It seems Steve Ballmer’s final play to acquire Nokia’s (NOK) phone and tablet business is rankling the Cupertino gang. Since Google (GOOG) introduced Android to compete with the iPhone, most of Cook’s ire, and that from Steve Jobs before him, was aimed at the search giant. Apple’s old “I’m a Mac, I’m a PC” ads seemed like ancient history.
But that has all changed, as was clear from the start of Apple’s keynote event on Tuesday.
“They are confused,” Cook said of the competition he did not name. “They chased after netbooks. Now they are trying to make PCs into tablets and tablets into PCs. Who knows what they will do next?“
Unnamed but not unknown – the reference to Microsoft’s Surface tablets, which prominently feature Office software and keyboards, was clear. Apple even scheduled the keynote for the same day the second-generation Surface tablets went on sale, obliterating any free press Microsoft might get.
Free, free and free
And it wasn’t just talk. Apple announced that its new operating system upgrade for laptop and desktop computers, dubbed OS X Mavericks, would be offered free of charge to owners of the past three versions. Microsoft is charging $120 to $200 for its Windows 8.1 software upgrade, although current owners of Windows 8 can upgrade for free.
What about Apple’s so-called productivity suite, the word-processing program Pages, spreadsheet software Numbers and presentation maker Keynote? Free as well with new device purchases. Apple even put up a picture belittling Microsoft's $99 annual subscription fee to use mobile versions of its Office apps. "Others would have you pay a small fortune," Apple senior vice president Eddy Cue quipped, again without naming Microsoft.
Microsoft has long delayed bringing Office to Apple's platform, hoping that offering the suite exclusively on its own tablets might bolster sales. It offers Office apps for the iPhone (users rate the suite just 2 out of 5 stars) but still has not set a date for an iPad version.
Why the change in Apple's attitude? Before Microsoft agreed to acquire Nokia's devices business for $7.2 billion last month, the company wasn't a direct threat to Apple's core business. Apple's software largely complements its hardware, where it makes almost all its profits. But now that Microsoft is also making premium hardware devices, it's right in Apple's sights.
Even tech analysts got the message loud and clear.
Almost all Microsoft’s profits come from licensing fees on its Windows operating system and Office productivity software, notes Jan Dawson, chief telecoms analyst at Ovum.
“Apple is now teaching people to expect both of those things to be free,” Dawson wrote after the Apple event. “While this won't disrupt Microsoft's business overnight, it will create further pressure on Microsoft to bring down prices for its productivity software and especially for Windows.”
The pricing strategy of Apple’s iPads also indicates the company is more focused on competing against Microsoft’s tablets, not cheaper competition from Google, Amazon (AMZN) and others.
Microsoft doesn’t compete in tablets with low prices. Its Surface Pro 2 actually costs a lot more than an iPad, starting at $900. It’s pitched as a laptop replacement that can also provide the entertainment apps of a tablet.
Apple introduced an upgraded iPad, called the iPad Air, but kept prices exactly the same, starting at $499. Amazon’s similar large-screened Kindle Fire HDX starts at $379.
And a new iPad mini with a better screen starts at $399, up from the previous model’s $329 price point. Amazon sells its smaller tablet at $229, as does Google. Sure, Apple kept around the previous model mini but, at $299, it's still priced well above the competition.
So in tablets, Apple is competing on features and usability, not price – just like Microsoft.
Apple’s new iPads also overwhelmed coverage of Nokia’s press conference earlier on Tuesday, in which it unveiled its first Windows tablet, the Lumia 2520.
Apple already has about a 170 million iPad head start on Microsoft and Nokia. Now Tim Cook is trying to drive the final stake in.