Apple's $0.99 FaceTime Charge Due to Accounting Requirements

[benson304]

This argument is, of course, utter nonsense. There's no law against them releasing free software no matter how much they try to convince people there is.

Please go get an accounting degree and a CPA before you try to talk about things you don't fully understand.

Just to play Devils Advocate...

... its widely rumored that MobileMe is going to be re-launched and available for free. Wouldn't this fall into the same accountancy issue?

Effectively, it's something that you can *currently* pay extra for (so it shouldn't have anything to do with the recognized OSX licensing revenue), but, making it free and available to all OSX users... surely the same rule should apple?

I mean, I'd even argue that a free mobileme service offers an even greater functionality than FaceTime.

MobileMe is probably considered a service separate from Macs and OSX and as such, wouldn't effect those sales. They would not have to reverse revenue for previous sales because those sales have been made and a service has been effectively provided. Also, I believe MobileMe is a limited time frame purchase (1 year?) and would be accounted for over that period.

What a crock. Accounting, really? What about the App Store that just got pushed out, why didn't they charge for that?

E&Y or Apple probably would argue it is not a "significant" new feature. Which I'd probably agree with considering it doesn't do anything really except provide an avenue to buy/download software.

I remember having to pay $1.99 or something for the 06-ish MBP wireless N software "upgrade" to turn it on.

That would be a corollary situation to this one.

 

[unlinked]

any evidence that it hasn't been submitted to standards bodies? If so, any evidence as to why? (as opposed to the jump to the assumption that apple simply lied.)

lol

 

[Unggoy Murderer]

99 cents? I'm not too bothered, it's a fantastic App. Even if it is because of accounting requirements, who cares? Just because it was free during the beta doesn't mean it will be free in the final release. Mac OS 10.7 preview anyone, I don't think that will be free ;]

 

[OllyW]

What a crock. Accounting, really? What about the App Store that just got pushed out, why didn't they charge for that?

They had to release that for free because you couldn't buy the FaceTime app without it.

 

[benson304]

This doesn’t make since. I’m a CPA and am very familiar with the accounting rules regarding software (capitalize expenditures Vs. expensing) aka SOP 98-1. The guidance focuses on the nature of the software. I.e. is it intended for sell to third-parties or to support the business internally and would not be sold? Generally, if the software is intended to be sold to third-parties then you have to expense the cost to develop it. If it is going to be used to support the business internally only, you may be able to capitalize some costs. This is cut and dry, it is obvious this software is indented for third-party use and not internal only and therefore the costs must be expense. So, the decision to charge is a revenue/operating issue and not accounting issue.

SOP 98-1 is related to the DEVELOPMENT of software and the capitalization of those costs. Upon a point where the software is essentially functional and can be sold to a third party, you can no longer capitalize development costs.

This is not under the scope of SOP 98-1. It is EITF 09-3 I believe.

 

[maelstromr]

Credit where credit is due, this is a fabulously inventive excuse to fleece people.

Please excuse me while I burst out laughing.

I can only assume you're laughing at ridiculous US regulatory/accounting rules.

 

[batchtaster]

The loudest whiners with the "principles" have gone strangely quiet. Thank you, qualified accounting people - you win the thread.

 

[aplqna]

I love how upwards of FOUR people ask what the difference is between the Beta FaceTime app and the .99 FaceTime app and if the Beta will eventually stop working, and no one answers the questions. Are you all too haughty to answer them? If it is that simple to answer that everyone should know, why won't someone answer it?

 

[webman2k]

CLEARLY... the $.99 is to cover the two Apple employees who are on standby for Facetime chats, since nobody you know uses it.

Seriously, I can't remember the last time that Apple was so excited about a new product that nobody cared about. I've used it, and after the initial "wow-I-can-see-your-face" wears off - which is about 5 seconds into your first call - it's just awkward 90% of the time.

Previously, I could multitask when I talked to someone. I could be anywhere, doing anything else. Now, on Facetime, I have to worry about how I look, what I'm wearing, where I am...

Email and texting are even more useful, I can have whole other conversations while doing those. During Facetime, I have to look at the camera - at someone else who is also forced to look at me. It's just been awkward.

The 10% of the time it's useful - which is all Apple uses in its advertising - are situations where you need to show something to someone. That's very handy, but to use Facetime, you're locked into Facetime. It would make more sense to me to be able to switch on the camera during a regular phone call if I want, then turn it off.

OK, opinionated rant over.

 

[jctune]

This doesn’t make since. I’m a CPA and am very familiar with the accounting rules regarding software (capitalize expenditures Vs. expensing) aka SOP 98-1. The guidance focuses on the nature of the software. I.e. is it intended for sell to third-parties or to support the business internally and would not be sold? Generally, if the software is intended to be sold to third-parties then you have to expense the cost to develop it. If it is going to be used to support the business internally only, you may be able to capitalize some costs. This is cut and dry, it is obvious this software is indented for third-party use and not internal only and therefore the costs must be expense. So, the decision to charge is a revenue/operating issue and not accounting issue.

