Two Bucks for 100 Mbps 802.11n Enabler

>This is weird, is any other company doing this? Or is Apple just kind of
>overreacting because they're under the eye of the SEC at the moment.

CNET has a very interesting article which looks at the accounting angle:
<http://news.com.com/Apples+802.11n+accounting+conundrum/2100-1044_3-6151790.html?tag=st.rc.targ_mb>

Folks might remember that waaaaaaaaaaay back when, Apple sold the
Performa 550 and 560 models a "Upgradable to PowerPC". Said upgrade
didn't appear until well over a year later, and at a cost near that
of a new computer. (It was a logic board replacement.) Apple
ultimately settled with the FTC, offering the board to customers for
$599, and to rebate $776 to those who had already purchased the
upgrade.
<http://www.ftc.gov/opa/1997/03/apple.htm>

And most curiously..
>In addition, the company would be prohibited from representing that
>any computer hardware product is currently upgradeable, unless at
>the time such representation is made, the upgrade is then available,
>in reasonable quantities to the public, given good-faith projections
>of anticipated demand.

So basically, they couldn't ship pre-n hardware and ENABLE it because
it wouldn't, like, work. They couldn't SAY it was pre-n and
upgradeable due to a settlement with the FTC nearly a decade ago. To
not book the revenue for unknown numbers of months/quarters, while
waiting for the n spec to be approved would have been ridiculous, and
looked REALLY bad.

If I'm reading this right, the only thing left was to charge for the
hardware upgrade.

--
Andrew Laurence atlaurenes.nacs.uci.edu
Network & Academic Computing Svcs. http://www.nacs.uci.edu/~atlauren/
UC Irvine

Kevin van Haaren wrote:
> --On January 18, 2007 3:57:57 PM -0800 Glenn Fleishman
> <ExtraBITStidbits.com> wrote:
>
>> While this fee seems somewhat absurd, an Apple spokesperson explained
>> that accounting rules now require that "significant feature enhancements,
>> such as 802.11n," come with a charge. Otherwise, the revenue recorded for
>> products already shipped would have to be recalculated. It's a rule
>> designed to prevent companies from shipping incomplete products, booking
>> the revenue from them, and then later making them work, more or less.
>
> This is weird, is any other company doing this? Or is Apple just kind of
> overreacting because they're under the eye of the SEC at the moment.

Microsoft just released their Christmas quarter results with $1.5
billion in income deferred to the next quarter. That's Billion with a
"B". This was for income from computers and/or certificates sold for
Vista before Christmas but which are not going to be delivered until
after Christmas.
http://news.com.com/Microsoft+Vista+delay+to+dampen+quarterly+earnings/2100-1014_3-6151681.html?tag=cd.top

Apple could have done the same thing but there is a big difference. The
systems with the "N" chips have been shipping since September. And until
they were certified Apple had no absolute guarantee that they would meet
the final spec and be certified or when. So to do it the Microsoft way
they'd have to start booking a liability for each system sold with "N"
chips until certified or not then book the income or write off. (Vista
is going to ship, the "N" chips might not pass for some arcane technical
reason.) So to keep from having huge footnotes on financial reports and
rampant speculation about how to hack the secret wifi features they just
let it ride till now.

>
> My TiVo Series 3 shipped with an external ESATA port to add expansion
> drives but it's currently disabled because Cable Labs hasn't certified it's
> use in the Series 3 yet (welcome to the world of Cable Cards). Does this
> mean I'll have to pay to get the feature enabled? Perhaps they figure
> they've already calculated the feature into the revenue somehow? Not sure
> how they could since there is no guarantee Cable Labs will approve the
> feature.

See above or they might be doing some other financial footwork.

> What about additional software features? For example Windows XP SP2 added
> significant number of features to Windows, in the future is Microsoft going
> to have to charge for Service Packs that add features.

SP2 was a free upgrade, not a hidden until revealed feature. But all in
all welcome to GAAP. It can be confusing at times.

On 22-Jan-2007, at 00:20, Kevin van Haaren wrote:
> My TiVo Series 3 shipped with an external ESATA port to add expansion
> drives but it's currently disabled because Cable Labs hasn't
> certified it's
> use in the Series 3 yet (welcome to the world of Cable Cards).

