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  • Apple Continues to Revolutionize the Software Industry

    June 22nd, 2011

    As you know, Microsoft makes huge profits from the sale of software and services. While you can get a generic PC real cheap with a flavor of Windows preloaded, actually buying a copy at your favorite consumer electronics outlet can be extremely costly. Best Buy, for example, offers Windows 7 Ultimate, the edition with all features intact, for $319.99. If you’re using Windows Vista, you save $100 on an upgrade version.

    Yes, I realize you can buy the OEM version, theoretically meant for PC makers and those who build their PCs by themselves, and if you shop around for the regular versions, you’ll save a fair amount of money. But nothing that comes close to the price of Mac OS 10.6 or Mac OS 10.7.

    By charging $29 for Snow Leopard and $29.99 for Lion, Apple has upended the software industry, particularly the rules about retail operating system upgrades. While Apple can well afford to sell software cheaply, since most of their revenue comes from hardware sales, Microsoft can ill afford to compete. Selling Windows for 10% to 20% of the current price can wreck their cash flow, even if the financial structure can be altered to accommodate a lower price structure. Obviously the PC market is highly saturated, so it’s not as if that many more people would buy Windows upgrades if they were far less expensive. Apple, however, has plenty of room to grow the Mac and, as I said, income from operating system sales provides at best a minor bump to their bottom line.

    With the Mac App Store, Apple is clearly intent on changing the price structure for just about any Mac developer, although the potential for higher volume ought to be the great equalizer. Leading by example, Apple reduced the price of Aperture, their photo editing app, from $199.00 for the retail boxed version, to $79.99 for the downloadable edition. iLife 11, still boxed, is $49, down from $79, and you can download the three apps that make up iWork for $19.99, compared to $79 for the boxed bundle.

    But the real move towards affordable software began with Logic Studio, reduced in the most recent version to $499. For that price, it packs a wallop, a suite of studio-ready audio production apps accompanied by loads of special effects modules, audio effects, and royalty free music. This is the sort of product that cost at least twice as much in previous versions, and that’s before Apple considers whether to offer a Mac App Store version, which you know will be far cheaper, if and when it arrives, if you can manage the huge download.

    Just this week, Apple expanded that strategy with Final Cut Pro X at $299.99, touted as a major rewrite to this popular app. Understand this is professional video editing software that is regularly used by TV and film studios across the world. Add $49.99, each, for Compressor and Motion, and you get powerful encoding, titling and special effects capabilities, all in a set of apps that, in the previous edition, cost more than twice as much.

    There isn’t even an Express version of Final Cut Pro because the main version is so inexpensive even the budding Steven Spielberg or J.J. Abrams should find the purchase reasonably affordable. And, once again, these aren’t feature limited consumer apps, but products that cater to the needs of pros using banks and banks of Mac Pros for video rendering.

    Compare Apple’s affordable approach to other companies that build professional content creation software, such as Adobe or even Quark Inc. Adobe Creative Suite Master Collection 5. 5 lists for $2,599, whether you buy it boxed or as an over 6GB download. Yes, it’s just $549 if you already own Master Collection 5.5, but that’s still a steep upgrade price.

    This is not to say that Master Collection necessarily is equivalent to Final Cut Pro, its extra modules, and Logic Studio. Video and audio editing are just a portion of what Adobe’s entire content creation suite offers. At the same time, can Adobe continue to justify the price of a Mac Pro, or a loaded 27-inch iMac, for a single set of production apps? Even if you ditch Premiere Pro, the video editing app, and Audition, for audio, the lesser Creative Suites aren’t substantially cheaper.

    At some point in time, I expect that Adobe will want entry into the Mac App Store. They will have to rejigger their apps to require simple installation schemes, of course, but they will also have to consider how many more customers they’d get if they dropped that $2,599 list price for the Master Collection to something more sensible, perhaps $999. Yes, sales would have to more than double to make up the difference, unless, of course, you designed the new versions in a way that they aren’t upgradeable from any previous edition. That’s the approach Apple is taking with their new lower price points.

    Adobe’s wants to maintain parity with the Windows version, of course, but they could still offer that edition direct from their site.

    As far as Microsoft is concerned, management remains tone-deaf, so I don’t think they comprehend yet the damage Apple is doing to their existing pricing structures. The clue will be the list prices for the various versions of Windows 8, whenever it’s released. If you can suddenly get an Ultimate edition for $99 or a tad less, maybe there will be reason to conclude that Microsoft finally gets it.



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