How Do You Make Money On This?

Chad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

I'll admit that I'm a cloud junkie. I'm the type of person if I hear I can store something in the cloud I'm pretty much there. I've used Google (NASDAQ: GOOG) Drive, Dropbox, Amazon (NASDAQ: AMZN) Cloud Drive, Apple's (NASDAQ: AAPL) iCloud, and most recently Microsoft's (NASDAQ: MSFT) Skydrive. The part of this business many people wonder about is, how the heck do these companies expect to make money on these offerings?  

Life In The Cloud Is Amazing: 

I'm fully aware that most of these companies hope to lock users into their ecosystems by offering some free space in the cloud. For those who haven't made the leap to using one of the above services, let me give you the quick and dirty version of what they do. If you haven't tried storing your stuff in the cloud, it's a life changing experience. Imagine being able to save a picture in say Dropbox, and then you can access that picture from any Internet connected computer, you can share it with anyone, and you can download it to any computer. The fact that it's stored in the "cloud" also means you theoretically don't have to worry about a hard drive crash wiping out your precious memories. However, these companies aren't really interested in you storing your pictures, instead they want the more important stuff. 
 
Giving It Away, But Hoping We'll Make Money: 

Dropbox was my first real experience with a company's cloud offering. I have used Google Docs in the past, but until Dropbox I didn't have a folder on my desktop that was connected to the cloud. Since I began seriously writing for the Motley Fool Blog, I've used Dropbox nearly every day. The free service comes with 2 GB of storage, but if you want more the company will gladly sell you more space. For someone like myself, Dropbox solved a huge problem. I could open documents and edit them on my home computer, create and save them on my iPad, and also work on them with my laptop when I travel. The best part of the service was it cost me nothing! I know that Dropbox sells its services to companies with multiple users, but long-term I wouldn't be on this company making it on its own. Dropbox is destined to become part of some other larger company, it's a question of when this happens not if it happens. 

Trying To Drive Users To Other Services: 

To be fair, Google doesn't really care what you use your storage for. They offer 5 GB of free storage, and again you can buy more. The difference is Google Docs is neatly tied in, and this allows users to create, edit, share, and save their documents to Google Drive without too much effort. Google's acquisition of QuickOffice gives the company a good mobile office suite, and the tie in with Google Drive is effortless. The reason Google offers this service is, to try and get users to stay within the Google eco-system. Since Gmail, YouTube, and many other services are just a click away, this is a good idea, but I have to wonder if the company isn't just giving away free storage to its existing customer base. 

Here Is Some Free Space, Now Buy Something Please! 

Amazon is nothing if not obvious. Amazon's Cloud Drive offers 5 GB of storage for free, but in truth Amazon is mainly interested in you spending more time on their site. The company offers a desktop app and mobile apps, but the service is designed to get you to buy from the store. The Amazon Cloud Player for mp3's allows you to store 250 of your own songs, but you get unlimited storage for your purchased mp3's from Amazon. The more time you spend on their site, the more likely you are to buy something, and that's what Amazon's offering is all about. 

The Cloud That Doesn't Feel Like A Cloud: 

Apple's iCloud service is so peripheral that it almost feels like it's not there. The 5 GB of free service doesn't offer free apps for document creation, and if you want to store your music collection, iTunes Match costs $24.99 a year. However, iCloud might be the most difficult cloud to get away from. In truth, once you have a few devices being synced by iCloud, it's hard to imagine switching and dealing with each device separately. I'll readily admit, I have a Mac Mini, a Macbook, 2 iPad's and an iPhone all synced to one iCloud account and the thought of switching any part of that setup is almost nauseating. This is the brilliance of iCloud, users might like another company's products better, but having to deal with managing all of that calendar, contacts, e-mail, notes, bookmarks, and more manually is enough to keep customers well within the walls of the Apple iGarden. 

The Best Deal Of All, But This Doesn't Turn Out Well For The Company: 

I'll be honest, I haven't used Microsoft's Skydrive a lot, but I'm using it to write this, and it has the potential to be a game changing offering. The problem is, if Microsoft pushes this offering too hard, it will cut off its nose to spite its face. Skydrive offers 7 GB of storage, allows users to have a folder on their desktop, and has mobile apps for multiple systems. The big kicker is this service offers web apps for Microsoft Word, Excel, and Powerpoint. These offerings aren't the full featured versions you get if you buy Microsoft Office, but they are very good. For probably 90% of users, they would be the only office suite you would ever need. The fact that Skydrive is connected to the Windows 8 Phone OS, and is connected to the Xbox 360 universe is huge as well. There is just one problem. If the web apps take sales from Microsoft Office, that would be disastrous to Microsoft's bottom line. Microsoft Office is a huge profit center for the company and the web versions offer not perceptible income generation for the company. The only positive is if Skydrive turns into the iCloud of Microsoft. The difference is Microsoft could lose billions if Office sales are cannibalized. 

Conclusion

The bottom line is if you are looking for an investment angle, Apple and Amazon are the clear winners. They have very distinct advantages to their offering designed to drive future sales. Google is less of a winner as millions already use Google's applications, and Google Drive isn't likely to win a lot of new customers. Microsoft's Skydrive has both the most to lose and the most to gain. If the company cannibalizes Office sales, they will have to sell a whole lot of tablets, smartphones, and Xboxes in order to make up for this huge loss. On the other hand, if this convinces customers to stick with the Microsoft system, Skydrive could change the company's fortunes. 


MHenage owns shares of Apple. The Motley Fool owns shares of Apple, Amazon.com, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Amazon.com, Google, 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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