Apple Should Give These Away For Free

Something rather curious has happened within Apple's (NASDAQ: AAPL  ) iTunes, software, and services segment over the past few years: it started generating operating profits.

Apple has long maintained that these divisions operate near breakeven, but Asymco's Horace Dediu crunched the numbers recently and estimates that the segment may be generating over $2 billion in operating income per year. Apple's first-party software offerings are mostly responsible for the segment's recent profitability. That includes products like iWork and Apple's wide range of professional software applications like Final Cut Pro.

That means that Apple could possibly afford to give some back if it's feeling generous. The Mac maker's main motivation for doing this would be to strengthen its complementary ecosystem that drives profitable hardware sales, which was always the strategic purpose of iTunes in the first place.

Apple's been working hard to integrate iWork into iCloud for a while now, which is a free service. The company recently showed off the iWork for iCloud beta at WWDC last month, as a cloud-based productivity suite that could compete with Google Docs and Microsoft Office 365 to a small extent. With iCloud being a free service, Apple could make a wide range of its first-party apps free to bring pricing parity.

There's other evidence to support this theory. There are hints within early builds of iOS 7 that apps within Apple's iWork and iLife suites for iOS are going to be offered for free. Apple's iOS apps carry premium prices in the App Store, ranging from $5 (iLife apps) to $10 (iWork apps) while there are plenty of alternatives for $0 to $1.

On OS X, iLife is included on all Macs, while iWork costs $60 for all three components. Let's be clear, though: Office is the gold standard and iWork is a minuscule fraction of the market. iWork is not a meaningful player in the enterprise, and could arguably be considered geared toward average consumers.

With that in mind, Apple could conceivably make iWork on Macs bundled for free like iLife and not sacrifice too much revenue. Giving away the consumer-oriented software for free on all of its platforms would be a nice perk to boost hardware sales. The professional software would still be sold at premium prices and help cover the cost of giving away the consumer software.

That would simplify Apple's pricing, making iLife and iWork free on OS X, iOS, and iCloud all at once, while putting a little bit of pressure on Google and Microsoft at the same time.

Apple has a history of cranking out revolutionary products... and then creatively destroying them with something better. Read about the future of Apple in our free report, "Apple Will Destroy Its Greatest Product." Can Apple really disrupt its own iPhones and iPads? Find out by clicking here.

Read/Post Comments (6) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 09, 2013, at 8:10 PM, kellenbmiller wrote:

    Well you mean giving things away like Google does. By attaching themselves like a virus. Creating a unfair advantage over the completion by circumventing fair play. Your Idea is great and it would work. Apple even though could smash Office 365 and Google Docs. Does not really have to. They have a enormous following. That will support them even if the crazies on wall street bail out. Apple seems to be head strong. With a clear vision. Growth is one thing all companies need. I think losing Mr. Jobs has cost them some credibility. Except one thing I see . And that is that they are doing exactly what they would have done with him alive. Nothing has changed. Google, Microsoft could have 99 percent of the market. Apple will still be head strong and with vision. The market is blind sometimes to history.

  • Report this Comment On July 09, 2013, at 10:23 PM, singaporenick wrote:

    Apple's eco-system is what makes the company a great Buy for the future.

    However,it's funny this writer thinks Apple should give stuff away for free,when most writers are berating the company for a decrease in its gross margins.

  • Report this Comment On July 10, 2013, at 1:53 AM, applefan1 wrote:

    I think the media has drank Google's Kool Aid and are drunk with stupity. Look at how much Google makes in a year and what they do with their profits.

    Make a stupid wearable that will most likely get banned from most public places.

    Trying to make cars drive themselves, when reality is that they won't allow those things to be sold for many many decade.

    This everything is FREEEEEEEEEEEE just recoups little or no profits.

    Whatever Apple decides to do is whatever Apple decides to do.

  • Report this Comment On July 10, 2013, at 5:44 AM, Henry3Dogg wrote:

    "Apple Should Give These Away For Free"

    Should? On what basis should?

    IWork is a superb product and is sold for a very reasonable price.

    If if was free, people would take it less seriously and not discover how good it is.

    It would make more sense to make the web version free and continue to charge for the installed app.

    On the other hand, if Evan Nui worked for free, we wouldn't need the adverts.

    Yes. Evan should work for free.

  • Report this Comment On July 10, 2013, at 7:40 AM, jdmeck wrote:

    Are you a total idiot? Since when is $5 and $10 considered premium? Would love to get that deal next time I need the new version of a piece of Microsoft software!

  • Report this Comment On July 10, 2013, at 7:56 AM, mikecart1 wrote:

    The entire idea about giving anything away for free or doing anything for free is the main unspoken reason why this country is a complete disaster in the making. Management expects employees to work overtime for free, to work their regular hours for less, millions sit at home while they collect a government check for free, millions others try to scam any system they can to get things for free, etc.

    People believe they deserve all these things for free and then people still wonder why GDP is dropping? Haha. It amazes me. Instead of doing things for free, Apple should be charging even more for their products.

    Like Joker said the The Dark Knight - "If you're good at something, never do it for free"

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2528696, ~/Articles/ArticleHandler.aspx, 9/28/2016 10:05:21 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 17 minutes ago Sponsored by:
DOW 18,339.24 110.94 0.61%
S&P 500 2,171.37 11.44 0.53%
NASD 5,318.55 12.84 0.24%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/28/2016 4:00 PM
AAPL $113.95 Up +0.86 +0.76%
Apple CAPS Rating: ****
GOOGL $810.06 Down -0.67 -0.08%
Alphabet (A shares… CAPS Rating: *****
MSFT $58.03 Up +0.08 +0.14%
Microsoft CAPS Rating: ****