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Does Cloud Computing Hurt Apple?

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If the central thesis of the cloud-computing movement is that hardware is largely irrelevant -- made obsolete by browsers that can run applications anywhere, on any device -- and if Dell's (Nasdaq: DELL  ) recent purchase of Wyse Technology proves that the movement has momentum, then why are Apple (Nasdaq: AAPL  ) investors hoarding shares like a pirate who's found a long-lost buried treasure? The Mac maker is subject to the same forces conspiring to commoditize computer hardware, right?

I'm inclined to say "no," but I'll admit it's a troubling question. Feature for feature, there isn't much difference between machines manufactured by Dell, Hewlett-Packard, Acer, and Apple. All use Intel chips. All use some form of hard drive. All use copious amount of RAM to retrieve information quickly. All use modern Wi-Fi radios to access the Internet.

Yet history shows that the more commoditized the market, the more that small service and design enhancements make a huge impact. Think about Rackspace Hosting (NYSE: RAX  ) in the Web-hosting market. Hundreds of companies give customers tools to run a website or Web business, but only Rackspace pledges that you'll get a human every time you call with a problem. To the customer whose website crashes at 11 p.m., getting through to a friendly voice on the first call is a big deal. (Nasdaq: AMZN  ) unit Zappos has a similar story. Agents are encouraged to spend as much time as customers need to fix a problem or make a sale. As a result, Zappos sells more than $1 billion worth of merchandise annually. Why? There's a noticeable difference between buying from Zappos and buying from the local Al Bundy.

Small distinctions are where Apple shines. Take rounded corners. Do they matter much? No, it's an aesthetic change. But when you feel a MacBook's beveled edges topping a rounded corner, you know you're using a Mac. Same with the software: The Mac OS is designed to provide as close to an all-in-one experience as possible. Who cares if you don't buy additional software? The Mac has what you need, or at least enough to explain two consecutive years of better than 20% growth in unit sales.

So even if the truth is that the rush to cloud computing should be costly for commodity computer manufacturers, users see Macs as materially different. They see them as well-crafted, integrated systems that come with high-touch support by way of an international retail network. Everything the late Steve Jobs intended, in other words.

Think I'm right? Wrong? Either way, Apple isn't the only company profiting from the cloud-computing revolution. For more ideas, I suggest this Motley Fool video special report: "The Two Words Bill Gates Doesn't Want You to Hear." The research is free, but only for a limited time, so watch it now.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He owned shares of Apple and Rackspace Hosting at the time of publication. Check out Tim's Web home, portfolio holdings, and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool owns shares of Intel and Apple. Motley Fool newsletter services have recommended buying shares of, Rackspace Hosting, Apple, and Intel, writing covered calls on Dell, and creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (2) | Recommend This Article (2)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 11, 2012, at 8:14 PM, cwwwhalen wrote:

    I must disagree with your assessment of cloud computing as it relates to our everyday applications. Most non business users don't want to subscribe to a another continuing service model which just allows us to use a word processor, spreadsheet program or some other trivial application. Honestly, Microsoft product updates just make the applications more onerous and harder to use. And I couldn't imagine attempting to perform custom image editing or illustrating with a cloud based platform, the lag time would not be constructive.

    In terms of businesses, most companies are basically islands whose firewalls would never allow this type of service.

    Well designed hardware will never be irrelevant, just compare Apple products with anything else in and out of the industry. There really is no equal. And when you can merge elegant hardware with superb programs, then you have a winning product.

  • Report this Comment On April 11, 2012, at 8:47 PM, TMFMileHigh wrote:


    I know I'm early an adopter but ... anywhere from 70% to 80% of my workday is spent using cloud applications, and almost all of my favorite software is cloud-based. Specific apps I gladly pay for:

    * Toggl

    * WorkFlowy

    * Highrise

    * HelloWallet

    * QuickBooks Online

    * WordPress

    You get the picture.

    Thanks much and Foolish best,



    Tim Beyers

    TMFMileHigh, Motley Fool Rule Breakers Analyst, Supernova Odyssey I Portfolio Contributor


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