Apple’s Software Pricing and the Impact on the Competition

When I saw Apple’s theme around free with their software strategy I instantly started thinking about how this could impact the competitive landscape. And while doing so I remembered a strategy from the art of war. Force your competition to compete on a battle field where they have no chance of winning. This is exactly what Apple has done by creating what I can only now call a software-as-a-service model.

Microsoft is a software company and much of their value is wrapped up in businesses like Windows and Office. Like OS X, Windows costs nothing to the person buying a new PC. The cost of the operating system is included in the cost of the hardware. But unlike Windows, a consumer who buys a Mac now knows that all future versions–that come out annually–will cost them nothing. Basically, a Mac customer will always get the latest and greatest software all simply with the initial purchase of the hardware.

When you understand that when the majority of consumers buy a PC and view it as an investment, you see how this strategy can pay off. Microsoft can not make this promise to their customers. Microsoft can and will release rapid Windows software developments but there can be no guarantee to the consumers that future OS versions will be offered to them for free. This is what Apple referred to as “the new era of OS pricing” and it is one I can’t see Microsoft competing with.

Microsoft will also see the value of Office challenged by the mass market. If you are an enterprise customer whose business has spent a great deal of money and time building templates around Office programs, then you will remain committed to Office. However, there are many hundreds of millions of consumers who have no such Office dependency. For these customers the iWork will fully meet their needs and will be offered at a price that Microsoft simply can not offer Office at–free.

Lastly, iLife is a vastly underrated suite of applications. When you survey consumers and ask them the more compute intensive things they do with their PCs it almost always comes back to creativity. They edit and manage photos, they create videos, etc. When you buy a Windows PC there is no built in software suite to serve the basic creativity needs that consumers value more than productivity, in most cases. The fact that Microsoft ignored this has baffled me for years and is further evidence that Microsoft understands business customers needs but not consumers needs.

Throughout the years we have done PC buying intender research. Now while price remains a key driver, and always led us to predict the volume mix between Macs and PCs, the consumers who were considering Macs continually brought up iLife as a reason. The other main driver of interest in Macs was built in customer support. These value proposition remain and are enhanced now by offering OS X (and all future versions) as well as iWork for free.

This is what I mean that Apple has made clear a software-as-a-service model as their strategy. A consumer knows that an investment in Apple’s hardware is also an investment in future software innovations. This can not be underestimated by the competition.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

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