Apple still not off the hook for $1.99 fee

We really thought this whole 802.11n Apple fee dealio was behind us, but it looks like we'll need to put on our accountant hats one more time. A few trouble makers are taking issue with Apple blaming the $2 fee on generally accepted accounting practices, or GAAP. "GAAP doesn't require you to charge squat," says Lynn Turner, former chief accountant of the Securities and Exchange Commission. "You charge whatever you want. GAAP doesn't even remotely address whether or not you charge for a significant functionality change. GAAP establishes what the proper accounting is, based on what you did or didn't charge for it." It's pretty much a semantics argument at this point, and at $1.99 for the update, we're not going to get too terribly hung up on it, but you know how GAAP fanboys can be. Edward Trott, a member of the Financial Accounting Standards Board agrees with Lynn: "No, GAAP doesn't tell you to do anything. You need to work out your transaction with your customer, and GAAP will tell you how to reflect your transaction with that customer." Sounds like Apple had no exact compulsion to charge the fee to stay within GAAP, but they could've been up for some serious deferred revenue, possibly impacting all of their computers sales. Seems to be six one way, half-dozen the other, but we suppose Apple should've been a bit more clear on this all from the start.

[mark @ Jan 23rd 2007 1:04PM]

Does the installer for this firmware upgrade check if it's paid for?

[Cameron Campbell @ Jan 23rd 2007 1:05PM]

Isn't this where someone pipes up and says "YOU FAN BOYS!" or some shit?

[W00ter @ Jan 23rd 2007 1:05PM]

You guys need to seriously let this go. They are charging you because you will get more functionality at the end of the day. Maybe they had to pay a licensing fee for the rights...who the F knows. Regardless, LET IT GO and give me some real gadget news.

RELAX!

[Digital Freak @ Jan 23rd 2007 1:16PM]

The whole point is that Apple is LYING about the reason why they're charging for it. If they'd just come out and say "yeah, the fee for this upgrade is $1.99", it would have been a non-event. It's the fact that they tried to blame it on some government account rules, which is blatantly false.

[Foof @ Jan 23rd 2007 2:14PM]

Add to that the fact that you already PAID for the 802.11n hardware when you bought the Macbook, regardless of what Apple told you it could or could not do. Just get it through that cares about the value of the fee, the issue is the principle.

[John Doe @ Jan 23rd 2007 2:34PM]

Yah and what next? Charging you for installing a driver that allows you to right click on the trackpad....oh wait. That was free. Apple is full of shit.

[Cronick @ Jan 23rd 2007 1:07PM]

http://news.zdnet.co.uk/itmanagement/0,1000000308,39285560-2,00.htm

[CTG @ Jan 23rd 2007 1:08PM]

Let's see, I'm either going to start playing with my numbers in the face of an options backdating scandal or charge a nominal fee for a surprise equipment upgrade which makes your life a bit easier on account of my thinking ahead.

I think I'd go with the fee.

[Jean-Michel Decombe @ Jan 23rd 2007 1:35PM]

Two words: SOX sucks. Kill that bastard legislation already...

[Matt @ Jan 23rd 2007 1:37PM]

Just for the record, there is a difference between SOX and GAAP. One is specific federal legislation and the other a best practice standard. My understanding was that this was an issue with SOX specifically and not the best practices of GAAP.

[Mike @ Jan 23rd 2007 1:38PM]

I'm a Mac fan, but this is weak... especially when you consider that firmware updates for existing N hardware are free.

What's next? Belkin and Linksys charge for firmware when the spec for N is finalized, else leave their customers using "Pre N" or "Draft N" hardware?

I think this comes down to royalties, which Apple avoided by shipping systems with N disabled, thereby avoiding some of the licensing fees. If people want N, they have to fork over the $2 to access it... that's what *I* think is going on.

[Nij @ Jan 23rd 2007 1:46PM]

Apple never said anything about GAAP regarding this firmware update; they said that Sarbanes-Oxley requirements necessitate the fee on the grounds that they can't add unadvertised new features to hardware they've already sold and accounted for. But I'm sure you Engadget guys won't be bothered enough by the facts to interrupt your anti-Apple tirade.

[Matt @ Jan 26th 2007 2:52PM]

Thats retarded and wrong. Companies release substantial updates all the time. Apple just wanted to get more money (can't blame them for that) but they tried to pawn it off as a required accounting practice, assuming John Q. Public doesn't know jack about SarbOx or GAAP.