The SOP you reference is truly regarding expensing vs. capitalizing. This is different.

It is a revenue recognition issue. You can choose to recognize the revenue all at once or over a period of time. If you recognize 100% of the revenue at the point of sale, then the assumption is that that revenue is purchasing the existing functionality. If you add functionality in the future, if you don't charge for it then recognizing all of the revenue at the time of initial sale is incorrect. If you recognize the revenue over a period of time, then the assumption is that you will/may be adding features to that software.

As mentioned by someone else earlier - this goes back to the basic concept statements (too far out of school - don't remember which one). Match your revenues to your expenses.

 

[Kar98]

Wirelessly posted (Mozilla/5.0 (iPhone; U; CPU iPhone OS 4_2_1 like Mac OS X; en-us) AppleWebKit/533.17.9 (KHTML, like Gecko) Version/5.0.2 Mobile/8C148 Safari/6533.18.5)

Oh grow up people. It's 99 freaking cents. Less than a can of soda. Good God.

The soda machine right outside my door, by the pool, charges 75 cents for a can of diet coke

 

[JS77]

The loudest whiners with the "principles" have gone strangely quiet. Thank you, qualified accounting people - you win the thread.

Look everyone! God has turned up to moderate the thread!

 

[Rodimus Prime]

The whiners with the "principles" have gone strangely quiet. Thank you, qualified accounting people.

and I will still say it is 100% pure greed. Apple cares to much about its value to really care about its customers and showing how greedy it really is. Boy that billions in profit it makes every quarter could not take a hit. If anything Apple could give it away for free and take the 1 time hit.

This is still pure greed on Apple part. I find it funny how MS did not eat this type of stuff when it gave out things like SP2 for XP for free even though that added some pretty major things to XP and new features they never planned on adding.

Or they did not have to take a hit to like office 2003 be able to read docx files which was a big feature to add.
List goes on. Apple seem to be the only company pull this type of crap and I think the excuse is just that. An excuse to get a few more million out of its customer. This is not the first time Apple has done this BS. Apple has a LONG LONG history of pulling stunts like this dating back to early 2000's. Just not they are coming up with weak reasons to do it.

 

[dwsolberg]

It's the principle that matters.

99 cents for FaceTime... what's next?
99 cents for Airport updates?
99 cents for Time Machine updates?
99 cents for Terminal updates?
99 cents for X11 updates?
...
99 cents for Disk Utility updates?

It's called "hooking" customers. Buy expensive Mac and get charged for incremental updates to basic utility software...

Apple is not what it used to be...

First, the rest of those are updates to pre-existing features. Facetime is a new program designed to connect with mobile devices. If they were just changing iChat, it would have been the same price. Second, if they they did charge 99¢, so what? It's freaking 99¢. It's not like it's $30 or something. Third, notice that other Apple programs on the App Store are actually selling for cheaper? What's that an example of?

 

[jctune]

I love how upwards of FOUR people ask what the difference is between the Beta FaceTime app and the .99 FaceTime app and if the Beta will eventually stop working, and no one answers the questions. Are you all too haughty to answer them? If it is that simple to answer that everyone should know, why won't someone answer it?

That's an excellent question. While we have no way of knowing the real answer - I could say that the beta was just that - a beta and that the 1.0 product was never intended to be free.

If that's true, then that makes the "upgrade charge" discussion completely moot, doesn't it? We're having this discussion because someone tweeted that he was "told that it was regulatory related"? I hope our discussion proves that "regulatory related" is a completely incorrect characterization - and therefore doesn't it call the entire statement into question?

 

[maelstromr]

and I will still say it is 100% pure greed. Apple cares to much about its value to really care about its customers and showing how greedy it really is. Boy that billions in profit it makes every quarter could not take a hit. If anything Apple could give it away for free and take the 1 time hit.

This is still pure greed on Apple part. I find it funny how MS did not eat this type of stuff when it gave out things like SP2 for XP for free even though that added some pretty major things to XP and new features they never planned on adding.

Or they did not have to take a hit to like office 2003 be able to read docx files which was a big feature to add.
List goes on. Apple seem to be the only company pull this type of crap and I think the excuse is just that. An excuse to get a few more million out of its customer. This is not the first time Apple has done this BS. Apple has a LONG LONG history of pulling stunts like this dating back to early 2000's. Just not they are coming up with weak reasons to do it.

