January 16th, 2008
Apple, the $20 iPod touch update and GAAP
Since my post yesterday about the $20 iPod touch software update several readers have contacted me to explain how Apple had to charge for this update because of generally accepted accounting principles (GAAP). This issue, so I’m told, is much the same as the way Apple had to charge $1.99 the 802.11n enabler for the Intel-based MacBooks and MacBook Pros. Personally, I don’t buy this. If this is going to be Apple’s defense over the charge, then I say it’s nothing more than a smokescreen. Here’s why …
The accounting rules are complex but the issue here boils down to the fact that a company can only record the revenue associated with a specific piece when it is delivered to the customer. But, according to experts it is important to note that there’s nothing in the GAAP requirements that forces Apple to charge its customers for a software upgrade. The only requirement imposed by GAAP is that Apple must account for the separate value that the software brings. OK, with that in mind, let’s examine the case.
This isn’t about accounting rules. Apple’s carefully thought this through. I figured this out last night when I had to enter my credit card details into iTunes for the very first time to get my hands on the download. That’s a pretty slick move on Apple’s part.First off, put the iPod touch and the iPhone side by side. Eliminate the cellphone aspect of the iPhone and what you have is an iPod touch with a camera. However, the software apps available to the end user are fundamentally different. Why? Someone at Apple made the decision to eliminate a handful of applications probably so that the iPod touch and the iPhone didn’t seem too closely related. The idea that no one at Apple preempted the fact that iPod touch users would appreciate apps that made use of the WiFi connection to access online services is simply incredulous. Had this been anticipated early on, Apple could have planned this into their accounting and been able to offer the software for free.
OK, so Apple didn’t do that. Right, let’s look at the value offered by the software. As I’ve said before, $20 buys you a lot of code nowadays so this charge for the addition of applications that were already developed and delivered on an almost identical platform seems awfully steep. It’s especially steep considering that the iPod touch runs code designed for the iPhone that’s totally useless to it (for example, the iPod touch is running a Bluetooth stack all the time even though it has no Bluetooth capability).
But then again, maybe it’s not the actual code we’re paying for, but the value that it offers. OK, let’s see what we have. Here are the new apps that have been added to the iPod touch:
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Adrian is a technology journalist and author who has devoted over a decade to helping users get the most from technology. He also runs a popular blog called The PC Doctor. See his full profile and disclosure of his industry affiliations
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| 01/16/08
