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Shahid Khan talks Cloud Computing and the power of Apple
Online computing: The crowded cloud
By Richard Waters, Andrew Edgecliffe-Johnson and Joseph Menn
Published: June 3, 2011
You want to send the photograph you’ve just taken to a relative but find you don’t know how to get it off your phone. You have work to finish at home this weekend – but the file you need is inaccessible, stuck on the hard drive in the office. That track you want to play in the car? It’s on the iPod, which you’ve left at home.
Such frustrations are increasingly a feature of everyday life. As the devices on which to view, work on or listen to digital data proliferate, a chasm has opened up between their liberating possibilities and the practical realities. Organising a growing mountain of personal information and media has become, in many instances, a chore.
Much personal information already lives online, whether on social networks such as Facebook, or on e-mail services such as Gmail and Hotmail. But the full potential of an online existence – a life spent in “the cloud”, to use the technology industry’s latest terminology – remains unfulfilled.
It is into this half-formed world that Steve Jobs, the consumer tech industry’s most closely watched taste maker, is about to step. On Monday, the Apple chief executive will appear at the US company’s annual developer conference to show off the latest software advances. Among them: the iCloud.
The details, as with all Apple announcements, are subject to intense speculation in the tech and media industries. The iPod, iPhone and iPad have transformed the company’s fortunes in the past decade. Expectations are now high that Mr Jobs will apply his knack for creating highly intuitive consumer technology to the problems of managing digital information across multiple devices.
Even before Mr Jobs takes the stage in San Francisco, at least one important element is clear. All four major music labels have signed up to iCloud, to allow customers of Apple’s iTunes store to listen to digital music they already own directly over the internet rather than downloading it to each of their devices separately.
The iCloud brand, however, has already stirred up bigger expectations than this. Many in the industry hope Mr Jobs will confer Apple’s seal of approval on an approach to online computing that other tech companies have pushed far more aggressively, though with mixed success.
“Apple adopting the word ‘cloud’ as central to what they are doing is very helpful to us,” says Steve Perlman, a former Apple executive and now head of an online gaming company.
The move will also sharpen growing competition between a handful of internet companies racing to stake out the medium. Eric Schmidt, Google chairman, said this week that a “Gang of Four” was setting the pace, with Apple, Amazon and Facebook joining the search company in redefining how consumers use digital technology.
Yet despite Mr Jobs’ outsized influence in consumer technology, he is anything but a leader when it comes to the cloud. Services such as Spotify in Europe and Pandora in the US have set the pace by enabling listeners to stream music, listening over the internet without downloading.
Apple has also fallen behind in bringing video to the web. US-based services such as Netflix and Hulu have proved more successful in getting movies and television shows to a large online audience.
In other services, too, Apple is lagging behind. From Facebook’s dominance of social networking to Google’s online document, photo-sharing and Gmail services, consumers have learnt to entrust large amounts of personal data to other online companies.
According to advocates, the next phase of the consumer cloud has an overpowering appeal: the convenience that comes from making all types of digital content available on any device. This attraction has so far outweighed concerns about the potential risks to privacy and security arising from letting personal data flow far beyond the user’s own hard drive.
“No one wakes up in the morning and says, ‘I wish I had more stuff in the cloud,’ ” says Brian Hall, general manager of Microsoft’s Windows Live and Internet Explorer businesses. “But if you tell them they can [gain access to] it on all their PCs and phones, then they get it.”
The concept may be simple but it is proving hard to make user-friendly. The crucial thing, says Mr Hall, is to make it easy to “synch” or move data from personal devices into the cloud; connect it with other services a consumer uses; and to make it all accessible from any device. “No one has done that well yet,” says Mr Hall.
Apple has struggled to find a big market for MobileMe, its attempt at synching data between devices. But there is hope in tech circles that Mr Jobs, who has succeeded before in making consumer tech intuitive and easy to use, will again show the way.
The impact is likely to be seen first in media, where content owners feel iTunes accounts that number in excess of 200m give Apple more influence over digital consumers than any rival.
The media industry is poised between hope and anxiety about the cloud, which could herald the latest sweeping change to their customers’ behaviour. On the one hand, executives see it as one of the first products of the digital age with the power to enhance their revenues rather than disrupt them.
“There are only so many movies you can store on your laptop,” said Bob Iger, Disney’s chief executive, this week. “If we give people the ability to buy a lot more because they can store a lot more . . . I think that’s fantastic.”
Sir Howard Stringer, his counterpart at Japanese consumer electronics group Sony, displayed similar optimism last month, telling reporters: “All the big American companies, whether it be Amazon or Apple or Microsoft, recognise that that’s the delivery system that the customer wants.”
More media content companies see the cloud as an opportunity rather than a threat, says Chris Vollmer of the management consultancy Booz and Company. The large cheques Netflix has written for content, the prospect of new distribution markets, and signs cloud services limit piracy have all raised the industry’s hopes, he says.
The risks of the cloud cast a shadow on industry optimism, however. Sony and users of the network attached to its PlayStation console discovered the threats to security in April, when a hacking attack forced the company to suspend the service.
Furthermore, the full impact of this approach to computing on how consumers will gain access to media, and crucially how they will want to pay – if at all – is as yet only fuzzily understood. One risk, some in the industry say, is that it will accelerate the trend for consumers to rent rather than buy media and entertainment products and services. This has hurt sellers of CDs, DVDs and other physical media. Another big question facing media companies is the influence of a handful of online platform companies over their ability to reach – and charge – their customers.
For now, the scramble by these platforms for content has handed power to the media companies, though. The land grab under way in cloud computing “bodes well” for content owners’ pricing power, says Anthony DiClemente, an analyst at Barclays Capital.
One indication is the music industry’s warm reaction to Apple’s pending cloud music service, which has already prompted Amazon and Google to rush out similar services of their own, though they have yet to gain approval from the music industry. Labels and publishers hope to use Apple’s terms, which will give them 70 per cent of iCloud’s music revenues, as a template in negotiations with Amazon and Google.
Shahid Khan of MediaMorph predicts content owners will preserve the upper hand in the cloud, and that platform owners face the bigger problem in making money. Google’s record of alienating content owners would harm its prospects, while the sums Amazon and Netflix must pay for content would make their ambitions “challenging”, he said. Only Apple, with its powerful ecosystem of iPhones, iPads and other devices, was likely to retain its bargaining power.
“Near term, especially in music, Apple sits in a Walmart-like position in terms of its digital retail market leadership,” says Mr Vollmer.
Yet even if this proves correct, Apple still faces a profound challenge to its way of doing business: the desire of consumers to access their media and personal data on any device – whether or not it bears an Apple logo.
And media companies show little willingness to let technology companies use their products to lock consumers into their services. Interoperability between online services is important, said Disney’s Mr Iger, so that consumers will be able to move their libraries from one cloud to another without difficulty.
“If someone wanted to corner a market, and a connected platform, in the long term I think it would be impractical,” says Mr Perlman, whose OnLive games service is one of many upstarts that are gambling on being able to get unrestricted access to consumers on all manner of devices.
As in other areas of consumer technology, however, it would not do to underestimate Apple.
Additional reporting by David Gelles
Read the full article here