[bbydon @ Jan 23rd 2007 1:48PM]

ok....well they didnt have to give you the stupid N card to begin with.
then everyone would be pissed that they have to pay 50 bucks or so to buy the stupid card.

[bbydon @ Jan 23rd 2007 1:59PM]

ALSO its $2 measly bucks.....you payed $1000-$2800 for a macbook or macbook pro...

There had to be a reason for the cost anyway, licensing fees, or accounting ....they don't charge for free updates, firmware or itunes. There was a reason...but again does it matter?

[Andres @ Jan 23rd 2007 2:11PM]

seriously people is only $1.99 for something that you didn't even know you weren't getting so if 2bucks seems a bit steep or unfair don't pay for it and go get your self a 802.11n card maybe you like that alternative better.

[John Doe @ Jan 23rd 2007 2:41PM]

I already have a fucking N card. Its right there in the MBP. Just because Apple doesn't avertize the fact, because they have to be all spooky and wooooooo mysterious doesn't change the fact that the HARDWARE in the system is N. I don't give a shit about it being $2. I give a shit that I spent over 3 grand on this laptop and these bastards are tying to nickel and dime me with this crap. Everyone can makes all the excuses they want. I see this happen time and time again with people justifying Quicktime Pro as being worth the price and if you don't like it get a different media player. The simple fact is these features be it hardware or software are already in the system and simply needs to be activated. Its Apple being an asshat is what this boils down to.
Now compare that to BootCamp. Is that a feature built into the OS? No. Is this something that was provided with the system when I first purchased it? No.

[Craig @ Jan 23rd 2007 2:38PM]

accountants don't use Macs... maybe Apple just figured that they would all be too busy to look up from their excel spreadsheets and call them out on trying to blame the fee on GAAP.

also, this has nothing to do with SOX

[Sean @ Jan 23rd 2007 2:39PM]

Get your facts straight before posting articles like this. Whether you guys like it or not Engadget is now one of the most read tech sites on the net and you should start acting like it instead of a college blog. Call Apple directly, get their side of the story, then compare notes with the SEC accountant and post the story. Takes an extra 30 minutes, but saves you hassles and in the long run should help increase readership.

[Steve @ Jan 24th 2007 4:28PM]

"Compare that [802.11n] to Bootcamp."

Two differences: One, The Bootcamp capability was announced prior to the release of OS X Leopard via the Beta. Two, Bootcamp is a feature of OS X Leopard, which will not be free, either.

[jon @ Jan 23rd 2007 2:48PM]

Nij is exactly right - this is a SOX issue, not GAAP. It might be worth noting that Lynn Turner's tenure at SEC ended in 2001, a year before SOX took effect.

[Pete @ Jan 23rd 2007 2:58PM]

Apple sold you a MacBook or the MacBook Pro with a built-in 802.11g Airport Card for wireless capability. It's was in your machine when you paid for it. They didn't BS or lie to you or anybody. If you want the 802.11n capability which they didn't advertise or promise you then you pay an extra $1.99. What's the big friggin deal. You're getting a better Airport Card for $1.99. Would you have rather gone out and buy a new 802.11n Airport card for $49.00.

[Soon-to-be-ex-reader @ Jan 23rd 2007 3:34PM]

Surely you don't mean for us to read this and conclude that your zine has nothing better to do than whine about a $2 licensing fee--which is, no doubt, the source of the fee. After all, it is a generally accepted accounting practice to pass on such fees to the end user, rather than eat the cost.

Get over it and move on, willya?

[Smittie @ Jan 23rd 2007 3:46PM]

It's a two dollar charge to enable a 'new' feature. What they are delivering was not free to Apple. Delivering it is not free to Apple. Apple is a FOR PROFIT business. Organizations that give things away are generally called NON-PROFIT.

I really don't understand why this relatively minor issue has got so much of Engadget's attention. Let it go, kids. Really.

[Jay @ Jan 23rd 2007 4:10PM]

This can all be very confusing but SOX only requires that a company maintain a sufficient internal control environment. That control environment supports the appropraite application of GAAP. Rather than confusing/boring people with paragraph 12 of SOP 97-2 or TPA 5100.39 regarding a multiple-element arrangement or EITF 00-21 regarding one unit of measure, it is much easier to just blame "SOX". Its is an oversimplified way to get people to understand that the decision is not a matter of opinion but a matter of appropriate GAAP accounting. People get paid a lot of money to understand revenue recognition rules so to think that a lay person could walk into this situation and understand all the minutia is just silly. Who knows wether or not Apple even knew what their strategy was for this upgrade when they shipped the product. I can only assume that circumstances subsequent to the intital shipment necessitated this upgrade fee. It's really funny how everybody gets pissed off about Enron and Worldcom etc. but when the dirty details of revenue recognition get publisized, everybody is an armchair expert/critic.

