iPhone 5 Will Usher In Apple’s Newest Cash Cow: iCloud

Apple will leverage the excitement of the iPhone 5 to hook its users on the iCloud — which will become Apple’s long-term money-making machine.

For most of us, the impending iPhone 5 announcement represents a kind of catharsis. An end, which will usher in a beginning. Or maybe the beginning of the end of the beginning. (Are you confused yet? What a great way to begin an article, huh?)

But for Apple, the iPhone 5 is simply a means to an end: it will be the flagship device for the iCloud, which will in turn become Apple’s ost viable long-term revenue-generating product, in spite of the fact that it currently will be marketed as free.

Innovative corporations like Apple have a long track record of successfully monetizing products and services by offering complementary products and services for free. Coca Cola, for example, gives top vendors like McDonald’s and 7-11 its beverages for free, and instead stipulates and charges for proprietary use of its cups. That’s why free refills are rarely a problem with top-tier fast food companies — as long as you’re using the same cup, they lose no money, no matter how many times you top off your Dr. Pepper.

Apple will seek to do the same thing with its iCloud, which someday will become so ubiquitous that the desire among consumers to plug into the “Apple ecosphere” will help sell mobile hardware like the iPhone 5 and iPad 2 as much as new hardware features like bigger screens and better cameras will. As far back as the debut of iDisk, Apple has been trying to work out a cloud-based platform that would effectively tie in storage, data sharing, and mobility, so that all of users’ computing devices access the same data no matter where they go. With iCloud, it seems as though they have perfected the technology.

In this way, the proprietary nature of Apple devices comes full circle.

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Early on, Android sought to compete against Apple by offering users an open-source platform, which in turn promised to let the Android universe expand exponentially, thus offering its users more apps, features, and versatility. Conversely, Apple’s staunch insistence on keeping its own products squarely closed-source has been often cast by the tech community as arcane and self-limiting.

The advent of the iPhone and iPad, however, has catapulted the success of Apple mobile devices, which now makes the Apple ecosphere something that even the average consumer is interested in. But if you want it, then you necessarily have to buy into the hardware: a Mac, an iPad, an iPhone, an iPod, and Apple TV. The more Apple gadgets you invest in, the more power and flexibility you gain vis a vis iCloud. So you can see: a free service like iCloud helps to sell Apple’s premium products. that’s why Apple can justify investing billions in data centers.

But this isn’t to say that iCloud won’t reap direct revenues for Apple, either.

It still remains to be seen how the use of iCloud will affect data usage for the average iPhone user. Analysts have surmised that it won’t take most average users past 2 GB of monthly usage, which is the typical data use maximum before moving into a higher-priced tier on most mobile carriers. But these are the same analysts who said early on that iOS 5 works like a charm on the 3Gs.

If iCloud turns out to be a big data sucker, then the mobile carriers are going to reap the rewards — and for all we know, Apple will get a piece of the data usage rock with all of its mobile carrier partners. Even Sprint in the U.S. may have a deal in place to offer a percentage of their monthly unlimited data plan fees to iPhone users (data use on Sprint, after all, is not free). If it’s true that 35% of all consumers will come to own an iPhone 5, then it’s also true that Apple may have a stake in all of the charges for data use from these iPhone users.

And don’t discount the fact that you might have to pay for iCloud someday.

Another trick of the trade is to offer a product or service for free or at a discount, get the customer hooked on it, and then phase in higher prices. Cable and wireless companies use this marketing model all the time by onboarding new customers with incredibly attractive introductory offers. PayPal also comes to mind: many forget that when PayPal first started, they took no fees. If iCloud comes to dominate the consumer electronics market, Apple will be well-positioned to charge for it down the line.

All of this being said, there’s no reason to have a negative outlook on iCloud. If it turns out to be as groundbreaking as Apple purports it to be, then users won’t mind paying for it. And anytime that a product can positively enhance people’s lives and allow the company that produces it to be successful, capitalism wins.

And Apple seems to know all about this.

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By Michael Nace


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