Saturday, June 11, 2011

Significance of Apple’s Addition of Cloud Computing

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Last week Steve Jobs, the Apple CEO, announced the addition of cloud services to the Apple list of product offerings. The new cloud will make it possible to move from a primary reliance on Apple devices (Mac computers, iPhone and iPads) to also receiving computing support from Apple data centers.

Access to the Apple Cloud heralds the extension control to centralized and proprietary management by Apple. Apple customers will receive the benefits of lower capital costs as well as reduced operating expenses. Customers will have the incentive to shift from merely purchasing Apple devices and software to also renting computing services and software. New applications will be available directly from data centers so that a faster rate of innovation can take place.

Cloud computing represents major change how Apple can be expected to operate in the future. To understand the context of a different concept of operations the following describes what directions Apple is likely to be taking in the next decade:

1. Apple will continue with its dedication to offer devices and services to consumers and not to enterprises. Apple will not compete for market share in enterprise systems with firms like IBM, HP and Dell. However, cloud computing will allow an expansion in the scope of what Apple will be able to offer.
2. With 250 million active users Apple should be able to expand to a population that could eventually number billions of customers.  The availability of cloud computing services will make the current rapid growth in the number of customers sustainable. Apple will not compete with Google who at present offer free services to consumers.
3. Apple will continue enjoying top ranked global brand name recognition. Its products will continue to receive premium pricing. Added services through the cloud will continue to maintain exceptional profit margins.
4. Apple is now the largest integrated IT firm in the world. The projected 2011 revenue exceeds $100 billion. Current revenue growth rate exceeds 50%/year.  Its market capitalization of over $300 billion. This exceeds HP and Microsoft, who have comparable revenues of $127 but lower growth rates and lower profits than Apple.  Cloud computing products will contribute to Apple’s increase in market share.
5. Apple is the only IT organization with presence in every part of the consumer computing market with the exception of not participating in network services.  HP dominates hardware while Microsoft dominates software. However, these firms do not deliver an integrated solution as done by Apple. The addition of cloud computing as an easy extension of existing services will only widen the gap between Apple and all other computing vendors.
6. Apple is unique in that it can claim to be the provider of integrated products and services by delivering both the hardware as well as the software that only fits on Mac computers or Apple devices. With the addition of proprietary cloud services, Apple has broadened its ability to serve dedicated customers at a much lower total cost of ownership than competitors. So far Apple has been able to obtain a modification of Microsoft’s dominant Office suite to run in the Mac environment. Apple can be expected to pursue such approach by integrating seamlessly Software-as-a-Service offerings, such as SalesForce, into its cloud.
7. The global consumer information technology sector is growing faster rate than enterprise computing, in which Apple does not as yet participate to a significant extent.  According to a 2011 forecast (Cisco Visual Networking Index) the projected 2015 internet traffic for consumers will be 70 thousand petabytes/month whereas the the internet traffic of the business segment will be only l0 thousand petabytes/month. Apple’s consumer sector is driven by rising population and by more demanding customer preferences. Apple is serving this sector by improving the ease of use through improvements in customer-to-computer interactions.  The total cost of ownership of an Apple is lower than comparable costs of Microsoft centered devices. With easy access through cloud computing Apple will now start adding the penetration of a large small business sector to its scope of services.
8. The enterprise sector of computing is consolidating by reaping improvements from more efficient technologies. In the short run the enterprise computer business will slow down while corporations concentrate on reducing the labor overhead costs that currently surround enterprise IT operations. Meanwhile, the consumer sector will grow explosively with a shift of consumer preferences to wireless connectivity. The Apple advantage in wireless connectivity, especially in high growth regions such as Latin America, will extend its cloud-based services to small-scale enterprises as well.
9. Apple has a limited but highly innovative product line. It is subject to rapid upgrading by means of proprietary software developed by over 100,000 registered developers who are not the Apple payroll. Apple will continue to extend the role of developers in less developed countries, especially through local applications hosted on the Apple cloud. In this way Apple will be able to gain global market share at a low marketing expense.
10. Apple product innovations, especially in customer interfaces, have surpassed IT competitors. Apple consistently excels in the design of devices and in the production of graphic displays. Cloud computing will continue to extend this capability through solutions than will depend on local developers who will be able to serve linguistically unique requirements.
11. Apple controls its products with only two Operating Systems, OSX and IOS, which share the same codebase. Competitive offerings from Microsoft and Linux are more diverse and create interoperability problems. Apple operating systems are updated frequently and have been able to maintain backward compatibility whereas competitors require additional investments to make diverse software components compatible. With cloud computing available for downloading of applications there is no reason to change the current policy of maintaining only two operating systems.
12. No competitor has been able to match Apple’s complete hold over every part of its systems software offering. Apple exercises control over software development methodologies and programming tools, which includes application programming interfaces. It couples software and hardware under unified supervision. This speeds up that rate at which innovation can take place. Cloud computing will make it possible to maintain control over developers and prevent unauthorized corruption of software development methods.
13. Apple offers to customers an open source browser, which is closely coupled with the Apple operating systems as well as with web applications whether developed by Apple or accessed from other sources. The management of all software offers to Apple a competitive advantage that is unlikely to be matched by IBM, Microsoft, HP or Dell who are encumbered by too many legacy offerings. That advantage is now getting extended with the introduction of cloud computing as an integrated part of the entire spectrum of product offerings. It may take a new “clean sheet” offering of hardware-software solutions to match what Apple is placing into the marketplace.
