

Why Apple Wants Its Software to Be Free  - michalu
http://www.businessweek.com/articles/2013-10-22/why-apple-wants-its-software-to-be-free

======
bradleyland
The author doesn't understand Apple. Apple doesn't view software and hardware
separately. Coincidentally, I just wrote about this, but I'll copy and paste
here because it seems relevant.

A friend of mine recently asked me how Apple expected to continue making any
money while giving away software that Microsoft charges $200 for.
Understanding how Apple can give away their software and still make money
comes in understanding Apple's business. Apple pundits frequently circle back
to the point that Apple is a “hardware” company. As it turns out, they are
wrong. Apple is a “devices” company. What is unique about Apple is their view
that a device is made up of hardware & software, and that these two are
inseparable. Apple believes this is the best view if you want to deliver a
superior experience to the users of your products.

If you look at Apple as a hardware company — which I believe is a mistake —
they make better margins than any of their competitors. Following that flawed
line of thinking, what they're doing now is using that extra profit to
subsidize the software side. This viewpoint only holds if you view the
hardware and software sides of the business as separate entities though.

Apple has combined the two. You're not buying hardware or software, you're
buying a device. What good is a microwave without the software that connects
the buttons to the timer, microwave generator, etc? Thats how Apple views
their devices. By making Mavericks and iWork free, theyre expanding their
notion of the "post PC world". They're not just talking about iOS devices,
theyre talking about their entire line up.

If youre wondering why Apples “PC” sales continue to grow while everyone else
is sinking, I think youve found your answer.

[http://www.bradlanders.com/2013/10/23/apples-greater-
vision-...](http://www.bradlanders.com/2013/10/23/apples-greater-vision-of-
the-post-pc-world/)

~~~
adolph
1\. My impression was that Apple has had a couple flat/lower year to year
quarters in lap and desktops. Their chart of iPad sales shows slowing/maturing
of that market segment.

2\. Apple sells experiences. If it were selling devices, then software updates
for older devices (other than bugs and security/safety) would make no sense.

3\. Giving away iWork and iLife is an interesting move that starts building a
moat of out-of-the-box productivity software and somewhat incentivizes new
sales without totally pissing off previous software purchasers (thru iTunes
rebates) and acts as a stronger introduction to their cloud services. It'll be
interesting to see if that strategy works enough to continue development on
iWork (which I enjoy using although acknowledge is a not widely used product).

~~~
gshubert17
> If it were selling devices, then software updates for older devices (other
> than bugs and security/safety) would make no sense.

On the other hand, I am more likely to buy an expensive device, knowing that
updates will be available. In my mind, updates help the device retain its
usefulness and value.

~~~
adolph
For the buyer, it's a gamble isn't it? Things could start going down the tubes
OS8/9 style (or iOS 4 on 3G) but generally updates bring a bounty of new
features and compatibility with services and software. If you are saying you
will pay X amount more for a device for Y software upgrades, I wonder what's
the difference (profit) between your X/Y and the cost of producing Y? It might
actually be negative if the strategic value of software-ecology maintenance
was high enough to the producer.

------
xutopia
I think this guy completely misses the most important point. Apple sees how
much fragmentation hurts Windows and Android and they want to avoid it.

Imagine if as a developer you only have to worry about a single platform?
Imagine if as a distributor you only have to worry about releasing a single
package? It makes things much easier for everyone and allows efforts to be on
quality rather than compatibility.

~~~
danieldk
_Imagine if as a developer you only have to worry about a single platform?_

Actually, this was one of my first reaction as a developer. I developed and
maintain a scientific software package (treebank search) that I maintain for
Windows (>= XP), OS X (>= 10.7), and Linux (latest Ubuntu LTS).

My first reaction after hearing that Mavericks is free was: great, if most
people will upgrade, I am freed of supporting the legacy OS X versions.

Hopefully they can bring things to the point where, like iOS, practically
everyone will run the latest version. Of course, this would require smooth
transitions.

~~~
felixr
> My first reaction after hearing that Mavericks is free was: great, if most
> people will upgrade, I am freed of supporting the legacy OS X versions.

And if software developers cease to support older OS versions, those people
with old computers that cannot upgrade have a stronger incentive for buying
new hardware.

~~~
cwp
Nah, that's a very minor consideration at best.

"Cease to support older OS versions" means that new versions of applications
won't run on older operating systems. It doesn't mean that older versions of
applications suddenly stop working. If you're running an old OS on old
hardware, running an old application is fine. In fact, it's preferable,
because it was written with the capabilities of that hardware in mind.

~~~
Samuel_Michon
Also, Apple is going to keep offering older versions of apps in the App Store,
for machines that can’t run Mavericks.

[http://www.macrumors.com/2013/10/22/previous-versions-
coming...](http://www.macrumors.com/2013/10/22/previous-versions-coming-to-
mac-app-store-for-users-of-older-macs/)

------
r0h1n
> By going free, Apple has acknowledged something that’s been true in the
> industry for years: Software is a means to sell hardware.

What? How has this _" been true in the industry for years"_? Maybe its true
for smart phones & tablets, that too for just the OS, but how does he go from
there to all software and all hardware?

