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Apple and Microsoft: The Difference in OS Sales Models

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In a previous article I discussed Apple’s approach to cloning and how far they should go in shutting down that business. This led to the question “why can’t I just buy Mac OS X and install it on any hardware I want?”, which led to a pretty typical answer that the boxed OS X is sold as an upgrade, not a new (or full) license. This answer is sometimes challenged, and brings up the idea of what an “upgrade” is in the Mac world as opposed to Microsoft.

This is not an Apple vs. Microsoft argument. It simply attempts to outline the difference in each one’s approach to OS sales, and why each uses the sales model it does. Rather than claim one is “right”, I believe each is right for the business model it supports. 

Where Apple may be handicapped in terms of perception is that Microsoft’s approach is well-known and understood. Microsoft could point out that ~95 percent of the planet probably “gets” their model. Apple, for all their recent success — so much so that many Apple fans forget they’re still a drop in the Atlantic in terms of global market share — employs a different approach that, when viewed through Microsoft’s, might seem a bit strange.

Microsoft: Which Windows Version Are You Running?

There are four different versions of Vista: Home Basic, Home Premium, Business, and Ultimate. Each one is also split into “upgrade” and “full” versions. You make your pick, bring it home, and install it. Which do you choose? The decision of which of the four to purchase is up to the user, I only want to concentrate on the split between upgrade and full. 

The difference is straightforward. A full version installs on a PC with no proof required that a previous version of Windows is owned by the user. For an upgrade, however, such proof is required. The proof may be by installing over a previous version, or providing an installation disc, it doesn’t matter except to the extent that without proof the upgrade will not install; and you’re supposed to use the full version. 

(Let’s not get into all the ways you can skirt the “proof” process. Let’s all just pretend we’re honoring the spirit of the software agreement, OK?) 

Why does Microsoft do it this way? Their OS can run on thousands of variations of hardware platforms; it’s easier to verify you’re a valid user of a previous OS version. Further, this is the classic method of software sales; if there’s a new release, owners of older releases get a break in pricing. If you’ve never owned the product, you pay a higher price initially, but then enjoy upgrade prices from that time forward. Software has been sold like this for years and pretty much everyone understands this model.

In short, Microsoft requires a “full” version if you don’t own a previous one, and an “upgrade” version if you own a previous version, which the upgrade installation attempts to verify. 

Apple: Which Macintosh Do You Own?

Right off the bat, you see only one version of Leopard. That isn’t important, but what is important is that the one version is not split between “upgrade” and “full” versions. What’s up with that? 

The answer to that question is why Apple people claim that a boxed Leopard sold is an upgrade. It’s not an upgrade in the Microsoft sense as it makes no attempt to verify a previous version of Mac OS X. Rather, it verifies that you are in fact using a valid Apple Mac (i.e., Apple-labeled computer) and, once verified, lets you proceed. 

With Leopard verifying you have a valid Mac, there’s no need to verify the OS itself. Apple couldn’t care less at that point. You have a valid Mac and are therefore entitled to the Mac OS you just bought. So we see the huge difference between the Apple and Microsoft OS models, Microsoft must verify you own a prior version of Windows (doesn’t care about the hardware), whereas Apple must verify that you have a valid Mac. 

This explains why the boxed OS is thought of as an upgrade. Generally speaking, there is no reason a valid Mac owner would purchase a boxed OS unless it’s to upgrade. It can’t be new, because he got a full OS version with his Mac, and if he doesn’t have a valid Mac the installation will fail. (It’s this latter item that the cloners skirt, but this article isn’t about cloning, so let’s move on.)

By the way, the box OS allows full installs, too. Once the installer verifies your Mac you have several installation choices. 

Apple’s OS model is completely different from Microsoft’s. Ever wonder why Apple can sell “Leopard Ultimate” for only $129 (or less), and why they don’t need upgrade and full versions? Because they know you have a valid Mac, and as a company rely primarily on that hardware income. As for giving previous owners an upgrade price break, the “Ultimate” version at $129 is a great price. 

Summary: And The Winner Is… Both!

To think of Apple’s OS approach in Microsoft’s terms is a huge mistake; the business models are different. 

The reverse is also true. Apple’s model won’t fit into Microsoft’s world. Apple users like to make fun Vista’s versions, but when you don’t have the “luxury” of verifying a given piece of hardware, how else would you suggest Microsoft go? Developing an OS is expensive, Apple’s strategy allows them to simplify OS version and pricing because they rely primarily on hardware income. The disadvantage of this approach is that it’s tied to a Mac, hence the hucksters trying to skirt that issue. But when the issue is skirted, Apple’s model falls apart. 

Look at it this way: If Microsoft had to sell only the Ultimate version of Vista, with no hardware check, no differentiating between an upgrade and a full install, and for $129 (with other licensing options dropped accordingly), can you not imagine the drop in profitability? It would be harsh on their bottom line. That model makes little sense for an OS licensed for distribution widely on so many hardware platforms, at so many price points, by so many vendors. 

