Microsoft Corporation (MSFT), Apple Inc. (AAPL): The Case For Bundling

iWork. Source:

First, iWork was free on iCloud, and now it’s free on iOS, too. But there’s one crucial component missing to Apple Inc. (NASDAQ:AAPL)’s software-bundling value proposition: What about free iWork on new Macs?

The case for bundling

Apple Inc. (NASDAQ:AAPL)’s iWork consists of Pages, Keynote, and Numbers. It’s the equivalent of Microsoft Corporation (NASDAQ:MSFT)‘s Word, PowerPoint, and Excel, respectively. Currently Apple’s first-party productivity suite retails for a total of $60 on Apple’s Mac App Store. With the suite now free on both iCloud and iOS, there’s little reason for Apple to continue selling the suite for a profit.

“Office is the gold standard and iWork is a minuscule fraction of the market,” fellow Fool Evan Niu explained. With that said, Apple Inc. (NASDAQ:AAPL) may be better off using the mediocre suite as a small perk to inspire hardware sales — where Apple makes the majority of its Mac-related revenue anyway.

A tiny portion of Apple’s business

Apple Inc. (NASDAQ:AAPL)’s iTunes, software, and services segment accounts for just 11.3% of Apple’s revenue in the third quarter. Of course sales of Apple’s iWork suite represent only a fraction of this segment’s total revenue.

Apple Inc. (NASDAQ:AAPL)’s iWork software, therefore, contributes only a small portion to Apple’s business. On that note, it’s very possible that a decision to bundle iWork on Macs could provide an outsized gain in hardware revenue despite a loss in first-party software revenue. The company has already rationalized the benefit to make the move on iOS. Is free iWork on Mac next?

A final justification

To illustrate the paltry significance of Apple’s iWork suite, compare it with Microsoft Corporation (NASDAQ:MSFT)’s business division, its segment related to sales of Microsoft Office. In the company’s most recent quarter, the segment reported an operating profit of $7.2 billion for the division. According to Horace Dediu’s estimates, Apple’s first-party software likely contributed just $3.6 billion in revenue for the entire year of 2012.

As Evan said just a few months ago, Apple could easily make iWork free on OS X “while putting a little bit of pressure on Google and Microsoft Corporation (NASDAQ:MSFT) at the same time.”

The article Will Apple Make iWork Free on New Macs? originally appeared on and is written by Daniel Sparks.

Fool contributor Daniel Sparks owns shares of Apple. The Motley Fool recommends Apple and owns shares of Apple and Microsoft.

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