Apple’s free ride
My weekly column in Spain’s leading financial daily Expansión is titled All free, and discusses Apple’s decision to offer its software—both operating system and applications—for free.
Apple’s initiative, announced on October 22 at a product event, has prompted some comment in certain media and websites, but I don’t know if its full implications have been properly analyzed. Can a strategy based on giving away a significant chunk of your products make you more money? We are talking here about a company that, at one of the best moments in its history in financial terms, has taken the decision to stop charging for its operating system and software, as well as discounting by up to three hundred dollars a significant part of its range of machines.
The prices of its machines are down, and this despite Moore’s Law and improvements to the product range. That said, this is a company with a manufacturing margin that nobody else in the industry can match, even after relocating MacPro production to the United States. But the most aggressive aspect of the decision is the decision to provide free software. All of it, along with an announcement that this is not an exception, but from now on, the rule.
This is a smart move that will put the competition on the back foot: for Microsoft, both the operating system and its applications are an important part of their revenue. The company has experimented with zero pricing from time to time for some versions, but more as trajectory correction than a real trend. At the same time, its hardware development is growing, but not at the rate of Apple’s. The idea of a complete experience along the lines of “buy my hardware but don’t worry about anything else”, linked to the idea of a continuous platform of machines that all talk to each other is a powerful one, as well as being, as said, very aggressive.
On the downside, everything suggests that for Apple, going free will mean reducing the performance of its products, which may well be the first step toward putting them on the cloud. The new versions of Pages and Numbers, and above all Keynote, are notably worse than previous ones. After installing and trying them out, I have decided to stick with the old versions. Power and no price tag also seem incompatible, and could turn out to be a problem for a brand that has grown far too accustomed to alienating its more demanding users over the years.
Too many ideas to squeeze into a column of three hundred words, but I did what I could. Here’s the article:
All free
Overnight Apple has decided to give its software away. Do you want a new operating system? Then just download it, as long as your computer is reasonably new. Word processing programs, spreadsheets, presentation format? No problem: they’re all available for free. Photograph retouching, music recording, music library? Yep, also free. So what do all the new versions of its software that Apple unveiled last Tuesday have in common? They are all free. What’s more, Apple has updated a large part of its hardware range: a desktop, several laptops, new iPads… All of them at the old price of the less powerful models, and some even cheaper, now going for three hundred dollars.
So what’s going on here? What would possibly lead a company to ditch the market principle of charging as much as possible for its products? Why change the rules?
In the first place, perceptions. Getting the customer to commit to Apple: the company used to charge you for something, and now it is giving it away. Apple doesn’t want to sell software and hardware; it wants to sell an experience, a complete package. You buy the hardware, at a significantly higher price than other products in the market, and the software comes with it. The idea is to homogenize the customer’s experience, and speed up adoption of its range of products. There will be fewer versions in circulation, machines will be easier to maintain, and there will be fewer compatibility issues with older models. If you don’t update, that’s your problem.
The next step will be to make software available on the web. You buy a ticket when you purchase the machine, you use the software on the web, and you store your files there as well, so that you can access them from any Apple machine. Apple’s idea is that the machine is the ticket, a very profitable ticket. For Google, it is advertising. As for Microsoft, which makes 25 percent of its earnings from its operating system… we’ll see.
