Apple and the iTunes Gift Card Economy

I'm amazed at the number of iTunes gift cards purchased and distributed as gifts during the holiday season. No matter the small commission paid to retailers for sales of the gift cards, they represent an interest-free loan to Apple for iTunes product purchases at a later date. The cards purchased at retail may also reduce Apple's distribution costs because merchant fees are not paid on purchases made from gift card redemptions.

I've searched Apple's financial statements for some inkling of the amounts carried in the company's cash balances and the offsetting liabilities for unused gift card balances and the financial value of the cards still to be redeemed. I can't find a conspicuous mention of the amounts anywhere. I'm surprised these amounts are not detailed because of the volume of and dollar value of gift cards purchased and redeemed each year.

iTunes gift cards can only be redeemed at one place - Apple's iTunes store. But these gift cards provide recipients with an array of product purchase options ranging from music and movies to iPhone apps. The cards have become their own form of currency for use at the iTunes store.

While debates rage about the iPhone versus Android 2.0-enabled smartphones on the merits of the hardware, there's no disputing the added value to a product franchise from iTunes store integration. There's no real competition currently for the iTunes app store and Apple has become the world's largest commercial distributor of recorded music via of this online store. 

Today content and accessibility of content (software, music, movies, iPhone apps, etc.) drives hardware device sales. iTunes gift cards lock-in the card recipient to the store similar to the way many other gift cards can only be redeemed at particular retail outlets. The popularity of iTunes gift cards and the value of the unused card balances can only be a draw for app developers and owners of commercial content seeking to expand sales and expand those sales through a relatively easy to use digital store front on attractive distribution fee terms.

Providing access to the growing iTunes economy is one way Apple will continue to entice interested parties to provide content for its products. Access to the iTunes store is a decided advantage for Apple and an advantage that can not be mitigated quickly nor inexpensively by competitors. It's also a reason the iPod touch is important to the iPhone's continuing success. The iPod touch provides a large pool of consumers (now measured in the tens of millions) that can use iPhone OS apps, building the market for developers and accessory makers much more rapidly than the iPhone could provide on its own during its nascent phase of sales growth. 

iTunes integration is providing an underpinning for Apple hardware device sales and a captive market of iTunes account owners with unused gift card balances can only sweeten the proverbial pot for app developers and commercial content owners seeking to increase product sales.