iPod touch iPod touch software update should be free

[liavman]

I think Apple is making a mistake in charging iPod touch users a fee for software updates. It is leaving a lot of iPod touch owners not being to download applications that are, for whatever reason, is marked to work on versions higher than a specific version. This causes a brand dilution ( can't load some apps, what is with that? ), user dissatisfaction, developers not being to sell their apps etc. Is all this worth the money Apple is collecting from iPod touch owners?

If not free right away, they should make it free all versions except the most latest. Just as a compromise...

 

[eawmp1]

Darn them for making me pay to upgrade to Snow Leopard!

 

[iThinkergoiMac]

You do realize that Apple is legally required to charge you, right? I forget the ins and outs of it, but because the iPhone is a phone, they can skip charging but they're actually required to charge you for the iPod Touch. It's dumb, I know, but the US government is who you should be complaining against, not Apple.

That being said, is $5 really too much to ask for a system update? If you aren't willing to pay $5, what do you care about "brand dilution"? For that matter, why do you think you're entitled to free updates? Apple has a right to charge whatever they want, and the fact that they're only charging a small fee like $5 (I don't remember what the fee actually is, but I remember it being small) shows that they are working to your benefit.

It isn't leaving any iPod Touch owners not being able to install software. If you have $200+ to purchase the Touch in the first place, surely you can afford the upgrade. Almost no one is being left behind, nearly everyone "left behind" is choosing to stay behind.

 

[liavman]

>You do realize that Apple is legally required to charge you, right?

What law is that?

I do not know how every other software vendor evades this law and supplies service packs for free even after 3 years of product release.

Till recently, Apple was not accounting all the revenues they get in the quarter but spreading it over many quarters since, according to GAAP accounting principles, the cost of the product includes future software updates, bug fixes and other maintenance and support services. Recently the rules were changed to allow companies like Apple to allocate most of the revenues in the quarter in which the products are sold.

Apple, of course, has the right to charge whatever they want. I also agree it is not a big amount. But why make people go through all that hassle. Is it really worth it for Apple?

 

[Night Spring]

Recently the rules were changed to allow companies like Apple to allocate most of the revenues in the quarter in which the products are sold.

Yes, that's the rule that the previous poster was referring to. And there has been no major software update for the touch since that rule was changed. So until and unless Apple charges touch users for the OS 4.0 upgrade, you have no grounds for complaint.

ETA: Oh, come to think of it, that rule change might work the other way, and Apple might now start charging iPhone users for OS upgrades as well instead of just charging touch users. In any case, interesting times ahead.

 

[Surely]

Yes, it's so expensive..... to upgrade is so out of reach for the majority of iPod touch owners......

 

[Darth.Titan]

>You do realize that Apple is legally required to charge you, right?

What law is that?

I do not know how every other software vendor evades this law and supplies service packs for free even after 3 years of product release.

Till recently, Apple was not accounting all the revenues they get in the quarter but spreading it over many quarters since, according to GAAP accounting principles, the cost of the product includes future software updates, bug fixes and other maintenance and support services. Recently the rules were changed to allow companies like Apple to allocate most of the revenues in the quarter in which the products are sold.

Apple, of course, has the right to charge whatever they want. I also agree it is not a big amount. But why make people go through all that hassle. Is it really worth it for Apple?

Apple only charges for updates that add new features or functionality to the device. The legal reason that cited is the Sarbanes-Oxley Act. Search the forums. This has been discussed to death.

 

[Lorenz0]

My over inflated sense of entitlement demands that it, and everything else that will add value to my experience be issued for free!

I also want a pony

 

[goosnarrggh]

I do not know how every other software vendor evades this law and supplies service packs for free even after 3 years of product release.

It depends on a few things:

1) Does the service pack add new features and functionality to the product, or is it simply fixing features that were always supposed to have been in the product but which turned out to be insecure or buggy? If it's the latter, they are permitted to give it away for free (and in some cases, they might be REQUIRED to do so). If it's the former, they still might be allowed to give it away for free, or they might feel compelled to charge for it, depending on:

2) Did they hold back reporting any of the revenue from the initial sale of the device to cover the anticipated value of extra features that may be added to it through future software upgrades? If they did not, then the delivery of new features is considered to be a whole new product that has to be accounted for separately (ie. charged for). If they did hold some revenue back, then they are permitted to give such new features away "for free". (Actually, they aren't giving it away for free; instead, you effectively pre-paid for the new features back when you bought the device.)

