What Does iCloud Mean for Dropbox?

Last week Apple released iCloud, a new cloud-based service for syncing documents, calendars, e-mails, photos, music and more across your desktop, laptop, iPad, and iPhone.

iCloud represents one of the most important and risky strategic shifts Apple has ever taken. Prior to iCloud, Apple’s “digital hub” strategy promoted the PC as your central data store, with the various “spokes” of the digital hub – your iPhone, iPad, Apple TV, etc. – synchronizing with your PC. With iCloud, the PC has been, in Jobs’ words, “demoted” to just another device – with the cloud taking its place.

The shift from the PC to the cloud is nothing new, and many startups have fostered due to void in Apple’s cloud strategy. Most notably, perhaps, is Dropbox, the much-loved cloud-based file synchronization tool. When iCloud arrives this Fall, will it be a Dropbox killer?

My money is on “no.”

First, Apple has to get iCloud right in order to compete effectively with Dropbox. Apple has had a string of high-profile flops with cloud-based products. Its MobileMe launch was a disaster. While the stakes are high with iCloud, and Apple is no doubt investing tremendous engineering resources into getting things right, there’s no guarantee they can pull such an ambitious and far-reaching product release off without any hitches. File synchronization, as trivial as it may sound, is a very difficult problem to solve. Dropbox was the first product on the market to make a simple cloud-based file synchronization service that just works, and Apple has a substantial challenge ahead of it in trying to achieve the same level of functionality, reliability, and simplicity as Dropbox.

Second, Dropbox works extremely well across multiple desktop operating systems, including Windows, OS X, and Linux, as well as a variety of mobile operating systems, including iPhone, iPad, Android and BlackBerry. While iCloud will ostensibly be Windows-compatible, it will no doubt work most smoothly on a Mac. Furthermore, Apple hasn’t yet, and likely never will, announce iCloud integration for Android and BlackBerry devices. It’s extremely attractive to have a reliable, persistent “dropbox” of your data across any of your devices; for an Apple-only user iCloud may be a great fit, but many users iCloud will represent an extremely high level of Apple lock-in that will be hard to stomach.

Third, Dropbox has a huge amount of momentum. It has been growing rapidly since its launch in 2008, and its userbase now numbers over 25 million. If iCloud had been released two years ago it might have curtailed Dropbox’s growth, but Dropbox has enough users, revenue and rabid fans that it will continue to prosper after the introduction of iCloud.

Finally, competition is not a zero-sum game. Marco Ament, the author of the extremely popular Instapaper, argues in a blog post that competition from a big player such as Apple isn’t necessarily a bad thing for the startups that may compete with it. Apple’s entry into cloud services will raise the general public’s awareness of the cloud and cloud-based syncing, which could be a tremendous driver of growth for Dropbox.

Marco frames his challenge with Instapaper as being able to describe Instapaper as “like Safari’s Reading List, but better, in these ways.” Likewise, Dropbox’s challenge will be to describe itself as “like iCloud, but better in these ways.” If it can succeed at that, iCloud may be the best thing that has ever happened to Dropbox.

iCloud sounds like a tremendously exciting service, and I hope Apple can pull it off. However, even if iCloud is everything Apple says it will be, it won’t kill Dropbox.