Asymco: The value of zero-priced software

“Apple’s latest product launch (new OSX, iPads, Macs and iWork/iLife) came with a change in pricing for software,” Horace Dediu reports for Asymco. “OS X and iWork and iLife and updates are now made available free on new Macs and, in the case of the suites, on iOS devices as well.”

“The foregone revenues could be as much as $450 million from what would have been received with existing pricing model,” Dediu reports. “So the question that naturally arises is whether this is “worth it”. Whether by offering free software hardware or service revenues rise.”

“I believe the logic for Apple is that usage of the products determines their value and therefore placing powerful software in the hands of more users means they will value the entire system more,” Dediu reports. “This leads to the notion of greater ‘stickiness’ or ‘lock-in’ but also to higher satisfaction and loyalty, rate of upgrades and even more third party purchases and yet more usage… One wonders how long before Apple’s approach becomes the norm for other platforms.”

Much more, including the usual excellent charts, in the full article – recommendedhere.

[Thanks to MacDailyNews Readers “Fred Mertz” and “Dan K.” for the heads up.]

29 Comments

  1. It also helps developers. Since there’s little reason for users to not upgrade, developers can safely assume the majority of their user base will be on the most recent version.

          1. Are you referring to Mavericks or iOS7? In case you haven’t noticed, iOS7 introduced iAds. This is a HORRID choice for user experience. If Apple wants to encourage app sales, it should offer trial periods for apps. Thanks to iAds, one can’t compare or try an app before buying unless one is willing to endure the grotesque experience of advertisements blaring away. Having grown up in a time before every possible surface was covered in ads, this is VERY disappointing from Apple, and it makes a lot of us worry that the Mavericks move to freeware is just one step before the planned inclusion of adspace on all Apple’s free applications. After all, the subscription model that magazines, cable TV and satellite radio pushed all originally came with the promise of no advertising in them. That didn’t last long, did it? So to is it with almost ANY free software. It either becomes a platform for ads, for sucking personal data, or as bait to jump on the “cloud” of subscription-based computing. Each one of these reeks of the “Big Brother” that the 1984 Macintosh ad portrayed, not the enjoyable personal computing experience that Apple stood for before it became a mega-corporation.

            1. Wow, I had no idea letting consumers get something free while developers still make money for their labor would lead to the complete downfall of democratic society!

              Aside from the wild hyperbole, there is a minor problem with your thesis, which is that ads have been on iOS almost from the beginning. iAds are not new to iOS 7. And personally, I thank my lucks stars when I get served an iAd rather than one of those grotesque google ads, like the one with the animated gif showing belly fat.

  2. I’m a apple geek and all ways will be .
    Windows is the biggest nightmare, along with android and any other windows based platform .
    I have a windows laptop and a Mac book pro, both are about the price and my Mac runs like a charm it’s 3 yrs old and my windows about the same,
    No problems with the Mac , windows mama a good dust collector

  3. Isn’t offering ‘free’ (bundled) software how MicroSoft got the world hooked on Word? It’s a pattern they have repeated often. Internet Exploxer comes to mind where there was a big fuse when MS tried to charge, by then they had too much compitetion.

  4. I think in respect of a lot of this software a lot of people don’t need/use it 99% of the time, so I would guess that a lot of people don’t buy new versions. I bought Pages, but as good as it is I just don’t have need to use it very often. The same goes for iMovies, admittedly I don’t film a lot of video, but I edit none of it. iPhoto on iOS is similar but different, there are lots of apps that offer some of the iPhoto functionality at little to no cost so as an ongoing revenue stream I think it would be limited once people have one version. If everyone has them regardless of their usage/need of them, then they might perceive an increased value and be that much more likely to upgrade their device in the future.

  5. Horace doesn’t mention another possible factor in Apple’s pricing decisions: a vengeful demolition of Microsoft’s core business model, software licencing. The derisive laughter echoing in the empty halls is coming from the ghost of Steve Jobs.

    1. Yes, it is always nice to see a bully taken down by someone who was once picked on. Yet I do not perceive Apple gloating about it. This is just a smart business decision for Apple: they are simply playing their best game — for them. MS is responsible for their own failures. Google, too. Incidentally, Apple’s decision should also totally neutralize Google Docs. And another good strategic step would be for Apple to introduce a really good, free web search tool, like the old Sherlock. That would cook Google’s goose, eh? Like the whole maps thing, Apple may feel it has no choice but to do this. Anyway, I thought Sherlock was the best and I still miss it. Perhaps Siri will fill the bill, in time?

