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

Computerworld - 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.