~~~
kbutler
This is actually basic economics - reduce the price of your complementary
goods.

Thus, Apple wants to drive the software cost to zero, to increase sales of
hardware (this includes apps).

Google wants to drive the software and hardware cost to zero, to increase ad
viewing.

Amazon wants to drive the software and hardware cost to zero to sell more
content.

~~~
theorique
As Joel Spolsky said: "commoditize your complements".

[http://www.joelonsoftware.com/articles/StrategyLetterV.html](http://www.joelonsoftware.com/articles/StrategyLetterV.html)

~~~
netcan
I'm not sure if that includes the complements that you yourself produce. At
least that's not what Joel argues.

There are business models (eg, razors & razor blades) where you commoditize
one to sell the other, but commoditizing complements that someone else now
makes at razor thin margins is the coup.

~~~
theorique
I think it can be both.

For example, in the Apple context, they commoditize software (including
operating systems, mobile apps, and desktop apps) in order to make their
platform attractive and appealing, and then make their money through high
profit margins on hardware sales. An operating system is a special case of
software, since it's so much more intimate with the Apple-designed and
controlled hardware than most (any?) other applications.

In this case, creating their own software is a cost that makes money
indirectly, by making their hardware and their platform more attractive. And
certainly, more apps and cheaper apps (commodity) available for Apple
computers (non-commodity) is good for Apple, whether those apps come from
Apple themselves or from external developers. (Obviously having both is good
for different reasons - in house, you have more control; external apps create
a developer base with lock-in).

------
mvkel
Disagree. It's about selling apps, not hardware.

What holds Apple back is user OS adoption. With iOS updates being free, users
can get the latest apps, and Apple doesn't need to worry too much about
backwards compatibility. OS X didn't have that luxury until today. With the
free play, Apple is giving their customers zero reason to stay on older
versions. They want to see 90 percent adoption rates in 6 months. Why? The App
Store ecosystem. The more users on the App Store, the more developers will
build apps, the more revenue it will generate for both.

~~~
blueblob
If it was just about apps, why wouldn't they release OS X for all x86*
architectures instead of just their hardware? Then projects such as
hackintosh/osx86 would be irrelevant.

~~~
zdw
Increased support burden, by several orders of magnitude. People blaming the
OS for hardware deficiencies. Etc.

I'm not seeing any upside for Apple if they did this.

~~~
mvkel
Exactly.

This is also the reason they released Mav for Macs going back to 2008. To
reduce the support burden of previous OSs

------
cygwin98
The fragmentation issue in Mac OS X [1] is the hurdle that has been holding me
off from writing apps for Macs. According to [1] (published about half a year
ago), the Mac OS X market share breakdown:

26.8% Mountain Lion 10.8

28.0% Lion 10.7

35.1% Snow Leopard 10.6

10.0% Leopard 10.5 and Tiger 10.4

If we assume that half of the macs running Snow Leopard (10.6) are pre-2007
and ineligible for 10.9, we have about 72.3% macs that can upgrade to the free
Mavericks, which is great news for Mac App developers.

[1] [http://www.zdnet.com/ad-network-os-x-is-becoming-
fragmented-...](http://www.zdnet.com/ad-network-os-x-is-becoming-
fragmented-7000013426/)

~~~
coldtea
> _The fragmentation issue in Mac OS X [1] is the hurdle that has been holding
> me off from writing apps for Macs._

Doesn't seem to be doing much damage to Mac software houses/indies...

> _According to [1] (published about half a year ago), the Mac OS X market
> share breakdown: Mountain Lion 10.8 26.8% Lion 10.7 28% Snow Leopard 10.6
> 35.1% Leopard and lower 10%_

So just target Lion and above, that's 54%, which might sound small, but it's
tens of millions of users. Mac software houses thrived in 2005 with 1/4 the
user base that what that 54% represents.

That said, I highly doubt SL is 35% still.

~~~
cygwin98
_So just target Lion and above, that 's 54%, which might sound small, but it's
tens of millions of users. Mac software houses thrived in 2005 with 1/4 the
user base that what that 54% represents._

That's true. Though it's still way better to support 72% in one API than 54%
in two slightly different APIs.

 _That said, I highly doubt SL is 35% still._

I think you're right. Those 32bit Intel iMacs are probably on their last legs
at this moment. In one year, I predict Mavericks may have 80% or even higher
market share, comparable to its remote cousin iOS7's share on iOS devices.