How much revenue would they have to hold back? That's what is affected by the recent changes in GAAP rules. The changes didn't entirely remove the requirement that some revenue should be held back. Rather, it simply sets a lower target for what percentage of revenue should be held back. Previously, the generally accepted practice was to divide the full purchase price into equal quarterly payments spread out over the whole life of the product's support cycle. Now, the manufacturer can estimate the approximate added value that would be come from anticipated future updates, and hold back only that smaller amount, reporting all the rest of the purchase price at once. (This has the benefit of producing more impressive performance in the short-term, which impresses investors.)

Till recently, Apple was not accounting all the revenues they get in the quarter but spreading it over many quarters since, according to GAAP accounting principles, the cost of the product includes future software updates, bug fixes and other maintenance and support services.

What you're saying is an accurate description of what Apple has been doing with revenue from the iPhone and the Apple TV.

But it is not what they've been doing with the iPod touch. For the iPod touch, they've always reported 100% of their revenue right up front; they've never held any of it back to account for future updates -- not one penny.

No matter which set of rules you're looking at (the old ones that split the full purchase price into equal payments spread over time, or the new ones that only hold back enough to pay for anticipated new features), either way, for the iPod touch there is no GAAP money left over to account for any future upgrades.

This is, of course, a decision that Apple made back when they first started selling iPod touches. They could have decided to hold some money back, just like they already had with the iPhone. But they decided not to. And now the owners of those 100%-revenue-already-reported iPod touches are stuck with the consequences.

 

[liavman]

Thanks very much goosnarrggh for a well reasoned response. I had all those things in mind, so we are talking the same thing. There are other posters who react in a knee-jerk fashion about entitlement etc.. That was not my point, but essentially what you are saying.

Now, people do not understand one thing. GAAP principles are not the same as laws that are passed by the U.S. congress. They are principles that are agreed upon and recognized by the IRS. IRS can not stop you from giving things away for free. There are a few other laws like 'dumping' or 'predatory' practices where your intention is to temporarily lower your prices to drive competition away only to increase prices later.. Those are illegal but outside of that you can give something away for free. So what is the problem? The problem is with accounting. You have some R&D expenses that Apple attributes to for iPod Touch that has to be offset against revenues from iPod Touch. If you do not reserve some revenues from past sales then you can not offset your R&D expenses. It affects their total tax bill.

I am sure Apple accounting wizards will find a way if Steve Jobs decides that all software updates for all iPod touches will be free from now onwards, or all software updates beyond the latest one is free for all iPod touches etc. I can think of 5 different ways of doing this myself and I am not even an Accountant.

Having said all this, it is all a matter of choice by Apple. All I am saying is, in my personal opinion, it is a bad choice by Apple.

 

[kunal123]

No matter which set of rules you're looking at (the old ones that split the full purchase price into equal payments spread over time, or the new ones that only hold back enough to pay for anticipated new features), either way, for the iPod touch there is no GAAP money left over to account for any future upgrades.

This is, of course, a decision that Apple made back when they first started selling iPod touches. They could have decided to hold some money back, just like they already had with the iPhone. But they decided not to. And now the owners of those 100%-revenue-already-reported iPod touches are stuck with the consequences.

I think the reason apple shows the iphone spread over many quaters is because it is subsidized by ATT who recover the cost only after quite some time

 

[840quadra]

Laws aside, they charge a reasonable ($10 or less) for added features that were not enabled or available when the product was purchased by the end user. It is akin to Apple charging for a new version of OS X to their customers.

In my opinion, the cost is reasonable and fair.

 

[Surely]

Now, people do not understand one thing. GAAP principles are not the same as laws that are passed by the U.S. congress. They are principles that are agreed upon and recognized by the IRS. IRS can not stop you from giving things away for free. There are a few other laws like 'dumping' or 'predatory' practices where your intention is to temporarily lower your prices to drive competition away only to increase prices later.. Those are illegal but outside of that you can give something away for free. So what is the problem? The problem is with accounting. You have some R&D expenses that Apple attributes to for iPod Touch that has to be offset against revenues from iPod Touch. If you do not reserve some revenues from past sales then you can not offset your R&D expenses. It affects their total tax bill.

I am sure Apple accounting wizards will find a way if Steve Jobs decides that all software updates for all iPod touches will be free from now onwards, or all software updates beyond the latest one is free for all iPod touches etc. I can think of 5 different ways of doing this myself and I am not even an Accountant.

Having said all this, it is all a matter of choice by Apple. All I am saying is, in my personal opinion, it is a bad choice by Apple.

Laws passed by congress very much have to do with GAAP. If a law is passed that affects accounting treatment, GAAP has to be redefined in order to follow the law.

