Apple Services: OS X and .mac for One Fair Price

Oliver Thylmann asks the right question on OSNews, "Could Apple go subscription?" Or, better yet, "Should Apple go subscription?"

It's not unlike questions raised here on Low End Mac and elsewhere on the Mac Web, but Thylmann does some number crunching. He makes a good point, as do some respondents to his article.

The Numbers

Apple has 2.5 million OS X users and 2 million iTools users. If all of those OS X users upgrade to Jaguar at $129 and all the iTools users upgrade to .mac at $49 the first year, Apple would pocket a tidy $420 million in one year. Nice.

Of course, not all OS X users will upgrade. Whether this is because they don't hear about Jaguar or can't afford it or don't see the need to is irrelevant. And some OS X users will get reduced cost education and site license pricing, which will also reduce Apple's take. Still, you've got to figure a minimum 1.5 million upgrades at possibly an average price of $79.

The fate of .mac switchers is another story. Surveys on various websites seem to indicate that maybe 15-20% of iTools users will sign up for .mac. Let's call it 300,000 renewals at $49 each.

Between OS X updates and .mac signups, that's maybe $130 million. Not a bad number at all.

The Package

Thylmann suggests that Apple stop selling the Mac OS and switch to selling services - .mac plus OS X upgrades for $120/year. It's an interesting idea, but not quite the right one.

He's right on the money: Apple should be selling services. They're already doing it with .mac and the OS X Maintenance Program. Services will provide Apple with a much steadier stream of income than selling software updates.

Where Thylmann misses the mark is in suggesting that Apple stop selling the Mac OS. That's just wrong, and it's the same kind of thing a lot of businesses are rebelling against with Microsoft's latest upgrade marketing system.

Apple should push services, but the shouldn't stop selling software separately. Give the users a choice, showing once again the Apple thinks differently than Microsoft.

The Price

Costs

What does Apple lose by offering a services package including OS upgrades and .mac for $120 a year? Based on the cost of switching from iTools to .mac and buying Jaguar ($49 + $129 - $120), Apple would be out $58.

But is that number realistic? No, because Apple isn't the only one selling Jaguar - some online dealers are already offering it at $10 off, and Apple has to sell it to them at a low enough price for them to turn a profit. With Apple still refusing to offer any kind of discount for current OS X users to upgrade to 10.2, a lot of people who want to upgrade will be looking at alternatives to buying from the Apple Store. Instead of taking in $129 for each copy of Jaguar, maybe Apple only takes in $90 for each copy sold through distribution. (Maybe more. Maybe less.)

Suddenly Apple's lost profit drops from $58 to maybe $20.

Benefits

It's no great secret that the same retailers will be selling a one-year iTools, er, .mac package for as little as $80 or so, although it looks like Apple will be collecting the $99 per year after the first year.

But let's review the numbers. About 2.5 million current OS X users. About 2 million iTools users. By offering OS X upgrades (to those who already own OS X) and .mac for $120 per year, Apple will probably convert a lot more iTools users and get a lot more Jaguar upgrades. A lot more.

And Apple could offer all sorts of different packages:

• Apple Services, single user, $120/year
• additional mac.com email addresses, $10/year
• additional mac.com web space, varies by amount of space
• Apple Services, multiple users, $120/year plus $75 per additional computer and .mac user
• Apple Services, medium site, $700/year for 10 computers and 10 .mac accounts, $70 per additional computer and .mac account
• Apple Services, large site, $3,000/year for 50 computers and .mac accounts, $60 per additional computer and .mac account
• Apple Services, huge site, $10,000/year for 200 computers and .mac accounts, $50 per additional computer and .mac account

And I'm sure there'd be even better deals for educational institutions.

The Market

I have no intention of signing up for .mac services. The only thing I ever used was email. I would like to upgrade to Jaguar, but not at $129. Amazon.com 's $79 after rebate offer was very tempting, but it's gone now. Still, the price was right.

My wife is very impressed with iCal, so her business would be a strong candidate for Jaguar - but at $129 times three iBooks, that's a fair bit of change just to coordinate calendars. On top of that, her employees would have to become acclimated to OS X, which hasn't been installed on either of the blue iBooks.

Students, parents, home users, small office users - there's a huge list of Mac users very concerned about value. The cost of .mac is hard to justify, so a lot will be surrendering their mac.com email accounts. And the cost of OS X 10.2 is hard to justify, so a lot will postpone or skip upgrading, fragmenting the OS X market far too early in the development cycle.

By offering a services package for $120 per year, the value equation changes completely. We get our Jaguar for about the same price we'd pay a discounter, we get to upgrade our iTools account to .mac, and we stop griping about how Apple is sticking it to us by taking away our email address or not giving us a price break for upgrading to Jaguar. Apple gets a steady and growing income stream - and keeps most of the OS X users on the same page.

One year. One price. Two system updates mailed on CD-ROM, the rest available by download. $120 would be a fair price. $150 would probably be very attractive. Much higher than that, though, and the value diminishes.

It's a win-win situation. Apple Services.

Apple, are you listening?