Apple's $0.99 FaceTime Charge Due to Accounting Requirements

[aristobrat]

If they can get a million people to buy it, thats a million dollars in their account. Thats not "negligible" by any means, even for a large company..

They are also obligated to book all costs it took to get this product to market against the revenue they earn from it, so don't kid yourself that they're looking at 100% profit for every $.99 that they sell.

Anyway, it's good we have MR detectives on the case to expose these evil dealings.

These threads have been happening since January 2007 when Apple charged for the 802.11n-enabler. They've continued every year since when Apple charged for the iPod touch update. No researched article I've seen posted on the matter (by sources like cnet, wired, arstechnia) over the last four years have ever disagreed with the accounting reason behind the charges.

 

[mosx]

Have you even bothered reading the letter that Apple's Controller sent to the Chairman of the Financial Accounting Standards Board in regards to this matter?

The letter was pretty clear that the only thing Apple was asking was to not have to use subscription accounting in order to provide updates to "software enabled products", like (quoting the letter) "PDAs, cell phones, and MP3 players as well as less obvious examples like audio and video equipment, medical devices, automobiles and home appliances".

Software for computers doesn't fall under subscription accounting, and thus isn't affected by this change in rules. That's why it applies to devices like iPods and not traditional software for computers.

http://arstechnica.com/apple/news/2...es-change-could-end-ipod-touch-update-fee.ars
http://www.fasb.org/cs/ContentServe...ASB/Document_C/DocumentPage&cid=1176156438101

Assuming you're right (and you're not), why don't other companies charge for feature updates to their computers? HP, Dell, Toshiba, Sony, etc. do NOT charge for feature updates released for their computers via firmware or software. So why does Apple?

They are also obligated to book all costs it took to get this product to market against the revenue they earn from it, so don't kid yourself that they're looking at 100% profit for every $.99 that they sell.


These threads have been happening since January 2007 when Apple charged for the 802.11n-enabler. They've continued every year since when Apple charged for the iPod touch update. No researched article I've seen posted on the matter (by sources like cnet, wired, arstechnia) over the last four years have ever disagreed with the accounting reason behind the charges.

Don't kid yourself thinking this is legitimate. Apple is the ONLY company that does this. The ONLY company. HP, Dell, Toshiba, etc. do NOT charge for software or firmware feature updates for their systems. Sony and MS do NOT and have not EVER charged for updates to their gaming consoles.

You should do some better research yourself, because there were plenty of articles and links posted around the beginning of 2007 that had statements from Accountants questioning what "rule" Apple was citing for their action.

This is, again, just another example of Apple giving it to consumers with absolutely no regard for anything other than margins.

 

[iEdd]

This is, again, just another example of Apple giving it to consumers with absolutely no regard for anything other than margins.

All this so that the company can gain the equivalent of me handing you $100.

 

[aberrero]

It isn't about increasing their profits, it's about inflating their profit margins to keep their investors happy.

This is free money for them. They can cover all the costs from developing facetime with the sales of this app. That way, they won't have to pay for it from laptop sales and can then make their hardware profit margins look better than they actually are.

 

[aristobrat]

Assuming you're right (and you're not), why don't other companies charge for feature updates to their computers? HP, Dell, Toshiba, Sony, etc. do NOT charge for feature updates released for their computers via firmware or software. So why does Apple?

Of the decade + that I've used Dells, I've never seen Dell provide an update that Dell themselves created that added substantial new functionality that didn't originally ship with the computer. If other manufacturers have written their own software that added new functionality after purchase, I'm unaware of it.

Sony and MS do NOT and have not EVER charged for updates to their gaming consoles.

Umm, perhaps like Apple chose to do with the iPhone and AppleTV, they use subscription accounting for their software-enabled gaming devices, which allows for free updates?

You should do some better research yourself, because there were plenty of articles and links posted around the beginning of 2007 that had statements from Accountants questioning what "rule" Apple was citing for their action.

Right, lots of initial accusations and confusion that went nowhere. Now that the accounting has been better investigated and understood, do you have a recently posted researched article that disagrees? You're quick to call me wrong, but are you also calling the research of cnet, wired and arstechnica wrong? They've put way more actual leg work into investigating the matter than either you or I.

This is, again, just another example of Apple giving it to consumers with absolutely no regard for anything other than margins.

