Apple’s 802.11n setting new standard in Computer costs
By George Gardner
Hi, I’m a PC. And I’m a Mac. PC: When you buy me, you get what you pay for. Mac: When you buy me, you must then buy software to unlock my hidden capabilities.
Apple confirmed that they plan to charge their customers a fee of $1.99 to download software that will enable 802.11n Wi-Fi capability in their MacBook and MacBook Pro systems with the Core 2 Duo and Intel Xeon, excluding the 17 inch 1.83GHz iMac.
The reason? To comply with the GAAP (Generally Accepted Accounting Principals); specifically, the part dealing with revenue recognition. It’s wrong, Apple’s wrong, and they are just looking for a good excuse to squeeze dollars from their valued customers.
Anyone who has taken any courses in Accounting would be familiar with the GAAP, and knows Apple’s excuse has no merit. Nowhere in the GAAP does it describe charging extra for services already rendered. The GAAP, rather, is more of a guideline for ethical Accounting practices, the manner in which you conduct yourself and your business while keeping records.
If it must be based on Accounting, I would rather have classified it under price discrimination; It fits. Charging certain customers who are willing to pay the extra money for a service now, and then lowering the cost in the future when the technology becomes more readily available for the ones who aren’t willing to pay the premium price. You watch; they will.
Apple knew this all along; They, now, are even trying to justify the added cost by claiming it’s the value of the software your paying for. The value of the software? Are you kidding me? You put a lock on my door, and now your charging me for the key?
Customers have already paid for these systems, and they’ve also paid Apple to embed an encryption on their integrated Wi-Fi cards. Don’t tell me a feature can be locked out of my computer without implied costs.
At this point, your probably asking yourself what the big deal is. It’s only $1.99. It is, in fact, the principle in this matter. It may start out at $1.99 for a much quicker Wi-Fi connection; which, in itself, wouldn’t be a bad purchase aside from customers already having to pay for the system. But where does it end?
Maybe we’ll see similar methods on MacBooks in the future; where, you’ll have to pay Apple an extra $100 or $200 to unlock additional processing power.
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January 20th, 2007
“Nowhere in the GAAP does it describe charging extra for services already rendered.”
But I think that’s the point – those who purchased iMac’s or MacBookPros with latent N equipment *didn’t* realize it had been rendered – and certainly can’t make use of it. And it can’t be utilized until you buy further enabling technology, but certainly increases the material value of that device when you do. And given Apple’s recent issues with the SEC, I seriously doubt they want to wait for someone to later interpret it as required.
(I think everyone is quoting Sarbanes Oxley here specifically)
January 20th, 2007
I believe that is beside the point. Whether they knew it or not, it was there, and they paid for it. I don’t believe the absence of advertising that the 802.11n was in the Macbook justifies charging customers to unlock it. I don’t buy it, and certainly never will. This will not be the first time this happens. Apple wants you to look the other way.
January 20th, 2007
They did not advertise it.They are giving you somthing you would have needed to pay $100 plus for 2 and they also do not want to brake the rules.It would not cost microsoft eny money to give everyone xp pro instead of home but they do it to make money you need to pay to upgrade your computer so y not for this.
January 20th, 2007
I know they didn’t advertise it; believe me, they wouldn’t be breaking any rules by offering it for free. I’m trying to make a point here; They manufature the 802.11n technology in the built in Wi-Fi card. That, in itself, costs money. I’m not saying charging for the technology is a bad thing, but the manner in which they are doing it is upsetting. So, I’m sure we can all agree that it is costing Apple some dough to integrate this technology on the chip, Right? We should be on the same level at this point.
Now let’s assume that no one in the world pays the $1.99 for the software to unlock the full capabilities of the Wi-Fi Card. If this be the case, who would be paying the extra costs that it took Apple to include this technology in their Macbooks?
Now this is where we will probably differ. Most will say apple is eating the costs; yet, I will tell you that you and Apple are paying for it. It’s simple economics; I can’t explain it too much in detail, but the costs are divided among you and apple based on the elastisity of the product. That is determined by the necessity of the product. I’m trailing off… In short, you are paying a good portion of the technology when you purchase the Macbook. This is an unfair practice.
Jonny, It does cost Microsoft extra money to develop XP Pro instead of Home. Therefore, it would cost them to give Pro in place of Home. Lets put it this way: There are 2 different operating systems, Pro and Home (I know there are more, but we’ll say 2 for this example) Why does XP Pro cost more than Home? The Answer – Microsoft does not want to charge basic users of their O.S. for technology that they don’t know how to use or even need for that matter. They have XP Pro for a premium price so the more advanced users that would like the extra features can pay for it themselves; otherwise, assuming there was just one version of an operating system, it would cost the same for all. But for the users who don’t need the technology (the XP Home users), they would have to fork out additional bucks to buy a computer with the ONE operating system.
Thanks for bringing that up, it’s a decent example. Apple could learn from Microsoft.
