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Will Apple Make iWork Free on New Macs?

By Daniel Sparks - Sep 15, 2013 at 10:00PM

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It's free on iCloud. And now it will be free on iOS. But what about on OS X?

iWork. Source: Apple.com

First, iWork was free on iCloud, and now it's free on iOS, too. But there's one crucial component missing to Apple's software-bundling value proposition: What about free iWork on new Macs?

The case for bundling
Apple's iWork consists of Pages, Keynote, and Numbers. It's the equivalent of Microsoft's (MSFT -0.26%) Word, PowerPoint, and Excel, respectively. Currently Apple's first-party productivity suite retails for a total of $60 on Apple's Mac App Store. With the suite now free on both iCloud and iOS, there's little reason for Apple to continue selling the suite for a profit.

"Office is the gold standard and iWork is a minuscule fraction of the market," fellow Fool Evan Niu explained. With that said, Apple may be better off using the mediocre suite as a small perk to inspire hardware sales -- where Apple makes the majority of its Mac-related revenue anyway.

A tiny portion of Apple's business
Apple's iTunes, software, and services segment accounts for just 11.3% of Apple's revenue in the third quarter. Of course sales of Apple's iWork suite represent only a fraction of this segment's total revenue.

Apple's iWork software, therefore, contributes only a small portion to Apple's business. On that note, it's very possible that a decision to bundle iWork on Macs could provide an outsized gain in hardware revenue despite a loss in first-party software revenue. The company has already rationalized the benefit to make the move on iOS. Is free iWork on Mac next?

A final justification
To illustrate the paltry significance of Apple's iWork suite, compare it with Microsoft's business division, its segment related to sales of Microsoft Office. In the company's most recent quarter, the segment reported an operating profit of $7.2 billion for the division. According to Horace Dediu's estimates, Apple's first-party software likely contributed just $3.6 billion in revenue for the entire year of 2012.

As Evan said just a few months ago, Apple could easily make iWork free on OS X "while putting a little bit of pressure on Google and Microsoft at the same time."

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Fool contributor Daniel Sparks owns shares of Apple. The Motley Fool recommends Apple and owns shares of Apple and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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