Apple Using ICloud to Lock in Users After Online Misfires: Tech

Apple Inc. (AAPL)’s iCloud service, part of its first product release since the Oct. 5 death of Steve Jobs, may cement the loyalty of millions of consumers lured by Jobs’s pioneering mobile devices over the past decade.

The service will automatically store photos, songs and other files on servers at Apple’s data centers and sync them with all of a customer’s gadgets. A photo taken with an iPhone would appear within seconds on a user’s iPad, iPod Touch, Apple TV set-top box and any personal computer running iTunes.

The move steps up competition with Google Inc. (GOOG)’s Android and other mobile-device rivals by making it harder to switch away from Apple products, said Bill Whyman, a technology analyst with International Strategy & Investment Group. If iCloud works as advertised -- something Apple’s previous online products haven’t always achieved -- the convenience of no longer needing to upload, download or sync files may lead many customers to buy exclusively from Apple, he said.

“ICloud could raise the switching costs for the customer, and the barriers to entry for the competitor,” Whyman said. “That’s very powerful.”

Walter Price, a portfolio manager at RCM Capital Management, has estimated that iCloud could increase Apple’s market value by $100 billion to $500 billion, due to the service’s effect on hardware sales and purchases of songs, movies and other media. The Cupertino, California-based company is already the world’s most valuable business, with a capitalization of $371.1 billion.

‘Just Works’

ICloud will be included free along with an update of Apple’s iOS mobile software, which will be made available to customers today. The service marks Apple’s most ambitious effort to expand its Internet-based operations beyond the basic iTunes store, which doles out songs, TV shows, audio books and mobile apps to one device at a time.

“Keeping these devices in sync is driving us crazy,” Jobs, then chief executive officer, said when he introduced iCloud at Apple’s Worldwide Developers Conference in June. With the new service, he said, “everything happens automatically and there’s nothing new to learn. It all just works.”

To succeed, Apple will need to improve on its mixed record in online services. Since Jobs returned to the company in 1997, the company has unveiled a series of Internet features. While iTunes and its App Store took off, some were quickly forgotten, such as an Apple-staffed editorial site to recommend websites called iReview. An online storage service named iDisk also never caught on. And a synchronization service called MobileMe suffered high-profile outages and performance problems after it was introduced in 2008.

Walled Garden

If iCloud is a hit, it could help Apple build thicker walls around its carefully controlled ecosystem of devices, at a time when Google, Facebook Inc. and Amazon.com Inc. (AMZN) are trying to lock in users to their own technologies.

Price predicts that iCloud will magnify Apple’s strength as a content distributor. If more customers buy only Apple devices, they’re more likely to get their music, TV shows and other forms of media from Apple -- rather than from Netflix Inc. (NFLX), Amazon and Comcast Corp.

ICloud is one of many features in Apple’s new mobile operating system, called iOS 5. The software also includes a service called iMessage that lets Apple customers send text messages to each other. And iOS 5 includes better integration with Twitter Inc.; a service for seeing the location of other iOS devices; and Cards, for people who want to create greeting cards and have Apple print and mail them.

Photo Stream

ICloud itself is comprised of a handful of separate free services. One called Photo Stream automatically stores a user’s 1,000 most recently taken pictures and syncs them with a customer’s iOS devices. Another one ensures that all the machines have the latest version of memos and spreadsheets created with Apple’s iWork applications.

Apple will charge $25 for a service called iTunes Match, which lets music fans automatically sync songs in their iTunes library that weren’t purchased from Apple. Apple will also charge for extra storage on its servers, offering the first 5 gigabytes for free.

ICloud is a risky, if necessary, move for Apple, said Stephen Baker, an analyst at NPD Group. One challenge: Customers will need to balance the convenience of iCloud with the cost of running up their monthly bandwidth fees. For now, many of the iCloud services only work over Wi-Fi networks. If the company wants to let customers also sync files over cellular networks -- when out of range of a Wi-Fi hot spot -- “someone is going to have to pay for the bandwidth,” Baker said.

‘Hotel California

If Apple makes it difficult for consumers to move files to rival online services, iCloud also could infringe users’ rights to their own information, said Jonathan Zittrain, co-founder of the Berkman Center for Internet & Society.

“Just because Apple’s in Silicon Valley doesn’t mean it should run the Hotel California,” where data enters but can never leave, he said.

Then there’s the risk of disruptions, said Trip Chowdhry, an analyst at Global Equities Research. Not having access to the iTunes store due to an outage is an inconvenience. Losing one’s family photos or business documents is far more serious, he said. Millions of consumers may try iCloud, but would quickly go back to using existing services such as Google’s Gmail or Dropbox Inc. if it isn’t easy and reliable from the start.

“There’s no second chance to get it right,” he said.

To contact the reporters on this story: Peter Burrows in San Francisco at pburrows@bloomberg.net

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.