When Apple (AAPL) trotted out updated iPads at yesterday’s media event, it was expected the company might take a few potshots at tablets running Android. After all, Google’s (GOOG) mobile operating system is powering the wave of low-cost devices that have cost Apple its lead in the tablet market. What wasn’t expected was the targeting of Microsoft (MSFT) with the bombshell announcement that OSX Mavericks — the Mac equivalent of Microsoft’s Windows PC operating system — will be a free release.
If you thought the iPad cannibalizing PC sales was a threat to Microsoft, what do you suppose the possibility of having to give up Windows revenue altogether might do to the company’s bottom line?
Even though it’s giving away a Windows 8.1 upgrade at no charge (to users already running Windows 8), Microsoft remains highly dependent on Windows revenue. It sells lucrative Windows licenses to the OEM hardware vendors who build PCs. If you own a computer currently running an earlier version of the operating system — say XP, Vista or Windows 7 — Microsoft charges between $119.99 and $199.99 if you decide to make the jump to its newest version.
Contrast that with Apple, which will let anyone download OSX Mavericks at no charge. To make it a potential one-two punch, Apple is also offering its iWork productivity apps — which compete with Microsoft Office — for free with new Mac and iOS device purchases (upgrades to the latest versions are also free to existing iWork owners).
Apple used to charge for its operating system too, although the price has been on the decline (from $129.99 for 2003’s OSX Panther to $19.99 for last year’s Mountain Lion). In its 2012 annual report, Apple spikes out $3.5 billion in software sales. That’s only 2% or so of total revenue and includes Apple’s cut of third-party software sold through its Mac App Store. In other words, forgoing revenue from selling OSX and iWork has almost no impact on Apple. At the same time, by offering free OS upgrades and Office-compatible productivity apps — complete with cloud versions and online collaboration — Apple is making a play for more enterprise customers to shore up sliding sales of its Mac computers.
Microsoft, on the other hand, cannot afford to give Windows away.