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How Apple is playing hardball with Microsoft

Apple's seemingly innocuous move to free its operating system and business suite software is just the tip of the iceberg

November 11, 2013 12:31 PM ET

Computerworld - Tucked in amongst Apple's several hardware debuts last month was the announcement that the company would stop charging for its OS X and iWork office suite software. Why is Apple willing to forgo this small revenue stream? How might it affect IT buyers? The move is an interesting one on several fronts.

Although Apple has been a software vendor for a long time, it thinks and acts more like a hardware company. And given its large hardware margins, why not? On the same day it made software free, it also announced cuts to some of its most popular Mac hardware. Over the course of 2013, Apple has reduced the average selling price of Mac computers by about $150. The addition of free business-oriented software heightens the perceived value of Apple's computers, which may be a bid toward increased market share. I'll return to this point in a moment.

It can be argued that Apple making OS and office-suite software free follows a strong trend toward free software in the burgeoning mobile market. After all, iOS has been free for a long time. Clearly, Apple wanted to put OS X and iOS iWork apps to in one code base, a logical step that requires the two platform versions to have identical feature sets. Among other things, that lets Apple devote fewer software engineering resources to the iWork effort.

A free Mac operating system means faster user adoption, which in turn spurs app development for the newest versions of the OS. Net Applications' research shows that 11% of all Macs were already running OS X 10.9 Mavericks by the end of October. According to Computerworld's Gregg Keizer, that's the fastest start of any OS X upgrade.

Those are some key internal reasons why Apple is making some of its software free. The much more interesting scenario plays out around the external reasons. Apple is blowing Microsoft's doors off in terms of mobile market share. The long-time roles of these two companies have reversed: Microsoft is not only losing the mobile OS war, winning is a long shot at best. And Apple is playing its position to the hilt, trying to disrupt Microsoft's business model. At first I wasn't sure this was really happening, but the evidence shows that it is.

The announcement of Steve Ballmer's retirement, the faltering of Windows 8 and Surface Pro and the tiny Windows Phone installed base are just some of Microsoft's recent failures. Apple is subtly kicking Microsoft when it's down. It's no coincidence, for example, that barely a month after Microsoft announced that Windows 8.1 upgrade, Apple responded by cutting all charges for OS X and iWork.

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