Oct 14

CEO Tim Cook confirmed at the iPhone 4S unveiling shipments of 250 million iOS devices since the original iPhone went on sale in the summer of 2007. The iPhone 4S, the latest and greatest new model, has marked a shift in focus from hardware to software and online services. Siri, the iPhone 4S’s intelligent personal assistant advertised as its killer feature, requires significant significant computing power on the phone, but it also taps the power of the cloud.

And with iOS 5 and iCloud now out of the gate, Apple’s commitment to cloud computing will be put to test as millions upon millions of users scramble to back up their devices and sync their data with iCloud. The bitterness of the MobileMe fiasco still fresh, Apple planned well ahead for today and — hopefully — into the future.

In mid-2009, Apple publicized plans to spend a billion dollars over the course of nine years towards a data center in Maiden, North Carolina, the company’s third, after lawmakers had voted in favor of huge tax incentives to big businesses. In reality, the cost of hosting its own content stores and data belonging to iOS users has dramatically outpaced initial projections.

Looking at Apple’s Property, Plant and Equipment costs in their quarterly statements, Asmyco’s Horace Dediu found out the company has already poured about $750 million into the North Carolina facility. What’s noteworthy about this is that Apple spent this amount of money towards the building alone, prompting Dediu to call it the “down payment”.

Apple originally planned to invest a billion dollars over nine years and they already spent three-quarters of the allotted sum on the building alone. This excludes costs related to servers, storage equipment, personnel, research and development, licensing, bandwidth charges and more. Only few companies are willing to spend billions on cloud infrastructure, so Apple with iCloud has essentially created a substantial barrier to entry for competitors, Dediu notes:


Apple spent $1 billion on property, plant and equipment since mid-2006. Having paid an estimated $250 million for the old HP campus in Cupertino, the remaining $750 million is the down payment for the iCloud data center building in Maiden, North Carolina.

What this level of spending implies is that iCloud (and Siri and iTunes) are expensive. They may seem ephemeral and even trivial as services, but they require a staggering commitment few can make. Apple made that commitment and they made it early on, before the first quarter billion users were even on the horizon. If platforms are moving from local to distributed and if value moves from selling things to “getting to know you”and if that knowledge requires infrastructure control then the number of companies that can participate in the market shrinks dramatically. Not only in terms of who has the capabilities, but who could even afford to acquire them.

The North Carolina facility went live ahead of the iCloud announcement at this summer’s WWDC when Jobs acknowledged the North Carolina data center, half-jokingly adding the building houses “expensive stuff”:

“If you don’t think we’re serious about this, you’re wrong”, Jobs remarked in a subtle hint at the MobileMe mess. “It’s a pretty large place and it’s full of stuff — full of expensive stuff.”

The North Carolina facility is Apple’s third data center to date. Some analysts believe the company will build additional super data centers all over the world in support of a new video-related gadget, perhaps the rumored Apple television set. The company bolstered engineering talent by hiring Microsoft’s data center wizard Kevin Timmons in April of this year. Tim Cook, Apple’s new boss, last month appointed Tunes chief Eddy Cue the new Senior Vice President of Internet Software and Services. Cue is charged with leading Apple’s entire cloud-based operation which encompass the iTunes Store, App Store, iBookstore and iCloud services.



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