Apple Is Creating Its Consumer Tablet Cloud to Kill Microsoft

(MoneyWatch)  When it comes to understanding consumers and what they will want, Apple is one of the strategically smartest companies in the world. And the recently reported deal to acquire music streaming start-up Lala is another indication that the company is planning to become the central cloud for consumers. That raises some interesting questions about what the future of the company might be, because focusing on the cloud means realizing that business is beyond proprietary hardware and software. And the answer may be a clever marriage of open and closed, promoting Apple hardware and eventually making it king of the personal computer heap.

Why Apple might want a streaming company is head-scratching, in an odd kind of way. It should be crystal clear. An important business to them is selling access to downloading songs. Streaming media is a natural counterpoint, because there will be people who want the equivalent of a radio station, with a larger variety of music than the typical collection, and streaming should also lead to additional track sales. And if you can stream audio, why not video or e-books or any kind of media?

This would also seem to logically tie to the big server farm that Apple is building in North Carolina, potentially taking advantage of upwards of hundreds of millions in tax breaks should the facility hit a billion dollar investment and operate for 30 years. But the odd thing is that streaming specifically, and cloud-based services in general, presumes that you are using standards-based technology to cast as wide a customer net as possible. And that just doesn't jive with Apple's entire approach to business: tie people in to proprietary hardware and software, own as much of the monetary and IP value as possible, and control (via mechanisms like the app store) what you don't own.

How do you reconcile the proprietary and the open? I have a suggestion. As I noted back in May, there are multiple reasons why Apple would want a big server farm:for example, making games and e-books available, mirroring the developments and interests that the company has shown. But as I said then, Apple has shown that it's willing to give something, like an iPod, to help close the deal on something bigger, like a Mac. So why not give away web-delivered services as an inducement to buy hardware.

But then, last month, we saw that Apple filed a patent on a way to force people to watch ads and which could be used to let a user obtain "a good or service, such as the operating system, for free or at reduced cost." Time to tie it all together.

You have streaming media, enforced ad-watching, and rumors of the new cheaper device coming out. So add it all up. How about advertising-supported streamed media that also ties in to subsidized hardware? And don't assume that the media is just music. It's "open" in the sense of being a available anywhere and at a price that would make a whole lot of people jump, and yet "closed," because consumers would be tied to Apple.

Suddenly, you have a consumer device that could drop down to just above the going competitive rate of the current e-book readers (because Apple's long-term business strategy has always called for premium positioning) that is possible because of the advertising. Add a deal with a company like Zoho, and you could have something that offers consumer and business servers, delivered via web to reduce the cost of the device, and use subsidies to make the product inexpensive enough that huge numbers of people jump on it.

It's not a no-brainer because there are potential roadblocks. For example, Comcast's acquisition of NBC Universal could keep Apple from nailing TV subscription plans via iTunes. But could Apple have finally found the formula to become the leading seller of a computing device, in profitability as well as in unit shipment, and undermine the entire Microsoft universe? It may just have.

Image courtesy Erik Sherman, all rights reserved.