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  • Apple and the Cloners: Round Two

    June 30th, 2008

    Just today, my copy of the August 2008 issue of Macworld arrived, with a fascinating headline situated above the title: “Mac CLones: Are They Coming Back?”

    This would seem a silly proposition, since Steve Jobs ejected the last round of cloners, because their actions were threatening Apple. While the company’s erstwhile executives felt that ceding to the constant demands to open the platform would expand the Mac platform, they encountered the reverse. Aggressive startups, such as Power Computing, went with a vengeance after Apple’s core market with cheaper and faster products.

    Indeed, Apple was hemorrhaging lots of red ink when Jobs took over as “interim” CEO in those days, and a lot of the members of the tech press and even Wall Street even felt Apple had gone down for the last count.

    However, so many things have changed since then, the most important of which is the fact that Apple’s sales are higher than ever, and Mac market share is increasing at long last, after moving in the opposite direction for so many years.

    Yet, when Apple switched to Intel processors, the ugly specter of cloning rose yet again. After all, if a Mac had basically the same hardware as the typical Windows box, certainly it should be possible to install Mac OS X on the latter. To be sure, this task was accomplished rather quickly, as hackers figured a way to induce their vanilla PC hardware to accept a Mac OS installation.

    This is not to say the process is easy. For one thing, you have to assemble hardware, such as graphic cards and optical drives, that are similar to the ones Apple uses, so you can be assured of decent compatibility. Running a software update, which is normally a fairly trivial process, can be difficult. If Apple makes the wrong kind of changes, further hacking might be necessary to make the installation take.

    In large part, then, the folks who created these unofficial clones were power users who understood the risks they were taking, but were willing to go through the ordeal. Maybe they were just having fun, maybe they thought they could pave the way for a new generation of cloning, maybe Apple would make it official.

    The chances of the latter, to me at least, have always seemed slim to none. Apple’s marketing strategy has been demonstrated time and time again to be brimming with success. Macs, iPods, iPhones and whatever else Apple might unleash upon an unsuspecting but eager customer base, are likely going to remain vertically integrated with the hardware and software coming from a single source.

    There is absolutely no incentive to change things. Indeed, even if Apple opened up the Mac platform to the low-end market where they don’t play, they will confront much higher development costs to certify additional hardware configurations, and compatibility problems are apt to occur, just as they have with the Windows platform.

    But what about a certain Florida-based company, Psystar, that is actually selling fully-assembled clones?

    When I first heard about that company a few months ago, it seemed they wouldn’t survive a week, let alone persevere for months and expand their product line. Today, you can buy various versions of their Open Computer and OpenPro Computers, and even get an Xserve clone, known as OpenServ.

    So how can that be? We all know that Apple’s user license, for both the client and server versions of Mac OS X, restrict installation to an Apple-built personal computer. We know that Psystar is just assembling its boxes in the same fashion as those late Mac OS clones, from off-the-shelf PC parts. Sure, they are sufficiently selective in their choices, so the systems will work out of the box, assuming you pay them extra for a Mac OS X installation.

    Indeed, published tests so far show good compatibility and performance in keeping with the level of hardware that Psystar provides.

    But what is Apple doing about all this? Where’s what we all felt was the inevitable lawsuit to shut this operation down before this venture catches on?

    Now to be fair, if you add the stuff that’s standard in a typical Mac to the bare bones Psystar box, the price differential is sharply reduced, although the latter still uses faster parts. But that still reduces its value, unless you just like to take chances.

    After all, even if Apple doesn’t act right away to stop that company in the courts with an injunction, Psystar’s potential longevity is surely a question mark. Beyond a core segment of people who hope to save some money and are willing to take chances on a supplier that might be here today and gone tomorrow, it’s questionable just how well this venture might succeed.

    As far as Apple is concerned, I don’t understand the waiting game. If they don’t protect their intellectual property rights, they stand a chance of suffering in the legal system if they stall much longer.

    All right, some people believe that Psystar is actually Apple in a different guise, just testing the cloning waters to see how it flies. Or maybe Apple simply hopes Psystar will just go away, so they can save the multimillion dollar expense of an extended legal action. Or maybe they’ll just surprise us somehow and begin a real cloning initiative.

    On the other hand, I think the chances of the latter remain at the low end of zero.



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    13 Responses to “Apple and the Cloners: Round Two”

    1. Dana Sutton says:

      I’m no lawyer, but I’m not sure exactly what Apple could sue the makers of the Psystar for. Violation of the OSX EULA seems about all. Does the Psystar come with OSX preinstalled or does the individual user have to supply his own copy? If the latter, then how could the maker get in trouble for this? Even if it does come preinstalled, who is committing the violation, the maker or the end user?

