Apple Pay May Be the Creative Leap That Outmaneuvers Samsung

Former Apple CEO John Sculley argues, however, that Samsung and others still have some time to come up with an alternative.

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By John Sculley

Opinions expressed by Entrepreneur contributors are their own.

The brilliance of Apple Pay is that it will be so simple for the user, yet the end-to-end system that makes it possible is incredibly complex. Apple's great strength is connecting the dots between several different domains of expertise and then making its technology either beautiful or invisible.

Related: Why Apple Pay Could Be a Game Changer for Businesses

Apple already has the strong backing of the credit-card industry. Credit-card firms want to convert the United States to using chip-on-card readers. So the development of Apple's mobile-payment system may serve as the impetus to help scale the growth of near-field communication (NFC) readers at the same time.

CEO Tim Cook did a great job, showing how easy it is to use Apple Pay as he demonstrated the payment system, saying, "That's it." Apple Pay looks really well designed and the partners Apple has put together are really impressive.

Apple has 200,000 retail stores ready to adopt Apple Pay, but there are 2.9 million retail stores in the United States.

Don't confuse vision and aspiration with near-term reality. It's going to take time to fully deploy Apple Pay on a large scale. Apple Pay is a play for the long game and lots of infrastructure must be created before it becomes the game changer that the iPhone became.

Apple Pay requires an iPhone 6 with built-in NFC capability. For Apple Pay to work, Apple needs retailers to buy NFC readers. And it will be a while for the iPhone 6's installed customer base to grow large. Apple's worldwide iPhone market share is about 12 percent so how will mobile payments be made by smartphone users without an iPhone 6?

So great job, Apple, but Samsung and others still have some time to come up with an alternative. Right now there are more Android users (including those relying on Samsung phones) than iPhone users.

What can Samsung, or for that matter any other player not in the Apple mobile-payment ecosystem, like PayPal or Google do?

Samsung needs to do something because mobile payments and mobile-oyalty programs offer a huge opportunity.

For years Samsung expanded its worldwide market share at Apple's expense. Now Apple is changing the ground rules of competition: Apple found a chink in Samsung's armor and is exploiting it.

So the question now is, Has the Samsung giant become a victim of its own success? Apple didn't blink as Samsung swept up market share. Instead, Apple doubled down on developing its core competence, which lies in shaping new industries by designing beautifully integrated end-to-end systems that rely on a combination of software and hardware trade-offs.

Apple is upping its game in a way that may be hard for Samsung to follow. Apple is using the expertise that it's well-known for (in horizontal platforms) to build vertical market platforms that can offer features such as NFC payments, iBeacon customer-loyalty programs, fitness services, streaming music and smart-home technology. (Android and iOS 8 are general purpose horizontal platforms. A vertical platform sits on top of the horizontal platform and has additional special-purpose capabilities specific to a domain like mobile payments.) Horizontal platforms may yet become a commodity technology.

But it's still the early days of manufacturers' trying to realize big-data vertical platforms on mobile devices.

Related: Samsung Unveils Next Generation Gear Smartwatches Ahead of Mobile Conference

In February when Samsung launched its mobile digital watch called Gear 2, many concluded that this admired company may be an emperor with no clothes. Then Samsung made big news while setting high expectations in announcing its Silicon Valley R&D campus. Innovative Silicon Valley firms brag about their technology and services but Samsung chose to boast about its new campus. Hmmm?

Has Samsung been outmaneuvered without a path forward in mobile payments and mobile customer-loyalty services?

Not if Samsung decides to change the rules of competition and take advantage of the millions of retailers still using bar-code and magnetic-striped credit-card readers.

When I was Pepsi-Cola's CEO (before serving as Apple's chief), I learned in my "cola war" days that the # 2 brand should not compete against the # 1 brand using its rules of the game. That's why in the 1970s Pepsi's managers and I created the Pepsi Challenge, a blind taste test, which helped Pepsi outmaneuver Coca-Cola Co. Then a distant second-tier brand, Pepsi's brand was able to pass Coke's to become the largest-selling consumer-packaged goods brand in the States.

Samsung already has Mobeam technology preloaded in millions of Galaxy smartphones.

Mobeam is a Silicon Valley company that has commercialized a really simple customer experience that is shaking up the mobile electronic-coupon world. (Full disclosure: I'm a Mobeam investor.) Mobeam technology converts bar-code data into the red pulsing LED light found at the front of most Samsung Galaxy smartphones.

This simple idea has enabled major consumer-product firms to instantly electronically offer special discounts and coupons to their most loyal customers. All these consumers need to do is aim their smartphone at the checkout scanner.

Note that Mobeam technology does not yet have mobile payment capability but it could be adapted. Retailers already have optical scanners that can read bar codes. Mobeam technology can work with the existing installed base of one-dimensional optical scanners.

As marketers know, the most important goal is keeping customers in an ecosystem and make them very, very happy.

Watch Samsung. Let's see if it seizes the moment.

Related: The 'i' Goes Silent: Why Apple Didn't Name Its Smartwatch 'iWatch'

John Sculley

Entrepreneur, Former CEO of Pepsi-Cola and Apple

John Sculley is an entrepreneur and the former CEO of Pepsi-Cola and Apple. He is an expert in disruptive marketing strategies. An active investor and mentor, he is the author of Moonshot! Game Changing Strategies to Build a Billion Dollar Business and the creator of a new online video series How to Build a Successful Business.

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