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Free software, but that Apple device will cost you

Wednesday, 23 Oct 2013 | 11:02 AM ET
Apple's 'Free' strategy takes on Microsoft
Wednesday, 23 Oct 2013 | 12:00 PM ET
CNBC's Josh Lipton talks to Jill Duffy, PCMag.com, about Apple's decision to give its software away for free and how it's likely to impact Microsoft.

You may be able to get more of Apple's software for free, but you'll still have to pay a pretty penny for its hardware.

(Read more: Live blog: Apple reveals new iPad Air, iPad Mini )

At a media event Tuesday, the tech giant showed off its latest line of iPads—the new iPad Air and the iPad Mini—both of which sport some significant upgrades.

Apple CEO Tim Cook presents the new iPad Air at an event in San Francisco
Getty Images
Apple CEO Tim Cook presents the new iPad Air at an event in San Francisco

And the devices weren't the only things to get a boost.

While pricing on the iPad Air remained the same as that of its predecessors, the iPad Mini, Apple's second-generation 7-inch tablet, is about $70 more than the first version, which started at $329.

(Read more: Don't want an iPad? Here are some tablet alternatives)

Granted, the new iPad Mini, which begins at $399, comes with big improvements—including retina display and an A7 chip—that warrant a hike. But that Apple is uncompromising on pricing shows that the company's monetizing strategy is still all about hardware.

Apple unveils new 'iPad Air'
The new iPad Air has 10 hours of battery life, starts at $499 and will launch November 1st, reports CNBC's Josh Lipton. A look at the new iPad Mini as well.

"I think Apple was just trying to say, 'Enter our ecosystem, and you are going to keep getting payback from that. You're going to pay a premium for the product, but we are going to provide you service around that, whether it's our Genius Bar, whether it's our software—we are going to provide value to you if you enter our ecosystem,' " said Daniel Ernst, an analyst at Hudson Square Research, on CNBC's "Street Signs."

During the event, Apple emphasized how much value consumers derive from that ecosystem, and it announced that it would be giving away its new Mavericks OS X and iLife software with a device purchase.

"We are turning the industry on its ear" with free software, CEO Tim Cook said at the event.

Financials of Apple driven by iPhone: Analyst
What's driving Apple's stock, with Tavis McCourt of Raymond James.

And some analysts agree.

Apple's strategy of charging a premium for devices but giving away the software is a game changer, said Carolina Milanesi, a vice president of research on Gartner's consumer devices team.

"I think it's a good strategy for them," she said. "They haven't really ever made a lot of money off this type of software, and it has been a gradual process, making it free. But this does really interrupt the market in the way we think of it when it comes to PCs," she said. "It definitely gets people to questions why they need to buy Windows 8 software for $200."

(Read more: Apple is not immune to PC bloodbath )

Offering more software gratis also pulls loyal customers even deeper into Apple's orbit, Milanesi added.

Wal-Mart launches iPad trade-in program
Less than 24 hours after Apple unveiled its newest iPad, Wal-Mart announces it will begin an iPad trade in program starting November 1st, reports CNBC's Courtney Reagan with the latest details.

All the big tech players in the tablet market have a different approach to it. Apple still has a healthy lead and is pushing the freemium software model as an incentive to pay for the expensive device.

"We're seeing three very big companies tackling the computer industry in very unique ways," said Raymond James analyst Travis McCourt, who has a strong buy rating on Apple's stock with a $675 price target.

"Apple is building high-margin hardware and giving software away for free," he said. "Microsoft is building expensive software and trying to monetize hardware, and Google is trying to commoditize both as long as you are willing to give them all of your information.

"And we will see which one wins."

By CNBC's Cadie Thompson. Follow her on Twitter @CadieThompson.

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  • Matt Hunter is the senior technology editor at CNBC.com.

  • Cadie Thompson is a tech reporter for the Enterprise Team for CNBC.com.

  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.

  • Jon Fortt is an on-air editor. He covers the companies, start-ups, and trends that are driving innovation in the industry.

  • Lipton is CNBC's technology correspondent, working from CNBC's Silicon Valley bureau.

  • Mark is CNBC's Silicon Valley/San Francisco Bureau Chief covering technology and digital media.