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Monday, August 28, 2006, 07:00 am PT (10:00 am ET)

Apple sees more profit per OS user than Microsoft

By releasing operating system upgrades at a more frequently and stable pace, Apple Computer is able to gain more profitability per user from its OS software than Microsoft, an analyst's study has found.

PiperJaffray analyst Gene Munster recently compared Apple's Mac OS X and Microsoft's Windows pricing schemes and found that although Apple prices its OS software at a lower average selling price (ASP), it costs Mac users more per year to have the latest OS.

According to Munster's analysis, Apple releases a new version of Mac OS X about once a year for $129 (or an average of $107 per year to keep current), whereas Microsoft releases new versions of Windows about every 2.25 years for an average cost of $114 a year (or $48 per year to keep current).

"Despite Mac OS X's lower ASP, Windows users pay less per year (by $16) for full versions and significantly less per year for upgrade copies (by $59), in order to have the latest OS for their computer," Munster told his clients in a synopsis of the study. "Apple users therefore pay a premium on an annual basis for more frequent upgrades to Mac OS X, resulting in higher profitability per user for Apple."

The analyst believes Apple's OS pricing strategy is in line with the company's overall strategy, which is that Apple users are willing to pay a premium for hardware and software built for the Apple platform, enabling Apple to expand profit margins.

Apple/MS OS Strategy Compare

Credit: PiperJaffray Investment Research


"Given Apple's ability to drive greater revenue per customer versus its competitors through sales of peripherals and frequent OS updates, Mac market share gains will mean more to the company than simply increasing Mac revenue," he said. "Most analyses of the impact of Mac market share gains exclude the positive potential impact on the company's peripherals and software segments, which account for 12 percent of revenue."

The analyst said that it is important to keep this added benefit in mind, as a growing number of Macs in consumer's hands will lift these segments as well.

Munster maintains an "Outperform" rating on shares of Apple Computer with a price target of $99.