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."

Don't tell Microsoft!

[celardore]

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.

sounds like

[BadERA]

mo' money, mo' money, mo' money. Apple, greedy? Say it ain't so!

Oh wait ... I'm not a fanboy ... and they're just like any other corporation ...

mmm.. boooze....

[jythie]

Sounds like someone had way to much to drink before going live.

Either that or someone high up in apple is really jumpy right now and it playing it safe to insane degrees.

Re:bs

[RFaulder]

That seems to make mroe sense, a 99 update over te iTunes network would be simple enough.

Re:Well understood

[mandelbr0t]

In the words of a SOX-IS Project Manager I once worked with, "Incompetence is an excuse." That certainly doesn't inspire any confidence in me that SOX-IS controls actually do anything useful.

mandelbr0t

Upselling features (scum marketing)

[gd23ka]

Microsoft started it with their "Vista" XP-successor where you can
"upgrade" to "Premium" or "Ultimate" versions with your credit card,
how long before Apple turns around and says

"I see you are trying to use your bluetooth adapter. For a one-time use
feature please authorize a $2.99 charge to your credit card. If you want to
use this feature for longer periods of time the following plans are
available: 2 weeks of operation $8.99, 4 weeks of operation $14.99.
Time limited options extend automatically with recurring charges to your
credit card. Unlimited feature activation $49.99 one time charge."

Re:Doesn't Make Sense to Me

[Kadin2048]

I think they realize that very few people are probably interested in 802.11n, because few have equipment to work with it. In any case, this functionality will almost certainly be included in the next major OS upgrade, so the market for this patch is a very small minority of Mac users, who aren't that huge a market to start off with. I think that's why it's not cheaper (like $1 or $0.01, as others have suggested). It's probably only going to be a few thousand copies that they move anyway, before the next big OS upgrade.

This whole thing looks more to me like Apple being "once bitten, twice shy" with regards to things that might possibly interest the FTC, rather than any big conspiracy.

Oh, poo on that...

[fudgefactor7]

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...

Re:Option (c)

[bluephone]

But would this still apply if you never promise to upgrade it? TFA says that the clarification from Apple is that they may be accused of selling unfinished products, and recognizing revenue from those unfinished products too early (which is retarded IMO, but then I'm not an accountant). If they never come out and state they WILL offer new features, but DO later with these firmware updates, could they not then claim the product was finished, but these were free bonus features? They can justly state that consumers bought the product as sold with no promises of future expansions, thus the customer wasn't buying some potentially unfulfilled future promise (which, IIRC was the point of anti-Enron laws, to keep companies from spending now money that had to be used to fulfill their obligations).

Similarly, what if: with the products there's a disclaimer that Apple makes no guarantees that there will be future product enhancements, only bug fixes for the declared product lifespan (like MS does with Windows support lifetime declarations), and that any future product enhancement that MAY exist MAY OR MAY NOT be offered for free to existing users of this product.

This is where we get asinine workarounds just to comply with poorly drafted and overly expansive laws that are crafted too quickly and reach too far. This is why accounting, and law in general, is so byzantine needed the existence of entire cadres of lawyerbots just to navigate the waters...

Re:Origin of this whole problem

[Brickwall]

I worked at a place that abused accounting principles. They'd book revenue on hardware that hadn't shipped or even been made, software that wasn't installed or even sold yet, and move all kinds of valid and imaginary revenue from the vague future to the current quarter like crazy.

Oh yeah baby! In the wild days of telecom in the late 80's, a company called Datapoint had a bonus structure based on revenue billed in the quarter. One group of sales managers booked millions of dollars of orders to "Joe Customer", "A. Warehouse", etc., in order to meet or beat their numbers. They collected hundreds of thousands in bonuses, and then quietly shipped the machines to real customers over the next quarter, at which point, they would start the whole game again.

I'm not a Sarb-Ox expert, but the fines and possible jail sentences are bad enough that a company already under scrutiny over options pricing would be pretty careful to err on the side of caution.

I, for one

[KitsuneSoftware]

I don't care in the slighest either way. On the one hand, $4.99 is literally and figuratively peanuts (about what I earn in 12 minutes, or a massive half hour if I were on national minimum wage); and on the other, even low-speed WiFi is still faster than my high-speed internet connection.

I don't care about upgrading, but if I did, their price is lower than the cost of my time to find a trustworthy 3rd party.

Credit card processing minimum charges?

[Scareduck]

I wouldn't be surprised if the reason was that this is the minimal charge that credit card companies (one or more) will accept.

Not Apple, Steve Jobs.

[Angelwrath]

You mean now Steve Jobs is paying attention to the law, because in another case it's threatening to publicly humiliate him in the worst way: having him fired from Apple for options backdating, when he is already wealthy many times over, and any money that he or others would have made on the options is paltry compared to the humiliation he would suffer in the eyes of Gates and other "enemies", not to mention a lot of America.

If you watched the last 5 minutes of the Macworld 2007 Keynote speech by Steve, what you see is a guy scared that he is going to lose his position, which is why he spends those 5 minutes thanking people at Apple, thanking John Mayer, and just otherwise looking very emotional and inwardly scared.

I'd bet, barring a hearing with the government in which they say "No, you need not charge for this", that Apple will charge $5 bucks. It's a waste of money. Our wireless speeds are far faster than any internet connection they will be hookedup to, unless you're at a University campus. Why bother spending for it? It won't yield any extra download or upload speed.

