Apple invests a billion dollars on a datacenter to host cloud based services for iDevices ('iCloud' - shockingly original) which it will make available free to Apple device users.
So some very interesting things happening here:
One, Apple giving stuff away free, which is a shock from which I will recover only over the next couple of weeks.
Two, Apple's selling the hardware at a premium (iPad, iPhone, etc), selling apps cheaply, and giving services away free. This is in sharp distinction to the normal model of selling the base hardware cheaply to lock customers in and make money on the services and apps. If you see video game consoles, for example, manufacturers often make a loss on the hardware to make a profit on the games sold.
And three, Apple's being forced to compete where Google is strong, up on the cloud, which may not end up that well for Apple. Google's cost of running huge datacenters is far lower than anybody else (long story), so the economics would seem to suggest Google 1, Apple 0. Having said that, Apple had no choice - with Android having access to GMail, Picasa, and now Google Music Beta, Android users have had evolving functionality from 2008-2009 which iOS users will only potentially get in Sep-2011. Here goes hoping it's not another MobileMe disaster.
Fun question: Where's Microsoft? It's testimony to how the world has changed that the hottest technology battle is between Google and Apple. One generation's monopolist is the next-generation's almost-ran... WP7, I'm looking at you!