  6. And, with the lower cost of software, I may be more inclined to upgrade hardware sooner (I just bought a powered up iMac, and I can’t wait – replacing a still very functional 11 year old macbookpro that I will use to run 04 word), esp with all the new stuff appl will be coming out with! I am rather sour on the subscription cloud software, as it really runs cost up it seems.

    1. That 11-year old Mac is probably a PowerBook, since MacBook Pros only appeared after the switch to Intel (2006).

      The G4 PowerBooks were amazing computers, and many are still in service, doing decent job for ordinary stuff (web/email, Word, etc). Unfortunately, they’re stuck on Snow Leopart (last of the PPC code…).

  7. the differential factors for Apples’ ecosystem are a key incentives for customers and overall, lock users into better experiences and drive loyalty and faith with the brand – its a fantastic thing

    1. Free is great so long as Apple continues to update Pages, Numbers and Keynotes etc.

      The beautiful advantage Apple has over Google is, Apples’ software is both ON the device and available thru iCloud as Web Apps. So when one is not online, one can still use the software on the desktop/device. That’s a huge difference.

      – Google Docs is still Web base only and in beta.

  8. How did Google come to dominate as it has? A free OS, free maps and navigation, free Google Apps, free email, they offered s hell of a lot for free, making it almost impossible for anyone including well funded entrenched players like Palm, Blackberry, Nokia and even Microsoft to compete.
    I’m ambivalent to it as a business model, but there it is.

    1. Good point, and Open Source came before Google too. And so did many software titles were free – even before open source.

      These free softwares now-a-days are powerful tools.

      However, Google remains Web Base Apps, locking you into being ONLINE. Online to experience Advertising.
      Apple feels this intrudes the user and that people want to do work or play games etc… use the device not let a company plug and push advertising on the customer.

      I for one, do not wish to be online always. And even though I work in the Advertising field, I must agree we are bombarded far too much with ads… I love Apple’s decision and direction.

      Both for free applications (online and offline) and without advertising… MDN is plagued with ads. Visit http://www.iClarified.com/

  9. I would say that the most important (and least obvious) reason for Apple making their software free, has to do with the education marketplace. Many school districts that went out and purchased iPads were daunted by the added costs of deploying paid apps, having expended most of their budgets on the devices, carts and covers. The effect has resulted in a surge in use of Google apps and services by students (along with other approaches). By offering their productivity and standard creative apps free with the purchase of a device, Apple has reduced the cost of adopting their ecosystem, and guaranteed participation.

  10. Apple’s strategy for giving away iLife and iWork software may be to ramp subscriptions for more iCloud storage. If everyone becomes reliant on accessing and sharing their files (photos, presentations, documents, etc.) through their “free” iCloud account, the complimentary 5GB will not be enough.

    1. Bingo!

      Cook is trying as hard as he can to achieve the holy grail of subscription-based computing. It’s reprehensible and, as I mentioned above, makes 2013 Apple more like the Big Brother of Apple’s 1984 ad than the liberating Mac that unchained people by giving them the power to unplug from the for-profit “cloud” mainframes and from the ad servers.

  11. While “zero-priced” software may seem like a great idea, the latest version of iWork (and its many useful features removed reality) proves otherwise. iWork is nothing short of a dumbing down of a great product to accommodate cross platform compatibility. If IOS compatibility is so important, then at least there ought to be a pro version of iWorks. Otherwise, Apple has just made iWorks irrelevant to the enterprise sector and more advanced users.

    1. Some of us really old guys still think iWork was a major downgrade from AppleWorks. I still miss the paint and draw tools, and the ability to do a database/ spreadsheet right in the middle of a word processing doc just by selecting a new tool set. That kind of tightly integrated functionality is not found anywhere else.

  12. I see why it was given for free now, as I have determined to go back to iWork 09 for better functionality, over what the new iWork offers. Dumbing it down isn’t always smarter.

  13. I am a Pages and Keynote lover, but the new versions suck! Horrible, Awful a travesty. The best feature of Keynote was the simple way of extracting a background from a picture or graphic, with the alpha tool. They have screwed up a great set of apps in the name of iOS compatibility. I will be using the old version as long as it will work with OS upgrades.

  14. Is the free software worth the forgone revenue? Hm, let me think… Don’t think. Feel! It is like a finger pointing away to the moon. Don’t concentrate on the finger or you will miss all that heavenly glory” ” sorry I lapsed into an Enter The Dragon quote there. Anyway, Apple can afford the give-away, the benefits of which will far outweigh the forgone revenue. Apple doesn’t do anything for nothing.

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