The IRS has nothing to do with GAAP. The FASB sets the principles and the SEC enforces them. The IRS is only interested in tax returns and enforcing and collecting taxes.

Please provide us with your 5 different ways, including the accounting treatment. I am sure that Apple's CPAs are a little more knowledgeable and experienced in these matters than you are......

Laws aside, they charge a reasonable ($10 or less) for added features that were not enabled or available when the product was purchased by the end user. It is akin to Apple charging for a new version of OS X to their customers.

In my opinion, the cost is reasonable and fair.

Completely agree. All this over the cost of an album on iTunes.....

 

[liavman]

Surely,

I do not disagree that the cost is reasonable.

When I said IRS, I meant to include FASB, SEC, IRS etc. They all have a say. But my main point is, "U.S. congress does not say 'You shall not give software updates with new features for free'" ( except for the anti-dumping and anti-predatory laws ). For example, Windows XP service pack 2 and 3 had a lot of new features. Yes, some of that were related to security but there were quite a few things that can be reasonably argued as new features. There are ways to account for them without charging the customers. ( please don't go to MSFT vs Apple debate, this is nothing to do with that, just an example about how to provide software updates with new features for free )

>I am sure that Apple's CPAs are a little more knowledgeable and experienced in these matters than you are......

I am sure about that. There is no doubt about that. That is the point. It is not due to lack of ways of making it free, Apple chose to do it that way with unintended consequences a few years later..

Here is a real life scenario which I consider 'major nuisance' and also to some extent brand name dilution. A developer I know submitted an app update for a free app. There were a whole bunch of support requests from iPod touch owners that they could not download it. He had to ask them to go upgrade the OS. A good subset of them came back and said 'I just want your free app.. To get it I have to pay to Apple'. He had to go over this whole explanation as to why Apple does this and that they are getting a lot of new things with that upgrade and so it is worth it for them etc. First of all it is not his job to justify Apple's decisions. It is a big mess. There are these islands created which increases the support activity even for a free app.

 

[840quadra]

Here is a real life scenario which I consider 'major nuisance' and also to some extent brand name dilution. A developer I know submitted an app update for a free app. There were a whole bunch of support requests from iPod touch owners that they could not download it. He had to ask them to go upgrade the OS. A good subset of them came back and said 'I just want your free app.. To get it I have to pay to Apple'. He had to go over this whole explanation as to why Apple does this and that they are getting a lot of new things with that upgrade and so it is worth it for them etc. First of all it is not his job to justify Apple's decisions. It is a big mess. There are these islands created which increases the support activity even for a free app.

The developer gets to decide (when compiling) what features within the OS they want to utilize when coding. For example, If they want to utilize OpenGL ES, they will use the versions of iPhone SDK (or options) that enable / support that.

It is more up to the developer to decide what version of iPhone OS is required for their app, more than it is Apple.

 

[Surely]

Surely,

I do not disagree that the cost is reasonable.

When I said IRS, I meant to include FASB, SEC, IRS etc. They all have a say. But my main point is, "U.S. congress does not say 'You shall not give software updates with new features for free'" ( except for the anti-dumping and anti-predatory laws ). For example, Windows XP service pack 2 and 3 had a lot of new features. Yes, some of that were related to security but there were quite a few things that can be reasonably argued as new features. There are ways to account for them without charging the customers. ( please don't go to MSFT vs Apple debate, this is nothing to do with that, just an example about how to provide software updates with new features for free )

>I am sure that Apple's CPAs are a little more knowledgeable and experienced in these matters than you are......

I am sure about that. There is no doubt about that. That is the point. It is not due to lack of ways of making it free, Apple chose to do it that way with unintended consequences a few years later..

Here is a real life scenario which I consider 'major nuisance' and also to some extent brand name dilution. A developer I know submitted an app update for a free app. There were a whole bunch of support requests from iPod touch owners that they could not download it. He had to ask them to go upgrade the OS. A good subset of them came back and said 'I just want your free app.. To get it I have to pay to Apple'. He had to go over this whole explanation as to why Apple does this and that they are getting a lot of new things with that upgrade and so it is worth it for them etc. First of all it is not his job to justify Apple's decisions. It is a big mess. There are these islands created which increases the support activity even for a free app.

No, they really don't all have a say. The IRS has nothing to do with GAAP.

Apple's CPAs are applying their accounting treatment based on GAAP. They can't go around it.

