Who Accounts For the iPod touch Accountants?

The story goes that Apple has to charge for its recent software upgrade (1.1.3) for the iPod touch, despite the same upgrade (1.1.3) being free for all iPhone users, because the iPhone is accounted for on a subscription basis whereas the iPod touch is not, and according to accounting requirements in the Sarbanes-Oxley bill, without accounting for hardware products on a subscription basis, Apple can't upgrade them with new features unless it charges something for that upgrade.

Despite being complete bunk, this logic seems to have been largely accepted, even by its yes-but detractors, like Dan Moren of MacUser, who argued recently, 'Yes, but why did Apple have to charge a whole $20?' Or the Macalope, who, having disarmed the critics with his customary aplomb, set hoof on looser ground by arbitrarily deciding that "it all devolves into communism" — at exactly the moment the word 'iPod' is encountered.

But joking aside, precisely somewhere along the slippery slope of Apple's chiclet-coloured electronic devices, lies the answer to the real question raised by all of this regulatory handwaving. Where in its product line does Apple place the dividing line between 'subscribed' upgrades and pay-as-you-go, and why? I've read the thoughtless lumping in of the touch with the 'iPods', but common sense tells you when you look at this device that it is a gelded iPhone more than anything else. So, 'because it's an iPod' won't fly — and neither will, 'because of AT&T's subscription plan': the Apple TV, with no subscription plans but subscribed accounting, stands inconveniently in the way of that escape. (And it has nearly the same media sources and capabilities as the touch, to boot.)

There is just no contemplating these choices without perceiving how arbitrary they are. The question isn't, why did Apple comply with Sarbanes-Oxley? The question is why didn't they comply with it the same way they did the last two times (with the iPhone and the Apple TV)? Apple chose to charge us $20 because they chose to charge us $20. Because they clearly already knew what the implications of their accounting would be. Because they had already altered it in the past to avoid this very situation. And yet, here we are. Why?

  • UPDATE 08/02/14: Apparently, Apple is not comfortable giving some of its users the same arbitrary choice of whether to accept or refuse the upgrade. (Thought you weren't tied to a subscription plan with the iPod touch? Behold the the nag screen and think again.) Hopefully, these tales of woe are just unintentional glitches, because if they aren't; well, the word 'extortion' comes to mind.


Mo said...

Congratulations, you've written a post wherein the entire premise is flawed.

The 1.1.3 update is free for both iPhone and iPod touch.

What costs $20 (or £12.99) is the _additional_ applications for the iPod touch which weren't available nor pre-announced when you bought it.

Mo said...

Also, the only case of the “not subscription-based revenue but subscribed accounting” situation is the Apple TV: and that's because Apple made it clear from the outset that they would be providing software updates to enhance it throughout the lifetime of the product.

This hasn't been the case with any iPod previously, and certainly wasn't the case with the iPod touch (it's irrelevant whether it is or isn't the case with the iPhone because the revenue from it is subscription-based in any case).

In other words, the Apple TV is the exception (and was announced as such), not the rule. There's no mystical dividing line beyond that.

Man said...

Mo, thanks for the comment. While you may be right that there is a distinction made between the 1.1.3 update and the additional apps, it seems to be a minor point -- certainly not the entire premise of my argument, which is better addressed by your second post.

In response to which, I don't see how you can mark the Apple TV (and the iPhone, which you seem to conveniently decide doesn't count simply because I isolated the Apple TV for a different comparison and a different purpose) as 'exceptions' and thereby cordon them off from having to make any sense. There is no technological reason whatsoever for differentiating the accounting methods for the iPod touch from both the iPhone and the Apple TV, since it's identical in form factor to the former and near identical in capabilities to the latter. On what basis is it distinguished from these other products for accounting purposes? Purely on the basis of the name 'iPod'? I seriously doubt you will see the word 'iPod' written into the tax code. The only reason for accounting for it differently is that Apple arbitrarily decided that they wanted to, likely because it would mean they would be able to charge for upgrades and plead that the IRS made them do it.

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