iLife, iWork and OS X Updates Will Continue to Be Free in the Future

Can someone explain to me what the last paragraph is about? I read the same thing in the financial results conference today. It mentions deferred revenue of $900 million, but what does this mean?

I am an accountant so let me try and explain.

This is an accounting rule that states that if your price covers more than one product, such as hardware and software, then you have to bifurcate and allocate the revenue generated between the products.

But there is another rule whereby you need to recognize revenue as either current revenue or future revenue. This is determined by when you earn that revenue by delivering the good that is apart of the price paid.

So in this case, Apple would get the cash for the product sold immediately, but could only recognize part of it for the current hardware and software. They need to then estimate the value of their expected future updates and "defer" that revenue until they perform the work to earn it and thus recognize it.

Basically, they are holding a liability that is an Unearned Revenue account that gets relieved into Revenue as they perform to earn that revenue, the principle for this is because there will be expenses incurred to earn that revenue which they must match with the deferred revenue to recognize it.

This is not really an obscure accounting rule at all to a profressional accountant. I was really quite shocked when I saw Apple had to charge for past updates, I actually used it as an example in my accounting seminar courses at school.

A good example of this principle is magazine subscriptions. The magazine gets the money all upfront for the year, but it is considered a liability called Unearned Revenue, and gets turned into Revenue as they deliver magazines. This is intuitive because the company has an obligation to deliver those magazines once they collect the subscription or they would owe the cash back and is the reason they cannot recognize it immediately.

Sorry for the long explanation, but it felt good to finally get to contribute something from my profession! :)

Great services + hardware + experience and ecosystem. Only Apple could do this currently.

A+ for Apple! :D

Excellent. Within a year, it might be back to what it was before they updated it. :D

I hope the next ones will contain pro-features. They should also integrate the pro features into the iOS versions.

Is this really a good thing?

What right do you have to complain about anything now? Less then you did before, because now everything is free. Removed features in iWork? Hey, it's free now. Buggy GM release for OS X? Hey, it didn't cost you anything.

This just seems like it's going to open the flood gates for even more of the same rubbish we've been subjected to recently, but now Apple can point at you and say "It's free, what more do you want?".

-SC

'Free' Doesn't Necessarily = Good

I really do not like the 'Free' model ... if 'Free' means an inferior product.
I would gladly pay $40, $50, $75, or $100 for an iWork that was more than just a glorified iOS version.

I am afraid that Apple is going to kill off or run off 'pro' users of their software.

Wish it was really free. Owners of iLife apps before '11 are still being charged for upgrades, a week after this was supposed to have been fixed.

If you own a Windows machine for 4 to 5 years then you are likely to upgrade Windows 2 to 3 times.

Source for that dubious assertion?

My experience in PC sales was that customers upgraded Windows every 6-7 years.

apple is so generous. but if you buy an expensive computer i guess its the least they could do

Exactly. For the just discontinued 15" MBP Apple charged $200.00 for a 1TB 5400 RPM hard drive option. That is, to install an $85.00 drive in the place of the $50.00 one the bill was a mere $200.00.

Apple options are full of hideously over-priced items. Now that things are glued, soldered and sealed the upgrade profits are huge. Some basic software can be given away for free without much financial stress.