Re:Wow

[weg]

Well, SOX doesn't apply in Europe, and I can't find such a product in the European stores.. does that mean that they won't charge the fee over here?

Re:Hardware vs. software?

[Anonymous Coward]

Another poster made the point about SW being exempt. But is this a hardware fix, e.g. flashing the firmware?

IIRC, the cards were showing up under Windows (under Boot Camp & Parallels) as 802.11n. I'm not sure what mechanism is used to demonstrate that, or if anyone actually tested it with an 802.11n router, but that suggests to me that it's not a firmware issue. Maybe someone with more insight into how Windows recognizes network cards could clarify.

Weak Excuse

[jay2003]

Apple was not obligated to provide updates to 802.11N so there is no revenue recognition issue. Everyone who bought the machine bought it under specs that said 802.11g. If Apple had claimed at the time the machines were sold that 802.11N would be enabled at a future date, then there would be an issue. Additionally, under this interpretation of SOX, Apple would have to hold back money on every sale of every piece of hardware as deferred revenue to pay for patches. Since Apple would already be holding back revenue as deferred revenue in case it needed to patch the drivers for security hole, it simply could used that money rather than charging users more. I think this SOX excuse is a smoke screen to justify grabbing an extra $5.

Re:Option (c)

[Anonymous Coward]

Hate to say it... no I don't.

You're just wrong. Apple appears to be the only company that has explained in public, but major auditors have made this a requirement.

Source: KPMG

-signed anonymous employee at large public software company

Re:IAACPA - I Am A CPA

[bill_mcgonigle]

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.

Would there be any problem with Apple offering the upgrade for $5 and offering a $5 instant rebate?

Re:Because software features aren't accounted for.

[DRJlaw]

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.

Your argument concerning material misstatements is self-contradictory. The original statement that it has a b/g wireless chipset is patently false, because it omits that the chipset is in fact draft-n hardware. The law has a long history of treating omissions as material misstatements.

More importantly, I don't accept the premise of the argument. Not only have you failed to justify how software is different from hardware under SOX based on the law, you have failed to justify how a clearly upgradable binary object (a.k.a firmware) is hardware rather than software. The chipset did not change. The programmed functionality did.

The upgrade mechanism does nothing to solve a rational argument concerning material misstatements. If you want to argue hardware, there was one. If you want to argue functionality, there wasn't one. Neither changes thanks to a firmware flash.

Re:Because software features aren't accounted for.

[eh2o]

Shouldn't they have disclosed that it contained latent n capability in the first place? I mean, even if it is disabled, it is still *there* and the job of accounting is to describe exactly what is there, not to mention keeping the paper trails consistent which must have already mentioned the n feature at some prior point.

IMHO, they screwed up and are now using a technical loop-hole to avoid being fined for a material misstatement. Worse, they found a way to turn the loop-hole into profit. Even worse, they probably did it on purpose because it would have been an embarrassment when the mac-dorks discovered the hidden n functionality by reading the financial filings and some 15 year old hacker came out with a kernel patch to enable it before they did.

Re:bs

[Achromatic1978]

Love it. You point out that the longest of several iterations is "nearly two years" (emphasis mine), and then chastise the GP for having the gall to call out the GGP's claim that all of the OS X iterations have been "two to three years".

Re:Don't tell Microsoft!

[Ucklak]

That feature has nothing to do with the hardware. Only how the data is handled after the hardware.

If EAP-FAST wireless authentication added FM tuning, then that is an additional feature.

Re:Were you sold something you didn't get?

[SeaFox]

I'm complaining because (assuming the story is accurate) it isn't Apple's decision.

The story is not accurate, at least in the sense that Apple's excuse is a valid one. The only way this could be considered "a feature of the product that was not delivered until a later time" would be if the laptops were advertised as having this feature to begin with, which they weren't. Nobody was sold these by Apple with the idea that 802.11n support would be forthcoming. Apple is just trying to deflect complainers.

Given that all 802.11n setups are draft and proprietary at this time, the only way this card is going to be officially supported by Apple is if you're using one of the soon-to-be-released new Apple Airport Extreme base stations, which comes with the patch. So this paid update will only be useful to people who plan to get onto an Apple router but didn't buy it. And if you're in the position to get onto the router, you probably know the owner and can just get the patch from them. I somehow doubt they are going to be tracking these like Excel licenses.

Re:What about Xbox?

[Shifuimam]

So, you're basically pointing out that Apple is able to scam more money out of their cultist followers by, instead of announcing upcoming features, hiding them from the public until another MacWorld conference or other event. Since they like to make such a big brouhaha over new features, they hide them, then release them, then charge their customers for the new features on existing, already-purchased hardware.

That's not unethical at all.

Is Apple going to be raising the prices of ALL their airport-extreme hardware an extra $5 or $10 to compensate for the N capability in newly shipped machines?

Re:Don't tell Microsoft!

[MrMarket]

"If you pay for a cheap unit and they give you an expensive one with the additional features disabled instead, you have no cause to whine about it being disabled, since you didn't pay for it - you got it for free." That's not the point. Apple is pointing to SOX -- saying they MUST charge more. We're saying that rationale is bullocks, and they should just admit that this is a strategy to increase margins.