Will Mac OS upgrades eventually be free?

In the OS wars, one of the oldest weapons has been the price tag, and with Apple's $30 upgrade to Lion, Apple's not kidding around. Can the company drop that to $0?

Phil Schiller, Apple's senior vice president of worldwide product marketing, takes the wraps off Lion's price at the company's WWDC keynote.
Phil Schiller, Apple's senior vice president of worldwide product marketing, takes the wraps off Lion's price at WWDC 2011. Apple

Apple's pricing of Lion at $30 this week represents a new standard for the company, which is cutting $100 off the typical price of its OS. Apple did the same thing with Snow Leopard back in 2009, though that upgrade was pitched as more of a housekeeping update as opposed to a full-blown release.

There's another component at work here. For the first time that single price is good for all five of a user's authorized Mac computers, effectively replacing Apple's "family pack" multi-user license.

The question now is whether Apple plans to go lower than that for whatever comes after Lion. Reading the tea leaves, there are a few signs that's a possibility.

To frame all this, it's worth taking a look at how Apple views desktop computing these days. The company's pitch during much of Monday's event was that we're in a "post-PC" era , with Apple arguing that devices like the iPhone and iPad are taking over the tasks people traditionally use computers to accomplish.

To back that up, Apple's made significant changes to its iOS software to decouple these devices from their Mac and PC gatekeepers, while building iCloud as a sync tool to weave all that data together. That effectively makes these devices vessels for content and software. The main difference being that the Mac is still what's needed to create the software that runs on both platforms.

The big new thing with Lion is that software component. It's launching with Apple's Mac App Store from the very get go. This is Apple's digital downloads store for software that lets Mac OS users purchase applications directly through Apple instead of having to dig around the Web, or used boxed software. That same system is what Apple's using to launch Lion into the wild, short of users getting it pre-installed on a new Mac.

What's it got to do with Mac OS pricing? The Mac App Store is not just a system feature that aims to make it easier to find, buy, and install applications, it's also a new way for Apple to make additional revenue after someone's purchased a computer. In Apple's case, a Mac owner with an outdated OS might not be able to make a purchase there.

On both the App Stores, Apple gets 30 percent of each sale, a chunk that promises to be quite a bit larger on desktop applications, which tend to be priced higher than the apps you'd buy for your phone or tablet. With enough adoption by developers and users alike, the Mac App Store could reach a point like the App Store on iOS, where Apple's cut of software sales brings in a tidy revenue stream that far outweighs the OS these apps sit on top of.

On the iPhone, iPod Touch, and iPad, where the the App Store is the only place to get applications, Apple's digital store strategy has paid off big. On Monday Apple said it's paid out more than $2.5 billion to App Store developers, meaning the company's made around a billion dollars of its own through sales of those apps.

Can the Mac App Store match that? With a smaller user base it's got a pretty big hill to climb to get there. Apple on Monday said it's now up to 54 million active Mac users around the world, a number that's growing, though nowhere near the size or growth rate of iOS. That platform, which covers the iPhone, iPod Touch, and iPad, is up to 200 million sold, according to the company's own numbers.

The interesting thing in all this is that Apple's already proven the free system software model works with iOS. There the company offers free system software updates to users, the equivalent of giving major new versions of the Mac OS for free. In return more, users are likely to upgrade, app developers can write applications that are nearly guaranteed to work on more devices, and Apple gets paid.

There are, of course, caveats. These devices are a fraction of the cost of Apple's computers. And Apple eventually phases out hardware and gives recent models fewer features than the newest model, something it might be changing its tune with on iOS 5, which will support Apple's iPhone 3GS, the model behind the iPhone 4.

The iOS upgrade model didn't start out with these free updates though. Before changing how the company recognized revenue from the iPod Touch within its financial statements, Apple charged for iOS updates--even the smaller ones between major releases. Unlike the iPhone, which the company considered a subscription product, the iPod Touch was something customers bought once, and Apple could hope to make more through iTunes Music store purchases and accessory sales. Then the App Store came and turned that idea on its head. Can the same thing happen here with the Mac App Store?

The big difference with computers is that Apple's always had a chance to make additional sales off a customer once they bought a machine. There was AppleCare, along with software sales, and what could be one or two paid Mac OS X upgrades. But these last two things have never before so integrated into the OS itself.

Now if you want an app, you buy it with the software Apple gave you. Want to upgrade your Mac OS to the next major release? That will likely come through the Mac App Store too. Is that enough to warrant the shift to a free OS upgrade? The fact that Apple's still charging for Lion says no.

There is a big 'if' though, and that's whether Apple ever decides to bring iOS apps to Mac OS. The fact that so many iOS-centric features and style shifts have made it into Lion certainly suggest the two are headed toward a collision. Whether such a system would even run on Apple's current machines is a question of its own.

 

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