Photo: abc.e

Photo: abc.e

Apple surprised many yesterday by making the update to OS X 10.9 Mavericks free, rather than the $20 it cost to upgrade to the previous release, Mountain Lion. The company also surprised some (though not us) by doing the same for its previously chargeable iWork apps.

There’s been a lot of commentary today about this being an attack on Microsoft, and I do indeed think there’s likely to have been a fair amount of sweating in the corner offices at Redmond as they watched yesterday’s keynote. But Microsoft execs aren’t the only ones I’d expect to see wearing worried expressions today: I suspect the same is true across at Mountain View.

Before we get to Google, let’s start with Microsoft … 

Photo: in.com

Photo: in.com

Microsoft likely isn’t too concerned about mass-market consumers: when the price of the cheapest Mac sits at $599 (with Apple’s entry-level all-in-one laptop coming in at $999) and you can pick up a usable Windows laptop for $250, Apple isn’t a threat on price. Nobody at the bottom end of the market is going to fork out four times as much just to save twenty bucks on the next OS upgrade.

But Microsoft may well be starting to worry about the enterprise market. Many large corporations have long product cycles for PCs. They may run a laptop for three years, and even then it may get cascaded down through the ranks when it is replaced.  I worked at a large company where my laptop was replaced every two years and my old one got given to someone else. I’m not sure how far that process went, but I wouldn’t mind betting that somewhere in a blue-chip there’s an intern staring forlornly at a five year old plastic Dell.

Corporations make purchase decisions on lifetime cost, not purchase cost. When a Mac can easily still be performing well four or five years down the road, while a Windows machine of the same era will be struggling, that purchase cost doesn’t look quite so bad. Throw away the two or three OS licence fees they have to pay over that timescale, and the argument for Macs gets stronger.

Productivity software is likely to be a slower burn. Microsoft Office has a stranglehold over most of the corporate market at present. But if there’s one thing the tech industry teaches you, it’s how quickly things can change – and Microsoft is already an object lesson there. Remove the licence fee for Office, and the cost-benefit analysis shifts sharply in the direction of OS X.

google

It’s not like this kind of shift is unprecedented, either. A number of surprisingly large companies have started using Google Apps for many of the tasks previously performed by Office. Even the US Army has started down that road.

Which is why I think Google will also have been watching the keynote with concern. While its apps have led the way in collaborative working, leaving Microsoft to play catch-up, I think it’s fair to say that ‘free’ as much as ‘feature-rich’ has driven the pace of adoption.

Google’s business model is to derive revenue from advertising, paid storage upgrades and subscription upgrades to apps for business users. To achieve that, it’s been willing to give away its operating systems and entry-level software and cloud services.

The ‘free start’ approach has been key to Google’s success to date, and enabled it to create an ecosystem to rival that of Apple. Apple, it seems, intends to do something about that …

apple

Apple has so far been taking a slice of the pie at every stage: hardware, OS upgrades, its own software, third-party software. What we saw yesterday was Apple giving away two of those revenue streams.

Of course, it made no promises about the future. It’s possible that Mavericks as a freebie was a one-off, and that it will resume charging for upgrades again next time. But I don’t think so. Aside from the potential backlash, having set a precedent, I think Apple is playing a clever game. Sacrifice two sources of revenue in order to boost the appeal of the hardware and the ecosystem.

Which is why what I think we’re seeing here is not just a play against Microsoft, but an arguably more important one against the rival ecosystem offered by Google.

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54 Responses to “Opinion: What is really driving Apple’s new-found fondness for ‘free’?”

  1. Exactly what do you mean by “Google: LOL!”?

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    • Wow. That was an amazing read — especially the comments. Most of them think Apple is afraid of Microsoft. Um. Which company just let its CEO go and is trying to reorganize for the nth time, and can’t seem to get above a single digit marketshare on any Windows Mobile device? Hilarious to read.

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  2. I’ve long suspected the investment Apple makes in their OS development is returned by their margins on hardware. This is what I’ve attributed to iOS being free and now OS X seems to be following suit.

    Keeping the hardware margins in mind, free OS upgrades in my opinion only serve the make the hardware more attractive and justifying of the price.

    Personally, though I’m primarily a *nix user nowadays (OS X and Linux Mint) I’m still a Windows user as I do .NET development. But when I think of the idea of annual free upgrades of a quality OS as opposed those costing $100+ seemingly as continually, I feel strongly attracted to former and mind the cost of the hardware less. I’m still using Windows 7 and after downloading Mavericks for free yesterday, I’m really feeling strongly opposed to spending $100+ on Windows 8.1. .NET keeps me from abandoning the platform, but if there many other Windows users out there feeling similar to the way I am, I’d say that’s cause for concern on Microsoft’s part.

