If you take a look at the rapidly crumbling tech bubble, a consistent theme is people realizing that giving away these cloud services and the reality is the pricing structure is not properly designed. Box.com and Hulu are great examples. Apple gives away a much smaller amount (5gb) for free and does charge $.99 for their 50 gig plan, but they have a lot more leverage given their scale and island-loads of cash.
If you’ve worked with Cloud services you’ll know you’re not just paying for storage, you’re paying for the usage of that storage. So even if I’m only storing 5gb, if I regularly recall that data then I may be transferring 25gb over the course of a month.
You can PLAN on baking that in - however you absolutely can not predict on a new product the utilization of that service. You can make an estimate (to your point, you can estimate how long a suitcase will take to break, cost of repair, and then calculate who will fix it vs buying a new one, then offer a “lifetime” warranty) but the issue with that is this is a new field, and a fundamentally new model they are proposing.
Assuming ~$2 of incremental cost per month suddenly means you are burdening your device with ~$50 of expenses over 2 years. If you build all of your products and assume a $100 BOM, $50 worth of services, and you can sell it for $399 that’s fine, but what happens if the product really takes off and people realize they no longer need to delete their 20 gigs worth of selfies? Now you might be using $5 per month worth of storage and now you’ve taken an extra $75 dollar hit on your margins - but you aren’t making a cent on that income.
Anyone who looks at the warning signs of the tech stocks can see that private investors are starting to realize their gold rush into the tech startup world may have been based on a lot of hype and potential that never materialized, and I don’t see a company who is launching a few thousand smart phones having the scale or business model to do anything other than hope they get absorbed by someone before people realize it’s not a sound business strategy.
We can revisit this thread in 12 months when the stock market has tanked and we’re all wondering what happened to the dot coms…again.
/nostradamus