With CloudKit, Apple Inc. Fires a Small Shot at Facebook

Apple jumps into the Backend-as-a-Service arena with CloudKit. Which incumbent potentially stands to lose?

Jun 6, 2014 at 11:00AM

At Apple's (NASDAQ:AAPL) WWDC presentation this week, the company unveiled a slew of tools meant to make life easier for developers. One of those tools, CloudKit, represents Apple's first foray into backend services for apps. Backend services are critical for many apps today, with one of the most popular services being push notifications.

CloudKit is available to developers for free subject to certain limits, and Apple has not yet outlined pricing for developers that want to use CloudKit beyond those limits. So who stands to lose as Apple enters the Backend-as-a-Service, or BaaS, arena?

Parse is the dominant BaaS vendor right now, with an estimated 28% market share as of early 2013. Social networking giant Facebook (NASDAQ:FB) scooped up the company in April of last year for an estimated $85 million. Parse is a cross-platform BaaS player, supporting iOS, Google (NASDAQ:GOOGL)(NASDAQ:GOOG) Android, Microsoft Windows Phone, and more.

The CloudKit free limits are quite generous compared to Parse's free limits, which are really just meant for developers to test apps. Once developers begin to scale on Parse's platform, that's when the costs start to scale as well. That's why CloudKit may prove to be a powerful incentive to get developers to switch from Parse -- at least for developers willing to focus on iOS.

CloudKit is really just one aspect of Apple's big push for exclusive iOS developers. Apple and Google have both been aggressively trying to win over exclusive content, especially mobile games. Apps built on Apple's new programming language, Swift, will be harder to port to Android. The same will be true for games built using Apple's new Metal graphics API. When you combine Swift, Metal, and CloudKit, Apple is hoping to strengthen iOS by improving performance while creating a disincentive to develop for Android also.

There are plenty of studies that show iOS is far superior to Android with monetization. The most recent of which is a Swrve report showing that iOS monetizes 32% more users than Android, and those paying users generate 45% more revenue.

Even with these incentives, it remains to be seen whether or not Apple can successfully coax enough developers away from Parse with the new tools it introduced. Parse isn't a meaningful revenue driver for Facebook compared to its growing ad business, so even if Parse loses customers, it would only be a small blow to the social network.

Facebook's motivation for acquiring Parse wasn't revenue growth, after all. Facebook's angle is more about creating value for developers by providing tools for cross-platform development. Many of these will end up using Facebook Login to authenticate, which further strengthens its own moat.

Both Apple and Facebook are using BaaS as ways to fortify their ecosystems. Since Parse isn't Facebook's primary business, Facebook could theoretically choose to price Parse more aggressively to defend against Apple's entry, since the resulting margin pressure would be negligible in the context of its consolidated results.

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Evan Niu, CFA owns shares of Apple. Evan Niu, CFA has the following options: long January 2015 $460 calls on Apple, short January 2015 $480 calls on Apple, short January 2015 $60 puts on Facebook, and long January 2015 $35 puts on Facebook. The Motley Fool recommends Apple, Facebook, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Facebook, Google (A shares), Google (C shares), and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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