    I won’t really speak much for office-style apps as I don’t really use those much in my day-to-day, but getting iLife and iWork free, again, only serve the make the cost of the hardware more attractive and justifiable. I certainly won’t complain about this direction.

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  3. I see this as a nod to developers and a way to increase revenue in the mac store.

    Apple makes 30% off of every piece of software sold in their app stores and the best way to make things easier for third party developers to create great apps is to lessen fragmentation by updating as many PC’s to the latest OS. They do this for iOS and now want to do this for OSX.

    They’re giving it away for free banking that they will make the money back on the back-end through app purchases.

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    • Ben Lovejoy says:

      Yep, it’s a win-win: the more attractive the ecosystem, the greater the hardware sales, the revenue for developers and Apple’s commission on same.

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    • driverbenji says:

      You just summed it all up, this speculative article is not what it’s about, it’s all about the fact that Apple has been making plenty off the highly successful Mac App store and wants to increase that. Plus, some of their now free apps have in-app purchases, which is probably what we will see more of from Apple.

      As a long-time Mac user, I do also wonder if this is Apple’s way of making up for some of the downside we’ve all had to deal with in Lion & Mountain Lion…both added more features (mostly iOS/iCloud integration) at the expense of speed and/or lag or higher use of processor and shorter battery life. I’ve used every version of Mac OS X, and I have to say, 10.6 Snow Leopard was the fastest, most stable OS release in Apple’s history (Tiger might come in 2nd place). And until Lion, they were fairly good at making the OS better, faster, and extending battery life. (My current mid-2010 MacBook Pro came with 10.6 SL).

      So, in reality, when Apple states longer battery life, faster or better use of memory with Mavericks, for those of us that have Macs that ran Snow Leopard, this is more of a “restoration” than an improvement…with the added benefit of new features, like they used to do.

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    • driverbenji says:

      …Free with new computer purchase does not mean free for everyone…with the exception of GarageBand (which has in-app purchases), those that have older versions of iLife do not get updated to the newest ones for free. Nor do they get iWork apps for free. So it’s an incentive for new purchases, and they can still make $ off those who want to update to the newest version.

      It is two-fold, what I already stated is how they can afford to make them free, plus they are adding to the Apple Mac “user experience”, and all this software coming with new Macs adds to the value, which helps Apple keep their prices.

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      • Air Burt says:

        Wrong. I did a clean install of Mavericks and installed iLife ’11 from the installer image I made awhile back from my disc. It immediately let me upgrade to the newest versions for free. Also, it’s well known now that if you have an older version of iLife, iWork or Aperture, you are getting a free upgrade to the newest version because that’s how the Mac App Store deals with those apps. There’s a whole article stating that.

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      • driverbenji says:

        I have iLife ’09, so, not so for me. Aperture updated, but not iPhoto or iMovie. And I purchased Pages, so got updated there, but, no free iWork apps for me.

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  4. PMZanetti says:

    iPhoto, iMovie, Garageband, Pages, Numbers, and Keynote are some of the best Apps on the Mac and iOS. This removes all barriers to users experiencing these fantastic Apps that make the experience of the device itself incredible.

    Great for customer satisfaction.

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  5. You get free OS updates with an iPhone or an iPad. Why not a Mac? Apple isn’t just about providing great software or great hardware. They are about providing a great user experience. The only way to do that is to marry the hardware with the software. You can’t have one without the other. So why do you have to buy them separately? When you buy a Mac, you get the whole package. The whole experience. You shouldn’t have to pay another $199 for a great operating system.

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  6. It is probably a dual strategy. The cost to develop some of these apps vs. the market advantage they get for making them free is probably worthwhile. It is also probably what the developers want. The devs don’t want to make sure iWork continues to run on the last 3 major OS releases. Make the updates free and development can become more nimble and adaptable if they don’t need to continue supporting legacy platforms.

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  7. Cheapest Mac is a Mac mini at $599. Shocked that you missed that.

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  8. emmenot says:

    Giving away a lot of free software is a great diversion so that people won’t notice the incredibly uninspired hardware that was launched.