If Apple only regarded margins, it would make no sense for them to have lobbied the FSAB to be able to "give away" the yearly iPod touch iOS update that they had previously charged $5+/year for.

 

[aberrero]

Nokia shipped an update to the N800 that added an FM radio to it.

And no, I didn't have to pay for it, and no, it was not advertised(in fact, they denied it even had a radio until somebody opened it up and saw the chip).

 

[aristobrat]

Nokia shipped an update to the N800 that added an FM radio to it.

And no, I didn't have to pay for it, and no, it was not advertised(in fact, they denied it even had a radio until somebody opened it up and saw the chip).

Cell phones are the typical example of devices where manufacturers chose to use subscription accounting. Subscription accounting allows for free updates of the devices.

Regular computer software, like FaceTimeHD, isn't done under subscription accounting. When Apple launched the iPod touch, they (for whatever dumb reason) chose NOT to use subscription accounting. This meant that they had to charge for iPod touch updates that added major new functionality.

Apple and others lobbied to have the rules about updates to software-enabled devices (like the iPod touch) changed. This allows them (and others) to provide updates for devices like that without having to subscription accounting.

They didn't ask for the rules regarding computer software accounting to be changed.

 

[definitive]

greedy apple is greedy

 

[Steveorevo]

Video mail?

I'll gladly pay 10x that when/if they bring video mail or a video answering machine feature. I know it's redundant to MMS, but you can't get MMS on the desktop and the convenience of it all would be great. Sometimes I can't answer FaceTime, but a message from my 5 year old niece would be just as cute.

 

[aberrero]

Cell phones are the typical example of devices where manufacturers chose to use subscription accounting. Subscription accounting allows for free updates of the devices.

The N800 is not a cell phone, it is a wifi-only tablet. There was no subscription for anything.

 

[aristobrat]

The N800 is not a cell phone, it is a wifi-only tablet. There was no subscription for anything.

Ah, sorry. But it still falls under the category of "PDAs, cell phones, and MP3 players as well as less obvious examples like audio and video equipment, medical devices, automobiles and home appliances".

Subscription accounting has nothing to do with charging the owner a subscription of any type (like a cell phone contract). It has to do with the manufacturer booking the revenue of the device over a subscription. For example, an AppleTV that sold at $199. If you bought one in May and Apple didn't do subscription accounting, they could say all of that $199 goes towards May's revenue. But since they use subscription accounting instead, they take 1/24th of that $199 and add it to each months revenue starting in May (and going forward the next 24 months). Which makes it a pain to deal with, accounting wise, just to be able to provide free updates to it. Thus Apple and others lobbying to be able to do the free updates to software-enabled devices without having to do the subscription accounting.

 

[neko girl]

These threads have been happening since January 2007 when Apple charged for the 802.11n-enabler. They've continued every year since when Apple charged for the iPod touch update. No researched article I've seen posted on the matter (by sources like cnet, wired, arstechnia) over the last four years have ever disagreed with the accounting reason behind the charges.

They have $50B+ sitting around. I think they can cover this. Consider it as an investment in buying out negative advertising.

 

[pooprscooper]

Oh look, new OSX update provides new features not advertised on the OSX web page. Time to start charging .99 since it's "only" a dollar you cheapskates. If you can afford a Mac you can afford being nickel and dimed at every corner.

 

[aristobrat]

They have $50B+ sitting around. I think they can cover this. Consider it as an investment in buying out negative advertising.

Read the FASB's SOP 97-2. I don't see where Apples cash-on-hand can be used to cover this.

 

[neko girl]

Read the FASB's SOP 97-2. I don't see where Apples cash-on-hand can be used to cover this.

Got a link?

 

[aristobrat]

Got a link?

http://www.fasb.org/cs/BlobServer?b...here=1175820923123&blobheader=application/pdf

 

[neko girl]

http://www.fasb.org/cs/BlobServer?b...here=1175820923123&blobheader=application/pdf

I'm assuming this is the justification here:

.07 Software arrangements range from those that provide a license for a single software product to those that, in addition to the delivery of software or a software system, require significant production, modification, or cus- tomization of software. If an arrangement to deliver software or a software system, either alone or together with other products or services, requires significant production, modification, or customization of software, the entire arrangement should be accounted for in conformity with Accounting Research Bulletin (ARB) No. 45, Long-Term Construction-Type Contracts, using the relevant guidance herein, and in SOP 81-1, Accounting for Perform- ance of Construction-Type and Certain Production-Type Contracts [section 10,330].4