------
otikik
Because why charge peanuts for an operative system, if you can charge $3000+
for a machine?

~~~
MPetitt
Well I don't think that is entirely fair. To get to that price you have to
take the most expensive mac product, then add tax. I just bought the highest
end MacBook pro today with the student discount and it only cost a little over
2k. Which if I wanted another computer of comparable hardware quality
(aluminum vs. plastic), screen resolution, and weight and dimensions I would
be hard-pressed to find a comparable PC for that much cheaper. And that is
disregarding the crappy support of most PC manufacturers. So I wouldn't say
their prices for hardware are even that crazy, a MacBook quality laptop that
only ran windows or Linux could still sell for 80-90% of the price.

------
codecrusade
The real reason is the fear of fragmentation- This becomes more and more
critical for mobile and personal devices. Utility Software updates in future
will be seamless(transaction free)

------
netcan
I think with Apple, you kind of need to consider their aesthetic. I don't
think they like selling anything cheaply. The last few OS upgrades were cheap.
iWork is cheaper than MS Office (because it is often an optional extra with
office being mandatory) and (ironically) being in the iOS market means that
they have an €8.99 version of iWork anchoring he price. Overall software sales
are not big money makers for Apple.

OTOH, you they can simplify a bunch of things by making OSX upgrades cheaper.
Users no longer need to worry about OS updates (eg time their purchase). They
can sell macs as "ready to go with all the software you need" for creative or
office workers. A new mac will be easier to get used to. Developers can target
a single OS version, this includes Apple. Apple can release features relying
on new OS features.

It's just simpler. Apple have an aesthetic preference for simpler. For the
cost of whatever revenue these software sales were bringing in they get to
improve and simplify the mac ownership experience. They get to differentiate
themselves from PCs in one more difficult to quantify way. This is another
thing they like. You don't have to buy antivirus & Office or worry about
Windows upgrades.

Financially it's probably a wash. Slightly better mac sales or increased
pricing power will more or less make up for lost revenue.

------
dmyler
It's also a response to google docs. Introducing collaboration on iWork is a
good first step to address to the shift towards shared docs. I imagine we'll
see that expand significantly in the future.

~~~
dhruvmittal
I just wish they'd gone ahead and made iWork free across the board (or perhaps
for Mavericks users), rather than only with the purchase of a new device.

~~~
a_c_s
This likely has to do with GAAP (Generally Accepted Accounting Principles).

iOS updates used to cost a nominal amount of money because new features have
to have new revenues. (Why? Imagine you are selling a physical good, and
promised a 1 year warranty - you have to reserve some revenue to cover the
costs of honoring that warranty. If you didn't it would artificially inflate
profits now by hiding future liabilities.)

So what Apple does to get around this is reserve a bit of revenue from each
new iPhone and realizes it on the balance sheet to cover the ongoing costs of
iOS updates. I imagine this is what they are going to do with Macs too to
cover OS X costs, and if this is correct it will likely be mentioned at next
week's conference call.

~~~
slantyyz
I think the GAAP part of it is that Apple has to be consistent with their
previous revenue recognition strategies.

GAAP itself doesn't force similar companies to recognize revenues in the same
fashion that Apple did with the iPhone, i.e., you can make a phone and provide
software updates that provide new features for free.

------
chatman
From the title, it almost sounds as if their software is going to be free
software. Just giving out proprietary software without charge doesn't make
them free (free as in freedom for users).

------
doctorwho
Apple hasn't been charging for iOS or the software that ran the first iPod.
It's included in the cost of the device, just like the cost of the embedded
code in your Keurig is factored into the overall cost of the device.

Software isn't where Apple makes their money. It never was. They NEED software
to make their hardware do anything but that's all they ever should have
considered. The many years of rivalry with other OS makers was stupid and
costly. They weren't really in competition.

You get a free copy of OSX with every Apple computer but charging for OSX
upgrades only makes the job of keeping all that hardware running smoothly more
difficult. It generates avoidable support calls and support is a huge cost.

If the software (they have to write anyway) is free and hundreds (or
thousands) of bug fixes are always just a free download away then everyone
benefits. Apple can stop focusing on feature parity with other operating
systems and focus on what makes their devices better for their users.

------
racbart
At today's Apple, both software and hardware are means to sell 3rd party
software. They earn so much on their ecosystem that it's more profitable to
give OS updates for free and provide more unified and less fragmented
ecosystem to both users and 3rd party developers.

Lowering prices for next generations of their hardware is also a sign that
they really want to put their foot in as many users' doors as possible. I
think they rarely lowered hardware prices just couple years ago, before they
had this massive revenue stream called App Store.

------
iSnow
Man, this brings back memories of MacOS 7.x, the last versions that could be
downloaded free of charge. Only 20 years later, it again costs nothing. Nice.

~~~
Samuel_Michon
I believe you’re confusing updates and upgrades. Apple OS updates have always
been free. Also, the Mac OS X 10.1 upgrade was free.

------
skyjedi
Apple doesn't want all software to be free. They want all the devices on the
same platform to then have ALL the apps available to them. That 30% cut is a
much bigger piece of pie than selling a $30 OS