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  9. MS enterprise software is still the best, APPLE makes its money from iphones…most of its revenue comes from iphones… which is still mostly a consumer sales driven device if you look at there quarterly sales data.
    There is no reason to worry in redmond, the way this site talks as if microsoft is in the black and or red every quarter… or as if they dont have a pile of cash in there warchest. The misguided thinking is this, if your not nr 1 or 2, you have failed and are going out of business.
    Google is exploding, almost the new apple of wallstreet, but they are driven by advertising money, so they will do well regardless… this article was fanboy driven, and just pathetic… comparing the longevity of a mac or any electronic device is user specific…. while a gamer would get a pc, a mac person would be a musician or movie editing type. But windows has a strangle hold on the desktop market, apple is winning in tablets, google is winning in volume when it comes to phones, enterprise is still firmly in the hands of office.
    Can we get away from bashing others and focusing on apple news

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    • sir, are you okay? did apple hurt you that bad? LOL.. anyway, i don’t think MS is in danger,.yet.. but if they don’t start to respond quickly, their market will become a very delicious lunch for Google & Apple. remember when iPhone launch? iPad launch? and see where ms now.
      and don’t forget, enterprise are moving toward mobile trend,. tablet and smartphone.
      imagine, working with your Keynote on your Mac/iPad at office, and present to client with your iPad/iPhone,. and all of that for free.

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  10. Not sure if it has been mentioned, but the fact that they pull their in-house Mac developers to help with finishing iOS 7 kinda gave me the idea that they are pushing some agendas for OS X Mavericks to the back burner, perhaps for OS X Syrah (current codename anyways). I’m thinking that they couldn’t get everything to go in Mavericks so that’s why it’s being released for free. I kinda have the feeling the next release would be beefier that would justify having a cost again. My thoughts anyway.

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  11. @Michael Clanton, I don’t understand why you even comment on a Apple forum site. From what I read of what you wrote is clearly you’re a window guy with a lot of hated toward Apple. The way I see it is that any company that going to give a end user something free instead of charging a whole of money is a good thing. As far as Microsoft is concerned, most windows versions have had a very poor run. Each version they put out only seems to fix the stuff from the last version and they want to charge you for. Microsoft time at the top is starting to come to an end. Apple on the other hand is at least trying to give their customers a good and working product. So there are windows forum that you can go to to rave about how great Microsoft is, it’s just not here.

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  12. Alex Ramas says:

    Wait that’s a hard one maybe because they are selling crazy expensive hardware and the price of the software is now included with the new purchase of hardware i think this move makes a lot of sense! how about free EarPods or cleaning cloths(that use to be included in the box before but not anymore :()

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  13. Peter Braga says:

    The free OS model will most definitely shake up Microsoft, but it appears that they were already on that path w/ their Window 8 upgrades. Regarding MS Office: I use MS Office via Mac Office, Boot camp and at work on a PC. I also use iWork. I don’t say this to ignite any sort of fanboyism, but iWork is no where near the caliber that a serious business enterprise would ever consider putting into production. Until Apple (and Google) really put some serious development into their office products, Microsofts stranglehold on productivity suites will remain comfortably in place.

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  14. I think their motive is to encourage people to use their services. Google already set the trend that some services aren’t worth paying for, and between the alternatives, free usually wins. Now apple is competing with them, and by making even their desktop apps free*, they’re giving people an attractive alternative to the microsoft office suite.

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  15. superbean2 says:

    If Apple would do this with Filemaker it would change things in an even bigger way….

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  16. drtyrell969 says:

    I think it’s all the above AND serving the intelligence agencies to remain #1.

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  17. Its not free when you have to pay $1K to $2K extra in Apple Hardware for the right to use the OS. Apples Hardware is WAY higher priced than Windows 8 systems, therefore the “Its FREE” is a laugh.

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    • Ben Lovejoy says:

      Apple hardware carries a much smaller margin than many think because they don’t compare spec-for-spec, only cheap, low-spec Windows machine with high-spec Mac. It gets even smaller when you consider total usable lifetime.

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  18. Apple need a cross-internet plataform with his own servers, Google Docs its the real competence. I don´t want a free suite, I want a USABLE suite…

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  19. Kevin Fream says:

    It’s obvious Apple is continuing to get out of the computer business http://blog.kevinfream.com/2013/10/24/mavericks-free-myth/

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    • Ben Lovejoy says:

      Always interesting to read other perspectives, Kevin, but if you think Mavericks is the last OS X, I think you’d better head out to buy a hat so you can be ready to eat it. :-) I’m also not sure you’d find too many to agree that Microsoft is starting to dominate online services …

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  20. Awe Wyld says:

    It’s unlikely Apple’s recent moves to selective free software is going to have much impact on Microsoft or Google. Too often media outlets prefer to offer speculation and sell controversy, rather than provide objective information, analysis, and cogent argument.