January 20th, 2007
Isn’t this just a little too much outrage over $1.99? Customers purchased these systems under the value proposition that they were getting 802.11g speeds. Their systems meet or exceed these specs. Customers got the expected benefit of the bargain.
Now Apple offers these customers significantly improved network speeds beyond those advertised for the paltry and nominal fee of $1.99. Customers are not required to make the upgrade and their systems will continue to operate at the advertised specs without it, but those who choose to will gain the benefit of substantially faster throughput that would have cost at least $100 otherwise… quite a bargain.
Your analysis above misses the point. Apple sold the vast majority of affected systems last fiscal quarter (Q107), which they have already recorded revenue for. The Sarbanes-Oxley Act made changes to GAPP that changed the playing field for recording software revenues. Under these changes, free software releases that add substantial features (as opposed to bug fixes) to previously sold software packages can be interpreted as a partial delayed delivery of the original sale.
If the previous sale is deemed to have only been partially delivered, Apple is required to have only recorded a portion of the sales as revenue for that quarter and carry the liability over to the next quarter. We already know that they have not done this, so this would require a restatement of Q107 revenue and would leave all software revenue uncertain subject to future updates throughout the lifespan of a software release.
The easiest way around this headache is to set and charge a nominal fee for the software update which GAPP deems as a second sale and which is accounted for in Q2 rather than a delayed delivery of a sale from Q1. As several have noted, the nominal fee Apple set for this update barely covers its overhead expenses in delivering the update so it is unlikely that Apple is realizing any revenue from this release. Furthermore it is likely that Apple will do little to nothing to prevent the patch from being freely distributed since it wouldn’t be losing any revenue from unauthorized distribution. So if you truly object to this nominal fee, feel free to source it otherwise.
In today’s litigious society, good corporate governance includes avoiding unnecessary litigation and as an Apple stockholder, I applaud them for their foresight.
If you are truly upset by Apple’s predicament in this case, appeal to your legislators to ammend or repeal the Sarbanes-Oxley Act. This won’t be the last unequitable outcome that this poorly written and executed law produces.
January 21st, 2007
Fantomesq, That comment was well thought out and very insightful. Yes, I do admit that it is a bit outrageous to be fighting this for just $1.99; My primary concern is that we will be seeing more of this in the future… At greater costs.
It’s possible I missed something; but was there a reason why Apple put the encryption on the 802.11n in the first place? You said, “The Sarbanes-Oxley Act made changes to GAPP that changed the playing field for recording software revenues.” You also stated that this was not a bug fix, yet, rather an addition of a substantial feature.
This feature was already partially/completely in the cost of the original system. When it comes down to it, your paying for the software; software which would not have been required had there not been a lock on the Wi-Fi’s extra speed in the first place.
If Apple wouldn’t be loosing any revenue from unauthorized distribution, why do they charge for this download? It’s more of an opportunity cost to them; I don’t know why they did this in the first place, and that troubles me.
January 21st, 2007
Hi George. Thank you for your response. I’m not aware of how Apple has implemented this but I could hazard a guess. 802.11n cards are backwards-compatible to g and b and can be restricted to either g or b through software. This appears to be what Apple has done since it will be upgraded to N through a software patch. They haven’t done anything to lock you out of N compatibility as much as having failed to include software which activates it.
The 802.11n ’standard’ is still developing. Building software features on unsettled standards is akin to building in shifting sands; one change to the developing standard and features fail. My understanding is that current 802.11n solutions from different vendors don’t interoperate. As such, if Apple had activated and advertised 802.11n compatibility months ago when these systems shipped, it would have had bigger problems on its hands when a now advertised feature inevitably failed to work with the 802.11n at Starbucks. A quick glance shows none of the major computer manufacturers touting 802.11n, probably for this reason.
In my experience, Apple enjoys being on the cutting (ney, bleeding) edge of technology and would be quick to tout a major advantage such as 802.11n if the balancing act of marketing advantage versus liabilities cut in their favor. Clearly it did not six months ago but Apple must have been reasonably certain that changes to the 802.11n standard in the interim could be bridged through software and firmware since they included the improved hardware.
It is truly a shame that an accounting law would act to tie the hands of a company in its attempts to serve its customers rather than merely reflect the true state of a company. The Sarbanes-Oxley act needs to be changed. It will continue to have major unintended effects on American corporations.
January 21st, 2007
> Jonny, It does cost Microsoft extra money to develop XP Pro instead of Home.
> Therefore, it would cost them to give Pro in place of Home. Lets put it this way:
> There are 2 different operating systems, Pro and Home (I know there are more,
> but we’ll say 2 for this example) Why does XP Pro cost more than Home?
Wouldn’t it be cheaper for them to just work on one version instead of developing a stripped down version in parallel? XP Pro delivers necessary functionalities that are missing from Home, this stuff needs to be developed anyway. It costs them extra to develop the downgraded version.