Apple surprised many yesterday by making the update to OS X 10.9 Mavericks free, rather than the $20 it cost to upgrade to the previous release, Mountain Lion. The company also surprised some (though not us) by doing the same for its previously chargeable iWork apps.
There’s been a lot of commentary today about this being an attack on Microsoft, and I do indeed think there’s likely to have been a fair amount of sweating in the corner offices at Redmond as they watched yesterday’s keynote. But Microsoft execs aren’t the only ones I’d expect to see wearing worried expressions today: I suspect the same is true across at Mountain View.
Before we get to Google, let’s start with Microsoft …
Microsoft likely isn’t too concerned about mass-market consumers: when the price of the cheapest Mac sits at $599 (with Apple’s entry-level all-in-one laptop coming in at $999) and you can pick up a usable Windows laptop for $250, Apple isn’t a threat on price. Nobody at the bottom end of the market is going to fork out four times as much just to save twenty bucks on the next OS upgrade.
But Microsoft may well be starting to worry about the enterprise market. Many large corporations have long product cycles for PCs. They may run a laptop for three years, and even then it may get cascaded down through the ranks when it is replaced. I worked at a large company where my laptop was replaced every two years and my old one got given to someone else. I’m not sure how far that process went, but I wouldn’t mind betting that somewhere in a blue-chip there’s an intern staring forlornly at a five year old plastic Dell.
Corporations make purchase decisions on lifetime cost, not purchase cost. When a Mac can easily still be performing well four or five years down the road, while a Windows machine of the same era will be struggling, that purchase cost doesn’t look quite so bad. Throw away the two or three OS licence fees they have to pay over that timescale, and the argument for Macs gets stronger.
Productivity software is likely to be a slower burn. Microsoft Office has a stranglehold over most of the corporate market at present. But if there’s one thing the tech industry teaches you, it’s how quickly things can change – and Microsoft is already an object lesson there. Remove the licence fee for Office, and the cost-benefit analysis shifts sharply in the direction of OS X.
It’s not like this kind of shift is unprecedented, either. A number of surprisingly large companies have started using Google Apps for many of the tasks previously performed by Office. Even the US Army has started down that road.
Which is why I think Google will also have been watching the keynote with concern. While its apps have led the way in collaborative working, leaving Microsoft to play catch-up, I think it’s fair to say that ‘free’ as much as ‘feature-rich’ has driven the pace of adoption.
Google’s business model is to derive revenue from advertising, paid storage upgrades and subscription upgrades to apps for business users. To achieve that, it’s been willing to give away its operating systems and entry-level software and cloud services.
The ‘free start’ approach has been key to Google’s success to date, and enabled it to create an ecosystem to rival that of Apple. Apple, it seems, intends to do something about that …
Apple has so far been taking a slice of the pie at every stage: hardware, OS upgrades, its own software, third-party software. What we saw yesterday was Apple giving away two of those revenue streams.
Of course, it made no promises about the future. It’s possible that Mavericks as a freebie was a one-off, and that it will resume charging for upgrades again next time. But I don’t think so. Aside from the potential backlash, having set a precedent, I think Apple is playing a clever game. Sacrifice two sources of revenue in order to boost the appeal of the hardware and the ecosystem.
Which is why what I think we’re seeing here is not just a play against Microsoft, but an arguably more important one against the rival ecosystem offered by Google.
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