Yesterday Apple (NASDAQ:APPL) unveiled the iCloud, its cloud service that aims to put Apple in the center of your digital life. It will store all your photos and documents in it’s floating data center, and as a bonus, the iCloud offers a remedy for your pirated music. It will scan your entire music library and match them to Apple’s cloud library. If Apple owns the song, it will replace your song for a AAC 256kbits version that can be streamed to all your devices linked to the great floating iCloud. It will be interesting to see RIAA’s response regarding iCloud, because as long as the music is in iCloud’s library, there is no way to know how it was acquired in the first place.
We are not going further into details here, such as whether users will be able to share documents or not, but what we see here is something different than the “we want be the center of your life” concept Jobs kept repeating. While Apple bragged a lot about the cloud being the center of life, iCloud is not the tool that will enable it. It is far from being what Chromebook is: An OS on the cloud. Apple is still device centric, and will remain for the time being. We see something simpler: Apple wants a broader market.
Apple sells very expensive gadgets. With iCloud, things that Apple charges a heavy premium for such as 32gb more in an iPad or 1TB hard disks on notebooks will become more and more unnecessary, as everything will be stored in the cloud and not locally. We do not believe that Apple will sell cheaper gadgets in developed countries, but we believe that Apple will push hard into markets such as South America, Asian and Eastern Europe, where Apple’s gadgets are almost too expensive. The cloud will make cheaper versions of the gadgets more attractive and more feasible for these markets.
We do not see this shift as killer. While it might drive up Apple’s sales in those countries, it will not be a boon because bandwidth in those markets is expensive. What good does it make if you pay 100 USD less in your ipad if you have to pay 20 USD a month for a 250MB data plan?
We think that Apple’s approach does not make sense for this kind of market. Bandwidth will be a problem even in developed markets, because cloud approach might toast 10GB limits in a week, but in South America and Asia, one hour in the cloud will kill the limit for the month. The company’s success depends more and more upon Telecom companies, which are already complaining about bearing the brunt of investment costs.
As for developed markets, the game is different. Apple icloud will ensure that customers buy more and more Apple gadgets, because the more you have, more cross-functionality you have. We think that Apple may have plans in the future for its cloud service, but for now, the only plus the service brings is the get-out-of-jail-free card that the music service brings.S|A