Well, that's good and fine but:

.03 In connection with the licensing of an existing product, a vendor might offer a small discount (for example, a coupon or other form of offer for five percent off) on additional licenses of the licensed product or other products that exist at the time of the offer but are not part of the arrangement. Such marketing and promotional activities are not unique to software and are not included in the scope of this SOP.3

Your point was that the document is an absolute guidance on how the accounting for distribution and licensing of FaceTime should be handled. However, it seems like there are plenty of variables outside the scope of the accounting SOP, specifically:

• People owning iPhones who are already licensed similar software, who could technically be granted a discount, outside of the guidelines in the SOP
• Interpretation of requires significant production, modification, or customization of software - this seems largely inconsistent and could be subjectively applied. Is a Mac OS X point release more significant work than a FaceTime app? I would think the validation work alone is more tedious even in a point release for OS X than this application.

But you seemed to have missed the point.

The SOP is a recommendation and not a legal requirement (as the document seems to indicate). Instead of throwing the book at its customers, Apple could easily cover the costs and report it as such (good will) in their next earnings report.

 

[charlituna]

Wasn't this also their excuse for charging iPod touch users for software updates?

It wasn't so much an 'excuse' as a requirement under laws that have since changed.

Personally I don't get what all the fuss is about. It's one dollar. 1/80th of what they make you pay for a new version of ilife when you want to upgrade your computer.

My beef is that they made it sound like this was a connection protocol, so why not combine it into ichat. It is possible that the same rules prohibit it until they do an OS upgrade. At least I hope so. I would like to see ichat function more like Trillian and such. One program for all kinds of chatting and social stuff.

 

[jicon]

So... why don't I have to pay for Safari, Quicktime, iTunes, or AirDisk on Windows? Is it because they don't have a tight store model offered thru iTunes or AppStore to charge for those pieces of software? I'm betting I'm right....

BTW, I'm certainly glad Apple didn't charge us to download the AppStore. Guess accounting rules go out the window for that piece of software...

Annoyed that they arbitrarily chose an amount to charge... What was it? $4.99 to enable Wireless N.. $14.99 for iPod's first update... $9.99 for the next one (which included all software available in the $14.99 'feature'), and forget what they charged next....

 

[PurdueGuy]

So... why don't I have to pay for Safari, Quicktime, iTunes, or AirDisk on Windows? Is it because they don't have a tight store model offered thru iTunes or AppStore to charge for those pieces of software? I'm betting I'm right....

BTW, I'm certainly glad Apple didn't charge us to download the AppStore. Guess accounting rules go out the window for that piece of software...

Annoyed that they arbitrarily chose an amount to charge... What was it? $4.99 to enable Wireless N.. $14.99 for iPod's first update... $9.99 for the next one (which included all software available in the $14.99 'feature'), and forget what they charged next....

Safari = Free
iTunes = Free
QuickTime = Free
AirDisk on Windows = Paid for by buying an Airport Extreme

 

[JS77]

What's wrong with a "pay as you use" model? Do you expect all computing to be free

I'm not even going to dignify that with a response. Go back and read my entire posts.

or how about just paying for those elements that you use, rather than a weighty OS fee covering all possible features, many of which would go unused.

Again, read my previous posts. Mac OS hardly costs that much anyway, so I'd rather just pay once for an upgrade and know that I have the full OS available to me. Who gets to decide which features are essential and which can be purchased?

And why didn't this "forced" charge apply to Safari, iTunes, Mac App Store etc??

it's 99c - stop being cheap.

Yet another Mac faithful so blinded by their precious geek-religion they can;t see the wood for the trees. It's not about the cost... pah... you know what, forget it... not worth the time or effort.

 

[JS77]

Gotta love the apologists supporting Apple ripping people off for the nth time.

Sure, its "only" 99c. It's not the cost but the principle. Apple is, again, lying about the reason they're charging. If they want to charge, simply charge for it and be honest. Don't make up lies as to why you have to charge.

Let's not forget that Apple tried to say that iPod software updates were paid updates because of "accounting" then Apple "fought" to have that "rule" changed and won, so they offered the last iPod software update for free.

Now, if they had that rule changed, why does it only apply for the iPod and not Macs? If "accounting" is the reason, why weren't us iPad owners charged for 4.2?

