Cheaper lunch

Apple jabs at Microsoft with giveaways

Apple's giveaways are a jab at Microsoft. Mac users won't have to pay to upgrade to the latest operating system, the company said at its event on Tuesday. Those who buy a new product won't pay for work software like spreadsheets or creative photo and movie packages - on the device or in the cloud. In short Apple, like Google, is training users to expect software to be free. For Microsoft, that's a problem.

The iPhone and iPad maker uses software to sell premium hardware, so its approach makes sense. Macs are pricier than entry-level PCs. And, the company led by Tim Cook is forgoing only a small chunk of revenue. Even including the hugely popular iTunes with its paid-for content, software and services accounted for less than 10 per cent of the company's revenue in the first nine months of the year. Those already sold on the advantages of Apple's products will get a slightly cheaper meal. Having all the software thrown in may also attract new customers.

Google started this fire with its free Android operating system for mobile phones as well as its calendars, word processing capability and other online software. Google's method is slightly different - it uses advertising sales to subsidise the creation and distribution of these programmes. But from their different angles, both the search giant and Apple are well on the way to making sure users get used to free software.

It's a highly corrosive idea for Microsoft's business model. Bill Gates' creation was slow to make a version of its expensive Office productivity software that works in the cloud rather than on a user's PC, and even the online version costs money. And, major new versions of Windows and Office can be expensive. Good free alternatives could before long tempt customers to try the competition rather than upgrade.

Of course, Microsoft will fight back. A modest upgrade of its Windows 8 operating system to version 8.1 is at least free. And, it has rolled out ad-supported versions of its software. The company is still built around software sales, however. Its business division, of which Office is the biggest contributor, made more than $16 billion of profit last year - well over half the company's total profit. Apple and Google are squeezing that cash cow.