OS X Lion: At $29.99 Apple Applies Pressure to Microsoft
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Yesterday’s trio of announcements by Apple were like manna even for ardent Apple critics. With new versions of OS X and iOS on the way, Apple also announced iCloud, a set of cloud based services meant to replace aging MobileMe. There was a lot to like. While comparisons between OS X Lion and upcoming Windows 8, and iOS5, Android and Windows Phone 7 are inevitable, I continue to be impressed with Apple’s focus on making life easier for its users. All three initiatives (Lion, iOS 5, iCloud) are major steps forward. Which bring me to an interesting point. Pricing.
OS X Lion will be released via the Mac App Store for $29.99. Yes, $29.99. OS X users will remember that the current version of OS X, Snow Leopard (10.6) was also $29, but Snow Leopard was positioned as a minor update to Leopard (10.5). Lion will be different in several ways. First, Lion will only be available with the Mac App Store. No disk based distribution. Second, Lion can be installed on all home computers for $29.99–one, two, three, or ten, it doesn’t matter. They all get Lion for a one-time charge of $29.99. Third, Lion will ship as unified client and server versions.
If one is to believe the Apple marketing machine, the Mac continues to gain market share in the personal computing market–a market that shrunk by ~1% for maybe the first time ever.
This led me to think about the pricing pressure on Microsoft as they contemplate the next version of Windows, Windows 8. The Apple model is different in two very important ways. One, every copy of Lion will be installed on a device built by Apple and on which Apple has earned margin. Two, the Mac App store gives Apple a share of the revenue on many of the apps & applications which run on its OS. Apple is moving the personal computing business model toward the wildly successful iOS/iPhone/iPad model. Lion is the next step.
At $29.99, Lion should bolster Apple’s OS market position while applying a significant pressure on Microsoft to sell the next version of Windows for much less than it has historically. This cannot come at a worse time for Microsoft. Already facing pressure from Google in its core productivity application Microsoft Office, Microsoft now faces an OS challenge from Apple that like the threat from Google, applies downward price pressure, but more importantly changes the underlying business model.
Take the new app business model of Lion and bolster it with iCloud services and the way we think of operating systems fundamentally changes. Apple is truly moving us into a post PC era and they aren’t afraid to cannibalize current products, profits and business models to get there. Apple’s willingness to innovate on behalf of its customers is reflected in its current share price (AAPL) and market capitalization.