Why is this so difficult to understand? Apple accounts for revenue in a way that requires them to restate income if it belongs to a device or functionality in a product that was reported as paid for at an earlier time (see perfectly clear discussions on this above). Apple decided that regulators MIGHT view this update as adding to already sold and reported computers, which MIGHT therefore force them to restate income - an expensive, time consuming and probably stock impacting exercise. Instead, Apple charges a small fee to anyone interested in adopting the new functionality, saves all that time and expense. Consumer chooses to paid $.99, if they want, stockholders happy, company healthy, move on to new cool things.

 

[benson304]

and I will still say it is 100% pure greed. Apple cares to much about its value to really care about its customers and showing how greedy it really is. Boy that billions in profit it makes every quarter could not take a hit. If anything Apple could give it away for free and take the 1 time hit.

This is still pure greed on Apple part. I find it funny how MS did not eat this type of stuff when it gave out things like SP2 for XP for free even though that added some pretty major things to XP and new features they never planned on adding.

Or they did not have to take a hit to like office 2003 be able to read docx files which was a big feature to add.
List goes on. Apple seem to be the only company pull this type of crap and I think the excuse is just that. An excuse to get a few more million out of its customer. This is not the first time Apple has done this BS. Apple has a LONG LONG history of pulling stunts like this dating back to early 2000's. Just not they are coming up with weak reasons to do it.

No.

Listen I am not an Apple fanboy but I am a CPA, the accounting rule (that they chose to follow) is that because they already recognized 100% of the revenue, they can't add "significant" features without some of that revenue being restated and matched to the time frame of the new feature's debut.

 

[batchtaster]

Look everyone! God has turned up to moderate the thread!

You are welcome, my child. Even though your offering is trifling and underwhelming, I forgive all. Go now in peace.

[ If you wish to grant me god-status from a simple observation, then I'm happy to accept that from you. Even/particularly if it's from being one of those proven by qualified accountants to have been demonstrably wrong. So, now where will you take your indignation and "principles"? ]

 

[jctune]

This is still pure greed on Apple part. I find it funny how MS did not eat this type of stuff when it gave out things like SP2 for XP for free even though that added some pretty major things to XP and new features they never planned on adding.

And Apple hasn't charged you for the 10.6.x updates, have they? This means that they (Apple) account for OSX revenue in the same vein as Microsoft does.

Now - you could argue (very successfully) that Apple recognize revenue this way to boost profits in the current year (of sale) and that that may be "greedy".

You don't have to "plan" to add anything under the subscription model - in fact you don't have to actually add anything to still make it a valid accounting treatment.

 

[monoskier]

I love how upwards of FOUR people ask what the difference is between the Beta FaceTime app and the .99 FaceTime app and if the Beta will eventually stop working, and no one answers the questions. Are you all too haughty to answer them? If it is that simple to answer that everyone should know, why won't someone answer it?

i haven't seen your answer

and, yes, i'm aware i didn't answer the question. but i'm also willing to admit that i don't know the answer

 

[unlinked]

The loudest whiners with the "principles" have gone strangely quiet. Thank you, qualified accounting people - you win the thread.

I don't think anyone has actually said they had to charge to release it. The most they have said is that doing so would save them some hassle. Still sounds like bs to me but I'm very willing to believe that regulations can lead to that.

 

[gumoz]

Think of the stakeholders.

Whenever Apple posts comments about "accounting requirements" I'm always skeptical. If that's the case, why do we get things like Safari, quicktime, xtools, etc. for free and there isn't the $0.99 charge?

They don't want to restate their financial statements, that could be a little problematic. It is not that Apple as a company is bad or lame, it is because Management decide to include some functionality and then stake holders cry like babies, so Management decide: Ok Bi....s we are charging for that! That way they can manage to silence stake holders by at the same time offering the functionality cheap (not free).

Stake holders know that people does not pay for quicktime and similar but maybe they will pay for facetime.

Why it is a regulatory issue? because they need to do a lot of stuff to restate their financial statements and that just silly for those freaking admin maniacs that apple execs are. They are just like White and Black, they can not see the gray, maybe that is why they are profitable, maybe that is why they don't have regulatory issues.

 

[Rodimus Prime]

No.

Listen I am not an Apple fanboy but I am a CPA, the accounting rule (that they chose to follow) is that because they already recognized 100% of the revenue, they can't add "significant" features without some of that revenue being restated and matched to the time frame of the new feature's debut.

then do not claim it is a new feature of SL. It is not that hard. Just give away the software like they do on iTunes.

To me this is just an excuse to get easy money and greed. They could easily find a way to prevent it from falling under those rules.

 

[jctune]

BTW - I hope the moderators / bloggers for MacRumors bookmark these posts and refer to them the next time they post something regarding charging for additional functionality.

How many times has this same question come up?

 

[hellozero]

accounting reasons, that's such a lame excuse

Just say, Mr. Jobs needs a nice B-day gift...

next time should be government fee

then 911 fee?

then oops I am sorry, recession or bankrupt fee?