OS X Lion's download-only distribution will hurt retailers

Computerworld - Apple's decision to sell the Mac OS X Lion upgrade through its own Mac App Store won't hurt the company's bottom line but will certainly impact traditional retailers, a market analyst said Friday.

"The Best Buys, the Staples, the PC Connections, they all still have a decent Mac software business," said Stephen Baker of retail research firm NPD Group. "This will have an impact on all those guys. [The release of an OS upgrade] is always a good opportunity for them to connect to customers, get them into the store and thinking about upgrading their devices."

And with Apple pushing Lion only through its download Mac App Store, those retailers will be out of luck this time around.

Likely forever, said Baker.

"The software business is in the throes of significant changes, and [Apple's move] is a part of that," said Baker. "The whole business is clearly changing how operating system developers deliver upgrades."

On Monday, Apple announced that it would start selling Lion on the Mac App Store some time next month for $29.99.

Baker declined to estimate the impact of Apple's decision on U.S. retailers, saying it was impossible to gauge because NPD has no insights into how much revenue the Mac App Store was generating or how customers will react to Lion.

But he said that Apple would easily make more money on Lion than it did on the predecessor, 2009's Snow Leopard.

That upgrade sold $29, but because it was a traditional DVD-based boxed product, Apple didn't bring in as much per unit as it will with Lion as a download-only title.

Two years ago, NPD said its data showed Snow Leopard had sold twice as many copies in its first two weeks of availability than the 2007 upgrade to Mac OS X 10.5, aka Leopard, which was priced at $129 for a single license, $149 for a five-license Family Pack.

Baker wasn't surprised that Apple will use its Mac App Store to sell Lion.

"The software guys always resented the retail distribution and its physical costs," said Baker. "They're used to selling bits and bytes."

During the Monday keynote at Apple's Worldwide Developers Conference (WWDC), Philip Schiller, the company's head of marketing, claimed that the Mac App Store was the world's largest seller of personal computer software, and was beating Best Buy, Wal-Mart and Office Depot in that arena.

But other factors beyond cutting out the middleman were probably more important to Apple.

"This affords them an additional level of control," said Baker, referring to Apple's well-known fondness for holding tight to the reins of business, from hardware and software design to retail with its own chain of stores. "For them, controlling the user experience [of purchasing and upgrading] is more important than the money."

Baker expects that Lion will do well, but cautioned that even in the best circumstances, revenue generated by the upgrade will be "just a footnote" to its total income.

Apple may be taking an unprecedented sales step with its desktop operating system, but the company's not only following an existing trend but will be tailed by others, including Microsoft, said Baker.

"There's no [retail] upgrade cycle for tablets or smartphones," Baker observed, adding that Lion's use of the Mac App Store is just an extension of those models.

"And it's clear that Microsoft will on some level go to an app store in Windows 8," Baker continued. "The question is whether their app store is a controlled environment, or whether they'll work with their OEM and channel partners. I think there will always be ways for retailers and OEMs to participate in software sales. Microsoft is fundamentally a good channel partner."

While Microsoft showed some parts of Windows 8 on June 2, it has said nothing about integrating an application store in the new operating system. Earlier, however, several Windows bloggers reported finding signs of one in leaked previews of the OS.

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

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