Apple lit a fire under Microsoft this week by offering the new OS X Mavericks operating system, the iWork office productivity package, and the iLife creative suite for free.
In addition, while most of Apple Inc.’s devices still cost more than Microsoft’s Surface 2, some models of the latest iPads cost only slightly more than Surface 2.
"Apple is striking hard at the core of Microsoft, capitalizing on the perceived or real turmoil of Microsoft's transformation and its lame duck leadership," said Bob Egan, CEO and chief analyst of Sepharim Group, an IT mobile consulting firm based in Falmouth, Mass.
Apple's strategy to offer free software reflects an evolving trend among leading vendors that want to reach business consumers and provide them with software, hardware or services in ways that ensure their experience is the same both in their personal and work life.
"There is no question that one of the traits associated with the consumerization of IT is to help consumers mirror [or] match their home experiences with work," Egan said.
Microsoft generates 96% of its operating margins from operating system and productivity software licensing, and Apple is now teaching people to expect both of those things to be free.
Jan Dawson, chief telecoms analyst at Ovum
Apple's free model places greater pressure on Microsoft and draws more users to the Apple ecosystem, industry watchers said.
"The Mavericks announcement is … a big disruptor. While Microsoft is interested in selling software SKUs with devices coming as a secondary focus, it's likely they'll have continued difficulty truly selling a multi-device ecosystem," said Chris Silva, principal analyst and founder of High Rock Strategy LLC, an IT consulting firm based in Melrose, Mass.
Apple, on the other hand, continually extends the capabilities of its devices and the services that interconnect them, he said.
"The more services they extend and the more devices they open those services up to, the greater potential for users to buy into the ecosystem more deeply," Silva added.
Indeed, Microsoft's Windows 8.1 is free for existing Windows 8 users, but for new users, it starts at $119.99 for Windows 8.1 and $199.99 for Windows 8.1 Pro.
Apple iWork vs. Microsoft Office 365
In addition, iWork ships for free for all new Macs and iOS devices, squarely placing the company in competition with Microsoft Office 365, which is required to use the Office for iPhone app. Pricing for Microsoft Office 365 begins at $99 for a home edition, $5 per user per month for a small business, and all the way up to $20 per user per month for the Enterprise E3 version.
It's unlikely that Apple can displace the entrenched Microsoft Office in the near term. While iWork may not fully replace the industry standard of Microsoft's Office productivity suite, it is good enough and can provide a mobile experience that could eventually make Office applications on iOS irrelevant, Silva said.
Microsoft Office and Office 365 are seen as the gold standard in office productivity software for businesses, but many alternative suites for both desktops and mobile devices have come to market. Apple's goals to displace Microsoft's productivity suite will be an uphill battle in the enterprise, especially with Office 365 enjoying a $1.5 billion annual run rate and more and more companies subscribing.
Microsoft offered a particularly snarky response to iWork being available for free.
"When I see Apple drop the price of their struggling, lightweight productivity apps, I don't see a shot across our bow, I see an attempt to play catch up," wrote Frank Shaw, corporate vice president of communications at Microsoft, in a blog post.
Convincing users to adopt iWork will be quite a challenge for Apple, Egan said.
"There is no question that 70%of the features in Microsoft's Office suite appeal to various fragmented use cases," Egan said. "It's also true that the iWork feature set has been anemic. Apple moved to enable more parity … but one should never underestimate the need to push or entice users to learn a new tool. That remains a challenge for Apple."
Apple iPad vs. Microsoft Surface
While Apple's software is free, the company continues to charge a premium for its hardware. But only some of Apple's devices are more expensive than Microsoft's. Some Apple devices cost less when stacked up against the Surface Pro 2.
Apple unveiled the long-awaited iPad Air and an iPad mini sporting a Retina screen. The new devices joined this week's tablet wars, as Microsoft began shipping its new Surface 2 and Surface Pro 2, and Nokia delivered its first tablet, based on Windows RT.
The iPad Air is a thinner and lighter refresh, weighing only 1 lb. and offering a faster 64-bit A7 chip and M7 motion coprocessor, 9.7-inch Retina display, 10 hours of battery life, and better Wi-Fi connectivity. Pricing starts at $499 for a 16 GB Wi-Fi-only model; $599 for a 32 GB Wi-Fi-only version; and $699 for a 64 GB Wi-Fi model. The high-end iPad Air costs $929 for a 128 GB version with both LTE and Wi-Fi communications.
By comparison, the Surface 2 costs less at $449 for a Wi-Fi-only 32 GB model, while Surface Pro 2 starts at $899 for a 64 GB version and $999 for a 128 GB model; a 256 GB Surface Pro 2 costs $1,299. The Surface Pro 2s are also Wi-Fi-only models.
The long-awaited iPad mini with Retina screen is slightly heavier than its predecessor, but has been upgraded with the 64-bit A7 and M7 chips, 3x video zoom and improved Wi-Fi connectivity. The 16 GB Wi-Fi-only model starts at $399, ranging to $829 for a 128 GB model with added LTE support. The new iPads will be available in November.
Analysts questioned Apple's decision to continue selling the older iPad 2 and iPad minis as part of its product line up, as pricing for the old devices remains high. The original 16 GB iPad mini is priced at $299, while the iPad 2 lists for $399.
The price gap between the old and new models demonstrates Apple's strategy to place more attention in the premium tablet market while reserving the older models for the low-end market, analysts said.
"Clearly Apple is not looking to gain back share from the low-cost Android devices on the market …," Silva said.
Apple also unveiled a refreshed MacBook Pro 13-inch and 15-inch with Retina displays based on the Intel Haswell chip. Pricing starts at $1299 for a 128 GB SSD model to $2,599 for a 15-inch model, depending upon configuration. Those products are now shipping.
Finally, Apple's Mac Pro desktop will be available in December starting at $2,999.