Apple Seeks Executives for Cloud-Based Services
Apple Inc. has been taking small but important steps toward a shift in the way its customers access their digital content beyond the downloadable software that has been vital to the company's success. — In recent weeks …
Context & Ripple Effects
Apple's cloud ambitions have been building for over a year on paper before they show up in an org chart: talks about storing customers' video in the cloud surfaced back in March 2010, followed by a mid-2010 assessment that its cloud service was not fully baked. By October 2011 the company was reportedly prepping a movie cloud service, and this week's report that it is recruiting executives to lead cloud-based services signals those plans now need dedicated leadership rather than side projects.
The significance is what the hires imply about Apple's business model: the company is taking steps to move customer access to digital content beyond the downloadable software — the iTunes purchase-and-sync model — that has been vital to its success. Hiring senior cloud talent is the organizational prerequisite for serving media from Apple's servers instead of shipping files to devices.
First-order effects
- Apple must staff a cloud services organization from the top down, competing directly for executives with cloud operations experience against companies that have run such services for years.
- Content partners in film and music gain a counterparty negotiating for server-side delivery of their catalogs, since the reported movie cloud service depends on studio licensing rather than download sales alone.
Second-order effects
- If Apple moves media access off the device and into hosted services, every competitor selling cloud music and video lockers faces a rival whose advantage is integration with the installed base of iOS devices rather than the locker itself.
- Studios and labels gain leverage in renewal negotiations, because a shift to cloud access makes licensing terms — not per-download wholesale prices — the economic center of Apple's media relationships.
Third-order effects
- A successful transition would restructure Apple's revenue mix around recurring services layered on hardware, weakening the dependence on unit sales of downloaded media that defined the iTunes era.
- Across the industry, the pattern points toward media ownership giving way to hosted access — with the companies that control both the device and the cloud service positioned to set terms for everyone upstream in content.
The trend: Consumer computing is shifting from purchased downloads synced to devices toward cloud-hosted media services, and Apple's executive hiring marks its entry into that race in earnest.