All Of The Ways Apple's New Free Mac OS Hurts Microsoft Windows

Apple announced today that Mavericks, its latest version of Mac OS X, will be free for all Mac users to download. Windows 8.1 is still $119.99.

Apple products are usually seen as expensive if not out of reach for average consumers; rarely are they associated with being free. But today the company took a big step toward changing that perception at a splashy event in Cupertino. "For the last several years, we've been on a mission," Apple SVP Craig Federighi said on stage, "[and] today we're going to revolutionize pricing."

Apple's event on Tuesday went mostly as expected: Tim Cook boasted of the company's booming sales while criticizing the competition; Phil Schiller talked up Apple's commitment to quality and its stateside manufacturing initiative for the Mac Pro; and Jony Ive helped introduce the new, ultrathin iPad with a classic Jony Ive-ism, saying, "There's a simplicity to it, but there's nothing precious about it." But when Federighi flew on stage to highlight Mac OS X Mavericks, he made a surprising announcement: Apple's new operating system would be free--a move that could have significant connotations not only for Apple but for the PC industry as a whole. Federighi himself called it "a new era for Macs."

Traditionally, PC and software makers have made significant revenue from either licensing OS software or using it to attract new customers to purchase hardware upgrades. Whereas mobile software has typically been offered for free--there's no charge to upgrade from iOS 6 to iOS 7, for example--Apple and Microsoft have long charged fees for upgrades to Mac OS and Windows. The previous iteration of OS X, Mountain Lion, cost $19.99; Microsoft's Windows 8 can cost anywhere from $119.99 to $199.99.

Today, Apple blew up that antiquated model, bringing its desktop operating system pricing in line with its mobile OS. Now, even if you're on an OS as old as Snow Leopard or on a device purchased in 2007, you can still "in a single step update...to Mavericks" for no charge, Federighi said, adding, "Free is good."

For Apple, the benefits likely outweigh the downsides. While Apple generated revenue from selling OS X, it had been lowering the price of the product over the last few years in order to goose downloads. By offering it for free, Apple will potentially further mitigate issues of fragmentation. When more and more users upgrade to Mavericks, because it's free, Apple users will more and more operate on the same standard, enhancing the platform's security while boosting app compatibility.

The largest benefit to Apple, however, could come through the disruption it might bring to Microsoft's business model. Last year, Redmond brought in $19.23 billion from the Windows division, with 65% of that coming from licensing its operating system to OEMs. With Apple offering its sleeker, better-reviewed operating system now for free, Microsoft's pricing for Windows--both to average consumers and enterprise customers, as well as possibly OEMs--will seem outlandishly high by comparison.

Though it's unclear whether this represents a long-term change in policy for Apple, with all its future Mac OS upgrades remaining free, it's easy to see how this pricing model would be appealing to the public. Imagine a corporate IT buyer choosing between purchasing Macs and Windows-based PCs for employees. Certainly, PCs are likely to remain cheaper up front, but now they might seem significantly more costly to maintain over the years. Rather than have to upgrade from XP to Vista to Windows 7--with all the associated headaches and expenses--a new Mac can stay as fresh as possible without putting a hole in your wallet.

The cost of upgrading Windows is one reason why Microsoft has so many fragmentation issues. The latest version of Windows has just an 8% adoption rate among Windows users; XP and Windows 7 are still the dominant platforms, with a whopping 77% market share. That's a pain for developers, who don't want to design apps for a new OS which so few have gravitated toward--not to mention a nightmare for Microsoft, considering that so few customers think upgrading Windows is worth the price tag.

Apple also decided to make its iLife and iWork productivity suite free, another headache for Microsoft, which continues to generate significant revenues from its Office suite of products. Certainly, Apple's productivity suite doesn't have the adoption rates of Microsoft's Office and Excel programs. But by offering its suite for free, Apple--of all companies--makes Microsoft look greedy for deciding this year to start charging for Office 365 on an annual subscription basis: $99 per year. As Apple executive Eddy Cue snarked, "Others would have you pay a small fortune" to use their software.

Of course, Office certainly has a strong grip on the consumer and enterprise market, and Windows continues to dominate the PC industry. But with prices for these digital products spiraling toward nothing, Microsoft and its OEM partners will be even more squeezed to produce differentiation. And right now, with declining margins, selling cheaper, lower-quality hardware simply won't cut it anymore, especially as the PC industry continues to get consumed by the mobile market.

