Music Streaming First Salvo in Battle to Dominate Cloud-Based Computing

[Editor's Note: This special report on "cloud computing" is part of the Money Morning Quarterly Report series, which tells readers what's to come in key areas, including the high-tech sector. This story is a sidebar to a report on mobile computing that appears elsewhere in today's issue. Please click here to access that related story.]

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Cloud-based computing is shaping up to be a major battleground in the U.S. high-tech sector for the rest of this year, as companies compete to deliver such services as music streaming to consumer-based mobile devices.

And it figures to be a true clash of titans, with such high-tech heavyweights as Amazon.com Inc. (Nasdaq: AMZN), Apple Inc. (Nasdaq: AAPL), Google Inc. (Nasdaq: GOOG) and Microsoft (Nasdaq: MSFT) serving among the major combatants.

And music is just the beginning.

Video streaming will follow quickly, joining such already-common "cloud" applications as file storage and sharing and online photo albums.

For instance, Amazon made an aggressive move right near the end of the first quarter, when it launched its Cloud Drive service. Users can store 5 gigabytes of music and files for free, with additional storage available for a fee - $20 a year for 20 GB and $1,000 per year for a full terabyte (1,000 GB).

"Five years from now, people will think of online services like Cloud Drive as the primary place for safe keeping of critical information, as opposed to a backup, which is how they think about it today," Frank Gillett, an analyst at Forrester Research Inc. (Nasdaq: FORR), told The Wall Street Journal.

A Revolutionary Change

The cloud, which has yet to achieve "mainstream" status in the consumer market, simply means files and apps are stored remotely out on the Web (on a provider's server, where they can be accessed via the Internet). Today, files and apps are typically stored right on the user's desktop PC, notebook-computer or wireless-phone handset.

The primary advantage of keeping data in the cloud is that it is accessible from any device, anywhere you have an Internet connection.

But what has the tech industry abuzz is the Amazon Cloud Drive's ability to stream music that the user has purchased. Other streaming services like Rhapsody allow you to listen to a library of music for a monthly subscription fee, but the user does not own any of the music.

"This is not an understatement: It's a harbinger of the new era," Aram Sinnreich, a media professor at Rutgers University, told Computerworld. "There's been a lot of hype in the past year about how cloud services would revolutionize the digital music experience. This is the first major foray into that space."

Amazon's Cloud Drive presents a direct challenge to Apple's iTunes ecosystem, in which users buy music that is stored on their computers and mobile devices. Tellingly, the Amazon service is not compatible with the iPhone or iPad.

Apple's own Web-based service, MobileMe, allows users to store files in the cloud, but so far has no music or video-streaming options. Following Apple's purchase last year of the Lala.com music streaming service and the construction of a massive server farm in North Carolina, many suspect Apple is preparing an iTunes-based media-streaming service of its own.

"Apple certainly needs to push its own locker service on the market," Aapo Markkanen, an analyst at ABI Research, told The Journal. "It's a big advantage to Amazon's music store if you compare that to iTunes. It could cause a lot of iTunes customers to swap to Amazon."

One possible stumbling block to Amazon's venture could come from the record labels. Sony Corp. (NYSE ADR: SNE) said it was "disappointed" that Amazon had launched its cloud-based music service without approval from the labels.

Unsettled negotiations with the labels are thought to be why the Google Music service - supposedly featuring a cloud-based component similar to Amazon's - has yet to debut. Some rumors place its launch at next month's Google I/O conference for developers.

It's also a pretty safe bet that Google Music will support Android operating system-based devices, with support for Apple's iOS unlikely, though not impossible.

That brings us to Microsoft, which has offered subscription-based streaming music via its Zune Marketplace for several years, though it never put much of a dent in the iTunes juggernaut.

Old Rival, New Tricks

Apparently tiring of Zune's futility, Microsoft is shifting its strategy. According to Bloomberg News, the Redmond, WA-based software giant will cease making the Zune MP3 players, but will preserve the Zune software in its Windows Mobile phone platform.

Should Microsoft's smartphone partnership with Nokia Corp. (NYSE ADR: NOK) work out as planned, its music cloud could get substantially bigger.

"There are other mobile ecosystems. We will disrupt them. There will be challenges. We will overcome them. Success requires speed. We will be swift," Nokia Chief Executive Officer Stephen Elop and Microsoft CEO Steve Ballmer said in anopen letter.

And then there's Microsoft's ambitious joint venture with Toyota Motor Corp. (NYSE ADR: TM). The two companies agreed last week to invest $12 million in something called Toyota Media Service Co., which will develop cloud-based mobile computing technology for electric and hybrid autos.

The project will use Microsoft's Azure cloud technology to enable the vehicles to regulate the electric charging process, link to Bing-based mapping services and, yes, stream music. Eventually, the technology could even connect to appliances in the owner's home, making it possible to turn on the lights and adjust the thermostat before you get home.

"Creating these more efficient, more environmentally advanced products will be our contribution to society," Akio Toyoda, president of Toyota, said in a statement. "To achieve this, it is important to develop a new link between vehicles, people and smart center energy-management systems."

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