Cloud // Platform as a Service
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3/16/2011
08:35 PM
Charles Babcock
Charles Babcock
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HP Poised To Capitalize On Apple, Amazon Lessons

CEO Leo Apotheker may be on the verge of leveraging HP's core competencies in a way that few organizations can, thanks to its new focus on the cloud.

Apple is one of the first manufacturing companies to become a successful cloud company. Before I try to explain that, let me make a second, more preposterous assertion: HP is lining up to be the second.

Now back to the first. Apple is not a cloud company like Amazon.com or Google, which were born inside and grew up in the cloud. Apple is a computer manufacturing and marketing company, with a well-known chain of spiffy, brick and mortar retail stores. That would seem to have nothing to do with the cloud. As such, it was stuck, not many years ago, with its Macintosh line having a declining 2% share of the desktop market and several failed device launches behind it. At the time, the iPod, iPhone, and iPad were not yet a gleam in Steve Jobs' eye.

Jobs desired nothing more than to build a wall around his brand-name design-through-sales process, and he recognized that the cloud would allow him to keep control while at the same time opening a broad, new channel to customers. The wall held aloft his profits, by keeping high-margin devices available only from inside a closed system; the cloud added consumer access.

I'm used to thinking, as are other people, that the cloud opens things up. Not necessarily. There's no reason it can't be appropriated to serve closed purposes as well. Granted, we're talking about a narrow slice of the cloud -- the Apple iOS operating system, Apple iTunes delivery system, App Store application distribution, all running from Apple data centers. Not exactly a free-wheeling opportunity for third parties -- but nevertheless, a cloud, where any end user who chooses to offer modest inputs gets back value from a central server.

Furthermore, a true cloud company is first and foremost a software company, building and providing software through the cloud, or using software to provide services. Apple Computer was a computer hardware manufacturer. Renamed Apple Inc., it became a flexible device supplier, able to iterate hardware devices in rapid succession through changes in its software, all while maintaining compatibility and investment protection through a shared operating system.

It's possible Apple could have done the same thing without the cloud through its chain of retail stores, but I doubt it. It wouldn't have been possible for Apple's design process to execute so rapidly if each product had remained a discrete device with its own software requirements and distribution needs. The snowball would never have gotten rolling so fast. The cloud allows device activation, maintenance, and value-added distribution in the form of applications from third parties, who owe Apple a 30% cut.

All of this is well known; less appreciated is how effectively Apple re-engineered itself around the potential that the cloud represented. It adopted the model while the cloud was still being denounced by its neighbors in Silicon Valley. Through the cloud, it grew from a $5.36 billion a year company in 2001 to a $60 billion a year company in 2010, without adding masses of employees. Even more striking, it went from $6.8 billion in market capitalization to $324 billion over the same period. Apple's use of the cloud leveraged its core competencies.

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