Why Apple's Mac software isn't really free
Analysts call it a marketing coup that will broaden the reach of the company's ecosystem and allow it to charge premium prices for upcoming gadgets.
The most surprising announcement at Apple's (AAPL) event Tuesday wasn't the new and thinner iPad or the revved up MacBooks, but rather the company's decision to give away the software that runs its computers. The Mac OS X operating system, for which in the past Apple has charged as much as $169, is now free.
But not exactly, tech analysts say. Even though Microsoft (MSFT) and other companies will now be under pressure to follow suit, all this free software will probably come at a price -- meaning that it will be baked into the cost of hardware and other services going forward. (Microsoft owns and publishes MSN Money.)
"Today, we're going to revolutionize pricing," Craig Federighi, who heads up Apple's operating systems, said of the new OS. Mavericks, as the software has been dubbed, will be faster and use up only the amount of battery the task requires, but –critically -- it will keep computer users within Apple's ecosystem.
"It looks like Apple is trying to reinvent the economics of the entire industry," says technology analyst Jeff Kagan. "On the one hand, it's unsettling for its competitors. On the other hand, what the heck took them so long?"
It's a change of strategy for Apple, although it's not the first time the company has given away its operating system. The Mac OS was free from 1984 to 1991, and Apple first charged $95 for the 7.1 version in 1992.
But tech pros say the timing is critical. "It's a reverse of the Microsoft ecosystem, where Office is the cash cow and the margins on hardware are slim to none in some cases," says Mark Spoonauer, editor in chief at LaptopMag.com. "Amazon (AMZN) has come up in price a bit, but makes its money on content and Amazon Prime subscriptions, so it's also the reverse of Apple."
With Apple's announcement, this ecosystem has officially become more important than the operating system, says e-commerce consultant Bryan Eisenberg. Computer and smartphone companies are locked in a gold rush to supply consumers with their technology so they become a one-stop shop for everything from movies and music to books and garden furniture.
"Apple has basically established that there is more value than just an operating system," Eisenberg says. "It makes boatloads of money from the whole ecosystem. Give people a great experience and they will pay for extras."
Other companies already offer their software on a subscription model rather than licensing their products, says Offir Gutelzon, founder and CEO of Keepy, a digital file-sharing site. Adobe's (ADBE) Creative Cloud offers a range of software for $50 a month on a yearly contract, or $70 month-to-month. (Some popular apps like Photoshop and Premiere Pro can still be licensed for $19.99 per month on a one-year contract.) Similarly, Google (GOOG) Cloud offers the word processing software Google Docs and photo-sharing site Google Picasa for free. But, like Apple, it also charges for storage. "Over time, people will pay and pay and pay," Gutelzon says.
Though users can cheer the free operating system now, the move also gives Apple more leeway to charge premium prices for its upcoming gadgets. The iPad Air, launched Tuesday, costs between $499 and $929, depending on the model. "Apple has taken the strategy of giving its software away for free in order to improve the customer's user experience and spur the purchase of premium hardware," says Brian Colello, analyst at research firm Morningstar.
But charging those prices is still a gamble, free operating system or not. "It's a clear contrast to Amazon, which appears to be selling its tablets at close to cost, in order to drive media and content purchases," he says.
Apple's free operating system is essentially a marketing coup, Spoonauer says. Having cut the OS prices in recent years to $29 for OS X 10.6 Snow Leopard and to $19 for the OS X 10.8 Mountain Lion last year, he says zero was the next natural move. "You're paying a premium for Apple's hardware, so it makes sense for the company to try to sweeten the deal."
More from MarketWatch:
It's not like Linux where you can download and install on your own hardware for free. you have already bought the mac computer, but instead of charging you to UPGRADE your computer to the new OS they are allowing you to install the new OS for free.
It really blows my mind that i had to google search and get the real facts on this "free download".
who is thumbs downing my post? thumbs down for giving the whole truth on an article that didn't give half the details of the "free download" must be mac fanboys.
duh!!! ofcourse.... Do you think restaurant next door do not charge you for water, silverware!??comeon
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