    Apple, Google, and Microsoft have very different business models. Although there is competition overlap in the consumer space that gets a lot of press that far exceeds its merit, the source of the companies revenue and operating income is very different from one another. Apple is primarily a consumer devices company, Google is primarily an advertising sales company, and Microsoft is primarily a software and services company with a focus on the enterprise.

    Although these companies are always looking to expand into markets to promote their brand, any strategy they implement is intended for the benefit of their core business, and since their core markets are so different, the impact on each other is tangential and negligible. Oh, occasionally they will talk about each other in strong competitive terms, but it is more for media impact and self-promotion than the serious threat of actual competition. By almost any measure all three companies are financially sound overall and succeeding well in their respective business. The risks from within each company, in terms of strategy, leadership, adaptation, innovation, etc., far outweighs the impact of any competition between them.

    Things change though. Maybe Apple will defuse and finally decommission it’s past threat to “go thermonuclear war” on Android, then decide to focus on it’s marketing strengths and mainly sell advertising. Maybe Google will stop playing “house of cards”, shed its advertising model, sell its interest in Android to Microsoft, and bet everything on Google[x] to see what sticks to the wall, eventually becoming an official contractor to the NSA . And perhaps Microsoft will cure Linux cancer, ramp up efforts to strong-arm OEM’s in the mobile space and go “All in, baby!” in trying to persuade appliance partners to join them in the connected internet of things by arguing that no one does choice and compromise better.

    For comparison between the companies, check out their most recent Form 10-K filings with the U.S Securities and Exchange Commission: Apple, Google, and Microsoft:

    http://www.sec.gov/Archives/edgar/data/320193/000119312512444068/d411355d10k.htm

    http://www.sec.gov/Archives/edgar/data/1288776/000119312513028362/d452134d10k.htm

    http://www.sec.gov/Archives/edgar/data/789019/000119312513310206/d527745d10k.htm

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    • Ben Lovejoy says:

      The three do indeed have very different business models (though I’m not sure Microsoft knows what its long-term model may be). That does not, however, mean that they are not in competition with each other. Both Apple and Google offer competing ecosystems across mobile, desktop and web, and most consumers buy into one or the other.

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      • Awe Wyld says:

        I agree they compete in the same market, but because of different business models, they have different strategies to support their core business. They operate in different segments of the same market. You’re right that they would all like to lock-in users into their ecosystem. I think there is enough room in the market though for all three companies to succeed with respect to their core business. I simply don’t see Google running scared. As you say, users by into one ecosystem or the other, but for different reasons.

        Google wants their search engine and apps on as many handsets as possible. Google primarily cares about tracking user information to sell advertising. They bought Android to avoid getting locked out of the mobile space and made it free and open to attract partners to do the heavy lifting. They simply don’t see the benefit of putting forth the resources necessary to compete directly in Apple’s upper market device segment.

        Apple strategy is not to focus on market share, which would entail compromises to compete at lower price points, but in creating value. They focus on mobile device design and usability, and created a safe, high quality digital marketplace to attract users, as well as a stable and consistent platform to attract developers. With the margins Apple maintains, it has neither the need nor the desire to compete directly with Google for share in the lower segments.

        I agree Microsoft’s mobile strategy is a mess. It has failed to achieve much penetration in the space. it simply has failed to develop a compelling mobile marketplace to attract users. I think it is still trying to figure out how it can translate the success it had with the licensing of its OS and the selling of its Office suite in the PC’ market. It seems to not fully appreciate the different character and needs of the space and is stubbornly trying to bring the desktop experience to mobile. Instead of trying to compete with Apple and Google, it should focus on where its greatest growth potential is, the enterprise. Sharepoint, Exchange, Lync, Azure, Dynamics CRM, and Server and Tools are all showing good growth.

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      • Ben Lovejoy says:

        The only area I’d tend to disagree somewhat is in Apple and Google going after different market segments. Google wants *all* segments while Apple only wants the top-end, but in advertising terms the top end is worth the most, so Google wants that as much as Apple.

        The high-end Android handsets are bought by people in the same socioeconomic groups as iDevices.

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  21. Peter INova says:

    The simple answer is embodied in a single word: Nationhood.

    When all Macs are most likely to be under one government (OSX Mavericks) and have one bureaucracy (Pages, Numbers, Keynote, iMovie, iPhoto, GarageBand, Safari, iTunes, Calendar, Mail, QuickTime, etc.) then those Macs can trade information and value to each other in a unified manner.

    The Windows universe is chaos.

    By giving solid, important tools to all who call a Mac home, chaos vanishes and discussion among users focuses on content, not hardware/software.

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