Apple plays defense and offense with free software, upgrade strategies

Keeps iPad in the enterprise (defense), disrupts Microsoft's model (offense), say analysts

Apple's decision to give away OS X upgrades and other software, including the iWork productivity suite, stemmed from both offensive and defensive strategies, analysts said today.

And it puts the ball in Microsoft's court for a response.

"Apple's concerned about the enterprise and Windows 8, where software selection is still largely in the hands of IT managers," said Carolina Milanesi of Gartner. "Apple wants to keep its sweet spot in the enterprise, and counter moves by Microsoft to try and slow the iPad influx there."

Those moves by Microsoft include the Redmond Wash. company's Surface tablet push, an aggressive pitch that the devices make more productive tools for business than the iPad, and the bundling of a scaled-back version of Office with the Surface 2, the $499 tablet that runs Windows RT.

"It's defensive in that respect," said Milanesi of free iWork with new iPads and iPhones, "to get users to be more engaged with their devices."

Apple's banking on the continued trend of BYOD, for "bring your own device," the shift toward employees making hardware choices for themselves rather than letting centralized IT decide what they use. By putting iWork on every new device, Apple's strategy is to garner grassroots support from their customers, who ideally will not only continue to purchase Apple hardware, but also tell their IT departments that Microsoft's Office suite isn't required on every device.

Office on every device is Microsoft's past-present-and-future strategy, best evidenced by Office 365, a subscription that lets businesses and consumers put Office on up to five mobile devices and five PCs or Macs assigned to an employee or owned by a family.

Anything Apple can do to disrupt Microsoft's business model, Cupertino will count as a win, said Patrick Moorhead, principal analyst with Moor Insights & Strategy. "It's an opportune time to catch Microsoft off-base. Apple would like to disrupt [Microsoft] before it gets to a more service-oriented model," said Moorhead, who saw Apple's free software push as an offense-minded, long-term strategy.

From his perspective, Apple is leveraging the trend toward free in mobile, where operating system updates are free and apps are, if not free, either start out that way -- with in-app purchases driving revenue -- or come at low cost.

"Apple's turned to the mobile phenomena, where the expectation is that software is basically free," said Moorhead. "Microsoft currently charges for major [OS] upgrades, but over the long term, that's going to make Microsoft's business model look odd and strange and expensive."

Perception is everything, Moorhead stressed. If consumers and businesses are constantly reminded that Apple provides free software, free services and free upgrades, eventually that will sink in, and make those same people wonder why Microsoft is asking for payment, even if, as he and Milanesi quickly acknowledged, iWork is not Microsoft Office.

"PC software and services like Windows upgrades and Office will continue to look more expensive year after year," Moorhead said in a piece published on Techpinions.com last week.

It will take time for customers to digest that, Moorhead cautioned, but they eventually will. "Over time, I believe buyers will be less likely to pay as much as they do today for PC software, look more closely at the alternatives," he wrote on Techpinions. "This creates a big challenge for Microsoft."

Not everyone agreed. Ross Rubin, of Reticle Research, sees little threat to Microsoft -- either short- or long-term -- from Apple's shift to free software and OS upgrades.

"There's discrete value in the larger releases," Rubin said of major Windows upgrades, such as the one from Windows 7 to Windows 8.1, which currently costs about $115 on Amazon.com. "Microsoft will continue to make the case that, 'We charge for Windows because there's premium value associated with it.'"

That's not to say Microsoft won't give away software: It did just that with Windows 8.1, a free update -- and Microsoft made a point to dub it an "update" rather than an "upgrade" -- for customers running Windows 8.

In fact, Rubin believes that Apple's decision to offer OS X Mavericks free was at least partly a reaction to Microsoft's Windows 8.1.

Not so, countered Milanesi, who said both companies were simply tackling the same problem -- the mindshare of mobile and its now-entrenched practices, strategies and business models -- each in its own way.

"Microsoft can't do what they used to do," Milanesi argued. "[Windows 8.1 being free] was a necessary change for Microsoft because their entire approach to computing is changing."

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+ or subscribe to Gregg's RSS feed. His email address is gkeizer@computerworld.com.

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This story, "Apple plays defense and offense with free software, upgrade strategies" was originally published by Computerworld.

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