The developer gets to decide (when compiling) what features within the OS they want to utilize when coding. For example, If they want to utilize OpenGL ES, they will use the versions of iPhone SDK (or options) that enable / support that.

It is more up to the developer to decide what version of iPhone OS is required for their app, more than it is Apple.

No reason for me to respond when 840quadra steals my thoughts. Get out of my brain....

One more thing....maybe Apple should just give away iPod touches so that everyone could have access to all of the free apps..... I mean, the apps are free: It's not really fair that I should have to buy an iPod touch in order to use them.

 

[liavman]

Surely, set aside the sarcasm... As I mentioned numerous times, it is not about Apple's right to charge, whether it is reasonable etc... Don't harangue on that.

Are you telling me that there is absolutely no way that Apple can charge zero dollars for the the OS upgrades for iPod touch users and still be in compliance with FASB rules? I see everyone doing it, why this exception for Apple. That just does not make any sense.

Here is one accounting treatment. Offset the iPod portion of the OS R&D work against the portion of app revenues Apple gets from iPod touch users. Apple CPAs are much smarter than me and I am sure they can find 10 other ways to account for these things. Apple does not choose to do that, it is not because their hands are tied.

 

[Surely]

Surely, set aside the sarcasm... As I mentioned numerous times, it is not about Apple's right to charge, whether it is reasonable etc... Don't harangue on that.

Are you telling me that there is absolutely no way that Apple can charge zero dollars for the the OS upgrades for iPod touch users and still be in compliance with FASB rules? I see everyone doing it, why this exception for Apple. That just does not make any sense.

Here is one accounting treatment. Offset the iPod portion of the OS R&D work against the portion of app revenues Apple gets from iPod touch users. Apple CPAs are much smarter than me and I am sure they can find 10 other ways to account for these things. Apple does not choose to do that, it is not because their hands are tied.

I will never set aside sarcasm.

So you want Apple to reduce their revenues in order to give you free OS upgrades? The stockholders would love that.

I am not going to pretend that I am an expert specifically on Apple's accounting treatment. However, I believe that in order for Apple to provide your free OS upgrades, the cost of those upgrades have to be built into the cost of the iPod touch. Therefore, Apple would have to increase the sales price of the iPod touch in order to make up the difference. They can't just play with the numbers in order to hide the R&D expenses.

Either way, you would have to pay for the OS upgrade.

I think it's better the way it is: the user has the option of paying for the OS upgrade.

If the cost was built into the price of the iPod, the option would be gone.

 

[liavman]

>I will never set aside sarcasm.

OK, suit yourself.

>So you want Apple to reduce their revenues in order to give you free
>OS upgrades? The stockholders would love that.

I am an iPhone owner and I am a major Apple shareholder. I do not think I will feel a thing. The money they get from Ipod touch OS upgrades is not significant and even less significant considering the extra money they will make from wider purchases of applications and the avoidance of this islands of users that have been created.

In fact, that is my main point. Is that revenue really worth it for Apple? We can argue till the cows come home whether the consumers out there are stupid not to pay the $10.00 to upgrade but the fact is, consumers do not for various reasons and these islands get created. That can not be a good thing for Apple. So, what are they going to do in a few years when they want to discontinue some older versions. Selectively give away OS upgrades upto a certain version in the past? That is all nonsense. There is tremendous cost to the amount of time Apple tech support people will spend on dealing with millions of iPod touch users out there because of all this version confusion. Irate customers, loss of good will resulting in brand dilution all cost money to companies like Apple.

Regarding product pricing and life cycle, it is all conscious choices companies like Apple make. I just think it is a bad choice Apple made which they have to correct somehow in the future. The longer they wait, the worse the problem will become.

iPad will have a similar issue. Let us see what Apple does there. Hope they learnt some lessons from the iPod touch.

 

[840quadra]

No reason for me to respond when 840quadra steals my thoughts. Get out of my brain.....

Haha sorry

>I will never set aside sarcasm.

OK, suit yourself.

>So you want Apple to reduce their revenues in order to give you free
>OS upgrades? The stockholders would love that.

I am an iPhone owner and I am a major Apple shareholder. I do not think I will feel a thing. The money they get from Ipod touch OS upgrades is not significant and even less significant considering the extra money they will make from wider purchases of applications and the avoidance of this islands of users that have been created.

I am a shareholder too, and expect that the employees who are working on the software updates both deserver to get paid, and know it costs the company money to spend time doing so. They may not make money with the OS update fees, but they are likely breaking even, or taking much less of a loss. I can deal with that.