    2. I’m no lawyer, but I’m not sure exactly what Apple could sue the makers of the Psystar for. Violation of the OSX EULA seems about all. Does the Psystar come with OSX preinstalled or does the individual user have to supply his own copy? If the latter, then how could the maker get in trouble for this? Even if it does come preinstalled, who is committing the violation, the maker or the end user?

      Violation of the EULA ought to be sufficient. Yes, Psystar installs Mac OS X for you at extra cost.

      Peace,
      Gene

    3. Yacko says:

      And then there is that dongle out there. All fascinating stuff. I assumed Apple figured Psystar would just implode on its own, for reasons of ineptitude, cash flow, customer dissatisfaction or plain lack of smarts to keep up with uodates. As you pointed out, it saves momey. Well at least Apple is (theoretically since we don’t get to see the company books) getting full retail for each copy of OSX, a number sure to be lower if they were to officially license it out. Maybe the EULA prohibition is a red herring? Apple hasn’t tested it and has it, or something similar, been court tested under similar circumstances? Maybe Apple figures clones are all but inevitable? It seems to me there is probably a tipping point of market share and Microsoft vulnerability that makes it doable. I’m sure Apple has financially war-gamed the various scenarios, given the growth in financial modeling that has occurred since the 1980s. Maybe Snow Leopard is part of that, a fork in the road that may or may not have been planned, but puts the code base in a desireable state to drop PPC and go for Microsoft’s jugular (they’re playing with touch, we have Grand Central and ZFS) and make cloning on a pile of different hardware a rational possibility even if it is not an immediate probability. It would be funny if Apple stole the PC OS market from right under Microsofts nose, like a cartoon mouse stealing cheese guarded by a lazy cartoon cat. What is Apple thinking? Well I’ll tell you, whoever writes a tell all history of the second-coming of Steve Jobs, it is going to be a corking great story.

    4. Richard says:

      Could it be that Apple would rather let market forces determine the fate of this company because they are “going proprietary” with hardware soon and not risk going to court and losing on the issue of the EULA? It does seem that the working name of this new company was probably “sosueme”.

      Should Apple lose this lawsuit, Michael Dell, among others, would soon be shipping units with OS X.

      Who know where all this might lead? It could be the best thing that ever happened to Apple (and the computing community).

    5. Dana Sutton says:

      Quoth Yacko, “Maybe Apple figures clones are all but inevitable? It seems to me there is probably a tipping point of market share and Microsoft vulnerability that makes it doable. I%u2019m sure Apple has financially war-gamed the various scenarios, given the growth in financial modeling that has occurred since the 1980s.” Let’s take this a step further. Supposing Apple is considering modifying or eliminating the “Macs only” restriction of its EULA? Without that, suing Psystar would be impossible. Conventional wisdom is that this will never happen, because the profit margin on selling Macs is so much higher than on OSX. But is this necessarily true? If you sell a your product number units with a low profit margin you make more money than if you sell a relatively modest number of units with a high one. Dutch Schultz was a good economist, nickels and dimes really do add up. The conditions for re-thinking this policy are very appropriate, given the massive customer resistance to Vista (Microsoft’s stubborn refusal to extend the life of XP may turn out to be the most self-damaging decision it has ever made) and so, if you take away the current EULA restriction, the possibility of selling OSX in sufficiently huge quantities may well exist. I don’t mean to minimize the problems involved, not only the economical ones but also the potential difficulties of having OSX run on a wide variety of computers both as a primary OS and in virtualization mode. But I do wonder if Apple is holding off on suing Pystar until it has had a chance to think these questions through with the care they deserve (and maybe do some market research and some lab testing of OSX on various makes of PC to get a better sense of the potential market and to see how technically feasible this move would be).

    6. Richard says:

      Dana,

      You are absolutely correct that profit margins are determined by volume. Example: If Apple somehow doubled the number of Mac sales the development costs of the hardware would instantly be 50% (per unit sold) of what they were before. Normally, businesses also get better pricing on products and services the more they buy so it might be that Apple would achieve more favorable pricing on the hardware components and the assembly contracts. New container ships like the Emma Maersk certainly get the shipping costs down.

      The same is true of the development costs of the OS and various applications. Actually, selling software is as near a “no cost” business as probably exists when you consider how little it actually costs to produce the installer disc and related items. Software vendors finally woke up and started making the retail boxes smaller so that they were not paying an unreasonable shipping cost for volume rather than weight. Especially if sold as an “OEM” software license to a manufacturer, the support costs are essentially nonexistent as that manufacturer assumes most of that burden.

      It has long been stated in print in national magazines by various “techies”, such as Chris Pirillo, that the computing community at large was awaiting the opportunity to adopt OS X. See for a more recent take on it.