Was the series 3 TiVo sold with the ESATA port as an advertised
feature? Was it listed in the tech specs? If so, then TiVo is
covered. if they did not list it, then to enable it would be a problem.

> What about additional software features? For example Windows XP SP2
> added
> significant number of features to Windows, in the future is
> Microsoft going
> to have to charge for Service Packs that add features.

I don't think these rules apply to software.


--
Lister: What d'ya think of Betty? Cat: Betty Rubble? Well, I would go
with Betty... but I'd be thinking of Wilma. Lister: This is crazy.
Why are we talking about going to bed with Wilma Flintstone? Cat:
You're right. We're nuts. This is an insane conversation. Lister:
She'll never leave Fred, and we know it.

At 11:59 PM -0800 2007/01/21, Andrew Laurence wrote:
>>This is weird, is any other company doing this? Or is Apple just kind of
>>overreacting because they're under the eye of the SEC at the moment.
>
>CNET has a very interesting article which looks at the accounting angle:
><http://news.com.com/Apples+802.11n+accounting+conundrum/2100-1044_3-6151790.html?tag=st.rc.targ_mb>
>
>Folks might remember that waaaaaaaaaaay back when, Apple sold the
>Performa 550 and 560 models a "Upgradable to PowerPC". Said upgrade
>didn't appear until well over a year later, and at a cost near that
>of a new computer. (It was a logic board replacement.) Apple
>ultimately settled with the FTC, offering the board to customers for
>$599, and to rebate $776 to those who had already purchased the
>upgrade.
><http://www.ftc.gov/opa/1997/03/apple.htm>
>
>And most curiously..
>>In addition, the company would be prohibited from representing that
>>any computer hardware product is currently upgradeable, unless at
>>the time such representation is made, the upgrade is then available,
>>in reasonable quantities to the public, given good-faith projections
>>of anticipated demand.
>
>So basically, they couldn't ship pre-n hardware and ENABLE it because
>it wouldn't, like, work. They couldn't SAY it was pre-n and
>upgradeable due to a settlement with the FTC nearly a decade ago. To
>not book the revenue for unknown numbers of months/quarters, while
>waiting for the n spec to be approved would have been ridiculous, and
>looked REALLY bad.
>
>If I'm reading this right, the only thing left was to charge for the
>hardware upgrade.

        Well, Apple could perhaps have said "This MacBook Pro comes
with a 100mbps+ wireless networking device, which is 802.11a/b/g
compatible, but we make no promises about future compatibility." Not
quite a Steve-alicious soundbyte, and it would leave a gaping hole in
the product lineup, as non-100mbps+ products slowed down and AirPort
sales halted. And everybody would spend a few months debating how
good/bad Apple's .11n support was going to be. This would have
required having the drivers available (there are two different chips)
and tested with high speed but not the current DRAFT-n compatibility.
In light of the negative reports I've seen on other vendors' DRAFT-n
compatibility, I suspect Apple's pre-DRAFT-n driver would have
damaged Apple's reputation and customers' peace of mind.

        Apple could arguably have set a price for the upgrade, and
deferred some of the revenue -- $10 of each purchase? -- for this
quarter, but they would've been in a bearpit if there was a problem
with the driver, and it would've made their accounting substantially
more complicated. Just accepting some extra revenue looks much easier.

        $2 for an enabler seems reasonable given the constraints, and
assuming that Apple doesn't make any efforts to avoid redistribution.


                                                Chris
--
Chris Pepper: <http://www.reppep.com/~pepper/>
                             <http://www.extrapepperoni.com/>
Rockefeller University: <http://www.rockefeller.edu/>

At 23:20 on 21-01-2007, Glenn Fleishman wrote:
> While this fee seems somewhat absurd, an Apple spokesperson
> explained that accounting rules now require that "significant
> feature enhancements, such as 802.11n," come with a charge.
> Otherwise, the revenue recorded for products already shipped would
> have to be recalculated. It's a rule designed to prevent companies
> from shipping incomplete products, booking the revenue from them,
> and then later making them work, more or less.

