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Apple Charges For 802.11n, Blames Accounting Law
If you have a Core 2 Duo Macintosh, the built-in WLAN card is capable of networking using (draft 2) 802.11n. This capability can be unlocked via an update Apple distributes with the new AirPort Extreme Base Station. Or, they will sell it to you for $4.99. Why don't they give it away for free, say with Software Update? Because of the Sarbanes-Oxley Act (which was passed in the wake of the Enron scandal). iLounge quotes an Apple representative: "It's about accounting. Because of the Act, the company believes that if it sells a product, then later adds a feature to that product, it can be held liable for improper accounting if it recognizes revenue from the product at the time of sale, given that it hasn't finished delivering the product at that point."
Imagine if they even charged $1 for every patch, for every user. There are more MS patches for a product than every dollar in the asking price for said product. I'm aware that Apple are scared because it's a "new feature", but MS has done that a lot.
This explanation doesn't hold water -- then why don't they charge for software updates, and why not charge $1.99, or $0.99, or even $0.01, instead?
So why does it cost $4.99 for a feature which tas taken very little work to implement?
OK, so it's fair that they're charging for it - if you believe their excuse, but why not $0.99 or $1?
I thought this was common knowledge - I've been arguing that the effects of Sarbanes-Oxley are detrimental for some time now.
The major problem is that it invites software companies (I'm not making any accusations here) to put out shoddy software, full of bugs and not-ready-for-primetime features, giving themselves the option to *not* charge for upgrades later, perhaps for business-reasons. Bugfixes, you see, are not subject to the S-O ruling. This is not the way I'd like to see the s/w industry go...
Simon.
Physicists get Hadrons!
How about (c) You are incapable or unwilling to actually read an article before typing your uninformed opinion. The change due to Sarbanes Oxley only applies to new features, not bug fixes. Now you may return to anguished seething about how much you hate Apple and Steve Jobs.
If you have a GeForce/Quadro, it is called 'NVIDIA PureVideo Decoder'.
Has to be at least $1.00. Probably costs 'em several dollars to handle the dollar...
Bantam Dominique roosters crow a four-note song. Once you've heard it as "Happy BIRTHday" you can't NOT hear it that way
Either that or someone high up in apple is really jumpy right now and it playing it safe to insane degrees.
After the stock options issue, you bet that they are being over cautious. Now whether they are interpreting the law correctly, is another matter.
Jumpstart the tartan drive.
Can someone please post the link to where I buy the unlocking software? After spending $3K on my C2D MacBook Pro, you really think I care about paying another $5?
Sure it could have been a penny, but that may have been construed as trying to sell the feature for less than market value. I'm not an accountant, but I know that you can get in trouble for stock options granted at less than estimated market value for a private (unlisted) company, therefore you have the pick the lowest number that can be seen as a reasonable value. I was lucky to get my shares at $0.02 a piece since when I was granted the options the startup company I started working at had yet to make their first sale. A year later they had to grant options at $0.50 and up.
In all honesty $5 is cheap for a draft-N card. Consider the alternative of buying a PCMCIA Wireless N card and tell me its not a deal?
This is actually a real problem. If you sell a product that has upgradable firmware then you need to only recognise revenue as you provide the service. For example let's say you sell a device for $1000 and provide free firmware upgrades for 1 year. You might structure this that the base product is worth $900 and the 12 months tech support is worth $100. You then recognise the revenue as $900 at time of sale and $100/12 per month.
For a product that has free firmware upgrades "forever", you might introduce some reasonable lifetime (like 3 years), perhaps the typical depreciation period for the product.
Now Apple beancounters fucked up. They recognised all revenue immediately. They should have really defered some of the revenue recognition but they wanted to look all shiny for Wall Street (Enron, on a smaller scale). By chraging for this upgrade they're probably hoping to create a loop hole.
Needless to say, MS most likely just moons the act and does not care any more than they care about the DOJ nailing them with anti-trust.
Engineering is the art of compromise.
No, Microsoft can't possibly argue that PowerToys don't add new features. But PowerToys is not hardware, and it has been out longer than the Sarbanes-Oxley Act.
Apple doesn't need a few hundred people spending $4.95 to be profitable. I think they're on to something here in their interpretation of the law, unfortunately. I'm not a lawyer, but you can bet Apple had their lawyers look at it.
Even before Sarbanes-Oxley (e.g. in the mid-1990's) ethical, conservative CFO's [admitted a rare breed] were very careful about "recognizing revenue" for a product when a newer or better version was in the works. Our "head up the ass" Congress passed Sarbanes-Oxley and now companies have hire many more lawyers to cover their asses. Lots of companies in Apple's situation would simply do NOTHING - no charge, no upgrade: WYSIWYG hardware. Is that in the consumer's best interest? I think not!
Here's how Apple can get around SOX: Put the update on their site, list it as BETA, let anyone register to be a "Beta Tester" for the application, they have to agree that this is a Beta, and you have to uninstall the product when the final implimentation comes out...kind of like what MS does...then let people have the file. Or they can charge you $4.99 for it, but give you a special once-only keycode that's worth $4.99 off any purchase. Result: a wash, accounting-wise. No odd accounting practices, no shuffling of cards, just people getting the app.
It's funny how BIOS updates and other drivers aren't seemingly worried about SOX...or how Microsoft Update isn't either...
802.11n was never advertised openly and originally as part of the capabilities of the products in question. For that matter, Quicktime Pro's feature sets are not advertised as part of standard Quicktime... but you don't see anyone complaining that users have to pay a license fee to unlock the Quicktime Pro bundle of features that already exist on your Mac in a disabled state.
