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Apple's Surprising Cash Problem

http://www.fool.com/investing/general/2012/05/26/apples-surprising-cash-problem.aspx

Tim Beyers
May 26, 2012

Were it a stand-alone business, Apple's (Nasdaq: AAPL  ) iTunes would be huge. The segment is on track to produce more than $8 billion a year in what is surely high-margin revenue. A mixture of music, app, TV, and movie sales and rentals accounts for the bulk of that draw.

Impressed? Don't be. Apple is willfully leaving billions in potential revenue unclaimed.

The potential value of being a market leader
Instead of morphing into an all-purpose commerce platform, Apple has chosen to keep iTunes stuck in a niche even as Google (Nasdaq: GOOG  ) has made no secret of its intent to turn smartphones into digital debit cards.

The system works. Last weekend, I took my boys to see Marvel's The Avengers. We paid a modest $21 for the early showing, charged via Fandango's mobile screen using my Google Wallet account. On my iPhone 3Gs.

As a consumer, I'm grateful for the convenience that Google Wallet offered me in this situation. But as an Apple shareholder, I'm disappointed the Mac maker hasn't figured out a way to better integrate iTunes into the mobile experience. Shouldn't it be possible to generate an iTunes pop-up screen when I've navigated to a "buy now" screen?

Perhaps I shouldn't care. But it's frustrating to look at Apple's surging share of the smartphone market and not wonder what iTunes could become. I'll grant we're far from eliminating cash as the currency of record, but when an increasing number of us carry smartphones – and, accordingly, an increasing number of retailers and platform owners target said smartphones with marketing messages -- building a better payments system only makes sense.

Bite into this big market
Tens of billions of dollars could be at stake. Consider PayPal. The eBay subsidiary handled $4 billion worth of mobile payments last year, and that's without having an app equivalent to Google Wallet. Start-up Square, founded by Twitter's Jack Dorsey, expects to process another $4 billion in mobile transactions this year. How is it that Apple is ignoring this opportunity?

Maybe there's a plan to buy Square. Or perhaps a team is redesigning iTunes to do more. Or maybe there's a skunkworks project under way that, when finished, will altogether change how we think of mobile payments. Whatever the Big Idea is -- presuming there is one -- there are at least five ways iTunes could add value as a payments platform:

1. Instant checkout. Imagine finishing a nice dinner out and leaving, on your own time, without ever having to ask for a check. Apple could enable that via a deal with OpenTable (Nasdaq: OPEN  ) . Reserve online with your iTunes login and then let the reservations system manage the bill -- either automatically, charging your account for the bill plus a standard gratuity, or an amount of your choosing.

2. Movie tickets. See the example above. Had arriving at the Fandago purchase page led to a pop-up asking whether I'd be interested in purchasing with my iTunes account, I would have clicked "yes" and moved on. And revenue that went through Google would have instead gone through Apple.

3. Social buying. Thanks to American Express, it's