This really doesn't make any sense to me. Apple never advertised the
products as having 802.11n when they were originally sold. They
didn't even admit that the chips inside the computers could possibly
have such a capability. So the product that was shipped was complete
-- it had all the features promised. The fact that there was a hidden
feature which is now being unlocked seems irrelevant -- no one was
ever sold one of the machines with the promise of the feature.

In all the reports I've read, no one has explained this. Is this just
legal hysteria/paranoia? What am I missing?

_________________
=> Jolin

> At 23:20 on 21-01-2007, Glenn Fleishman wrote:
>> While this fee seems somewhat absurd, an Apple spokesperson
>> explained that accounting rules now require that "significant
>> feature enhancements, such as 802.11n," come with a charge.
>
> This really doesn't make any sense to me. Apple never advertised the
> products as having 802.11n when they were originally sold.

You make a darn good point. Apple hasn't PROMISED 802.11n, so it's
unlikely that a customer would demand a refund for an incomplete
product.

The thing is, accounting rules (generally speaking) state that if you
collect money before fulfilling an order of some sort, you cannot
book it as "revenue" (accounting speak for "earnings," and the number
that everyone looks at on your quarterly/annual reports) until you
have fulfilled that order.

Example: You buy a 12 month magazine subscription from me for $12.
While I book the cash immediately (I have $12 in my bank account
now), I cannot count it as revenue/earnings, until I have sent all
twelve issues. (Actually, I can count $1 of revenue each month as I
fulfill the subscription.)

This is to protect shareholders. Investors in my magazine company
would want to know that it's POSSIBLE for you to cancel your
subscription early, in which case I'd have to refund you the
difference between issues served and issues to go.

Does that make sense?

So for the law at issue here, it pretty much says the same thing
about everything else. If I sell you a lawnmower but still owe you
the grass clippings bag; I can only book the revenue for the mower,
and have to wait to collect on the bag it's in your hands.

This prevents Apple from selling an iPhone today, booking revenue
tomorrow, and not sending the phone until June. (Note that they do
not do this; that's patently illegal.) Or, more to the point, selling
an iPhone that doesn't play MP3s yet, booking the revenue, and then
adding MP3 player functionality later.

I suspect Apple's just being very very conservative in this case. The
Sarbanes-Oxley stuff is still very new and largely untested. Since
Apple's already under an options probe, I'm sure they want to prove
how extremely compliant they are with the SEC's rules. Or, perhaps,
the law really doesn't discriminate in this case.

It's also worth noting that this would put the pay-for-betas of
programs like Disco and WriteRoom up for scrutiny if either of their
publishing companies happened to be public. (They aren't.) Since
you're paying for a beta with the promise of a final release, they'd
be stuck by this law, and couldn't show revenue until the 1.0 release
shipped.

In any case, if companies do need to follow these guidelines, it puts
the whole idea of bug fixes and patches up for SEC scrutiny. Was the
product incomplete until the patches were downloaded? For some
programs, that's definitely the case! (i.e. Windows XP before service
pack 1) For others, it's much more of a grey area.

--Nik

>In all the reports I've read, no one has explained this. Is this just
>legal hysteria/paranoia? What am I missing?

At $2, is Apple really going to make any money on this? It doesn't
seem like they are going to make very much at all.

It puts me in mind of the $19 charges for OS updates back in day.
Then, Apple would ship out a physical CD. It was argued that overhead
in in that program probably meant that the $19 was to ensure that
they did not lose money.

This $2 charge has a similar feel to me. Therefore, I've got to think
that it is Apple felt they had to do it. They've got to set up some
kind of system to charge for it, right? They can't sell through the
music store, can they? Wouldn't iTunes FairPlay it, if they tried?
They do free software updates all the time, so to set up a new
structure/process seems like more a pain than distributing it for
free.


