless transition for users despite unoptimized developer updates.

Apple maintained existing pricing tiers in the US ($300, $450, $600 across 16GB, 64GB, and 128GB options depending on carrier), with the previous flagship (iPhone 5s) dropping $100 to serve as a mid-range option.

The iPhone 6 Plus is positioned as a specific strategy to penetrate Asian markets, particularly China, where phablets have already achieved significant adoption, unlike the previous iPhone 5C which failed to gain traction there.

The iPhone 6 is physically thinner than the iPhone 5, shifting the primary design metric from hand ergonomics to pocketability, acknowledging that users of the larger Plus model will increasingly store the device in bags.

Apple Pay utilizes a secure element to store tokenized credit card data, ensuring merchants and Apple never see actual card numbers, thereby mitigating risks associated with data breaches at retailers like Target and Home Depot.

The payment flow eliminates manual app navigation, requiring only a tap of the NFC reader and a Touch ID fingerprint scan, creating a faster user experience than physical cards or previous Android NFC implementations.

Apple secured partnerships with Visa, MasterCard, and American Express, but the system relies on issuing banks (e.g., Citibank) and US retailers upgrading to EMV-compatible NFC readers, a shift accelerated by the October 2015 liability shift making merchants responsible for fraudulent swiped cards.

Unlike Google's fragmented Android wallet approach, Apple Pay offers a single, integrated wallet application, aiming to solve the "multi-app" friction that previously hindered NFC adoption on Android.

The system includes an API for in-app "Buy with Apple Pay" functionality, allowing apps like Uber to charge users via a fingerprint scan without exposing card details to third-party developers.

The Apple Watch is scheduled to ship in Spring 2015 with a dual-size lineup, targeting all-day battery life with nightly charging, though no official technical specifications were provided.

The device functions as a standalone computer with its own UI and app ecosystem, distinct from Android Wear's philosophy of being a remote display for notifications and cloud services.

The watch requires pairing with an iPhone to access GPS and cellular data, reinforcing Apple's strategy of using the phone as the "anchor tenant" to drive membership in its broader product ecosystem.

Apple emphasizes privacy by design, stating that neither Apple nor retailers access transaction or health data stored in the device or HealthKit repository, contrasting with Google's data-centric business model.

The hardware design features a unique rectangular glass interface described as a "little piece of glass" capable of running any application, similar to the original iPad's "kitchen sink" approach to proving utility through diverse use cases.

Apple declined to build proprietary social networking features for the watch or fitness ecosystem, acknowledging previous failures with Ping and Game Center while relying on third-party community apps like Strava and Runkeeper.

The Apple Watch requires an iPhone 6 or iPod touch to function, creating a strict dependency that locks users into the Apple hardware ecosystem rather than allowing cross-platform compatibility.

Apple's cloud infrastructure remains fragmented, utilizing third-party providers like Oracle and Azure for various services, contrasting with Amazon's unified internal platform and Google's shift toward platform consolidation.

The overall strategy aims to create a "club" of interconnected devices (Phone, Watch, iPad, Mac) where each accessory reinforces the necessity of the next, driving a 24-month upgrade cycle anchored by the iPhone.

While the Apple Watch addresses fitness and notification needs, the primary value proposition remains the integration of these services to deepen ecosystem lock-in rather than displacing the smartphone.