Isn't this accounting change just there to help never get into a 1.99 wi-fi accounting charge.
In typical Steve fashion, he is trying to make "revolutionary new business model" lemonade out of a lemon: "the firmware ain't done so Finance won't let us book the revenue as earning".
There's always been firmware upgrades for CE devices and Apple hasn't changed the fundamental business challenge (that you'd rather people buy a newer model).
But in this case Apple will deliver an unfinished product and will be forced to publicly commit to delivering future updates, lest no one buy the device. It may even be that they have failed to get done some of what they committed to Cingular. Either way, leading Apple Finance boffins to nix a typical rev-rec model.
This is something software companies (inc. that part of Apple's business) have been wrestling with for years, and many of them, notably Microsoft, have shifted to a deferred revenue model.
The real question here is whether *consumers* will accept the unfinished goods and promise of upgrade or whether Apple would have been better off to wait until the product was truly ready before shipping it.
I think you need to read the transcript again. An analyst commented to Peter that the subscription accounting model would only apply to the iPhone device but not to accessories, and Peter affirmed what the analyst said. I would think that the Bluetooth headpiece and AppleCare plan would fall into the "accessory" category.
Bill,
"Firmware upgrades for CE devices" are not the same things as software upgrades. They just aren't. I foresee Apple uploading programs like Pages into their phones. That is hardly a firmware update. Nobody benefits from a firmware update, just the stability of the hardware increases, or at least one hopes. I think what Mr. Howe is trying to say is that Apple is bringing "deferred apps and features" to the iPhone and AppleTV products. Who else is doing that in the consumer electronics market? Nobody.
"Do you think you're going to get your iPhone updates if you pop out your Cingular subscriber card and move over to T-Mobile?"
Uh ... yes. Kind of like how I get Mac OS X and iMovie and iPhoto updates even if I switched ISPs. These updates come directly from Apple, not from Cingular. In fact, it is overwhelmingly likely that they will be delivered through iTunes on your computer and installed through a USB connection -- and not delivered through Cingular at all. Can you imagine Cingular routing a 20MB update to all its iPhone customers? (And that's modest for OS X, which is I remind you the operating system of the iPhone.) Can you imagine customers waiting for these dozens-of-megabyte downloads for more than half an hour over Cingular's EDGE network. No way will Apple be willing to subject its users to such a poor experience, and no way Cingular will want to clog its networks with it.
The updates will be delivered via your Mac or PC, just like iPod updates and every other Apple device update.
Thanks for all the thoughts and reactions.
Regarding whether the device is "done" or not, I'd claim it's as baked as any cell phone I've seen already. And most cell phones do not get updated by their carriers today -- ever. In fact, they make it remarkably hard to do that -- they'd rather sell you a new phone and a new two-year contract. Apple is explicitly opting out of that idea.
Yes, deferred revenue is an old trick in the software business. But the iPhone isn't software; it's a hardware device. Sony doesn't defer revenue on its Blu-ray HD-DVD players. I'd be willing to bet Nokia doesn't defer revenue on its smart phones. Apple is breaking the mold here.
Re updates, yeah, good point -- better to do them over WiFi or via sync to your PC. Hadn't thought of that, but it makes perfect sense.
Thanks a lot for your thoughts! This launch gets more interesting every day.
Carl
By the way, see my post today about XBox 360 shipments. Microsoft certainly isn't deferring revenue on those hardware devices, despite the fact that it is definitely a work in progress -- there's a new update on May 7, if I understand correctly.
Bill,
It's disingenious to call the iPhone unfinished before having seen it, just because it may get updates later. This in not like making ham or wine where you have to put it in the cellar for a couple more months to give it a better quality. This is new technology which is changing every month, and what is great now may look old in 6 months.
Case in point the WiFi update Apple charges $1,99 for. When they shipped those notebooks last autumn suppliers were already offering 802.11n WiFi chips. However, the standard was still in draft and Apple probably did not want to risk implementing a driver that would not work with later n-devices. Now, 6 months later, they saw the standard discussion as reasonably settled and decided to activate this new function in notebooks sold last autumn. So would you say those notebooks were unfinished last autumn when they could only communicate in 802.11g like most other notebooks at that time?
That said, I still think that it's rather likely that Apple's move is mostly related to accounting and not a commitment to bringing tangible new user features to the iPhone. Updates would rather focus on "non-exciting" things like low-level operating system, bugs, security, usability quirks or industry standards development (like all Mac OS X 10.4.x updates), or merely enable support for new -paid- content like new iTS offerings that may include not just media, but also software. And there will certainly be new iPhone models with desirable new features at least once a year, just for the fact that new software will usually require new more powerful hardware.
regarding the XBox,
I'm surprised that Microsoft, Nintendo and Sony don't have to charge for their updates. All 3 have been adding new functionality, especially online channels, to their systems after launch.
Commenting by HaloScan
