Apple should (snicker) license to Dell?

On November 1, 2006, in Opinion, by Guy Serle


A report by Gartner has been floating around the web calling for Apple to leave the hardware business and let someone else, like sayDell, make their Macs for them. While this is a preposterous proposal, parts of is not so ridiculous.

First let’s get the madness out of way so we can concentrate later on the parts that actually make sense. In the report, Gartner states, “Apple should concentrate on what it does best – create software – and make use of Dell’s production and distribution infrastructure. Apple should leverage its close relationship with Intel and team up with Intel’s closest ally, Dell. We recognize that this move would surprise and even shock many. We are aware that Steve Jobs cancelled previous Mac licenses when he took over at Apple and that he guards the Apple brand zealously. Apple’s margins for its Mac business, currently around 40 per cent, are only sustainable because component makers such as Intel choose to prop up the business.

A bold statement, yes. An insane argument? Maybe not. Oh, I don’t mean the having “Dell make Macintosh computers” part. That’s just crazy talk. I don’t know what Apple’s margins are on their computer sales, but 40% seems a little high considering that the Macintosh Pro towers are priced (currently) lower than Dell’s similar hardware. You can bet that Dell isn’t selling computers with a profit margin anywhere close to that. Maybe Steve Jobs is taking a cue from the old Crazy Eddie commercials, “Prices so low they’re INSANE!” Nah, Steve is many things (some probably not that complimentary), but he isn’t crazy.

The Gartner report goes on blathering about HP now getting the same discount deal on processors that Dell gets and that Apple is being subsidized by Intel and blah, blah, blah. It’s a proposal in search of a germ of an idea, looking for an initiative, in the hunt for a plan. I seriously doubt that Dell will ever make Macs.

This doesn’t mean that I’m throwing out the baby with the bathwater in relation to this report. Parts of this report are not so foolish to dismiss altogether. It is entirely possible that Apple may someday get out of the hardware business sorta kinda. Let’s turn on the wayback machine and look at previous Apple efforts to expand their marketshare. Not just the “clone” era, but even before that.

Apple and Motorola AIMing for IBM
The early Macintosh computers all used Motorola’s various 68xxx processors. More specifically the 68000, 68020, 68030, and 68040. There were variations in the line and even one (68060) that Apple never used having decided to go to the IBM flavored PowerPC line. Motorola’s involvement didn’t end there as they were invited by Apple (after Apple was invited by IBM) in 1991 to create a consortium to develop the PowerPC family of microprocessors. This alliance was called AIM (Apple/IBM/Motorola). The aim of AIM (sorry) was to promote the use of these high performance RISC (Reduced Instruction Set Computer) Processors in a variety of ways, including of course, Apple’s Macintosh line. These processors had a clear advantage over the then current X86 processors championed by Intel as fewer instructions were required to do the same amount of work using PowerPC chips. I’m paraphrasing of course as it was way more complicated than that simple statement, but early on, the PowerPC WAS the better chip.

One of the things that this consortium was working on was a concept known as PReP, or PowerPC Reference Platform. The concept called for a common set of hardware that could run almost any operating system. Apple, which used closed firmware to prevent anyone else from making Macs, wasn’t too keen on some of the more esoteric components of PReP and so, except for some high-end hardware from IBM, PReP died on the vine.

From the ashes of PReP came CHRP. CHRP (Common Hardware Reference Platform) was the second attempt to create hardware that would run various operating systems. Much was made of this in the various Macintosh magazines, but again, Apple pulled away before significant progress was made and no Macs were ever created for sale with this initiative although CHRP machines were demonstrated at the 1996 PC Expo in June and the1996 Boston Macworld in August dual-booting both Windows NT and the Mac OS. Although Apple had a hand in both PReP and CHRP, they decided to go a different way altogether.

The Clone Wars
Even while Apple was working with Motorola and IBM with the PReP and CHRP initiatives, the leadership within Apple was looking to expand the Macintosh marketshare by allowing a limited number of manufacturers in early 1995 to make computers that would run the Mac OS, specifically System 7.