--

=Alex Hoffman
Leadership Policy & Politics
Teachers College, Columbia University

--On January 22, 2007 12:33:42 PM -0800 David Ross
<drdavidrossconsultant.com> wrote:

> Apple could have done the same thing but there is a big difference. The
> systems with the "N" chips have been shipping since September. And until
> they were certified Apple had no absolute guarantee that they would meet
> the final spec and be certified or when. So to do it the Microsoft way
> they'd have to start booking a liability for each system sold with "N"
> chips until certified or not then book the income or write off. (Vista
> is going to ship, the "N" chips might not pass for some arcane technical
> reason.) So to keep from having huge footnotes on financial reports and
> rampant speculation about how to hack the secret wifi features they just
> let it ride till now.

Actually the N certification is still far from guaranteed (the standard
still hasn't been finalized yet). Apple opened the feature because it can
now connect to something they can guarantee - the new Airport Extreme. Even
if the chips fail final N certification it will work with their equipment.
But the point is taken

>> What about additional software features? For example Windows XP SP2 added
>> significant number of features to Windows, in the future is Microsoft
>> going to have to charge for Service Packs that add features.
>
> SP2 was a free upgrade, not a hidden until revealed feature. But all in
> all welcome to GAAP. It can be confusing at times.

Will they have to prove this? How do we know XP SP1 didn't have some of the
features in them that were enabled by a registry change? And why would it
matter?

--On January 22, 2007 12:33:42 PM -0800 Google Kreme <gkremegmail.com>
wrote:

> On 22-Jan-2007, at 00:20, Kevin van Haaren wrote:
>> My TiVo Series 3 shipped with an external ESATA port to add expansion
>> drives but it's currently disabled because Cable Labs hasn't
>> certified it's
>> use in the Series 3 yet (welcome to the world of Cable Cards).
>
> Was the series 3 TiVo sold with the ESATA port as an advertised
> feature? Was it listed in the tech specs? If so, then TiVo is
> covered. if they did not list it, then to enable it would be a problem.

It's listed as an E-SATA port in the tech specs but labeled "For Future
Use". They can't advertise it because there is no guarantee it will be
available. If they advertise it and never make it available they can be
sued. They've already been the subject of one class action suit based on
their box advertising when they first released.

<http://www.tivo.com/2.0.3hdDvr.specs.asp>

On 22-Jan-2007, at 13:33, Chris Pepper wrote:
> Apple could arguably have set a price for the upgrade, and deferred
> some of the revenue

I don't think they could do that. They could defer the ENTIRE cost,
they could do a lot of complicated accounting to redo revenue and
post it forward, or they could charge a minimal fee that, in all
likelihood, 95% of their customers will never pay. The minimal fee
seems the most simple method.

--
There are 10 types of people in the world: Those who understand
binary, and those who don't.

Nik wrote:
> So for the law at issue here, it pretty much says the same thing
> about everything else. If I sell you a lawnmower but still owe you
> the grass clippings bag; I can only book the revenue for the mower,
> and have to wait to collect on the bag it's in your hands.
 
A key point here is that most of the universe operates on a cash basis
in our day to day lives. These rules all apply to accrual accounting.
And for a person to run their life on an accrual basis, well that would
be interesting to say the least. And to be honest if you've never been
exposed to the concept, most folks' eyes glaze over very quickly.

What it comes down to is money in the register means nothing in terms of
accrual accounting for income or revenue. :)

On Jan 23, 2007, at 11:49 AM, Nik wrote:

> In any case, if companies do need to follow these guidelines, it puts
> the whole idea of bug fixes and patches up for SEC scrutiny. Was the
> product incomplete until the patches were downloaded? For some
> programs, that's definitely the case! (i.e. Windows XP before service
> pack 1) For others, it's much more of a grey area.

This becomes very troubling for software developers, as a piece of
software, between bugs and upgrades, is never done.

--
Jesse

On 23-Jan-2007, at 09:49, Alexander Hoffman wrote:
>> In all the reports I've read, no one has explained this. Is this just
>> legal hysteria/paranoia? What am I missing?
>
> At $2, is Apple really going to make any money on this? It doesn't
> seem like they are going to make very much at all.

Try "none" as they quite likely posted the price at their cost of
collection and processing.

