Why OS X Might Soon Be Free

Apple grabbed people’s attention earlier this month when they announced that their next operating system, OS X 10.8 Mountain Lion, will cost $20. That’s the lowest price Apple has charged for one of its operating systems, but it continues a trend that I think will soon see OS X become a free download.

The Pricing Trend

When the first version of Mac OS X was released in 2001, it sold for $129. That price remained the standard for Macintosh operating system upgrades until the release of Mac OS X Snow Leopard, which sold for $30 in late 2009. Many believed that Snow Leopard’s low cost emphasized its positioning as an efficiency upgrade that included refinements and improvements, rather than new features.

Lion 180x180
However, when Apple used that same $30 price point for Mac OS X Lion in July 2011, it became clear that Apple had reconsidered how they price their operating system. Common thinking after that announcement pointed to the distribution method as the major reason for the lower price: because Apple no longer needed to pay for physical media, they no longer needed to charge as much for their software.

The Physical Benefit

Apple has been moving away from physical media for some time now. Their first blatant move away from the format was the
MacBook Air, introduced in 2008, which did not include an optical drive. At the time, Apple was pushing for adoption of other products without physical media, including the Time Capsule backup device and iTunes movie downloads. The recent addition of an app store for the Mac moved official software distribution away from discs, as well.

By eliminating the materials, packaging, and shipping costs associated with software distribution, Apple has streamlined and simplified purchases and upgrades. They also, in true Apple style, secure greater control over what they distribute. If Apple updates their distribution files, there is no way to install an older version from discs that shipped with a computer, for instance. If Apple changes software features or functionality, there is no way for the customer to “roll back” to a version shipped on disc.

By only ever providing the latest version of any available software, Apple promotes faster adoption of newer software; customers cannot easily remain on older software that Apple no longer wishes to support. By reducing the cost of their next operating system to $20, Apple makes it very enticing for users of their current software to quickly jump on board with the update. If prices were to be reduced to $0, Apple could virtually guarantee rapid adoption of the new software, considering most home users do not skeptically wait for bug fixes and maintenance releases like large corporate installations have to.

The Competitive Pressure

When asked about the profitability of selling music on iTunes for ninety-nine cents, Steve Jobs once said that the iTunes Store was simply a way to sell more iPods. Apple makes its money off of hardware sales, and they go out of their way to make sure that their hardware works almost exclusively with their software. Apple can afford to drastically reduce the cost of their software, because they make money from the products that run the software.

Compare that to a company like Microsoft, which makes its money primarily off of software. The original selling price of Microsoft Windows started out at around $100 but jumped to $200 with the release of Windows 95. The cost of Microsoft Windows has remained relatively constant ever since, if we account for the increasing variety of available versions.

If Apple can drive the perceived value of its operating systems down so that customers expect upgrades to be free, Microsoft may be pressured to lower their costs, as well. For a company that’s thrives on sales of software rather than hardware, such alternative seems unattractive. By lowering the cost of operating system upgrades for Macintosh computers below that of Windows-based PCs, Apple directly addresses complaints about relative costs of ownership.

The Feature Set

Competitive practices aside, I suspect that the sense of value for consumers may be getting increasingly difficult to argue as software becomes more balanced area many of the newer features of Apple’s operating systems emphasize what a user does not need to pay attention to. In 2007, Apple released Time Machine, which backs up users’ computers without their intervention.

In 2010, Apple made Auto Save and Versions standard features of the operating system, illuminating the age-old need to constantly remember to save one’s work. This year, Mountain Lion will include a Power Nap feature allowing new Macs to update themselves automatically while asleep.

In effect, their new operating systems are designed to fade into the background, rather than advertise their new features. Persuading customers to pay for software they may not know they use could be a tough sell; giving it away for free, however, might just work.
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