“Something rather curious has happened within Apple’s iTunes, software, and services segment over the past few years: it started generating operating profits,” Evan Niu writes for The Motley Fool. “Apple has long maintained that these divisions operate near breakeven, but Asymco‘s Horace Dediu crunched the numbers recently and estimates that the segment may be generating over $2 billion in operating income per year. Apple’s first-party software offerings are mostly responsible for the segment’s recent profitability. That includes products like iWork and Apple’s wide range of professional software applications like Final Cut Pro.”
“That means that Apple could possibly afford to give some back if it’s feeling generous,” Niu writes. “The Mac maker’s main motivation for doing this would be to strengthen its complementary ecosystem that drives profitable hardware sales, which was always the strategic purpose of iTunes in the first place.”
Niu writes, “Apple’s been working hard to integrate iWork into iCloud for a while now, which is a free service… On OS X, iLife is included on all Macs, while iWork costs $60 for all three components… With that in mind, Apple could conceivably make iWork on Macs bundled for free like iLife and not sacrifice too much revenue. Giving away the consumer-oriented software for free on all of its platforms would be a nice perk to boost hardware sales… That would simplify Apple’s pricing, making iLife and iWork free on OS X, iOS, and iCloud all at once, while putting a little bit of pressure on Google and Microsoft at the same time.”
Full article here.
I certainly don’t mind if Apple gives these away for free but why should they? Google is the company built on sucking people in with free. Personally I’d rather see an Apple that makes money from their various products. It means a stronger company, better balance sheet, stronger stock and an incentive to keep improving their products.
What you say about Google is accurate to a point, but, unlike Apple, Google has no decent hardware on which to run it’s free stuff, and so can’t make profits through hardware sales. All their free stuff is designed to get you to use search in some way or another, which generates advertising revenue. This is a far different model from Apple.
Let us try to put iWork in perspective (as a revenue generator).
There are apparently close to 90 million Macs in use today around the world. Let us assume 1 in ten of those has bought iWork (a very, very optimistic assumption). At $60 per copy, this has generated about $550 million over the past eight years since it was introduced.
Apple generated $65B (billion, with a ‘B’) in profit last year. If we spread the revenue from iWork evenly across last eight years, it would represent less than 0.2% of these profits.
While half a billion dollars (over eight years) is not trivial for you and me, Apple would hardly notice it missing from the balance sheet if they were to give iWork away for free.
I think the Author should give away his paycheck, car, house and vacation cottage.
In this case, Apple could benefit more in the long run by giving away iWork to increase its usage and draw even more people into its Mac – iOS – App Store – iTunes – iCloud ecosystem. Apple has a very strong foundation in the music and mobile apps areas, and growing strength in video, ebooks, maps, and Mac apps. But Apple has had a somewhat shaky history in cloud services to date. It might very well be worth it for Apple to sacrifice tens of $M of annual iWork app revenue to gain new users at the expense of M$ and Google. iCloud and iWork need to grow enough to reach a critical mass to solidify these products as a viable alternative to its competitors. In the long run, that may involve opening up iCloud to Windows users (it worked for iTunes and the USB iPod).
Google is not free. Its free is an illusion.
Google = ad supported
If Apple makes iLife/iWork free, and were it hardware revenue-supported, not iAd-supported, then I think it would be a good move.
You will get no argument from me, MacSmiley. Put in that perspective, even Apple’s iLife and iWork are not/will not be free. The cost is just embedded in the hardware gross margin.
I see the logic to giving it away for free, it makes sense in a way, I just worry about developers. If Apple starts giving away services, they will be like Google, strangling developers who do not have the advertising monopoly to fall back on to make a living.
Let’s face it, what Google is doing should be illegal. Just as what MS did should have been illegal. After they suffocate the market with their free wares, and incorporate into operating system and ecosystem, they will hold a monopoly that is comparable to what MS had. It makes it difficult to for anyone escape from the black hole that is created.
We were lucky that MS had their eyes solely on maintaining their desktop monopoly when mobile exploded. And with Android we are now seeing an exact repeat of what made MS, and Office the staple a de facto standard.
..on second thought, maybe it is good that Apple give it away..
True. That’s just like what Amazon is doing. But, I’ll bet the DOJ will go after Amazon before they’ve destroyed the market for books so that authors can’t afford to take the time to write them. Maybe the DOJ will even encourage competition by stopping Amazon from selling books at a loss to block out any potential new-comers? Maybe someone like Apple could get involved in that market to avoid Amazon from killing every other book seller?
Hmm. Thoughts?
/s
Let’s look at this – if we look at the headline of the article, and Apple made iWork free only for iOS, then that could be a good loss leader to get Mac users to buy iWork for their Macs, because it’s an easy transfer system, and they can work on their files on the go with iCloud. But even if they make it free all across the board, it would be a good draw to get people who use both an iPhone and Windows to switch to a Mac for their next computer and get it across all their devices.
If Microsoft releases Office for iOS, that would shake things up, but then that would give Apple more incentive to release their own software for free. (Hmm, free vs. paid, free vs. paid – I think I’m going to go with free!)
Apple is a company which makes a profit with everything. Even if Apple TV is a “hobby,” it still earns a profit.
I say let Amazon and Google try the “loss leader” or “market share” approach, and let Apple get involved only when it brings money in
Apple makes more money (profit) off of Apple Tv than Netflix, Amazon, Facebook combined in 2012 and it will be the same 2013. Giving it away stupid!
“Put a bit of pressure on” is putting it lightly. It would be a gutting shot at Microsofts core business.
True dat!
I’ll go one step further. Apple could donate more resources and make (upgrade) iWorks SUPERIOR to Office. Whether they charged $60 or gave it away — kill shot — MS dead in the water.
they should FIRST UPDATE iWork and iLife !!!!!
it isn’t 2009 any more
Exactly! It is embarrassing that Apple still sells an 09 product here in 2013. Billions in cash yet software remains unupdated year after year after year.
Fire Tim Cook.
Cannot disagree more. I would even advocate that iTunes downloads be free only when one buys a device, and upgrades thereafter be paid.
Why?
Because free implies one of three things: A) it’s not worth a damn, or B) it’s ad-supported, which means its not worth a damn, or C) it’s crippled until you pay your subscription, which means that the total price of a product — with no guarantee whatsoever for timely updates or future feature improvements — costs you significantly more than the end user owning a licensed physical copy of the software code.
Seldom if ever is freeware worth the price. Arguably iTunes would be much better if it was not freeware. Why give away productivity apps too? Stupid idea.
I would like to see Mac Project resurrected as part of iWork , it was great, and far better than ms project
How about updating iWork first, Apple???
“Seldom if ever is freeware worth the price.”
Really? One thing (among thousands of other things) that I like about the Mac platform vs. the Winblows platform is that there are SO many great pieces of freeware – a lot based upon long-standing Linux apps.
“That would simplify Apple’s pricing, making iLife and iWork free on OS X, iOS, and iCloud all at once, while putting a little bit of pressure on Google and Microsoft at the same time.”
Microsoft has been under such pressure for almost 20 years, and it hasn’t dented their tendency to *raise* prices. The first version of Windows NT cost me $99. XP was higher, Vista and Seven were higher still, and broken into multiple versions.
When I was doing UNIX development in the 1990s, desktop versions like Xenix and Interactive cost over $800. Solaris a few years later could be had for $250, and yet later for $29 (free for download). Walking into a computer store, scanning the shelves of operating systems, including Linux, anything Windows was far more expensive.
Look at the price/performance trend of every element of a personal computer. Except for the CPU, every other component has trended to give more for less. But not Windows.