Apple iCloud Review: Don't Cut Your Cords Just Yet
Apple iCloud Review: Don't Cut Your Cords Just Yet

If Apple can convince its iTunes users to sign up for iCloud, it will dominate the cloud like it does downloads. But how many people will actually pay for the service?

The media has covered iCloud ad nauseam in recent weeks but has provided little insight into how many people might sign up and how much revenue it might generate.

These are important questions. Revenue generated by iTunes Match, the $25-per-year service (due in the fall) that creates a cloud-based mirror of a person's music collection, gives a 70% share to content owners. Even the free iCloud service, which provides cloud access to iTunes purchases, can impact content industries. After all, there is a distinct possibility iCloud will give Apple yet another competitive advantage in the consumer electronics space, increasing hardware and operating system market shares and growing its music download sales.

Until iCloud actually launches and people start signing up, we can do nothing but guess. But there is some information to help us make educated guesses.

One way to estimate the potential of iCloud is to look at the total universe of likely iCloud paying customers: 200 million Apple ID accounts tied to credit cards, according to Steve Jobs on March 2. These are people who have spent money at iTunes on digital music, TV shows, movies or apps. And one can assume that people likely to spend $25 per year for iCloud are also willing to buy digital goods at iTunes. But there is more to iCloud than the $25-per-year music service from which labels and publishers will benefit. iCloud is also available to people who want to use the service to backup files.

One could look at the number of customers who own an Internet-connected Apple device such as a laptop, iPhone or iPad. That's not the best approach, however. PC users will be able to pay for the $25-per-year iCloud music service. So the total universe of potential customers extends well beyond Apple device owners.

NPD Group research points to strong potential demand. Forty six percent of iTunes users expressed interest in using a paid cloud music service, according to NPD's "iTunes User Report." (The survey defined paid cloud music service as a digital music subscription service that provides unlimited streaming capabilities to the content in your iTunes library from any Internet-connected device for an annual fee. That's exactly what iTunes Match will provide.) NPD found that iTunes users ideal average price for such a service is $17.

Of course, there's a difference between expressing interest in a paid service and actually parting with money. Over the years many surveys have strongly suggested there is a far larger market for paid music subscription services than currently exists. The same dynamic should be expected with iCloud. There will be a lot of interest, but not all interest will be converted into action.

Another approach is to gauge the value of users of MobileMe, Apple's current cloud-based service that will be replaced by iCloud. Apple has not released an official number, but a handful of online reports put the number at an estimated 2 million users. At $99 per year (family accounts are $149), that's nearly $200 million in revenue each year, not to mention whatever value it lends it attracting and retaining Apple customers.

Yet another way to gauge iCloud potential is to look at what percentage of existing Apple customers currently back up the data on their Apple mobile devices. According to a post at One FPS blog, only 50% of Apple Store customers who get their iPhones swapped have ever plugged them into iTunes after the initial activation and sync. If accurate, that suggests half of iPhone owners are not syncing data from device to computer - not music, not contacts, nothing. (Note: This estimate comes anecdotally and is not an official estimate by either Apple or a third-party measurement firm.)

There are a couple ways of looking at this number. One interpretation is iPhone owners could benefit from a simpler way to sync and store their data. If 50% aren't even plugging their iPhones into their computers, it suggests current ways of backing up data are too challenging. Reduce that friction and you'll get those customers.

But a more pessimistic view could also be taken. People who currently care little about backing up data or syncing files may not change after iCloud launches. Regardless of the technology, this sizable portion of consumers cannot be bothered to sync their music files, apps and contacts. If they won't sync for free, they won't pay an annual fee to sync in the cloud.

Wondering about the success of iCloud is far more than academic musings. Apart from its strategic value to Apple, it's also a potential moneymaker: iCloud's $25-per-year music service will pay 70% to rights holders. A service that signs up tens of millions of paying customers will pay hundreds of millions of dollars a year to labels and publishers. And a successful iCloud could help Apple sell even more music downloads.

Readers, what do you think? Can Apple make iCloud into the financial and cultural juggernaut that iTunes has become? Sound off in the comments below ...