How Apple could exploit a forever-free iCloud

How Apple could exploit a forever-free iCloud

Rivals Google and Microsoft give away cloud storage to sell cheap notebooks, but Apple could take a different tack

While Google and Microsoft are using large amounts of free cloud storage to sell inexpensive consumer notebooks, Apple has stood above the fray.

But there's no reason Apple can't join in.

On Friday, Google announced that all Chromebooks purchased through Dec. 31 will be eligible for a free one-terabyte allowance to Google Drive for two years.

Although Google explained the promotion as "a bonus for the holiday season," the deal didn't originate with a Scrooge-style epiphany but from a business sensibility: Several Microsoft computer-making partners, notably Hewlett-Packard (HP), have taken to bundling free cloud storage with their Chromebook competitors.

HP includes either OneDrive storage space or both that and a free subscription to Office 365 Personal with its low-end Stream line of laptops. The US$199 Stream Notebook 11, for example, includes a one-year 1TB OneDrive as well as a one-year subscription to Office 365 Personal, a single-machine license to the suite. The $299 Stream Notebook 14, meanwhile, comes with a two-year 100GB OneDrive offer.

Ultra-cheap Windows-based notebooks have taken a bite out of Chromebooks' share of the low end market, according to the NPD Group. Earlier this month, Stephen Baker of NPD, citing statistics from his company's retail data, said Chromebooks' share of U.S. entry-level retail sales had dropped from the high 20s last year to under 20% this year as similarly-priced Windows laptops have gained momentum, largely because Microsoft is now subsidizing the OS, reducing OEMs' cost for Windows to zero or near zero.

To stay competitive, Google temporarily upped the usual 100GB Google Drive offer to 1TB.

But Apple has not played the cloud storage card.

There are good technical reasons it hasn't. Unlike Chromebooks, HP's Stream line and other minimalist laptops, Apple's MacBook Air and MacBook Pro come with relatively spacious on-device storage. While the typical Chromebook or HP Stream packs just 32GB of flash-based local storage -- necessitating Google Drive or OneDrive -- even the entry-level Air and Pro come with 128GB, or four times as much.

Currently, Apple gives customers a measly 5GB of free iCloud storage, used not only by Macs but also by iPhones and iPads, then charges for allotments above that. Even with iCloud extra-space price cuts this year, Apple's costs are very much out of line with the market, and its free allowance is just a third of Google's and Microsoft's.

The free Google Drive and OneDrive offers, and also the latter's unlimited space for $80 annually (via an Office 365 Personal subscription) only exacerbate the disparity.

There's nothing preventing Apple from giving away iCloud storage space: The company has more money in its coffers than it knows what to do with. If it wanted to, Apple could join the promotional space race to sell more Macs, which are on the rise, and iPads, which are not. But there's another reason why it would be a smart move.

Just as it did in 2013 when it gave away OS X upgrades and the iWork productivity suite, Apple could bundle a significant chunk of iCloud storage space with new hardware purchases to keep existing customers in its fold even as it encourages them to upgrade their hardware with new notebooks or tablets.

That may be part of Google's and Microsoft's strategy as well -- Microsoft's especially -- although their bundles smack more of old-fashioned market share skirmishing, each hoping to outdo the other in the entry-level space.

Because of its personal computer pricing, Apple really competes with no one other than itself: As Baker said two weeks ago, the race to the bottom by Google with Chromebooks and Microsoft with cheap Windows knock-offs has "decimated" the over-$300 Windows notebook segment in the U.S., with sales down 10% in the last weeks of October compared to the same period in 2013.

The inclusion of, say, 100GB or 200GB of free iCloud storage, would not in itself tip more than a handful of potential buyers from a much-less-expensive Chrome OS or Windows personal computer to a line that starts at $899 and climbs to double that and more. But it might be enough to nudge the already-in-Apple pool to buy a new Mac or iPad sooner than they might otherwise.

That's because consumers who already own an Apple device, whether iOS or OS X, are by definition committed, even if only tenuously, to iCloud. If Apple used the same mechanism for an iCloud enhancement as it used for iWork, the boosted iCloud allowance would be available to all the buyer's iOS and OS X devices.

(Last year, Apple gave away the iWork iOS apps to any customer who bought a new iPhone or iPad after Sept. 9, 2013; the Mac versions of the same applications were included free with any Mac bought after Oct. 21, 2013. In both instances, the apps were tied to a customer's Apple ID, letting them download the free-of-charge apps to any other iOS or OS X device associated with the same credentials.)

Add the offer to new iPad purchases -- perhaps limiting it to only the larger-sized iPad Air 2 -- and Apple would give people who already own a Mac or iPhone or even an earlier tablet another reason to buy, juicing sales of the now-declining iPad.

The disparity between the pricing of the least-expensive iPad Air 2 and the least-expensive MacBook Air or MacBook Pro might require a two-tier iCloud offer: 100GB for a new tablet, 200GB for a new notebook. That, in turn, could be spun to advantage by making the deals additive. Buy a new MacBook Air, get 200GB; buy a new iPad Air 2, get 100GB more, for a total of 300GB.

It would also amplify the "halo" effect on the iPhone, easily Apple's most-owned device in its current triad of iPhone-iPad-Mac. Boosting iCloud storage space -- invaluable for storing the photographs that make up the largest portion of the content iPhone owners generate -- could be another way to entice iPhone owners, most of whom do not own a Mac or iPad, to add to their Apple-made device inventory, just as Apple hopes its iOS-OS X "Continuity" feature set will do.

Such a plan might not only encourage multiple purchases, albeit over time, but would also differentiate Apple's cloud storage deal from the get-a-terabyte-right-off-the-bat of its rivals by reminding customers that few need that much storage now but many will down the road. Purchase enough Apple hardware and you'll get to that terabyte about the time you really require it.

Unlike the Google and Microsoft offers, which expire after two years -- at which point the stuff stored in the cloud still remains accessible -- Apple could give away iCloud storage in perpetuity, just as it has iWork. That would be simpler to manage, since Apple would not have to track expirations and then pitch customers to pay to continue playing above the skinflint free line. And the forever-free angle would both separate iCloud from other consumer-oriented storage services and mesh with an Apple already-stated strategy.

"Free is good," said Apple executive Craig Federighi more than a year ago when trumpeting the free upgrade to OS X Mavericks.

On Friday, Google boasted that its 1TB storage offer was "almost $240 in value," a phrase that found its way into most reports of the deal. Apple would never say that, although others might make the calculations for them (by the way, 200GB of iCloud storage now costs about $48 annually). While giving away stuff to sell stuff is a linchpin of Apple's long-time strategy -- think Apple Genius support, think its history of bundling first-party apps with its OSes -- it doesn't tend to put a dollar value on what it bundles.

Instead, Apple likes to present its giveaways differently, not as giveaways per se, certainly not as reactive moves required by market exigencies, but as a customer benefit because they add to the overall value of its ecosystem.

"We think that iWork is a really key advantage for our customers' productivity," CEO Tim Cook said last year as he explained why Apple did the free apps-for-iOS deal. "We think that all iOS devices are made even better if they have these apps. And almost all of customers want these apps."

Substitute "free iCloud" for "iWork" and "these apps" in Cook's comments, and there's the rationale for an iCloud-for-life freebie.

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