In fact, that is my main point. Is that revenue really worth it for Apple? We can argue till the cows come home whether the consumers out there are stupid not to pay the $10.00 to upgrade but the fact is, consumers do not for various reasons and these islands get created. That can not be a good thing for Apple. So, what are they going to do in a few years when they want to discontinue some older versions. Selectively give away OS upgrades upto a certain version in the past? That is all nonsense. There is tremendous cost to the amount of time Apple tech support people will spend on dealing with millions of iPod touch users out there because of all this version confusion. Irate customers, loss of good will resulting in brand dilution all cost money to companies like Apple.

It is more likely that the hardware will become obsolete, thus cause the older hardware to simply not be able to run the newer OS / Software anyway. We are seeing that with the additional chips that can utilize OpenGL ES. Even though the 1st and 2nd generation iPod Touch can run iPhone OS 3.1.3, they lack the hardware needed to use the OpenGL ES code.

Being involved with enterprise tech support, I doubt that is a serious problem. Most users of these devices cycle through them anyway, or move into the newer models. How many white ipods do you see out in the public anymore?

Regarding product pricing and life cycle, it is all conscious choices companies like Apple make. I just think it is a bad choice Apple made which they have to correct somehow in the future. The longer they wait, the worse the problem will become.

iPad will have a similar issue. Let us see what Apple does there. Hope they learnt some lessons from the iPod touch.

Apple has a long history of similar software / hardware updates in the case of OS X. In your world (granted you haven't discussed OS X), G4 iBooks should be able to run the newest versions of OS X, and Software. The fact is, every product in Apple has planned obsolescence due to the fact that technology advances, and that they would like to continue gaining revenue. Forced obsolescence is part of the Apple brand no matter how much we hate it.

As a shareholder I am amazed that you are disputing forced obsolecense. Without it, nobody would be buying new MacBooks, newer versions of OS X, or new versions of software. The company would be back where it was in 1997, and our discussion would be 'why can't Apple make any money'.

 

[liavman]

840quadra: I appreciate your level-headed argument, though I am in partial disagrement.

Before I get to some interesting points you raise, let me say this and set aside this whole FASB smokescreen.

There’s nothing in the GAAP requirements that forces Apple to charge its customers for a software upgrade. The only requirement imposed by GAAP is that Apple must account for the separate value that the software brings. How they do it is up to the CPA wizards. There are two sides to that value equation. The R&D costs and explicit and implicit value ( revenue ) to Apple. There are many strange and not so strange ways to account for value. It can be anything from adding value to the platform which helps application sales to "keeping consumers satisfied" and "make them loyal to the experience they get from their handset maker.". And CPAs can assign reasonable values and future revenues to such intangible things.

Even before the recent change to the rules, GAPP rules boil down to the fact that a company can only record the revenue associated with a specific piece when it is delivered to the customer. The idiocy of such rules were long recognized because at the time of the product sale, the contents of the software update are unspecified. Most people who can not even predict if they are going to reach work on time are asked to predict such things and assign values to such future unspecified software. And they do it. It is all wizardry and witchcraft to some extent. Everyone realizes it is not a science, so there is wide leeway.

Changes to the GAAP rules now allow manufacturers that are delivering software updates to recognize more revenue sooner, even if they are offering those updates free of charge (otherwise bundled in the original price), and even if the contents of the software updates are unspecified at the time the original device is sold. This is a much needed cure to the old idiocy.

Let us move on to the real issue. Money to apple.

840quadra, I understand what you are saying. Your argument comes close to "Reductio ad absurdum" where to shoot holes in my thinking you are extending its implications to a logical but absurd consequence. I am not extending this line of thinking to the entire apple business and their revenue models. As a shareholder I do appreciate their money making potential, my beef is only with their choice of monetizing model for the software upgrade for the touch.

The case in point with iPod touch software upgrade is not about generations of software releases. Yes, one can not expect major software releases to be free. All I am saying is in this case Apple is hurting themselves with this monetizing model. iPod touch platform is not a static platform. There are appication sales happening on top of that. It only makes sense for Apple to keep updating the base software so that more and more applications are bought on top of that platform. Charging for the platform is only going to limit the usefulness of the platform and hence less revenue from applications. And there are those various indirect costs I mentioned in the previous posts. It just looks to me that it should not be that much worth to Apple's bottom line. Customer support, even with outsourcing, still costs $30 an hour, considering all costs. And the average is 3 calls an hour. So, each silly phone call to a customer support costs $10.00. Multiply that by a million calls a month... Not all calls are related to this version confusion but give it some good chunk of it which also increases over time. I just do not see how it is really worht that much to Apple.