What Apple’s zero pricing of iOS, Mac OS X, and iWork means

Apple’s announcements last week create a high water mark from several trends, and in one case we are witnessing a clean break with the past into a long-anticipated tomorrow.

The incremental improvements to the iPad line of products — over 170 million have been shipped in two years — continue, the best example of the rapid transition to companion devices (smartphones and tablets) away from desktop and laptop computing. While Apple is releasing new souped-up MacBooks and iMacs, they are starting to look like highly specialized devices particularly geared toward high-end applications — like film and music production — rather than office workhorses.

Microsoft unveiled its next tablet, the Surface 2, which is considered by those who have fooled with it a much better product than the Surface, but still not competitive with iPad and Android alternatives, and inferior to Nokia’s Lumia 2520, which also runs Windows RT.

Still, all these doings in one week underline the trend to companion devices, the steep decline of the old model of computing, and how rapidly our notions of productivity are changing.

And along those lines — the changing nature of work productivity — Apple’s biggest news has to do with its iWork tools. The release of OS X Mavericks led to an upgrade of the operating system and a new version of the beta iCloud implementation. I wrote about some of the more technical useage pros and cons earlier in the week (see Apple moves to edge out Microsoft Office and Google Drive), but the biggest change announced by Apple is not about the (relatively immature) coediting and document sharing of this iteration of iCloud. The big news is that Apple is making the iWorks software for iOS and Mac OS free with new hardware purchases. Note that it has also made the upgrade to OS X Mavericks free for everyone, not just for new hardware buys.

John Gruber at Daring Fireball makes the clear argument of how Apple and Google are pinching Microsoft in the operating system and Office software sales sector.

John Gruber, Thoughts and Observations Regarding This Week’s Apple Event Introducing the iPad Air and Retina iPad Mini

This puts Microsoft in a tight spot. Apple gives away software for free in exchange for your buying their hardware. This is not charity. It’s also in marked contrast to Google, who gives away software for free in exchange for selling your attention (and personal information) to advertisers. Apple and Google are squeezing Microsoft from both sides, and the result is that less and less perceived value in the industry resides solely in software. You can make money selling hardware (like Apple) or make money selling ads (like Google), but given the popularity of Apple’s hardware and Google’s apps and services, it’s getting harder for Microsoft to make money by selling software.

Well, to narrow that down a bit: it’s going to be incredibly hard for Microsoft to make money selling Windows or Office when people are getting Google Docs/Drive and Apple iWork/iCloud for free.

Microsoft’s recent quarterly results (see Microsoft results point to the future, one that is all business) show that the growth area for Microsoft is in enterprise software, and losing the dominant position of Microsoft Office would be an enormous strategic blunder.

I am betting that the next Microsoft CEO — which should be on point in the next few months — if he or she has any awareness of where the winds are blowing should quickly move to drastically drop the price of Office and Windows, and best would be dropping the price to zero. For everyone, on every platform, including Android, iOS, and Mac OS X.

This battle isn’t about near-term software revenue, it’s a battle about one of the cornerstones of the working world: creating and sharing documents. Microsoft will have to forgo the cash flow from Office and Windows in order to keep in close contact with the information sharing habits of people everywhere.

The other side of those habits is the emergence of file sync-and-share platforms, like Dropbox, Box, Hightail, and Intralinks, that backfill a gaping pothole in today’s operating systems: the lack of a distributed, virtual file system that leverages our ubiquitous connectivity to the internet (see The future of work: new paths to productivity). Microsoft, Apple, and Google are fighting back with Skydrive, iCloud, and Drive, respectively, but ultimately will have to build that functionality into the operating system level. (That will most likely happen by acquisition, although why it hasn’t already escapes me.)

And yes, those super-duper next generation operating systems with built-in file sync-and-share functionality will also be for free as they become increasingly social.

It appears that three approaches are appearing — if Microsoft does what I propose:

  1. Apple will give OS and office software away, to get you to pay a premium for their hardware.
  2. Google will give OS and office software away, to get you to give information for targeted advertising.
  3. Microsoft give OS and office software away, to get you to buy their enterprise software.

This is a really profound shift at the foundation of office (so-called ‘productivity’) software.