--
"You can speak soon and write like a graduate college if me let you
help for a day of 15 minutes" 1963 #1

On 23-Jan-2007, at 09:49, Kevin van Haaren wrote:
>>> What about additional software features? For example Windows XP
>>> SP2 added
>>> significant number of features to Windows, in the future is
>>> Microsoft
>>> going to have to charge for Service Packs that add features.
>>
>> SP2 was a free upgrade, not a hidden until revealed feature. But
>> all in
>> all welcome to GAAP. It can be confusing at times.
>
> Will they have to prove this? How do we know XP SP1 didn't have
> some of the
> features in them that were enabled by a registry change? And why
> would it
> matter?

Pretty sure all these rules deal with PHYSCIAL products and do not
apply at all to software. Are we in a grey area? Absolutely. In
another time, Apple would probably just have rolled this out as a
software update.

But not now. Far too many magnifying glasses on Apple's accounting
right now.

--
Far away, across the fields, the tolling of the iron bell calls the
faithful to their knees to hear the softly spoken magic spells.

At 8:49 am -0800 23/01/2007, Alexander Hoffman wrote:
>They do free software updates all the time, so to set up a new
>structure/process seems like more a pain than distributing it for
>free.

I doubt they need to set up a new structure/process -- the 'upgrade
to QuickTime Pro' paradigm seems perfectly applicable here.

Chris
--

Chris Reed, BBR Solutions Ltd * http://www.bbr-online.com

Please pardon my ignorance but does anybody know if this will work on
the original G5?

Jess

[It won't. G5s and anything else not named as already including 802.11n hardware will require a new/different wireless adapter in order to communicate at n speeds with n accesss points. -Andrew ]
http://www.apple.com/wireless/80211/

On Jan 22, 2007, at 3:33 PM, David Ross wrote:

> Kevin van Haaren wrote:
>> --On January 18, 2007 3:57:57 PM -0800 Glenn Fleishman
>> <ExtraBITStidbits.com> wrote:
>>
>>> While this fee seems somewhat absurd, an Apple spokesperson
>>> explained
>>> that accounting rules now require that "significant feature
>>> enhancements,
>>> such as 802.11n," come with a charge. Otherwise, the revenue
>>> recorded for
>>> products already shipped would have to be recalculated. It's a rule
>>> designed to prevent companies from shipping incomplete products,
>>> booking
>>> the revenue from them, and then later making them work, more or
>>> less.
>>
>> This is weird, is any other company doing this? Or is Apple just
>> kind of
>> overreacting because they're under the eye of the SEC at the moment.
>
> Microsoft just released their Christmas quarter results with $1.5
> billion in income deferred to the next quarter. That's Billion with a
> "B". This was for income from computers and/or certificates sold for
> Vista before Christmas but which are not going to be delivered until
> after Christmas.
> http://news.com.com/Microsoft+Vista+delay+to+dampen+quarterly
> +earnings/2100-1014_3-6151681.html?tag=cd.top

Selling the certificates for products to be delivered down the road
is sometimes not an optimal scenario. It's sometimes done by
companies that need to shore up sales results for a key season, but
it shaves down the income for the subsequent seasons. I don't know if
this is the case with Vista, but the certificates are often sold at a
discount from what the "release price" will be.

These certificates also underscore how Visa is being released 2 years
later than was initially announced, and it's gotten ho-hum reviews
for all the fanfare Microsoft has tried to pump it up with.

Certificates for an OS like Visa are more likely to have a higher
redemption than gift cards; retailers bank on the fact that only a %
of gift cards are redeemed. According to a recent article in the NY
Times (you'll need to be a TimesSelect subscriber to access the full
article):

"The financial-services research firm TowerGroup estimates that of
the $80 billion spent on gift cards in 2006, roughly $8 billion will
never be redeemed -- ''a bigger impact on consumers,'' Tower notes,
''than the combined total of both debit- and credit-card fraud.'' A
survey by Marketing Workshop Inc. found that only 30 percent of
recipients use a gift card within a month of receiving it, while
Consumer Reports estimates that 19 percent of the people who received
a gift card in 2005 never used it."

http://select.nytimes.com/search/restricted/article?
res=FB081EF63D540C748CDDA80894DF404482

So MS's strategy here seems to be a little shakey to me.

Marilyn