Apple Plays the Free Card
The "wow" that Apple went for with its Tuesday product refresh had less to do with the products than with its pricing strategy: It's now offering some key software, including its new OS X Mavericks, for free. Apple fans are feeling the ground moving under their feet, but "giving away Mavericks is just part of how Apple builds the ecosystem around its products," said NPD Analyst Stephen Baker.
Oct 23, 2013 9:40 AM PT
Apple threw down the gauntlet to the PC industry and aimed some veiled barbs at rival Microsoft at a Tuesday launch event to refresh its software and hardware lines.
Apple announced new editions of its iWork and iLife suites, which will come free with any new iPad, iPhone or Mac. Further, all of its customers can upgrade to OS X Mavericks, the latest version of its operating system, for free.
"Today we're going to revolutionize pricing," Senior Vice President of Software Engineering Craig Federighi told the audience at San Francisco's Yerba Buena Center.
"The days of spending hundreds of dollars to get the most out of your computer are gone," he continued. "Today we announce a new era for the Mac, because today we're announcing that Mavericks is free."
Apple's software approach is bucking trends in the software industry to get users to pay even more for programs by charging for them on an annual subscription basis.
"We are turning the industry on its ear," Apple CEO Tim Cook told the crowd.
Cook also questioned the tactics of Apple's PC competitors.
"They chased after netbooks," he said. "Now they're trying to make PCs into tablets and tablets into PCs. Who knows what they will do next?"
Apple's announcements are bad news for its rivals, maintained Trip Chowdhry, managing director for equity research at Global Equities Research.
"This is a groundbreaking event when it comes to new-generation computing," he told MacNewsWorld. "Apple is probably going to decimate the competition, both on the software side and the hardware side."
Apple changed the industry Tuesday, Chowdhry continued. It is showing it's not content with heretofore acceptable practices.
"This is going to define the industry for the next 10 years," he predicted. "The typical industry upgrade cycle of seven years has been shattered."
Apple has always enjoyed good rates of adoption when introducing new versions of its mobile operating system, iOS. In its first 30 days of release, for example, iOS 7 was adopted by 68 percent of users. On other platforms, it can take more than a year to get that kind of adoption rate.
Merry Holidays Predicted
While Apple's decision to give away its new Mac operating system to its user base may make industry waves, its impact on consumers in general may be less than a ripple.
"Giving away Mavericks is just part of how Apple builds the ecosystem around its products," NPD Analyst Stephen Baker told MacNewsWorld.
"Apple doesn't look at any individual product or operating system, but how everything ties together for its long-term value to Apple -- not its value tomorrow by giving Apple 20 or 30 bucks," he continued.
"It may be obvious to a lot of people that Microsoft needs to move to a place where the cost of the operating system needs to come down substantially as a part of the price of devices, but it's foolish to expect that to happen all at once," added Baker.
Although it may take months to see the long-term effects of Apple's Tuesday announcement, some impacts will be evident sooner -- especially during the upcoming holiday season.
"They have a very, very strong portfolio for the holiday season," Gartner Research Vice President for Mobility Van L. Baker told MacNewsWorld.
Apple's new tablet pricing scheme should be attractive to holiday shoppers: US$299 for the first-generation iPad mini; $399 for the new mini with retina display; and $499 for the fifth-generation iPad Air.
"That $300 price point for an iPad is a psychological threshold for a lot of folks, and it's going to cause a lot of people to step up and buy that product," Gartner's Baker said.
With the introduction of Apple's 64-bit A7 processor into its tablets, the company now has some real muscle across its entire product line.
"All Apple's products -- big or small, on the desktop or in your pocket -- have 64-bit processing, which is phenomenal," Chowdhry said.
Moving the A7 chip into more devices should aid Apple on another level as well.
"It should help Apple's manufacturing efficiencies, allowing it to use multiple designs that incorporate common components, such as the A7 processor," Jeff Orr, senior practice director for mobile devices at ABI Research, told MacNewsWorld.
The return on those manufacturing efficiencies won't be realized immediately, however.
"iPad profit margins and the average selling price has continued to decline around $20 a quarter per unit, and I expect that to continue for the next one to two quarters, as production shifts from the current iPad to the new iPad Air and mini," Orr observed.
Nevertheless, the new generation of iPads could be among Apple's more successful offerings.
"With Apple today announcing that 170 million iPads have been sold (as of earlier this month) since the introduction of the iPad, we believe this will prove to be a major upgrade cycle," Brian J. White of Cantor Fitzgerald wrote in a research note Tuesday.
The addition of 64-bit computing into the iPad line will be a dealmaker for many iPad owners, added Tim Bajarin, president of Creative Strategies.
"It's the most powerful tablet on the market, bar none," he told MacNewsWorld.
"Most people who have earlier versions of the iPad are going to be big buyers of this product," he predicted. "The performance level is so superior to what exists today that it will gain serious traction with consumers."