Apple launches a series of free software products, which will have a significant impact on Microsoft.

**October 27 News**: According to an article published on the American tech blog TechCrunch on Saturday, Apple announced this week that a series of software products would be made available for free. Among these, iWork will be provided free of charge to new buyers of OS X and iOS devices. Given that these products are still "cash cows" for Microsoft, this move will have a noticeable impact on Microsoft. As a result, Microsoft has already begun addressing this issue.

The following is the main content of the article:

Apple announced this week that it would offer the iWork office suite for free to new purchasers of OS X and iOS devices. Additionally, all OS X users would receive a free upgrade to OS X 10.9 "Mavericks." Meanwhile, Microsoft recently started offering Windows 8.1 upgrades for free to Windows 8 users, bundled Office with Windows RT, and sold Office as a service through its Office 365 product.

The overlap in strategies and current product lines between the two companies will affect short-term revenue and long-term profit margins for both software and hardware businesses. The relationship between the largest computing platforms—Windows, iOS, and OS X—is becoming increasingly tense. In light of recent important updates to these platforms, the transformation of Office, and Apple's decision to provide its office suite for free, the future development of the software industry is very much worth watching.

**Operating Systems**

1. Apple does not directly charge for OS X. When consumers buy a Mac, the price they pay includes the cost of developing and upgrading OS X.

2. Most of Microsoft’s Windows revenue comes from licensing sales to hardware partners, and consumers rarely directly pay for Windows. However, consumers may more easily feel the cost of Windows. There are rumors that the cost of one copy of Windows is about $80, which hardware manufacturers pass on to consumers. For most consumers, however, the concept of the cost of operating systems, whether OS X or Windows, is quite vague.

3. It is no coincidence that both companies have started providing system upgrades for free. Charging for system upgrades can lead to version fragmentation issues. Currently, the impact of version fragmentation is greater than ever because operating systems now integrate many software and services.

4. OS X "Maverick" and Windows 8.1 are not suitable for direct comparison. The former can upgrade multiple versions of OS X, while Windows 8.1 can only upgrade based on Windows 8.

5. If you think that Apple provides some things for free while Microsoft still charges, that is not entirely correct. Regardless of which company, there is money flow between the operating system development team and internal and external hardware development teams.

6. Both Microsoft itself and third-party manufacturers are developing Windows hardware products, so the situation is more complex. This involves complicated financial flows and accounting operations, but what consumers see is just the final product price.

7. This raises another issue: Apple's hardware profit margin is high, while the profit margin of hardware manufacturers on the Windows platform is low. If these manufacturers do not pay the Windows license fee, they can still achieve good profit margins. Therefore, Apple's high hardware profit margin can be regarded as the cost of the operating system.

8. In cases where products consist of both hardware and software, it is difficult to distinguish which profits come from software and which come from hardware.

9. Therefore, directly comparing the costs of Windows 8.1 Pro and OS X "Mavericks" is unreasonable, but Apple's approach undoubtedly pleases users.

**Office Software**

Meanwhile, Apple announced plans to make iWork office suites free, which previously cost $10 per application. Subsequently, Frank Shaw, Microsoft's corporate communications director, wrote a blog post stating that iWork is not widely used and lacks powerful features, so this decision to make it free was "insignificant." He believed that Apple was merely trying to catch up with Microsoft, and Microsoft was not worried about it.

An article in *Fast Company* stated that making iLife and iWork suites free would impact Microsoft because Office remains one of Microsoft's main sources of revenue. Although iWork is not as popular as Office, this move would not favor Microsoft's plan to charge for Office. Microsoft decided this year that the annual subscription price for Office 365 would be $99. Apple executive Eddy Cue even pointed out that "others need you to pay a little bit" to use their software.

TechCrunch believes the situation in the office software market is as follows:

1. iWork is a complementary product line for Apple, and even if each application sells for $10, it won't significantly impact performance. In contrast, Microsoft's enterprise business generated $7.2 billion in revenue last quarter.

2. Making iWork free will negatively affect Office in the short term on the Mac platform. However, since it is unclear how popular Office is on the Mac platform, it is difficult to estimate the resulting impact.

3. Office for Mac contributes little to Microsoft's enterprise business revenue, so making iWork free will not have a significant direct impact on Office revenue. Since Microsoft sells large quantities of Windows versions of Office to enterprise customers at extremely high profit margins, the impact of making iWork free is almost negligible.

4. The primary threat posed by making iWork free lies in lowering the cost of office software, which is a major source of income for Microsoft. If Apple can change consumer perceptions and cause consumers to stop paying for office software, it could deal a fatal blow to Microsoft.

5. Microsoft also bears some responsibility for the current situation. By bundling Office into Surface 2 and Surface tablets, Microsoft mixed the cost of Office with Windows, whose cost is already mixed into the hardware. Microsoft did not charge monthly fees for these copies of Office, thereby devaluing Office. Microsoft likely does not welcome this situation, but seems to have no better options.

6. Microsoft has realized that the traditional business model for Office is no longer applicable, and the era of boxed software has ended. For example, Adobe and Microsoft are currently transitioning to the software-as-a-service model.

7. Microsoft needs to protect Office revenue while adjusting its business model. Considering that this department generates approximately $80 million in revenue daily, this is not a simple task. It's like participating in a fierce car race while repairing the car at the same time.

8. Microsoft believes that it can partially offset losses in its software business with the higher profit margins of Surface 2 hardware, but hardware partners cannot adopt the same model. When Apple begins to threaten Microsoft's software business, Microsoft can use its hardware business as compensation, but this also intensifies competition between Microsoft and its hardware partners.

9. Microsoft still holds some advantages over Apple, as Office remains the most popular office suite globally. For instance, Office 365 currently generates $1.5 billion in annualized revenue. Within 200 days after Office 365 launched, it had already acquired 2 million paying users.

In summary, Apple is challenging Microsoft's "cash cow," but only on its own system platform and only for new users. In the past, despite lower prices, there was always limited demand for Apple's office suite, while Microsoft's products were more competitive. However, Microsoft has realized that the traditional model is dying, so it is adjusting Office to create new sources of income. In this context, Apple has turned office software into part of the operating system, selling it to users along with hardware.

This model is attractive, but considering that Apple is not among the top five PC manufacturers, the challenge posed by iWork mainly exists in the mobile field. Can Apple become the dominant player in the mobile office software market? At least to some extent, the free iWork will impact Microsoft in this area. However, the iPad currently lacks strong keyboard accessories, so it is difficult to gauge how much effect the free iWork will have on the new iPad.

**Tensions**

Currently, the integration of software, services, and devices is becoming increasingly tight. These three aspects are elements of a platform and serve as capital to compete against other platforms. Therefore, it is still difficult to answer how much impact the free iWork will have. Apple is undoubtedly lowering the price of its software products to a level that consumers are willing to pay. This means that Microsoft will need to follow suit while finding new revenue streams through app stores and hardware.

The pressure on Microsoft from falling software prices due to the integrated Office in Surface 2 is already evident. However, demand from large clients will continue to protect Microsoft's enterprise business, giving it enough time to find a path for transformation.

Microsoft is responding to unfavorable market trends, and Apple is pushing further on this basis. The key question is: who will ultimately win?