Meanwhile, if Apple had to continue selling just one version of Leopard, but could not verify a valid Mac was in use, then they’d be in the same boat as Microsoft above. In Apple’s case, OS revenues would likely increase, but not near enough to make up for the lack of corresponding hardware income upon which they rely. Apple is primarily a hardware vendor; tying the OS to the hardware makes that business model work, just as freeing the OS from a particular hardware vendor makes Microsoft’s work. 

I don’t believe either approach is necessarily better than the other, but it’s clear to me that either company being forced to used the other’s would be damaging.

15 Responses to “Apple and Microsoft: The Difference in OS Sales Models”

  1. @Partners in Grime

    You misunderstood the whole article. There is no way to purchase a “new” version of Snow Leopard. You either buy the “upgrade” box (upgrading a Mac from Tiger, Leopard, etc.) or you buy a new Mac with Snow Leopard pre-installed. Apple does not license OS X any other way. Unless you break the EULA and install the “upgrade” on a non-Mac I defy you to get a “new” version of Snow Leopard.

    The Vista “upgrades” Tom wrote of were from lesser versions of Windows, such as XP to Vista, paralleling an upgrade from Leopard to Snow Leopard.

  2. You forgot to take into account the fact that most of Microsoft’s OS revenues come from pre-installing Windows (OEM version) on hardware and passing the cost on to consumers, making it appear free (and making it very difficult or desirable for hardware manufacturers to break the status quo and differentiate with a different OS). The monopolistic tie of all the major hardware manufacturers to Microsoft is the core of their business model; the retail boxes are just gravy.

    Your comparison of multiple editions of Vista to Apple’s Mac model lineup, both for purposes of price discrimination, was very enlightening. On the OEM side, Microsoft probably does this too. The hardware manufacturers such as Dell probably like this too because they can increase their margins by giving users optional Vista edition upgrades and overcharge for them.

  3. dan Scanlan

    Don’t know much about PCs, except that I find the terminology confusing. Apple’s terminology makes sense to me: System, version, update. On one computer I’m running System 10, version 5, update 6, i.e., 10.5.6. System 10 isn’t a an upgrade of System 9; it’s a whole different animal. Version five isn’t really an update of version six, either. Way different. Within each version Apple issues updates, about four a year, plus security, Java and other sub routine updates. With Apple, once you buy a version, all updates are free, at least so far. Snow Leopard will be a new version, not an upgrade, to my way of thinking.

  4. This is a great post, and as many of your posts, changed and enhanced my way of looking at things.

    Now, if only you could convince Paul Thurrot of the same -he seems to think that all major OS X upgrades are just silly, simple service packs that Apple should provide for free!

  5. “The decision of which of the four to purchase is up to the user”

    That’s the part I don’t understand. My Mac PC’s, I get the OS, I choose to upgrade. My Windows PC’s, I don’t know which version to get. If some feature doesn’t work, did I configure it wrong or did I need a different version of Windows?

    BTW, I think that installing a “full” copy of Windows still requires authentication, and installing a “full” copy of Windows on another PC (when the original died) fails that authentication process.

    And if I want to upgrade, does a Ultimate Vista upgrade work from a Home XP?

  6. Great article, man – gave me some really great insight into the approach used by either company. I’d have to say that I prefer Apple’s approach a lot better, but then again, my already-present Mac bias might be the reason I’m more fond of much simpler processes.


  7. Kevin,

    “I have never heard anybody make fun of Microsoft for having both “Upgrade” and “Full” versions”

    I was misunderstood.

    When I made the statement “Apple users like to make fun Vista’s versions”, I was referring to the four varieties, not the divide between full and update. Indeed, the article acknowledges the full/upgrade method is the common thing, calling it “the classic method of software sales”; previous users of the software get a break in pricing.

    The reason I brought up Vista’s four flavors was because some people do make fun of that. Heck, even one of the Get A Mac ads made fun of it. What I was trying to say was that when you do not rely on hardware sales (i.e., the OS is your revenue stream) then a “one size fits all” philosophy isn’t your best bet. Just as hardware makers (PC and Apple) have a range of products at different price points, so too does Microsoft need a range of THEIR product at different price points. This is true not only of Vista, but of Microsoft Office as well.

  8. Apple is really more like NVidia. You buy the hardware and the driver comes in the box. OS X is really just a giant driver to make the Mac work. The difference is that Apple charges for upgrades to the driver, which makes sense given how complex it is.

  9. I have never heard anybody make fun of Microsoft for having both “Upgrade” and “Full” versions. What I have heard, and what is worth ridiculing. is the fact that Microsoft has 4 different editions of the OS (discounting the Full/Upgrade split).