For that matter, the same can be said of many different types of software. If you get a digital converter box from your cable company, by virtue of having the box you aren't granted access to every channel the box can theoretically decode.
Please note that while iLounge's article is interesting, it's based on two unnamed Apple representatives, quoted without their position at the company being mentioned. This is fine, but let's not take this as an official Apple position or statement. I'm a regular print and online journalist, so I asked Apple about the $5 charge. They said they don't comment on rumors and speculation, and repeated that the updater would be available on the CD with the new AirPort Extreme update that will ship in February. To me, that's like saying, "hint, hint." The CD will have an unlocked updater that can be used with any compatible Core 2 Duo or Xeon Macintosh. Thus, Apple may or may not have a Sarbanes-Oxley issue (stranger things have happened), and they may or may not charge $5 for the updater. Nonetheless, an unlocked "enabler" application will be in the hands of thousands of early purchasers (like myself). I've written more about this on my Wi-Fi blog in a post about why I think the $5 charge is unlikely, but unnecessary for anyone to pay even if it's attempted to be levied.
Freelance tech journalist for the Economist, MIT Technology Review, Macworld, and others
It's amazing what gets 'blamed' on Sarbanes-Oxley. And most of the time, completely off base. While there is surely some money-grubbing from Apple, this is probably nothing more than Apple making a conservative decision to apply existing accounting policy more stringently. The previous poster here gets it right.
I am a forensic accountant - I do large corporate financial investigations, which involve accounting analysis and numerous interviews of management.
And I can't tell you how many times I've heard people in companies, when asked about $FOO, say "we had to do this because of SOX". Most of the time, they couldn't tell you what SOX is, or why that is the cause of $FOO.
SOX has turned into the Boogeyman, the shadow lurking in the background of any financial discussion. Unknown reason? SOX made us!
At its simplest, SOX requires that companies document what they do and how they do it. "404" is just a requirement that companies have a complete set of working documents describing accounting processes and the controls around those processes, and that they have actually tested to see that the processes and controls work properly.
Along with 404, SOX also heightened the burden on the financial accounting groups. Now CEOs and CFOs sign statements in quaterly and annual SEC filings, under penalties of civil and criminal law, that certify that they are "responsible for establishing and maintaining internal controls", including upward reporting from subordinates and subsidiaries, and that the controls have been tested and reported on in the filing.
As a result, corporate accounting departments have tightened up, More documentation of different types of accounting processes mean that existing, latent accounting issues are being surfaced and addressed. More conservative usually, in the sense that one does not 'push the envelope' of GAAP.
This is not really 'SOX made us do it', but rather as result of the analysis that SOX calls for. Sematics, but an important difference, I think.
Accounting Background - What is at work here?
SOP 97-2 "Revenue Recognition for Software Products with Multiple Deliverables".
SEC and AICPA: Revenue generally is realized or realizable and earned when all of the following criteria are met:
- Persuasive evidence of an arrangement exists
- Delivery has occured or services have been rendered
- The seller's price to the buyer is fixed or determinable, and
- Collectibility is reasonably assured
So, Apple decided that at the time of the sale of the computer with 802.11n (but not yet functional), with no additional amounts due from the customer, that since Apple had not perfected delivery of the complete laptop with 802.11n, they had not finalized all terms of the delivery, and thus had not "earned" all of the revenue from that sale. This would cause them to 'defer' some portion of the revenue (a liability on the balance sheet) until the final piece of the sale (802.11n) was delivered to the customer.
Under Apple's current policy, the computer is sold without 802.11n, delivery of this total package is complete when the customer receives the laptop, and Apple recognizes that entire sale as current revenue. Then a new $4.99 sales happens when the customer purchases the upgrade.
See: NY Society of CPA's discussion of SOP 97-2.
Now, there are certainly valid objections to the scope and scale of 404, but those are fairly focused on the size of companies that SOX should apply to, and how much testing the auditor should demand that they and the company do around 404.
Software products are advertised for their core functionality. They're intended to be fluid products, and accounting doesn't care what features are added or removed in software, as long as Photoshop stays an image editor and Dreamweaver stays a web content editor, the rules are met.
Not the same with hardware. Any material change in the product has to be accounted for. If Apple already filed its disclosure statements indicating that its products had b/g wireless chipsets in it (which it would have), it can't go back and change that later and say "oops actually it's 802.11n." Doing so would be a "material misstatement" punishable by the PCAOB under Sarbanes-Oxley. By charging for the 'upgrade' they can file current accounting documents saying that the products were upgraded with new functionality.
It's NOT a simple upgrade to a driver. It adds an entirely new function to the device on a new protocol not interoperable with other equipment. Enabling it is a simple firmware update, but it is a material change to a shipping product.
It's not about free patches being illegal, it's about Apple not reporting its hardware properly. You can't make a substantive, material change. From the perspective of government oversight, the products Apple has been shipping did NOT have n-capable hardware. Now they do, but you can't go back and re-file the paperwork. You have to report the upgrade in accounting filings, and you can't report something in your accounting files that doesn't cost anything. With the company being under investigation for its accounting practices, it's best not to take any risks at all while under the probe.
If federal regulators respond to the story and say "Apple can ship this update for free without worrying about legal implications" you can bet your ass that the $4.99 fee will be dropped. Like they want to deal with handling a bunch of $5 transactions and shipping out physical CDs instead of pushing a software update.
How much do you want to bet that Apple Legal said "Yep, you can go ahead and release this patch for free." and then when Apple looked at the bill from Legal for this advice, decided that they needed to charge $5/download just to cover the consultation fees.
You see? You see? Your stupid minds! Stupid! Stupid!
How is this different from Microsoft adding 1080p support to the 360 (for free)?