Apple reinvents consumer electronics; iPhone and Apple TV to get better over time with free updates

Apple Store“I’m still reeling from yesterday’s conference call with Peter Oppenheimer, CFO of Apple,” Carl Howe writes for Blackfriars’ Marketing. “He dropped the bombshell in his opening remarks:”

Before I talk about the outlook for the June quarter, I’d like to provide a little more information about our strategy for the iPhone and Apple TV and how we plan to account for them. We believe the iPhone is a revolutionary device that is years ahead of the competition. At Macworld, we demonstrated a number of the iPhone’s breakthrough features, including its pioneering multi-touch display and user interface, visual voicemail, desktop class e-mail and web browsing, and of course, the best iPod ever.

We plan to build on this incredible foundation by continuing to develop new software features as well as entirely new applications and incorporate them into the iPhone. Since iPhone customers will likely be our best advocates for the product, we want to get them many of these new features and applications at no additional charge as they become available. Since we will be periodically providing new software features to iPhone customers free of charge, we will use subscription accounting and recognize the revenue and product cost of goods sold associated with iPhone handset sales on a straight line basis over 24 months. So while the cash from iPhone sales will be collected at the time of sale, we will be recording deferred revenue and costs of goods sold on our balance sheet, and amortizing both of them into our earnings on a straight line basis over 24 months. We will continue to expense our iPhone engineering, sales and marketing costs as we incur them. This accounting policy will have no impact on cash flow or the economics of our business.

Apple’s proven capability to create innovative software gives us a tremendous competitive advantage in the consumer electronics industry. We are taking this bold step to leverage what we do best. We hope the result will be to surprise and delight our iPhone customers, which should result in happier customers and more customers as we enter this billion unit per year mobile phone market. We also plan to recognize payments from AT&T Cingular as revenue over time, as earned. We will report iPhone results each quarter that will include unit sales, and recognize revenue for iPhones, iPhone accessories and payments from AT&T Cingular.

Similar to iPhone, we plan to periodically provide new software features and enhancements at no charge to our Apple TV customers. We will also recognize the revenue and product cost of goods sold associated with Apple TV on a straight line basis over 24 months. This will be included in the other music-related products and services in the data summary we provide you each quarter. Additionally, we will provide you with a schedule each quarter in our earnings release that indicates the total deferred revenue, including the combined amounts related to the iPhone and Apple TV.

How writes, “Apple just added a whole lot of value to those required two-year Cingular contracts. What Apple just said is that unlike most phone handset makers, this isn’t going to be device you re-buy every nine months or so to get the latest model. Based on the information yesterday’s earnings call, we predict the iPhone will be a device that gets better every six to twelve months you own it. The same goes for Apple TV too. Others may talk about reinventing consumer electronics; Apple just did it.”

“If this is such unimportant news that it gets announced in an earnings call, I can’t wait to hear Apple’s big announcements this year,” Howe writes.

Full article here.

45 Comments

  1. Let’s just hope that Apple TV has the hardware capability to be upgraded…

    Can it support 1080p over its HDMI port? I don’t want to look at compression artifacts on my new Sony HDTV.

    All of my other complaints are software related: iTunes only, lack of DVR functions, lack of support for USB ATSC tuner. But Apple will probably never enable these functions – must buy iTunes content!

  2. Next step…

    Macs that ship with Leopard could also get free OS updates as long as compatibility allows. We’d never need to buy a new OS from Apple again! I know Apple makes money from selling new boxed OSs, but this could be another major selling point that absolutely no beige box manufacturer could match.

    It could happen.

  3. Huh. Seems like my Mac gets better every 2 years when I upgrade the OS. This is totally unlike a PC where every update bogs it down more and more.

    At this rate, I will never have to buy a new computer. No wonder Apple’s address is Infinite Loop.

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  4. As if I needed any more incentive to buy one of these the day they are available….

    I’m excited that Apple puts the customer first and makes their profit on godd ‘ol salesmanship, not fooling the customer into paying more for getting less.

    That’s why I buy Apple products!

    MW: people (as in lots of people BEHIND me in line the day the iPhone goes on sale…)

  5. I’m glad we won’t have to pay $1.99 every time a new feature is added (as in the MacBook wireless G-to-N upgrade deal). Smart move. Apple should do the same with new Mac purchases (and Mac OS X in-a-box purchases), starting with the Leopard release.

  6. I think its interesting that Apple seems to be going thru all this trouble so the iPhone stays ahead of everyone else’s features for years but there seems to be no way to address what I see as the biggest reason to want a rev. B or C version: space.

    Flash prices haven’t been falling as quickly in recent months as in revious years but the long term trend will pick up again and soon 8GB of storage in a phone isn’t going to seem like much. For some people its too low right now. I won’t be buying an iPhone until it can hold at least half of my 30gigs of music, plus the OS plus a few hundred MB for apps, contacts, calendars, and the photos that I would take with the camera. I understand that not everyone requires as much space as I do and some will happily buy as soon as possible, but one of the oldest axioms of computing is that storage capacities will increase and within a few years you will find yourself wanting more space than you ever thought you could use. Remember, Bill Gates once said he saw no reason why anyone would need more than 367 kilobytes of memory in a computer.

    It’ll be nice if my first gen iPhone can run OS X 10.8 Thundercat and launch the space shuttle just as well as my friend’s third gen iPhone can but what I’ll really want is his 128GB of flash memory. I think the first adopters are going to find that in 12 months even with Apple’s free new features stratey they will still have a burning desire to buy new models, patially because they want more capacity and paritally because that is the fundamental nature of first adopters. I don’t know if Apple is actually trying to change the way that consumer electronics lose their value before their Ebay auctions end or if they are just trying to make it look that way to sway those of us who really want to rush out to buy Rev. A but try to restrain ourselves until B or C. Anyone else have a thoery? something I missed?

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