Apple And The Renaissance Of Hardware Monetization

As the moderator of the Braeburn Group discussion community, I am in constant contact with members of our global network of independent analysts. For the active participants in the Braeburn Group, Apple analysis is its own form of a virtual full contact sport. 

Since the release of Apple’s September quarter results and December quarter guidance earlier this week, discussions about Apple’s revised revenue deferral program and management’s decision to provide OS X upgrades and copies of the company’s Keynote, Numbers and Pages productivity applications free to iOS device and Mac owners have reached a fever pitch. Tracking Apple’s new deferred revenue program and its impact on each quarter’s results has its own challenges. Determining the rationale of foregoing revenue on OS X upgrades and sales of the company’s productivity apps is a sub-plot for conversation. 

In this post I won’t go knee-deep into the analysis of Apple’s financial results or the fiscal impact of the company’s strategic decisions mentioned above. I reserve financial analysis for my Posts At Eventide blog. What I will mention in this post is a concept I’m calling Apple and the Renaissance of Hardware Monetization.  

Apple’s New Deferred Revenue Scheme

During the September quarter conference call with analysts, Apple announced the company has increased the revenue deferred on each iOS device sold to as much as $25 and increased the revenue deferred on each Mac sold to $40. The revenue deferred on each iOS device sold will be recognized over 24 months and the revenue deferred on each Mac sold will be recognized over 48 months from the time of sale. 

iCloud image courtesy of Apple

The justification for the increase in the amounts deferred on iOS device and Macintosh PCs is to better reflect the value of software and services provides to device owners at no additional cost and to reflect the value of the implied guarantee Apple provides to consumers they will receive free OS upgrades over the anticipated economic life of the devices they purchase. 

Accounting rules require the deferral of revenue at the time of a device's sale when enhanced features and functionality are provided at no additional cost at a later date. From an accounting standpoint, Apple’s decision to defer revenue is sound and justified. The amount of the deferred revenue on each unit sold reflects management’s estimated value of the OS upgrades, software and services Apple plans to distribute to the device owner following the date of original purchase. 

Keynote, Numbers and Pages

I am an active user of the Apple’s productivity apps. Keynote and Pages are excellent products and iCloud integration provides for seamless workflow across all of my Apple-branded devices. Under Apple’s product and services model, I can access, create and edit Keynote, Numbers and Pages documents on any of the devices I carry and I can drive presentations using the company’s productivity apps at any time from my iPhone, iPad or Mac. I also use Numbers exclusively in my analysis work. I’ve adapted to Numbers because of the way Apple’s spreadsheet solution integrates with Keynote and Pages. While in my view Numbers is an application in need of active development, I use it almost exclusively because of the seamless integration with Keynote and Pages and anywhere access to documents via iCloud.

Lessons From An iMac Hard Drive Failure

I need a new iMac.  It's just that I don't want a new iMac yet. When the hard drive on my  24" iMac from 2008 failed last weekend, it was either find a work around or plunk down hard dollars on a new machine. I chose the former and not the latter.

I keep my gear for as long as practically possible. For example, my 2002 PowerBook G4 sits triumphantly on an ottoman-style cushion in the living room. It's in pretty much daily use for light web surfing and other basic tasks. I want to keep my current iMac in service until at least the next iMac refresh expected in the fall.

I follow the tech market closely and in particular I follow Apple. Before I replace my iMac with a new one, I want the latest Intel chipset and whatever incremental upgrade to the discreet graphics card that may come in the next refresh. In the meantime, I had to replace my iMac's hard drive and restore my user accounts, applications and data as quickly as possible. I decided to use an external drive to restore my data and extend the useful life of the iMac.

A Quick Trip To An Apple Retail Store

Because the drive's failure was caused by a physical disk problem and not corrupted data, neither Apple's disk utility or Alsoft's Disk Warrior could access the drive. Rather than deal with the hassle of installing a new internal drive, I purchased a LaCie 500GB Rugged Hard Drive with FireWire 800 and USB 3.0.  Although the 2008 iMac doesn't have a USB 3.0 port, I determined FireWire 800 would work adequately until I replace the iMac in the fall and having a USB 3.0 drive around would continue to come in handy.

Time Machine and Time Capsule

For years I've used an Apple Time Capsule for Time Machine backups. It works well despite the sometimes sluggish wireless network performance when big backups commence and there's other traffic on the home network.

Still, having the hourly backup regimen kick-in automatically ensures I won't endure a data loss catastrophe when a Mac hard drive goes bad. Despite the hard drive failure, all of my drive's data remained intact on the Time Capsule. It was restoring the backed up data to a new drive without OS X Mountain Lion initially installed on the drive that created some issues. 

No Mountain Lion, No Easy Restoration

Upgrading to the latest versions of OS X via the Apple App Store is a quick and easy process. Although I should have made a bootable Mountain Lion install disk when I updated all of the Mac's in the house, logging into the App Store to download a copy from Apple for each installation seemed more convenient. Until now...

