Are We Ready For A True Cloud Phone?

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As we approach the fall, all the rumors of the Apple empire descend upon us. And this year may be the craziest yet because for the first time since the iPhone’s inception, Apple did not release new hardware in the summer. And there are still whispers of an iPad revamp as well. iOS 5 is coming. iCloud is coming. And then there are the iPods which are traditionally updated in the fall timeframe each year. Things are already getting crazy enough that potential Apple announcement dates are topping Techmeme one minute, and then stories debunking those dates are the top story in tech the next minute.

This will only get worse.

But there’s a reason people write up these rumors. Because people read these rumors. And the reason they do that is because sometimes those rumors are correct. And more often than that, they’re at least somewhat correct. That hope keeps peoples’ imaginations running wild. Now it’s time for me to indulge that.

One rumor that caught my eye this week was the talk of Apple looking into releasing an “iCloud Phone” alongside a new iPhone 5 this fall. This actually isn’t a new rumor so much as it’s a repurposed one. If you’ve heard talk about the “iPhone 4S”, this is the same potential device. It’s the “cheap iPhone” that TechCrunch and others have written about in the past. Given the smoke out there, it would seem that there’s something to this rumor. Even Apple’s executives have hinted at the possibility.

But the iCloud angle is a particularly interesting one. That doesn’t mean it’s entirely accurate necessarily, just interesting. First reported by Apple ‘N’ Apps, Trevor Sheridan writes:

It has come to our attention that Apple is planning to combine iOS 5 and iCloud with a piece of hardware internally referred to as the iCloud iPhone. The iCloud iPhone will rely heavily on Apple’s new cloud based offering, and less on internal storage.

He continues:

Apple is aiming for a $400 final price for the iCloud iPhone as compared to the typical $600 iPhone price, which the iPhone 5 will cost. The carrier subsidization will bring the cost to consumers down to free with a 2 year contract for the iCloud iPhone with the same $199 iPhone cost for the iPhone 5.

He cites three independent sources on the information, and notes that a modified iPhone 4 design is likely to be used for such a device.

Reducing the internal storage in the iPhone is certainly one way Apple could reduce the overall cost of the device. Plus, Apple has spent the past year and a half perfecting the manufacturing of the iPhone 4, so you can be sure costs in that regard have come down. On the face of it, this makes some sense.

But the larger question remains if the world is ready for a cloud-based smartphone? And there’s a side question: what if this cloud phone is a data-only device?

To the first question, with Apple rolling out iCloud this fall, the timing could be right. Apple hasn’t turned on things like music streaming from the cloud yet, but they easily could. They recently did this with an Apple TV update for television shows. If you have an always-connected device, this concept could work. Storage would be needed for apps and perhaps a little for offline usage, but overall, maybe Apple could get away with a device with just a few gigabytes or so of onboard storage.

The second question is different. After we reported on Apple’s work on a cheaper iPhone, a few people reached out wondering if the iPod touch could simply morph into this product? In other words, Apple could upgrade the iPod touch with an iPhone 4 body, including the 3G radio.

If that’s Apple’s thinking for this product, it may be the perfect opportunity to create a phone that doesn’t offer traditional phone service. As in, it would be data-only.

Now, the carriers probably would have a hard time with this concept. But if Apple sold it as more of an iPod touch with 3G capabilities, they may bite. The carriers are currently making no money off of the iPod touch, which is a hugely popular product. It remains WiFi-only. If they offered a $29-a-month data plan, or pay-as-you-go, it could be a really compelling new source of revenue.

And to consumers, Apple could tout it as more of a “lite” phone. It can do everything the iPhone can, except make phone calls. And really, thanks to apps like Skype, FaceTime, etc, it can do that too — maybe they just don’t play that up as much at first.

Without full $60 or $70-a-month plans for cellular minutes and data, the carriers probably wouldn’t subsidize the cost of such a device down to $0. But they might be able to get close if Apple was able to make the device cheaply enough. The low-end iPod touch is currently $229. But then again, contracts are one more headache for consumers, so maybe Apple would be more in favor of selling the device cheaply without a contract, and allowing consumers to pay for 3G service on the go, like they do with the 3G iPads.

The concept of a data-only phone has been around for a while. In November of 2009, we reported that Google was looking into possibly offering their own Android devices which would be data-only. This didn’t happen, obviously. Instead, Google not only fully hopped into bed with the carriers for their Nexus devices, they got really close for maximum snuggling and abandoned their broader Android dreams.

Whether or not Apple takes this path this year, it’s pretty clear that this is the future. Eventually, carriers will exist as data dealers. All information, including voice calls will happen over this pipe. Cellular phone service will just be an optional add-on if you’re in an area with a bad data connection. Apple could kick-start this movement in the coming months. Or they might not. But someone will.

[image: flickr/jesse kruger]