[Chris @ Jan 23rd 2007 6:43PM]

Jay,

Thank you for that bit-o-analysis!

Chris

[supagold @ Jan 23rd 2007 5:30PM]

If I read this correctly, then it does sound like Apple is making up an excuse for squeezing more money out of people. Which doesn't surprise me since it sounded like BS from the beginning. This IS a story - moreso for the fact that it sounds like Apple has basically lied about why it's charging this fee. It knew it's customers aren't going to like paying for a laptop, then paying for it again, so it hid behind some mumbo-jumbo it didn't think anyone would call them on.

The "licensing fee" theory doesn't even make sense. First of all, the whole point of an open standard like 802.11 is to avoid licensing fees. Second, if it's for a licensing fee, why wouldn't Apple just say that in the first place? Third, is the idea that Apple mysteriously decided to pay 60% of this fee out of the goodness of their heart? Wow, that's nice of them. I guess I'll be sending in my check with a thank you note.

[Galley @ Jan 23rd 2007 5:41PM]

I'd gladly pay $1.99 for Apple to update the Core Duo MacBook I bought back in Sept. No 802.11n lovin' for me! :-(

[Echo_ @ Jan 23rd 2007 6:35PM]

If Microsoft (or M$ for you witty people /sarcasm) did this all of you fanboys would be up in arms saying how greedy M$ (tehehe :|) is and how they'll do anything for money. But then again Apple can get away with anything.

Echo
Microsoft/Apple user

[Shmoe @ Jan 23rd 2007 6:46PM]

I thought this was an issue with Sarbanes-Oxley (SOX), not the GAAP.

Sounds like the WSJ needs to do a little research.

[XGM @ Jan 23rd 2007 7:00PM]

How many of you actually have a Mac Book Pro and 802.11n routers ?

Anyways the 2$ to activate it beats a 40$ upgrade for a receiver imo.

[Ron Larson @ Jan 23rd 2007 7:46PM]

The $2 hardly seems worth the trouble. It probably will cost them just as much in expenses to collect and process the fee. So it seems highly unlikely that greed is the reason for this. If it was, then a $20 fee would seem more appropriate.

Therefore this low fee seems to back Apple's explanation.

I think, in my uninformed opinion, is the reason for this is simply because of an accounting gimmick that has backfired on Apple.

I think they booked unrealized revenue on the cards. Those virtual revenues were used to help boost earnings reports. Now they have to come up with some real dollars to cover that virtual revenue.

Adding unrealized revenue to the bottom line was one of the most common problems that were addressed by the post-Enron reporting rules changes.

[rj @ Jan 24th 2007 8:19AM]

why does everyone keep referring to the SOX act???? are u all chartered accountants or something?? where in the world would this fall under the SOX act??? oh wait... uhhhhh it doesn't! stop referring to the SOX act without pointing out any underlining support.... like how about where it falls under?

the SOX act was brought about to combat disclosure abuse from such company's as enron... "to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws".

how does this 2$ upgrade fall under this?

[Matt @ Jan 26th 2007 2:59PM]

It doesn't. These people heard Sarbanes Oxley and immediately assumed that every bit of accounting from that point forward was based solely on something called SarbOx.

[mcloki @ Jan 24th 2007 9:29AM]

The day I start getting my accounting information from Engadget...

Get baCK TO REPORTING about technology, You were good at that once. You can be again. You're just trolling for APPLE HITS.... DAMN YOU ENGADGET, Ya used me. Ya used me Engadget.

[Insomniac @ Jan 24th 2007 11:39AM]

Is it that hard to see Apple is using a BS excuse.

Why doesn't Microsoft have to charge for service packs? Why doesn't Apple charge for patches? Do you thin they defer a portion of their revenue for patches and service packs?

[Mike @ Jan 25th 2007 4:48PM]

Why would you link to a WSJ article that lies behind a subscription wall? Does that make any sense?

Are there any other OBJECTIVE 3rd party articles out there that explain this in detail?

[apeguero @ Jan 25th 2007 9:25PM]

I just downloaded the Airport extreme update for my macbook for free from apple automatically. No charge. Did they stop charging?