Despite the drubbing Apple’s stock price has taken in recent months, the company remains one of the most profitable on the planet. But Apple didn’t get there paying attention to the critics. When they did listen on one occasion, they ended up almost going out of business.
Consider the endless requests to license the Mac OS. That request continues to this day from some, but Apple only listened once. Before that, however, other companies made what are best called “unofficial” clones, by installing the hardware-based ROMs from another Mac. Literally. This was the basis of the Outbound, an attempt to build a viable portable Macintosh in the days before the PowerBook. Up till then, Apple sold the famously oversized and expensive Macintosh Portable. The thing weighed 16 pounds, so it hardly felt portable, and sold for a starting price of $6,500.
But when the $2,300 PowerBook 100 arrived in 1991, the handwriting was on the wall. Those unofficial clones were on the way out.
In 1995, however, Apple decided to jump into the cloning game with both feet. They licensed the Mac ROMs and the OS to several third party companies, which allowed those companies to build genuine, Apple-approved clones. Apple hoped to expand the market, but one of those companies, Power Computing, went right after Apple’s core market of creative professionals with cheaper, more powerful gear. When new PowerPC chips arrived, Power would often introduce them first. As a result, they ended up cannibalizing sales of “genuine” Apple Macs. Apple hemorrhaged cash, and was in a bad way when Steve Jobs took over leadership of the company in 1997.
One of Jobs’ first acts was to find a way to kill the cloning program, realizing it was a bad decision. The clever solution was to introduce Mac OS 8, since the cloners were only licensed to use Mac OS 7. Well Umax did license Mac OS 8, but they stopped building Mac clones a short time later. Jobs also agreed to buy out the largest cloner, Power Computing, for $100 million, and it is said that Apple’s online ordering system descended from the one used by Power. So there was a big benefit, other than killing the competition.
Unfortunately, the people who demanded Apple license the OS conveniently forgot that the company made the lion’s share of profits from hardware. Any move that allowed other companies to cannibalize the sale of new Macs hurt the company. Sure, the iPad cannibalizes sales of Macs, but the sales and profits are kept within the company, which is a good thing.
These days, it is possible to install OS X on a white box PC with a little software skullduggery. It’s not actually legal, and any company that would mass produce such a computer would face the legal wrath of Apple, and that has occurred. But Apple hasn’t gone after individuals who build their personal FrankenMac or Hackintosh. While I’m not going to point you to a site that tells you how, let me assure you that such instructions aren’t difficult to find. Indeed, Macworld once did a story about building a Hackintosh, and Apple didn’t go after them.
The other demand is for Apple to build cheap stuff. The theory has it that the company will prosper substantially with the higher sales volumes. They fail to realize that the sales aren’t pure gains. Some customers are certain to buy cheaper products instead of more expensive gear. The end result is fewer sales of Apple’s high margin products, which is not such a good thing.
This doesn’t mean Apple cannot strategically enter lower priced market segments. Consider the $49 iPod, or the $599 Mac mini. Both products yield proper margins to Apple, while the same time serving customers who want less expensive gear.
These days, Apple is being strongly urged to introduce a cheap iPhone to serve parts of the world where people cannot afford $450 smartphones, or where subsidized contracts are unavailable. While this seems to make sense in theory, Apple has said many times that they will not produce junk. They aren’t going to build an iPhone to meet a price point. But that doesn’t mean there isn’t the possibility of a less expensive model, if Apple can provide the full user experience and sell it at a decent profit. Again, Apple would would have to do it in a way that doesn’t severely cannibalize sales of high-end iPhones, and actually expands the market.
When it comes to demands that Apple build a smartwatch or a connected TV, I suppose it’s possible that one or both products will arrive. But Apple doesn’t enter markets just because there are profits to be made. They look to markets that are not being fully served for one reason or another, and try to create revolutions. Perhaps that makes sense with watches, but it makes less sense with TVs.
So, how does Apple upend the TV market? That Tim Cook says that he feels he’s going back 20 or 30 years when he enters his living room, that doesn’t mean that Apple’s solution is to replace the TV. As I’ve suggested before, the problems with the TV can largely be addressed with an Apple TV on steroids. I think about my recent struggles to make a Logitech Harmony universal remote mate with a new TV and I can see where integration of devices is one area that cries out for a solution. Can Apple provide it? Does Apple need to establish a fully enabled TV streaming service to compete with Netflix, DirecTV, and Comcast, among others? Or can they revolutionize the business simply by striking partnerships with existing providers and deliver the goods in a smarter way?
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