Apple plays customer loyalty, anti-Google cards with iCloud, say analysts

It's all about selling hardware, and fighting Android for smartphone and tablet supremacy

Apple's strategy isn't about making money with iCloud, analysts said today. Instead, it's all about using the free service to keep customers and battle Google for smartphone and tablet supremacy.

On Monday, Apple CEO Steve Jobs unveiled iCloud, the company's new cloud-based sync and storage service that will replace MobileMe this fall when it debuts alongside iOS 5, the next-generation mobile operating system for the iPhone, iPad and iPod Touch.

iCloud will be free to iOS device owners and people with Macs running OS X 10.7, aka Lion, which is slated to ship next month. Only the part of the service dubbed "iTunes Match" will cost customers, and then just $25 a year.

Jobs touted iCloud as a music, photo, app, document and other data sync service that keeps multiple devices up-to-date with user-purchased or -created content. "Keeping these devices in sync is driving us crazy," said Jobs during a presentation Monday at the Worldwide Developers Conference (WWDC).

Analysts see iCloud as another way for Apple to retain current customers and attract new ones, especially for the iPhone and iPad.

"I'd put this under the generic rubric of customer loyalty," said Charles Golvin, an analyst with Forrester Research. "For people who own one or more iOS devices, they're going to discover an even better experience. Apple's calculus is that the benefit of future [hardware] sales is more than enough to justify the cost of investment in iCloud."

Although analysts did not use the term "lock-in" to describe the iCloud strategy, that's essentially what they meant.

For Golvin, iCloud will keep customers because once they've used the service, they will hesitate to leave the Apple ecosystem.

"iCloud is seamless, customers don't have to worry about where their content is stored," said Golvin. "That will make them feel that much more satisfied with their smartphone or tablet, and means that the next time they go to buy one, they're more likely to buy from Apple."

Carolina Milanesi of Gartner agreed.

"The most important thing is that it is a complete cloud package," said Milanesi. "It shows the benefit of living in the Apple 'house.'"

Others also see iCloud as a way for Apple to retain customers in the face of a rising tide of Android-based smartphones, and growing competition from media tablets that run Google's operating system.

"While it is unlikely to move the "financial needle" at Apple anytime soon, we believe iCloud is significant, as it increases the 'stickiness' of the Apple ecosystem," said Brian Marshall, a financial analyst who covers Apple for Gleacher & Co.

"These new announcements further strengthen Apple's digital ecosystem by providing consumers with increased functionality, enhanced ease of use, greater efficiency and cool new features that we believe will drive further adoption of Apple devices in the future," said Brian White of Ticonderoga Securities, in a note to clients Tuesday.

Although Apple executives rarely mentioned rivals on Monday -- and then only when they touted various Apple advantages -- Golvin read iCloud as a shot at Google and Android. "This is much more than just an additional element to the Apple ecosystem, it shows what Apple already does that provides a tremendous value," he argued.

Golvin was talking about the ease with which iPhone and iPad owners can already transfer their apps, music, photos and other data when they purchase a new Apple smartphone or tablet.

"They talked about how difficult it was to activate a device now through iTunes, but really it's extremely seamless," said Golvin about how a new iPhone syncs with content stored on a Mac or PC. "It takes a while to churn through, but in the end you have everything on your new iPhone that was on your old one."

Android users have nothing like it, he said.

"Apple's fighting tooth and nail with [Android], so anything that tips the scale, like iCloud, is that much more meaningful," said Golvin.

Frank Gillett, a Golvin colleague at Forrester, was more blunt in his assessment. Saying that Apple has now moved into the lead in the personal cloud market, he found the competition lacking.

"Google is worth watching as a number two player, but will struggle to match Apple as it tries to move the world's apps into the Chrome browser," said Gillett in a blog post Monday.

"[And] Microsoft, with no articulated vision for personal cloud and Windows 8 expected sometime in 2012, lags significantly," he said.

White also gave the advantage to Apple as he pointed out the $25 price for iTunes Match was lower than similar fees charged by Amazon and less than what most expect Google to impose for their "music locker" services.

Earlier this year, Amazon and Google launched cloud-based music services that require customers to upload their libraries to remote servers, from which they can stream the tunes to mobile devices and personal computers.

Apple's taken a different approach with iTunes Match, and will instead scan users' music collections and match them against Apple's library. Found matches will be available for instant downloading to the maximum of 10 devices or computers.

Tracks purchased via iTunes are available for downloading to the same number of devices for free.

In the end, analysts said, iCloud was all about selling more hardware, not about generating a significant revenue stream. "They want to sell more iOS devices," said Golvin in explaining Apple's strategy.

"Apple's saying, 'Don't pay any attention to the price of the thing [the hardware]; what you're buying is a way of doing these sorts of things," said Ezra Gottheil, an analyst with Technology Business Research in an interview earlier this week.

Milanesi seconded that.

"Everything Apple showed Monday, including iCloud, Lion and iOS 5, demonstrates Apple's full package," said Milanesi. "It's all about providing a richer experience [and] to deliver that 'Wow' experience, you need to have control over the ecosystem.

"That's why it will serve people very well," she added. "It just works."

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer or subscribe to Gregg's RSS feed. His e-mail address is gkeizer@computerworld.com.

Read more about cloud computing in Computerworld's Cloud Computing Topic Center.

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