Amidst all of the positive and negative opinion pieces and postings which followed Apple’s iPad announcement this week, the impact to software businesses are only starting to become apparent. I think Apple’s announcement that iWork pricing will be $9.99 per app is significant.
It’s game changing not for third-party ISVs already developing for the iPhone, since they’re used to charging 99 cents to a few bucks for an app. For Mac software developers like OmniGroup, it’ll be challenging. There is already a large Mac software ecosystem with apps priced in the $20 – $60 range. These ISV’s have continued to charge such prices even while iPhone app prices dropped a zero, because the difference in functionality and screen size between a Mac laptop and the iPhone is significant. The difference in what users can do is significant.
iWork on the iPad is a laptop/desktop experience, suitable for the vast majority of home and many business users. And yet Apple dropped a zero on the pricing, basically. With a presentation program, word processor, and spreadsheet available for $10 each, or $30 for the entire productivity suite, how will third party ISV’s charge $50 or $60 for an iPad version of their Mac software apps? Perhaps they can’t.
The problem, of course, comes when iPad gains measurable market share, not when rabid Apple fans line up for first-day sales. Give it a couple of years, and there’s a couple of million of these things floating around, and ordinary people buy fewer laptops and have iPads at home or for travel instead. They’ll get used to buying iPad apps for a few dollars more than a pure iPhone app. They’ll get used to being able to do 75, 80, or even 100% of what they used to do on their laptops or desktops (again, I’m talking about non-developers, non-IT professionals here).
And they’ll start rebelling against the notion that a multi-touch capable, gesture controlled, “natural” feeling user experience should cost $10 or $20, but when they need to sit down at a laptop or desktop computer and go back to keyboard and mouse, the OLD experience should cost $50, $100, or more.
So third-party ISVs should be preparing for another phase transition in software pricing, downward. As always, our demands for functionality and usability and seamless integration rise, and our tolerance for premium pricing drops.
But really who’s in trouble given this pricing is Microsoft. Despite iWork on the Mac, the reality is that Microsoft Office still has a lock on the productivity tools market. Especially in businesses. That hasn’t changed, and it won’t change tomorrow.
Nevertheless, anyone who thinks that Microsoft can continue to defend a price differential of hundreds of dollars for Office apps vs. iWork on the iPad, once the iPad gains market share, isn’t paying attention. Businesses, especially US-based ones, are increasingly challenged to control costs and compete in a tough economy.
Office Standard 2007 costs $400, but let’s say you upgraded from a previous version. And let’s say you’re a small to medium business, and for round numbers you’ve got 100 employees. To upgrade everyone to Office Standard 2007 costs you $23995. To instead purchase an application suite priced like iWork — $30 for the bundle, is $3000 for everyone in your company. You just saved $21,000.
Leave aside the details – whether desktop software really will drop to the iPad level. Whether the ease of interoperating with Office is such that businesses could afford to not have Microsoft Office on their desk. The latter is just a matter of development, and the arms race to break compatibility if you’re Microsoft and recreate it fast enough if you’re a third party ISV.
But one thing is clear. A year from now or five years from now, the combination of Apple and Google are aiming squarely to cut Microsoft’s desktop software business off at the knees. Who knows whether they succeed, but the ancillary effect will be a major restructuring of the economics of rich desktop software businesses, since they live in fitness landscape created by the interplay between these large players.
And significant as the iPad hardware might be (more on this in future posts), Apple just shifted the fitness landscape with a bold move on the software side of the industry, and we shouldn’t lose sight of that in the midst of discussing lacking USB ports and cameras and so on.