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Oh come on, you know the answer to that Thom.
Competition is only good for the market when you are the underdog.

Competition is always good for the market because that is what a market is, by definition. However, we'll look at this from the point-of-view of Apple. Competition is apparently less desirable for a company when it has cash cow status or when it has a monopoly because they want to protect what they have. This is why Microsoft is looking around nervously at what the next big thing is in their market, because they just don't know and won't be able to react to it when it comes along if it is something fundamental. In the long-run you want some competition whether you like it or not because you can go very quickly.

However, the problem with Apple's cash cow/monopoly that they have with hardware for OS X is actually bad for them because the market they have now is far smaller than the possible market with some competition. They could make huge amounts of profit from selling OS X licenses, let OS X run on a wide range of hardware platforms and still be the benchmark for quality and style with regards to hardware that they want to be. This is what Microsoft wanted to be when they started up some style guidelines for Vista PCs some time back.

However, that face-value analysis doesn't take into account the wider benefits to Apple of a far larger development community and pool of applications which drives demand for OS X and their own hardware further, and makes their market far larger. Apple would find that Apple hardware could be installed in companies by virtue of the fact that companies would be more likely to have servers with OS X Server running, without Apple having to do anything other than shift licenses of OS X for pure profit!

If I was Microsoft, that kind of proposition would scare the crap out of me if Apple 'got it'. Windows OEMs would actually have a choice and Microsoft's oft used retort of "You are free to use another OS if you want to" would carry a serious bit of weight because a lot of OEMs would make the OS X choice. OEMs would say "Convince us to use Windows".

If there is a ruling in favour of Psystar, everyone wins - even Apple. Psystar creates a new business and get competitive advantage for the time being, Apple starts to get a far bigger market to sell OS X and their hardware into, Microsoft would be forced to make Windows 7 as good as they can possibly make it, Apple would then have to respond and blunders like Vista would be punished. Cross-platform development tools would balloon and open source platforms would see some side-benefits.

The more I think about it the more important I think this is, but a lot depends on Apple 'getting it'. Sadly, I don't think they will.

The better and faster part is arguable - some did, some didn't. The important point is that they were cheaper, often through significantly lower profit margins, and it has been proven time and again that in general people would chose cheaper before better. (e.g. "I can live with slightly thicker and heavier plastic laptop if I can save $800.")

Very small part of Apple's current customer base are "Apple fans". Most people buying Macs today are doing so for a myriad of reasons - some think Macs are best bang for their buck, some are trying to get away form Windows, some think Macs are cool and trendy, some need a Mac (for example aspiring iPhone developers), some are just curious. Many of those people have no allegiance to Apple and will not hesitate to ditch them for someone else's cheaper offering.

Once again, it's not a question of the quality of the hardware, it's a question of price-points. Clones don't need to completely steal Apple's sales or run the company into the ground to have a detrimental effect on Apple's business model or on their stock.

I don't think I've ever met anyone who thinks they are getting the best bang for their buck with an Apple. I've met people who are getting the only bang for their "must have MacOS" buck, and I've met people who are so sick of MS that they are getting a new bang for more bucks, though. That's not to say that I don't know a lot of satisfied Apple customers, but most of them I know do wish that Apple didn't think that 50% margins were reasonable. The remainder try to spin things to prove that Apple computers are only a little more expensive than the competition, or say things like "yeah, but style trumps all, and who wants to lug around *that* horrible looking laptop?" Even those folks have never tried to convince me that Apple is actually less expensive then the competition.

It was a failure because the clone makers made better, faster, and cheaper hardware than Apple did at the time. These days, Apple and its fans are convinced Apple makes the best hardware evar, and that the sometimes premium prices are more than justified.

If Apple's hardware is as good as everyone says it is, what's the fear for clones all about? "

The clones admitted to not expanding the base. You're not getting it, but keep dreaming.

If I sell 2 million units, per year, then open up the clone option and total yearly sales for installed OS X is still 2 million/year what the hell went wrong.

What went wrong is that Apple not being a strictly software based company who strong arms OEMs with a toll isn't making a ROI greater than if they did it alone. In fact, they see their gross sales declining.

In what way? Mac OS usage rose, and Apple did nothing to feed off that at all.


Why do you think Apple are using Intel platforms ;-).


Then why the hell aren't you licensing the hell out of OS X to those people, growing the OS X market, growing the number of installed applications, dramatically growing the demand for OS X through those applications and using that to increase the economy of scale and markets where you can sell your own hardware? Potentially, that's a multi-billion dollar market - per quarter.


They can make ROI out of this, and what disproves it is the fact that they had to give in to this very same model and buy Intel. Intel have lots of motherboard and other hardware manufacturers making their own boards with Intel chipsets and plugging their hardware in alongside Intel chipsets and processors. Can you argue that those hardware manufacturers are taking money off Intel? What is Intel's revenue compared to Apple's?

Psystar isn't exactly being strong-armed into a deal to license OS X. The reason why they're going through this is because they want to do it and they feel there is a big enough market for it. If there is a market for it, Apple can make money off the back of it and their own hardware division are not capturing those sales and never will, why the hell aren't Apple making money off it regardless? That's what I would like to know if I was head of Apple.

Edited 2008-10-22 19:37 UTC

Order 66?

Yes, this is the basic marketing question here! It is a case of what Michael Porter calls difference without differentiation. That is, being different in a way which your customers do not value. An example might be, for instance, hand polishing the case of every power supply. Its different all right, but it delivers no extra value to buyers.

The clone episode suggests there are two forces at work in the Apple buying decision. One is a desire to get Mac OS. That is a respect in which Apple is different in a way that does deliver customer value. The second is a desire to get the best value hardware available to run it on. This is a respect in which Apple is different in a way that subtracts value.

For the last 20 years, the desire to get Mac OS has mostly outweighed the desire for best value hardware. There has been a period in the late nineties when it did not, so the attractions of Mac OS have limits.

It was clear when the clones were available that the attractions of having hardware and software from the same source were very limited in their appeal. This too was a difference without differentiation. Apple customers say, after the fact, that its uniquely valuable. Its probably best understood as the result of cognitive dissonance. When offered the choice of whether to pay a premium for it or not, with their own real money, they choose in large numbers not to. Large enough numbers to threaten the viability of the company. This is a fundamental and very important fact about the Apple market.

If you add all this together, the Apple marketing strategy can be characterized as follows: to force the customer to buy something very many of them do not much want (the hardware) to get something he does very much want (the software). And to keep the undesirability of the hardware within acceptable limits for the strategy to work without leading to a customer revolt.

The very interesting marketing question is whether this is the best way to extract value from the software. I doubt it. You could probably sell the same numbers of OSX copies if you bundled it with dog collars. You would make a profit on the dog collars. But you would almost certainly make more money by marking up the software a little, and not incurring all the costs of making, packing and distributing those silly dog collars.

If it were clear that customers really valued getting their hardware from Apple, there would be no question, the existing strategy would be correct. But given the evidence is that many of them would run elsewhere if they could, it must be very doubtful that forcing them so as to extract hardware margins can be economically rational, compared to a strategy of marking up and extracting the OSX value directly.