This article originally appeared in TidBITS on 1997-08-25 at 12:00 p.m.
The permanent URL for this article is: http://tidbits.com/article/4103
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Clone Licensing Brouhaha

by Adam C. Engst

My friend Cary Lu, author of the first Macintosh book and a contributing editor to Macworld, likes to tell how he was roundly booed for suggesting at Macworld Expo San Francisco in 1986 that Apple should license the Macintosh operating system. How different the reaction would be to his suggestion today! I'm astonished by the fuss washing around the Internet regarding the rumors (and very little actual news) surrounding the licensing the Mac OS to clone manufacturers. Let me attempt to explain what is known about the situation and what it all means.

Background -- In September of 1994, Apple announced that it would license the Macintosh operating system to other manufacturers, the first of which (in December of 1994) was Power Computing. According to Apple's Mac OS Licensing White Paper, Apple's goal in licensing the Mac OS was to "contribute to the proliferation of the Mac OS platform, benefit the entire Mac OS community, and help meet the needs of more and more customers."

The white paper continues: "More specifically, [licensing the Mac OS] will provide a much broader hardware choice in terms of price, capabilities, and availability. It will also expand the reach of the unique characteristics of the Mac OS to new sets of customers, and foster continued development of innovative, leading-edge solutions to address more and more needs."

[These pages about Mac OS licensing haven't been updated in many months and given the current imbroglio, I wouldn't be surprised to see them disappear in the very near future. Similar statements may be found in Apple's 1996 Financial Results, however, which is a matter of record.]

<http://www.apple.com/licensing/strategy.html>
<http://www.apple.com/investor/96report/ 96financialresults.pdf>

In short, Apple intended the clone manufacturers to expand the Mac OS market in ways Apple itself hadn't, and to provide solutions that didn't fit Apple's mass market model. For instance, Apple has done well selling Macs into the education market, but Apple has done less well in niche markets, say law or real estate. Similarly, Apple hasn't been all that successful selling into large business or government installations. Apple's hope was that clone manufacturers could both fill cracks in untapped markets and offer solutions (such as custom configurations) that didn't fit Apple's business model.

Since Power Computing's introduction of the first Mac clones, we've seen some of these goals met, but clone licensing has proven problematic in other ways. For instance, a number of the clone manufacturers, including Power Computing and TidBITS sponsor APS, now allow customers to customize their configurations, as is common in the PC clone world. That's good, but Power Computing's reported targeting of some of Apple's primary markets and customers has raised hackles at Apple, since the company didn't intend clone manufacturers to steal sales from Apple.

What's Being Licensed -- Before we can analyze this situation, we must first look at what is actually in question. Apple currently has licensing agreements with the clone manufacturers for Mac OS 7.6. Gil Amelio, ex-CEO of Apple, has said that Apple charged very little for the OS license because the clone manufacturers also had to license hardware from Apple to be able to create Mac clones. This is because Apple's hardware designs use proprietary chips, preventing clone manufacturers from creating machines from industry standard parts. So, for each Mac clone manufactured, clone manufacturers must pay Apple for both the Mac OS and some hardware. It's possible Apple isn't making much on these licenses since the company wanted to jump-start the Mac clone market.

However, several things have changed since those early days. First, the licensing agreements were for Mac OS 7.x, not for Mac OS 8. All along, it was intended that Mac OS licenses would be renegotiated when OS 8 was released in (roughly) 1997. But, keep in mind that Mac OS 8, back in 1994 was to be the ill-fated Copland operating system, which was dropped in favor of Rhapsody, based on the OpenStep operating system purchased from NeXT in late 1996. So, there's some argument over whether or not the current Mac OS 8 - which, though a major update, is an evolution of Mac OS 7.x, not the complete architectural change Copland promised - should count as the Mac OS 8 mentioned in the license agreements.

Second, in an effort to eliminate the proprietary aspects of the Macintosh hardware, Apple, IBM, and Motorola created the PowerPC Platform, also known as CHRP (Common Hardware Reference Platform). The CHRP specification was designed to permit hardware manufacturers to build systems that could run multiple operating systems without requiring the OS manufacturer to tailor the OS for each new platform. However, IBM and Microsoft backed away from creating versions of OS/2 and Windows NT for CHRP, so right now, basically, all a CHRP machine can do is run the Mac OS without requiring the manufacturer to license any hardware from Apple. Therefore, if you remember what was being licensed initially (the Mac OS and Apple hardware), you see that once clone manufacturers can build CHRP machines, they must license only the Mac OS.

[Again, these pages about CHRP are quite old and may not survive much longer, if Apple decides to remove information that could be used to cast aspersions on any forthcoming decisions regarding clone licensing.]

<http://chrp.apple.com/>

The Disagreements -- You can now see where the conflicts lie.

In the end, it all comes down to money. Apple sees no reason why it should license the Mac OS to clone manufacturers for a pittance, especially if the clones are going to cut into Apple's sales. If Apple loses a sale to a clone and receives only a small license fee in return, that's a serious financial hit. Given Apple's recent losses, the company doesn't need new ways to lose money.

On the other side of the fence, the clone manufacturers want to pay as little as possible to license the Mac OS. The clone business is marked by razor thin margins. The clone manufacturers can easily pay any price Apple asks, of course, but they must then pass that cost on to consumers. If the license fees jack up the price of clones to the point where they're not competitive, the clone manufacturers will disappear.

Solutions -- Little of substance has happened on the clone licensing front of late, causing the Macintosh community to whip itself into state of frenzy. Considering that Apple lost its CEO and recently replaced most its board of directors, I'm not surprised that negotiations have been slow. Although some new directors are in place and Steve Jobs seems to be acting as the nominal head of the company, a new CEO has yet to be hired. It's unreasonable to expect such delicate negotiations to take place at full speed in a state of executive turmoil. That said, a few possible solutions have been proposed.

[In the text at the URL below, search for "Mac OS licensing" to find the relevant section of the 142K text file.]

<http://www.sec.gov/Archives/edgar/data/320193/
0000320193-97-000014.txt
>

Rumors, Reactions, and Events -- The primary reason that we've written almost nothing about this situation in TidBITS is that there has been almost no actual news about it. Rumors and speculation have run rampant, of course, as has overblown rhetoric. Here then are some responses to some of the more common rumors and beliefs and the few actual events.

<http://www.clone.alwaysapple.com/>
<http://www.maccentral.com/news/ aug15.shtml#mandate>

Conclusions -- To be honest, I don't believe there's much to conclude about the current state of clone licensing, other than it's a difficult situation and that no party is acting all that unreasonably. Both Apple and the clone manufacturers want to stay in business and continue to make money, and we can only hope that they can come to an acceptable compromise. Neither of the other options, the cessation of Mac OS licensing or Apple caving into the clone manufacturers' demands, are attractive for the long-term health of the Macintosh platform. And the health of the Macintosh platform is, after all, what everyone should have in mind.