[Image: Flickr user Graham Cook]

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371 Comments

  • Adam01time

    By allowing free up grades it lends more time for the departments to work with the hardware manufactures, Then so instead of actually loosing money by paying a team to collect and maintain 19 dollar upgrades these teams can be actually working on better things that actually create more revenue . When I open a Apple computer today it sure looks like a pc. If you have a nice stable operating system that works why break it like M$.

    Microsoft allowing the user land to run in real time has created way to many problems.

  • uberlaff

    Mavericks is not free. It is free as an update for users of OS X 10.6.8 and up. If you are below that version you have to buy OS X.

    Windows is not free but the update from Windows 8 to Windows 8.1 is free.

  • Michael

    Been using iWork for iCloud for the last couple of weeks between my PC and iPad. Won't be opening Office again.

  • heenan73

    Well, I'm no Apple fan, but it's clear who paid for this article - and I'm guessing it wasn't Apple.

    And no FastCompany staffer would EVER give Google credit for being the first to give unlimited upgrades, forever, for free.

  • usdew

    To be clear, Mavericks OS X 10.9 is just another incremental upgrade to the Mac OS X (however impressive the upgrade may or may not be).

    Windows 8.1 recently offered the same robust upgrade for Windows 8. Also free.

    The only differentiation comes if you want to upgrade from Mac OS 9 - which was released in 1999! Sure it's free, but who still runs that? If you had previously updated from OS 9 , you had to pay about the same as MSFT is charging to upgrade from Win7.

    I imagine when Windows 8 is at update 8.9, they may well offer that update to those still using 7 for free, as well. After all, the difference in processing requirements will just drive the user to go out and buy a new machine eventually!

  • Shewulf

    I believe this to be an incredibly ingenious idea on the part of MAC exec's. They have basically eliminated the need to support past editions of their operating system and can use that manpower to fix bugs and move forward! Well done MAC

  • Ras Al

    the author's name is "Austin Carr"!!! Hell yea bro thats the name of one of the Cavs basketball legends, much more interesting than what u wrote

  • Just

    Why do OSX users install Windows in their Macs if OSX and its iWork etc are the best. I also haven't seen companies trying to write software to enable running OSX in Windows; and haven't seen Windows users craving for it.

  • Larryalobo

    If they were giving away something that was greatly used all around, it might make a difference but its still a niche product as good as it might be. Microsoft has taken things one or two steps further - they didn't just improve Windows 7 (comparable to the Maverick) but even though its not as smooth as it will be, Windows 8.1 and beyond takes us into a different for factor. And if they are able to connect software in Surface 2, Surface 2 Pro, Win Phone, Xbox 1 and beyond, what they have in vehicles, and enterprise software - now that's the change - NOT JUST FREE

  • marc

    Apple is predominantly a hardware company. It only makes sense that their operating systems are free since the users are already paying the premium for the hardware. It's definitely a move towards expanding their markets to lower-income users. I approve!

  • synthmeister

    Many are missing the point of the article: MS's complete business model is being disrupted. They have not been able to apply their model to mobile at all and are being forced into an integrated, vertical model to try and break into the tablet market, even though their tablets are "real PCs."

    Remember when MS PCs were just "good enough" to avoid paying the Apple Mac tax? Now the reverse is happening. For 90% of the population, free iWork and iLife and iOS are just "good enough" to avoid using Office and Windows.

  • davidmcelroy

    From the article: "...Microsoft's Office and Excel programs..."

    Microsoft Office is a suite, not a program. Excel is one program IN the Office suite. The current construction looks as though it was written by someone who hasn't a clue about software.

  • happy_noodle

    Office 365 is $99/year for UP TO FIVE installs on MS or Apple PCs, making it $20/year for each install. That's a big difference than how the author is trying to spin it.
    Furthermore, it's for at least five (or is unlimited?) installs on Mobile devices.

    It should also be noted that's not the only way to buy Office; you can still buy ONE full license of Office 2013 that will never expire for what, $139?

    Yes, it's a lot, but I have to wonder why the author left out all that info about Office options....
    :takes off tinfoil hat:

    edit: changed price of Office 2013 from random number ($350) to actual base price of $139

  • happy_noodle

    Erm, no. If you're one person with one computer, then your best bet is to pay $139, just once, for Office Home and keep it as long as you want.

    Why do people keep insisting that half the facts don't exist??
    But keep knocking the intelligence of consumers, it'll go far.

  • also

    With 7 crashes in the first 10 hours, and lack of updated drivers for many peripherals, I'm feeling like Apple's "free" Mavericks OS is very expensive...

    Feels more like Windows 95/NT upgrade...