Apple readies latest version of the halo effect

June 3, 2011

By Robert Cyran

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Apple holds its annual developers’ conference on June 6. As happened with previous new product introductions, like that of the iPad, the tech group’s objective will be to trigger a virtuous circle whereby whatever new gadget it unveils tends to encourage consumers to buy other Apple products. Expanding its cloud offerings, where data and programs are stored remotely, could set off more favorable feedback loops.

The company says Chief Executive Steve Jobs — currently still on medical leave — is addressing the crowd, and will talk about what it calls “iCloud.” Characteristically, Apple is keeping its cards close to its chest. But this appears a major effort into providing lots more music and computing services remotely via the Web, instead of being stored locally by the user. The company has built a 500,000 square foot data center in North Carolina and signed deals with multiple music labels in preparation with the launch.

Putting music, movies and other programs on the cloud offers a few obvious benefits to Apple. Its computers, tablets, and phones would potentially need less local memory. That means devices can be cheaper — or simply higher margin — yet slimmer and more attractive. That’s important for the design-conscious Apple.

But the secondary effects are more important. If users store data and programs remotely, devices blend together. Buy a song once and it can be listened to on any gadget. Likewise, edit a spreadsheet on the cloud, and the changes can be seen and modified on multiple platforms. That makes customers more likely to stick with a suite of Apple products.

And there’s an additional plus. Cloud services eat up bandwidth. Telecom companies are hungry for revenue from data transmission. That makes them more willing to subsidize iPhone sales in exchange for locking customers into long-term contracts. If Apple users start needing more expensive data plans, then companies like AT&T and Verizon are more likely to fund the purchase of Apple gadgets.

Apple revenue grew by 83 percent in the last quarter. That must eventually slow. But its iCloud services halo affect could keep growth humming along a while longer.

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