The Legacy OS Odyssey

With the hard drive gone, I had to start from scratch. The last physical disc I had on hand was Snow Leopard (OS X 10.6). To gain access to the App Store required 10.6.8 but that combined update was not on my Snow Leopard install disc. That was a separate download following the Snow Leopard installation. 

Using the Snow Leopard disc to start the Mac I could not perform a successful restoration of the Time Machine data stored on the Time Capsule. The attempt failed twice. For the third attempt I installed Snow Leopard on the external drive, downloaded and installed the 10.6.8 update via Software Update and downloaded Mountain Lion through the Apple App Store. Because I had already purchased Mountain Lion, there were no additional costs for the download. 

Migration Assistant Versus Time Machine Restore

With Mountain Lion installed on my new external drive I no longer had to perform a full Time Machine restore regimen. I used Migration Assistant in the Utilities folder to bring over my applications, user accounts and documents. This was less time consuming and problematic than attempting to recover the full contents of the failed hard drive. 

Migration Assistant had issues restoring data to a new drive with an admin user name nearly identical to one used previously. To eliminate the problem, I created an admin account on the external drive with a different name than the user account being restored. I logged in through the new admin account and restored all of the users, applications and documents stored on the Time Machine backup.

iCloud image courtesy of Apple

iCloud

I now consider iCloud a near necessity. Not only does it allow users to share documents across Apple-branded devices, it also provides access to contacts and iCould-based services from any iOS-based device. Even with a hard drive failure on my Mac, I was able to keep current on my iCould email and reference Pages, Numbers and Keynote documents created on my Mac and stored in the cloud.

Lessons Learned
Restoring my data following a drive failure took some work and took a bit of time. There are a few lessons learned from the experience which include:

1. Time Machine is an effective means to backup and protect data in the event of a hard disk failure.
2. Creating a bootable installation disk of the latest version of OS X will save time and effort in restoring data to a new drive.
3. iCloud is essential for remaining productive while remedying a failed Mac hard drive.

Restore Now, Replace Later

Because I work hard to keep my Macs in service for years, I watch for newer technologies to emerge before making a replacement decision. Purchasing an external drive for my 2008 iMac extends the life of the Mac until I choose to replace it. Having a FireWire 800/USB 3.0 external drive comes in handy today and the drive will make it easier to transition to a new iMac later. 

Robert Paul Leitao

Goodbye Cable, Hello Apple TV!

Last week I received a courtesy call from an AT&T U-verse representative asking for feedback on the company's Digital TV, High Speed Internet & Voice services. It was a spontaneous decision, but I took the opportunity while on the call to cancel the digital TV service.

OK, so it wasn't so spontaneous. I had been thinking about canceling the TV service while investing a few of the dollars saved for higher-speed Internet. We have a large household of active digital device users. We need bandwidth. We need bandwidth more than we need hundreds of cable channels no one in our home ever views. 

I appreciated the courtesy call from AT&T and how quickly the first representative passed me to another representative to make my account changes. We now have the additional bandwidth desired and an empty spot under the TV where the Motorola cable receiver used to sit. The receiver has been sent back to AT&T and the Apple TV now has a shelf under the TV all its own.


The Apple TV
We've had an Apple TV since the release of the quirky first generation model that always seemed to need a restart and took forever to download and store content. The newer Apple TV models (generations 2 & 3) only stream content and can be accessed from other Apple-branded devices around the house. 

Apple TV image courtesy of Apple

For the $99 purchase price, the new Apple TV provides Internet-based access to the iTunes Store, Netflix, Hulu Plus and a variety of other free and subscription-based content portals. It also facilitates the wireless streaming of iTunes content from other devices via the company's proprietary AirPlay protocol. The newer Apple TVs are easy to set-up and easy to use. 

Netflix and Hulu Plus
We have a Netflix account and with the $90 per month saved on cable TV services, I decided to go shopping for other content to be viewed through the Apple TV. It was suggested by members of the household that we evaluate Hulu Plus for TV shows while keeping our Netflix account for movies. While there are pros and cons to both services, I decided to add Hulu Plus to increase the content repertoire for on-demand viewing through the Apple TV.

The High Cost of Cable TV Service
Cable TV is extraordinarily expensive for the few channels our household members viewed each month. I didn't consider surfing through a seemingly endless number of cable TV channels a leisure time sport. I considered it wandering through a listing of channels I paid to access each month but never watched. 

Cost Savings and Convenience 
With an opportunity to save about $1,000 per year, the decision to cancel cable service wasn't a difficult one. Combined, Netflix and Hulu Plus cost about $30 per month. For less than $400 per year we have a much more cost-effective home entertainment content solution and a net savings of about $600 per year. Additionally, the Netflix and Hulu Plus accounts can be accessed and used from any location and from any of our Apple-branded devices. 

The savings are real and in the first week since canceling cable I've watched more content through Apple TV than I watched on cable in the past year. This lower-cost solution provides for on-demand movies and TV shows for a fraction of the cost of cable service. Apparently saying goodbye to cable service is fairly common. All I had to do was bring the U-verse TV receiver to a local UPS Store and it was packaged and shipped back to AT&T for free.