Also, look at everything else in the world. Are you telling me that Microsoft and Sony go back and restate the earnings for every PS3 and Xbox 360 ever sold when they release software updates with new features? Of course not. Microsoft certainly isn't going to go back and re-state the earnings for Xbox 360s sold in 2005.

This is Apple being typical Apple. Shafting the customer while lying about it and seeing how far they can push people before they break and finally realize that they're being ripped off.

You're wasting your time. I wouldn't be surprise if the same people crying "It's only $0.99!!" don't already have standing orders where they pay Apple 30% of their salary every month...

 

[Crissov]

2010-MBA was always advertised with FT Camera

The new FaceTime application is included free of charge on the MacBook Pros released today, as it is an advertised feature on the new hardware, and the application will certainly continue to be free on future versions of Mac hardware.

My Macbook Air, bought around last christmas, was advertised as having a “FaceTime camera”. Still it has no “FaceTime”, i.e. the required software, and I won’t get it without additional payment (whether 0,80 €, 8 € or 80 €). Isn’t that misleading advertising?

 

[lfhdez]

only 99 cents

OK... I've read through all of this now... needless to say, I've lost 99 cents-worth of my time reading all the whining.

- It's only 99 Cents and not your life savings- argument valid. Come on, people.

- It's for accounting reasons- It makes sense. It's adding to it's list of features, something along the lines of "the ability to communicate with wireless devices such as mobile phones / iPod Touch users" or something to that effect. - Valid.

- It needs to charge because since it's a new feature that will from now on be advertised as a feature, they have to assign a profit value to it. - Valid

- We didn't get charged for updates to Quicktime/Safari/etc. - Quicktime (basic features) and Safari have always been free. They really can't be counted as an apple "feature" because as we know, there are many browsers on the web made for Mac OS. Quicktime can't be counted as an apple only thing because there are many players for Mac OS. Apple won't open up Facetime to any other company to be able to communicate with their devices. And that's fine if they want to do that because they want to add it as a feature. So in order for them to do that, they have to charge 99 cents until it's included in the next revision of Mac OS X and figured into the cost. - Original Argument posting Quicktime and Safari as their example for why apple is greedy: NOT valid.

To all of those complaining that apple is greedy because they're charging $0.99 for an app that is clearly worth more: The alternative is to wait for apple to incorporate it into the next revision of Mac OS or be part of iLife, NOT offer it as a stand-alone, and have it not be backwards compatible with Snow Leopard. But then people would complain about how apple is greedy for that, I'm sure.

 

[JS77]

OK... I've read through all of this now... needless to say, I've lost 99 cents-worth of my time reading all the whining.

- It's only 99 Cents and not your life savings- argument valid. Come on, people.

- It's for accounting reasons- It makes sense. It's adding to it's list of features, something along the lines of "the ability to communicate with wireless devices such as mobile phones / iPod Touch users" or something to that effect. - Valid.

- It needs to charge because since it's a new feature that will from now on be advertised as a feature, they have to assign a profit value to it. - Valid

- We didn't get charged for updates to Quicktime/Safari/etc. - Quicktime (basic features) and Safari has always been free. They really can't be counted as an apple "feature" because as we know, there are many browsers on the web made for Mac OS. Quicktime can't be counted as an apple only thing because there are many players for Mac OS. Apple won't open up Facetime to any other company to be able to communicate with their devices. And that's fine if they want to do that because they want to add it as a feature. So in order for them to do that, they have to charge 99 cents until it's included in the next revision of Mac OS X and figured into the cost. - Original Argument posting Quicktime and Safari as their example for why apple is greedy: Invalid.

To all of those complaining that apple is greedy because they're charging $0.99 for an app that is clearly worth more: The alternative is to wait for apple to incorporate it into the next revision of Mac OS or be part of iLife, NOT offer it as a stand-alone, and have it not be backwards compatible with Snow Leopard. But then people would complain about how apple is greedy for that, I'm sure.

So how about the Mac App Store? Not part of the original OS, touted as "New Feature" by Apple them selves for Lion, BUT still makes it on to Snow Leopard without a $0.99 charge.

(And for the Billionth time on this thread, it's not about the frikkin' cost of the app. It is is the precedent that is being set (or tested) by Apple.)

In anycase, this seems to be a pretty black and white affair... some people are seeing black, and others white