In today’s Macworld keynote address, Steve Jobs indicated that the new features that were being offered to iPod touch users would cost $20 as an upgrade, whereas the new Apple TV features were being offered free. Now I own neither of these gizmos, but if I did, I’d be very excited about the free upgrade to one and I’d be annoyed about the fee for the other. So why is this?
A year ago, when Apple enabled 802.11n functionality in its Macintosh computers that had been sold as 802.11g machines, Apple charged $1.99 for the ‘enabler.’ The explanation at the time was that this was to satisfy some accounting rules under GAAP. One article covering the issue is Cnet’s Apple’s 802.11n accounting conundrum. From that article, we learn:
…because the company has already recognized all the revenue from the sales of those computers, it has to now charge customers at least a nominal fee in order to establish the value of its software upgrade and satisfy an obscure accounting regulation known as SOP 97-2, said Fox.
More recently, Cnet has discussed Apple’s accounting as it relates to the Apple TV and the iPhone in the article Accounting for iPhone, Apple TV’s future. The idea there is that Apple will sell those using a subscription model to account for the associated revenue, enabling them to roll out upgrades for free with no need for fees like the 802.11n enablers.
I can only conclude from this that the iPod touch is not handled via subscription modeling, making a fee necessary. That much makes sense to me, but why Apple feels compelled to charge $20 for something that they could have just as easily charged $1.99 puzzles me. From the short-term, obviously they want the revenue of the higher fee. From a longer term point of view, high fees remind Apple’s potential customers that early adopters are not appreciated at Apple. If you create in your customers the doubt that you will treat them fairly, at the very least you postpone sales and possibly you lose some of them altogether.
[For some older thoughts of the whole ridiculous kerfluffle and whining associated with Apple’s early iPhone price reduction, see here.]