Apple Should Have Built A Cloud

Amongst many weaknesses, Apple has a massive problem at the core of its business.

As recent disclosures have shown, it pays a fortune to Amazon and other rivals for infrastructure. Whilst Apple’s services business was merely the icing on its hardware cake that was dandy. But now that the company is betting its future on services, as its last showcase indicated, this is a problem.

The first issue is pricing. iCloud is seriously expensive compared to rival products. This is not surprising if it is having to buy and resell cloud storage. Even if it does not, there is clear evidence that a lot of its services are hosted on other providers' infrastructure.

The second issue is that it is buying services from its competitors, who, contracts aside, can pull the rug at any time and are benefitting from having a major rival as a major customer.

The third is strategic. Apple saw this coming a long time ago and attempts to build out infrastructure such as its aborted Irish facility have dragged on for years. Amazon and Microsoft have meantime built enormous advantages. Even Google are some years ahead of the folks from Cupertino.

Perhaps the thinking was that Apple can charge a premium for its services like it does for its products ? That thesis may work for apps, where delivery cost is a fraction of the margin that Apple takes, but in video delivery the cost of CDN distribution is a much higher percentage in a very competitive and price sensitive market.

Indeed, even in hardware Apple is set to see its margins eroded. Apart from the mildly successful iWatch, Apple hasn’t innovated for nearly a decade. I look at my ten year old iPad and five year old iPhone and see no need to upgrade, and certainly not to Apple with its dreadful voice assistant, bad AI (eg spellcheck) and walled garden content.

There are even many reports of the physical Apple Stores being in meltdown too - when I recently visited my local one I was in and out in three minutes, and ended up browsing in our local department store instead.

These final issues are fixable (even if it is by buying Tesla), but if the current anti trusts case against the online Apple Store is upheld, this is a company in serious trouble in the short term, and its lack of commercial cloud business will hurt it badly in the long term.