Why Apple Wants Its Software to Be Free
businessweek.com
businessweek.com
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.
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.
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.
"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.
Sure my old Mac Mini will run my old copy of CS3, but I hope that Adobe is still running activation servers if I ever have need to reinstall.
http://www.macrumors.com/2013/10/22/previous-versions-coming...
Sure, but if that were Apple’s main objective, they would’ve made Mavericks’ system requirements a lot higher. Mavericks runs on 6 year old iMacs.
Today, I installed Mavericks on my mom’s 2008 MacBook. It is noticeably faster. Before, my mom was considering buying a new notebook. Now, she’s going to hold off.
http://arstechnica.com/gadgets/2013/09/balky-carriers-and-sl...
The point here is to keep people using their hardware and the tight integration into iCloud for those products ensures a longer term lock in.
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-...
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).
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.
When I say device, I mean the totality of the hardware, the operating system, and the core apps. This, to me, is the atomic unit of a product that Apple has packaged. To go the step further to "experience" is too broad.
Think of the jogging dude ad where the entirety of classic Mac/iPod music sync and Nike Plus integration was displayed as a little slice of life. Sure there are some devices there, but they aren't saying these devices are better than Brand X devices or laying out a feature list. The communication is about how there is an attainable experience of a technologically enhanced life.
There is generally an iCloud featured on the box of Apple's devices. This represents the integration of services to the device (itself an integration of hardware and software). So even at a level focusing on the day of sale something larger that what is in the box is being sold.
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?
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.
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.
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).
Sure, Apple has an incentive to give away its OS free, because its virtually indivisible from its own hardware.
Google derives the bulk of its revenue without any hardware being sold. When it does sell hardware (the Nexus phones or Moto devices), it gives away Android of course. But then it gives away Android for free to everyone else but for an entirely different set of strategic reasons.
Amazon is primarily an e-commerce company, and then maybe a cloud computing one. Hardware doesn't play much of a role in either case.
But where does that leave Microsoft? It makes most of its profits from Windows and Office products. For enterprise, this probably isn’t a problem, as most of those customers pay Microsoft for seats, not software versions. For the consumer market however, I don’t think Microsoft can afford to charge for software upgrades much longer. Perhaps Microsoft’s strategy is to convert those users to subscribers: have them pay one annual fee to get support and the latest releases of Windows, Office, and online storage.
> By going free, Apple has acknowledged something that’s been true in the industry for years: software is a means to sell hardware for hardware companies Apple being one of them.
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.
I'm not seeing any upside for Apple if they did this.
This is also the reason they released Mav for Macs going back to 2008. To reduce the support burden of previous OSs
Apple makes very little from app sales, profits from iTunes purchases (including both App Stores) are under $1 billion a year. Apple rakes in tens of billions in profits a year from Mac sales, and even that is a minor business compared to profits from iOS device sales.
It reduces their support burden and increases the value of the app ecosystem, however small its contribution to the bottom line. Yeah it only generates a billion on revenue, but it also DIDNT EXIST 5 years ago. That's a crazy growth curve Apple could replicate in the OS X world if they play their cards right.
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-...
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.
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.
If you are planning to offer your app on the Mac App Store, you don’t need to worry about compatibility with Leopard and Tiger, as those customers won’t see your app anyways. To me, that seems like a much better situation for developers than it is on the Windows side, where 40% of users still run XP.
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.
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.
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.
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.
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.