With Passbook, iPhone 5 Answers Mobile’s ‘Dirty Little Secret’

Bigger screen, more power powerful processor, and new high speed LTE, but no sign of an NFC chip in the iPhone 5. That’s the word from Apple’s Philip Shiller, who debuted the latest iteration in the company’s flagship product to an audience at San Francisco’s Moscone Center on Thursday.

More data on a faster device means new opportunities for data-heavy hyperlocal developers, which should open up some new innovations by developers. And while the omission of near-field communications may dash the hopes of some who looked for Apple to push into payments, it does not diminish the potential impact of iOS6, the operating system announced in June, and its key feature — Passbook.

Shiller glazed over Passbook during his demo, reinforcing much of what we already know — that at launch, the service is going to be largely used for digitalizing interactive content like movie tickets, boarding passes, and loyalty cards. Apple spotlighted a handful of launch partners, ranging from American Airlines, Target and Starbucks to Sephora and Fandango, amongst others. But Passbook’s potential extends well beyond these use-cases, and loyalty companies are looking to the service as an important, yet dangerous, catalyst in what remains a young and fragmented industry.

“It’s a big step forward in making mobile phones more of a true integration into real life,” Cyriac Roeding, CEO of Shopkick, a loyalty system that uses an in-store device to connect to retailors and consumers through a mobile application. “Previously it was not possible to just show an alert that turned into a graphical interface without launching an app. Its very fast and all local on the handset, so it works even when you don’t have service.”

Part of what Passbook looks to solve is what Roeding calls “mobile’s dirty little secret” – that the problem in the app world is not downloads, but retention and engagement. Yes, fragmentation is a problem for developers but it’s also an issue for Apple, which drives much of its value from its position as a highly engaged platform. Passbook solves this by enabling developers to push interactive content to consumer based on location, essentially driving down the cost for a user to engage with content regularly. Think Twitter notifications, but with geography, not time, as the primary filter.

The hoopla over payments and NFC in recent weeks has somewhat overshadowed Passbook’s value as a CRM tool, as well as its potential impact on the fragmented, location-dependent loyalty and rewards space.  The concern is that the new platform may solve certain technology problems, rendering certain services irrelevant. Roeding says Shopkick, and its in-store positioning technology, is largely insulated: “It’s presence-based,” Roeding told me about Shopkick. “Passbook is about vicinity.”

“Apple has a tremendous relationship with the consumer and they can do a lot of with that focus [on loyalty],” Angus Davis, CEO of Swipely, a venture-backed loyalty and payments service that pivoted from the consumer space in 2010, told me in an interview. “It’s the universal loyalty guys – the ones that have there own app – that will have to move quickly to integrate Passbook because over time there will be more and more things baked into iOS to make it advantageous to use [Passbook].”

It’s as a content management system that Passbook solves one of the fundamental value propositions that has traditional fueled the universal loyalty pitch: fragmentation and convenience. By surfacing passes only when they’re relevant, Passbook has essentially made fragmentation (i.e. having a card or application for each merchant) a non-factor in user experience for 33% of the U.S. smartphone market.

This is not to say that the loyalty space is doomed, only that the introduction of Passbook will likely recalibrate the value dynamics in the space.  And much of this will depend on the extent to which Apple, a notoriously controlling company, opens the service as a platform. Either way, Passbook erases some key consumer experience issues that only Apple could solve.

“Every one of us is fighting against indifference and inaction,” Derek Webster, CEO of LocalBonus told Street Fight in an interview. “Its not a winner-take-all land grab. We’re all in a fight over consumer indifference.”

Steven Jacobs is deputy editor at Street Fight.