Apple’s Software Pricing Strategy

Software Pricing

First, a chart showing changes in pricing since 2005 for OS X, iLife, Aperture, and iWork. The 100% level of the chart is the price of the software in 2005 (when iWork and Aperture were introduced). The rest of the years show the percent of that initial price that the software cost. See the bottom of this post for the actual data including release dates and prices.

For the prices prior to the App Store for iLife and iWork, I’ve divided the price by the number of applications in the package (I only counted iPhoto, iMovie, and GarageBand for iLife – these are the applications that survived the move to the App Store and they are the applications that have received major upgrades with each new release of iLife)1.

Software pricing

Pricing Trend

The trend in pricing is fairly obviously downward. Why is this?

One possible answer is that as the Macintosh market share and overall market size grow, Apple sells more of these applications. The cost to create the applications doesn’t grow, so Apple can afford to lower the prices and still maintain profits.

Horace Dediu wrote an article comparing Apple and Microsoft’s financial performance. One chart in the article showed Apple’s income from software being fairly flat over the last four years.

Apple could likely have increased their profits by not lowering the prices as aggressively, so I think there’s actually another answer as to why the prices are dropping.

Another Horace Dediu article on Apple’s liquid assets contains a chart which shows the massive increase over the last six years (from less than $10 billion in 2005 to over $80 billion in 2011). Numerous financial analysts have asked what Apple plans to do with this large hoard of cash. Apple could lower their prices and decrease their famously high profit margins on their hardware products. They could also afford to lower prices on their software products, which is seems like they have been doing.

It should be noted that OS X and iLife are both included with the purchase of every Mac. The prices here would just be for upgrades. It remains to be seen how upgrades of iLife and iWork applications will work with the App Store. Assuming updated versions of the applications are still available every 12 to 18 months, will they be free? Will they show up as new applications in the App Store? Will the App Store add support for update pricing?

The real profit for Apple comes with the hardware sales. Making great software cheaper (or free) can help drive hardware sales.

Software Pricing Data

OS X

iLife

  • January 22, 2005 – $79 for iLife (iPhoto 5, iMovie HD 5, and GarageBand 2 – average of $26.33 per application)

  • January 10, 2006 – $79 for iLife (iPhoto 6, iMovie HD 6, and GarageBand 3 – average of $26.33 per application)

  • August 7, 2007 – $79 for iLife (iPhoto 7, iMovie 7, and GarageBand 4 – average of $26.33 per application)

  • January 27, 2009 – $79 for iLife (iPhoto 8, iMovie 8, and GarageBand 5 – average of $26.33 per application)

  • October 20, 2010 – $49 for iLife (iPhoto 9, iMovie 9, and GarageBand 6 – average of $16.33 per application)

  • January 6, 2011 – $44.97 for iLife (iPhoto 9, iMovie 9, and GarageBand 6 – $14.99 per application in App Store)

Aperture

iWork

  • January 22, 2005 – $79 for iWork (Pages and Keynote 2 – average of $39.50 per application)

  • January 10, 2006 – $79 for iWork (Pages 2 and Keynote 3 – average of $39.50 per application)

  • August 7, 2007 – $79 for iWork (Pages ’08, Keynote ’08, and Numbers ’08 – average of $26.33 per application)

  • January 6, 2009 – $79 for iWork (Pages ’09, Keynote ’09, and Numbers ’09 – average of $26.33 per application)

  • January 6, 2011 – $59.97 for iWork (Pages ’09, Keynote ’09, and Numbers ’09 – $19.99 per application in App Store)