This is good
I think this is a good thing, here is why:
1. Not everyone is going to switch (unfortunately).
2. It will be marketed like iTunes - as a vehicle to sell the iSight and encourage switchers. It is also a vehicle to get Quicktime (and other Apple software, such as iTunes, on a Windows machine). iTunes and iSight will cross pollinate.
3. Without inter-operability with Windows the usefulness is lower. Yes I can chat with some friends, but not all of them and that is bad. Apple needs iChat to work with other platforms. The odds of someone else doing it are low, but it is just like the *much* improved inter-operability with Windows in Panther. It is a selling point for Macs.
4. It is another opportunity to show the Windows world how much good design matters.
5. The Wall Street Journal had an article about this in the last 2 weeks and the Windows software and cameras are not there quality-wise. This is another opportunity for Apple to raise the bar and show the Windows crowd what they are missing. Being one of the first there with quality is important.
6. Like the iPod and iTunes, it is a trojan horse. 1 million Windows downloads of iTunes in 3.5 days. Think about that. That is great. If even 10% were to switch, is a big number. That pace won't keep up, but I can easily imagine several million per month and if even 10% switch, most will look and be impressed.
7. Things like iTMS for Windows (and Mac) may make a little money, but they aren't going to be a big profit center for Apple given how much they charge and the record co's keep. Some software (like Panther upgrades, iLife) may make some money, but the big money maker for Apple is hardware with great software: Macs, iPods, iSights, iPhone etc.
I think what will happen is this: it will come bundled with AOL. Plus Quicktime (this is a big thing because of xserve and quicktime streaming etc) will too. It will come free with iSight for Windows. I think that those alone justify its cost and existence, the extra exposure is icing on the cake. If they charge for it, not many will buy it, but if it is free, and is clear that it "works best with iSight" then that is a good thing to sell the hardware.
I don't think this is giving away the store, it is the free sample you get when you go in which gets you to buy more.
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editted: MW SF, is Jan 5-9, 2004, right?