      Can Apple make money on this? If Steve can’t, his successor sure will. Bill Gates, for all his “issues”, did OK selling software.

      About the hardware itself. Even with Intel pushing Apple to take on the newest of their products, Apple continues to throw in out of date components such as optical drives and stuff that really is not right.

      The business community needs the ability to run OS X on hardware of their specification, even if Apple wants to continue to claim that it is a “consumer company”.

      My favorite “who should buy whom” theory is that Intel should buy Apple and SUN. Unify the OSes, make Apple the Consumer Company and SUN the Enterprise Company.

      Talk about opportunities!

    7. BobS says:

      Richard writes:
      “Could it be that Apple would rather let market forces determine the fate of this company because they are %u201Cgoing proprietary%u201D with hardware soon and not risk going to court and losing on the issue of the EULA? It does seem that the working name of this new company was probably %u201Csosueme%u201D.”

      I think this is a major part of Apple’s reasoning. I expect that the purchase of PA Semi will lead to new Macs with custom silicon which greatly enhances the performance making clones relative poor performers. There is little evidence that Psystar has old that many units to date and I still think that many of the units sold went to clients of their consulting business (many who are accustomed to buying white box computers).

    8. Dana Sutton says:

      “There is little evidence that Psystar has old that many units to date” Sure, Psystar is little more than a joke, a mere pinprick, no matter what happens they’re doomed to go away in about fifteen minutes. But Apple still has a major reason for taking them to court, which is to scare off other attempts to mess with the EULA which might not be a joke at all. Suppose, for ex., that somebody were to put out a kind of reverse engineered Parallels Desktop that would allow OSX to run on a PC in virtualized mode. The easiest way to keep something like that from happening would be to nip it in the bud by making an example of Psystar. At least that’s how Apple’s legal dept. normally thinks and why it takes all challenges of this kind seriously, so you’d expect they’d be stomping all over Psystar. But Gene’s right, it’s very strange that they aren’t. I wouldn’t be a hundred percent surprised if someday Steve Jobs and Michael Dell were up on the same stage making a joint announcement that Dells will ship with Vista OEM, but also with an Apple-suppled Reverse Bootcamp and Dell purchasers are invited to pick up a copy of OSX at their local Apple Store upon presentation of a special certificate that comes along with their new PC. Certainly Dell, HP and some other PC manufacturers are showing signs that they are EXTREMELY unhappy at the idea of having to ship their machines with Vista. So, refusing to continue XP, Microsoft may wake up and find that PC manufacturers have staged a revolution and the landscape has suddenly changed beyond recognition.

    9. BobS says:

      Dana-

      I had always thought that EULAs were pretty much bulletproof but there is some disagreement on whether click-wrap EULAs are enforceable. If Apple has a high degree of confidence that it will win, it will likely sue Psystar. If there is some concern as to the outcome of such a case, Apple may choose to keep things more nebulous until it can formulate another response.

      I know Apple said that they bought PA Semi for mobile chip development but I think there is more to it than that. I think one reason that Apple bought PA Semi is so they can then use custom chips available only to themselves to improve OSX performance (they could even go as far as hardware authentication even thought I do not think Apple will go that route). Then, even if a company like Psystar (or even Dell) makes OSX available on their hardware, it will underperform compared to Apple’s offerings. Other companies would be forced, at the minimum, to increase their COGS to compensate in some way for Apple’s advantage which likely negates there only advantage – price.

    10. Richard says:

      BobS,

      Speculation seems to be that Apple is considering their own Graphics co-processor in addition to their own iPhone/iPod chip sets. I have my doubts about the graphics co-processor because of the great relationship that they have formed with Intel. Intel has some new graphics tricks up their sleeve and Apple is sure to be a “most favored” customer implementing new stuff. The benefits to Apple of allowing Intel to do much of the engineering are just too great to be ignored.

      Cheers!

    11. BobS says:

      Richard-

      Like you, I would be surprised if Apple were to develop their own graphics co-processor but I still think that Apple will employ custom chips that will somehow leverage future versions of OSX.

      Maybe it will come down to hardware authentication but I think that Apple would much rather offer a carrot than that obvious stick.

    12. Joe S says:

      Apple does not have to develop their own graphics processor. There are companies that license this IP. All Apple has to do is is either put authentication or an unpublished interface on the chip. Look at the problems the open source community has had with the Apple WiFi. All you need to do is have one of these critical pieces and the game is over. OS X only runs on Apple hardware.

    13. Richard says:

      As our friends, Monte Python, would say…and now for something completely different. Intel wants to go in a completely different direction than any current graphics implementation. http://www.eetasia.com/ART_8800529199_480700_NT_b7329a77.HTM

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