The list of Mac cloners included Motorola (which also had the right to sub-license their StarMax designed motherboards to other makers), Power Computing, Radius (which sold their SuperMax name and license to Umax), and DayStar. Essentially, Apple licensed their ROMs (Read Only Memory) and System software for a percentage from the sale of each machine.

Early machines from these makers used the lower performance Motorola 603 processors, but they soon expanded to the higher end 604 and 604e chips, the very same chips that Apple was using in their own high-end computers. The Mac clones were soon outperforming Apple at a price that Apple felt they could not compete at. Add in the return of Steve Jobs and the cost cutting measures (Pippen and Newton among others biting the dust) taken by Apple to stem the flow of red ink and the writing was on the wall. Apple starting trying to renegotiate with the clone makers a higher license fee for the upcoming System 8 OS. The clone makers refused as it would have added significant cost to their computers, destroying any advantage they had over Apple, and by mid-1997, it was all over.

Where are we now?
Leaving the comfy confines of the wayback machine, we find that the AIM alliance is undone. Motorola spun off their chip business to a newly created company called Freescale. Apple has abandoned the PowerPC realm for Intel once IBM could not, or would not produce faster chips to keep up with the X86 line (thus losing the only advantage that most people cared about), and now all of Apple’s computing hardware has gone to Intel. While there are a few differences between computers made by, say, Dell and Apple, for the most part Macintoshes ARE PCs. They use the same memory, hard drives, PCI busses, ect. Also, bear in mind that Apple doesn’t REALLY make computers anymore. It’s mostly given out to various Asian companies based on Apple designs. Is THAT really so different from going the next step and allowing other companies to make and brand Macs?

So what would it take to see Macintosh clones based on Intel processors? First, Apple would have to remember the lessons from the past.

1. Don’t assume that clone makers will be satisfied with low profits (if any) from low-end machines.
The only way Apple could have clone Macs would be if they left the computer hardware business. They cannot continue to compete with themselves as they would be by licensing out the OS and ROM chipsets.

2. Keep firm control of what hardware the clone makers can put in their Macs.
One of Microsoft’s never ending nightmares is also one of the strengths of the Window’s platform. The sheer number of third-party add-ons means that Microsoft must account for and include drivers for every Tom, Dick, and Harry motherboard and DVD burner that is made. When they don’t work as advertised, who gets the blame? Microsoft. Apple would need to design and certify a limited number of motherboards and configurations (in desktops and notebooks) to ensure that everything just works. I don’t mean USB or FireWire devices, those sort themselves out pretty quickly, but PCI-based add-ons and other buss hardware. Keep the base hardware set simple and easy to manage.

3. Keep research and development of computer hardware up to date and innovate in ways that makes the platform better.
Just because Apple isn’t actually making computers anymore doesn’t mean they shouldn’t keep abreast of current developments. This follows along with point 2. All the clone makers would have to use the same motherboards and basic hardware. Their differences would be more along the line of how much memory or hard drive space would be included, or how many USB/FireWire ports were available, along with case design or feature-centric software bundles for particular needs.

4. Don’t set your licensing fees so high that clone makers can’t also make a profit.
Everyone concerned deserves to make some money. Apple can set the rates so that clone makers can compete with Windows PCs, but still make some serious coin for themselves. Otherwise, what would be the point?

5. Keep your ROM to yourself.
This may be the most controversial part of this article. Many point to being able to BIY (build-it-yourself) as the main reason for not using the Mac OS or the Macintosh. Frankly, this is a very small market and most of them care more about computer games, meaning they wouldn’t be interested anyway. Yes, I realize this is a gross over-simplification. By making sure that the average user still can’t just build a Mac, Apple assures the clone makers of a steady stream of customers.

Finally, Apple should continue to make the higher margin, but lower sales network server and blade configurations. Apple cannot just give up on the Enterprise markets, but few of the clone makers would be interested in the expense of such an endeavor.

I realize that many will disagree with some or all of my conclusions. Please be civil in your replies. Just don’t expect me to want Dell making Macs.<shiver>.

 

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