January 3, 2003 12:14 PM PST

Apple preparing new upgrade fees

Apple Computer next week will announce a plan to charge for upgrades to some of the company?s highly acclaimed "digital hub" software, a move that could anger customers accustomed to receiving free updates.

According to sources familiar with the plans, Apple is expected to announce at the Macworld Expo in San Francisco Tuesday that consumers will have to pay for new versions of iDVD, iPhoto and iMovie, which will be sold together as a bundle. Previously, Apple had offered upgrades to its digital media, or "i" applications, for free.

iMovie is used for digital movie editing, and iDVD burns the final product onto a DVD. iPhoto is used to organize, edit and print photos. The move to charge up to $50 for the software trio is potentially the first step in charging for all six "i" applications, which would continue to be bundled for free with new Macs, sources said.

Apple?s other iApps include iTunes for organizing music, a calendar and a synchronization utility. It released new versions of iCal and iSync on Thursday.

Citing company policy, an Apple representative declined to comment on unannounced plans for products or services, the details of which could change before next week?s Macworld gathering. Apple CEO Steve Jobs opens the convention with a keynote speech on Tuesday.

"Windows users are not making the switch as Apple had hoped, and now the company is pulling a Microsoft-like move by bundling popular applications and pasting a 'premium' price tag to them," said analyst Tim Deal of Technology Business Research.

Consumer reaction to the plan could be harsh based on the fallout from similar moves last year.

During last summer?s Macworld in New York, Jobs revealed that Apple would charge as much as $100 a year for .Mac, a service that includes Web-based e-mail and other utilities that previously had been free under the name iTools.

Apple also did not give Jaguar--the first significant upgrade to Mac OS X--to Mac OS X users for free. Instead, the majority of these customers had to pay $129 to receive the upgrade, which was released less than a year after OS X. Both fees initially were met with protests, but many customers acquiesced. Approximately 180,000 customers had signed up for the paid version of iTools as of last October.

"I think there will be the usual outrage," said IDC analyst Roger Kay. "No one ever likes to pay for stuff they used to get for free."

NPD Techworld analyst Stephen Baker described the upgrade fees as "an interesting strategy." Offering the six applications for free has been an important way "to sell more Macs and get out in front of the digital media trends," he added.

At Macworld two years ago, Jobs positioned the Mac as a hub for connecting digital devices such as cameras, camcorders and music players. Since then, Apple has released new digital media applications and upgrades in an attempt to position the Mac as a better alternative to Intel-based PCs running the Windows OS.

TBR's Deal said he isn't surprised that Apple is making changes that could affect its emphasis on the Mac as a hub for digital media.

"Last year, Apple introduced a Windows-compatible version of the iPod, signaling the company's intention to take advantage of revenue opportunities that do not add value to its integrated digital hub strategy," he said.

Deal, however, was critical of the new fees, noting that Apple's campaign to lure Windows PC users to the Mac did little to offset weaker-than-usual holiday sales. The "iApps will be Apple's attempt to staunch the flow of bleeding revenue from its lagging sales initiatives."

Apple?s move coincides with Microsoft?s own "pay for play" software. The Redmond, Wash.-based company will release Plus Digital Media Edition (DME) for Windows XP at the consumer-electronics show later in the week. Product activation technology will restrict the software's use to a single computer, making it necessary for consumers to plunk down $20 for additional copies of Plus DME to run on more machines. Earlier versions of Plus could be installed on more than one PC.

 

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