Apple Inc. (AAPL)’s Biggest Nightmare

Apple Inc. (NASDAQ:AAPL)’s founder Steve Jobs once spoke about how his company was able to own the portable music market with the iPod. A market that companies like Sony Corporation (ADR) (NYSE:SNE) had created and dominated for so long.

“If you look at the reason that the iPod exists, and that Apple’s in that marketplace, it’s because these really great Japanese consumer electronics companies who kinda owned the portable music market…invented it, and owned it, couldn’t ..do the appropriate software. Couldn’t conceive of, and implement the appropriate software.”

The iPod replaced the Sony Walkman because Sony Corporation (ADR) (NYSE:SNE) (and similar companies) couldn’t tackle the problem of software. Now, Apple Inc. (NASDAQ:AAPL) will face a similar threat if it can’t tackle cloud.

Apple’s entire business model is built around selling high quality, high margin electronic devices — iPods, iPads, iPhones and the Mac. All of these devices are fantastic in the sense that they offer some of the best local software.

OS X, for example, has long been seen as a better alternative to Windows — it’s more stable and less susceptible to viruses. Similarly, although iOS may lack the features and customizability of Android, it’s generally considered to be more secure and intuitive.

Apple Inc. (NASDAQ:AAPL)’s business model, then, really is based around selling these local operating systems to consumers. As Jobs said:

“An iPod is really just software…and it’s in a beautiful box, but it’s software. If you look at what a Mac is, it’s OS X…if you look at what an iPhone will hopefully be, it’s software.”

It won’t happen overnight, but as more applications shift to the cloud, consumers will derive increasingly less value from Apple’s local operating system. If the computer itself isn’t running any applications, who cares how robust OS X is?

If a consumer spends their time using Google Docs, they can get the same experience on a $250 Chromebook as a $2000 Macbook Pro.

Cloud computing could be bigger than mobile

Ultimately, the shift to cloud computing from local processing could be far bigger than the introduction of mobile devices. As local applications fade away, consumers will become device neutral, and device makers will scramble to react to the shift.

We’re not there yet, but the trend is well established. The Chromebook Pixel is proof of that.

The article This Absurdly Overpriced Laptop Is Apple’s Worst Nightmare originally appeared on Fool.com and is written by Salvatore “Sam” Mattera.

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