14. Any product or software release from Apple has the advantage that it can be tested together for bug free operations across the entire Apple product line. A tightly controlled approach to software management makes this possible. Consequently Apple can deliver new products at a faster rate than competitors. Cloud computing will make it feasible to continue keeping such a close hold over product testing.
15. Apple has pioneered the introduction of products not dependent on the “mouse” devices that is associated with Microsoft. With portable computing devices (iPhone, iPad) this becomes a competitive advantage. The absence of a keyboard will continue to be an advantage in global market. Cloud computing will also permit the application-specific customization of input formats that can be swapped to deal with local needs, such as in health care or in the military.
16. Apple has pioneered innovative user access methods with reliance on high quality graphics. Apple now leads the industry in offering a preferred consumer experience with computing devices, which are standard across the entire product line, but can be instantly modified from the cloud.
17. Apple’s App Store contains 425,000 applications that range in price from 99 cents to $29.99. App Store management conducts reviews of programming methods used prior to publishing to guarantee that all applications can be integrated with the unified Apple approach to software management.  This differs from the largely unrestricted acceptance of developer applications in the Google Chrome Web Store and the Android Application Store. Cloud computing will now allow an almost infinite expansion of items available in customized application catalogues.
18. Apple reaps profits from the marketing of downloadable music (15 billion iTunes sold), downloadable movies (for rent or purchase), downloadable TV shows and as well as lectures, on-line training, academic course and podcasts. It has recently opened an iBookstore (130 million books sold). The App Store is pioneering new approaches to marketing of on-line information products. So far customers have opened 225 million accounts. The App Store sales so far are $4.3 billion. Cloud-based App Stores will make downloadable products also available to devices other than Apple such as Android phones or MS Windows devices. All App Store products will be downloaded, thus discontinuing the present practice of distributing products on a disk.
19. Consumers typically buy software for a designated machine so that vendors, such as Microsoft or Oracle, can collect license revenues by point of use. Purchases from the Mac App Store are attached to the identity of an individual. This is a departure from how consumer software is licensed. It allows Apple users to reuse App Store products regardless of device or location. There is an incentive for customers to keep purchasing more hardware, software, music, books and teaching materials without a concern about paying for changes in devices.
20. The extension of the processing capacity of the Apple cloud will allow adding to the App Store the ability to sell information services such as offered by payroll processing bureaus, tax services and video conferencing offers. The economics of on-line selling favors purchasing of products where the embedded security for collecting funds makes that a convenient choice.  Cloud-based information services from App Stores are potentially a major contributor to Apple future profits while providing the producers with a low cost distribution channel. In this regard the major competitor of Apple would be Amazon.
21. Apple offers to its developers development tools, ten thousands of Application Program Interfaces (API) and marketing aids.  In this way App Store becomes a closed system that assures integration while minimizing security risks. The estimated number of Apple developers is presently greater than 100,000 but cloud computing will permit a large enlargement of this number. There are large populations of highly trained but unemployed students world-wide who are already finding software development for Apple as a rewarding opportunity to start a software business.
22. 70% of the proceeds from App Store sales are passed to developers. So far Apple has paid out $2.5 billions of fees.  The highly motivated Apple developers should be seen as a virtual extension of Apple’s own development organization and a source of technological power.
23. The newly announced Apple Cloud has been staged for incremental evolution.  The cloud now becomes the link that connects all Apple devices.
24. The Apple Cloud should be seen as an Apple owned private and proprietary Platform-as-a-Service (PaaS) arrangement. It offers not the supporting global Internet infrastructure (Infrastructure-as-a-Service) for Apple applications but also standard middleware that will accept only applications that have been programmed according to Apple specifications.
25. The Apple Cloud also provides 5 GBs of data storage for Apple customers at no added costs. Large collections of music and pictures may find cloud storage helpful, especially for archival storage.
26. The Apple Cloud will also hosts every application purchased from the App store. It will offer fail-over backup to another site in addition to the local “time machine” backups that are located in Macintosh computers. Several large Apple applications, that have frequent use, are already available from four data centers.  The Apple's 500,000-square-foot computer operations, costing over $500 millions, has the capacity of 120,000 servers.
27. All documents, music or pictures uploaded from any Apple laptop, iPhone, iPad Touch to the Apple cloud can be synchronized with every other Apple device. This will allow a customer to carry the contents of all applications regardless of locations or whether the device is portable or at a fixed location.

Apple is the world’s most successful information technology corporation and therefore warrants careful study about the patterns of the future directions how computerized information will be generated and marketed. With a highly focused strategy Apple can be expected to continue sustaining its leadership in the consumer segment of the IT industry in the foreseeable future.  The keys to success will be now cloud computing, an augmentation of App Stores, interoperable consumer devices and a development virtual staff. Such strategies suggest that the current patterns of success will continue.

Yet, Apple with its $100 billion revenue occupies only 6% of the global $1,690 billion IT industry.  The remaining 94% is fractured into thousands of suppliers, diverse software development practices and uncoordinated operating methods. How this vast market can be covered with the aid from cloud computing will be discussed in another blog. It is clear, however, that in the absence of integration across the entire application “stack”, other methods will have to emerge as a unifying force. There is a technological and marketing opportunity how to achieve an improved economy how information technologies can be organized.

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