The things that it does for me (push, sync, storage, semi-secure file sharing, basic website and photo sharing) are all available elsewhere, sometimes even for free. But those other solutions rarely work together, and are rarely trouble-free. For me, the yearly cost is trivial vs. the value of my time in setting up a hodge-podge of other stuff that may or may not work as well (and almost certainly doesn't work together and with my iOS devices).
All that said, I've always felt there was more they could do with the service. I've really come to look at this as a sleeper product - something Apple built and maintains while they build/buy/develop the other pieces needed to complete whatever their vision is. I expect that vision will eventually include streaming music (or at least server-backed up music), DropBox-like file sync, and maybe even a backup service like a Mozy/Time-Machine mashup (Time Machine really does rock, it'd be crazy good if it worked with online storage).
I don't expect that these services will be anywhere close to free.
But free push-mail and cloud storage for iTunes to act as a hook - that I'd believe.