A Hard(ware) Act to Follow

Analyst firm Gartner has suggested that Apple would be better off abandoning the hardware business and licensing Mac OS X to a PC maker such as Dell.

This is hardly a revolutionary idea, of course, in fact as many will remember, Apple took a step in this direction in the 1990s by allowing Macintosh clones to be built by select partners such as Motorola and Power Computing. To cut a long story short, it was a huge failure, cutting into the company's profit margins and diluting the Macintosh brand, As well as introducing other difficulties such as more hardware variations to support. Steve canned the program as soon as he returned.

I simply cannot fathom why anyone, especially a supposed industry expert could possibly think this is a good idea. It would be like suggesting that Microsoft should abandon software and concentrate on the branded mouse and keyboard market, or that Disney should stop making films and concentrate on stuffed toys. Apple is a hardware manufacturer. Their hardware is acclaimed around the World as being the best, most reliable most luxurious and most stylish that money can buy. They are market leaders in making beautiful computers that are smaller, shinier, more feature-packed and more desirable than anything their competitors can muster, even when they rip them off so blatantly that lawsuits are involved.

Apple are so much better at this than anybody else that it borders on absurdity - It's as if Mr Sony's product development team actually look at Apple products and say "Hmmm... this iPod thingy is doing well, let's see... the only thing that makes it stand out from all its less successful competitors is that it has fewer buttons, a simpler interface and an attractive smooth case. Why don't we make the same thing, but put fifty hot keys on it for useless features that nobody wants, make it from cheap, crappy plastic painted silver, put half a dozen screw holes in it, slap some helpful stickers on it to point out where the on button is and then undercut their price by $50 - we'll dominate the market for sure!"

So why, when Apple have been making hardware for more than 20 years, and are one of the most successful, best-recognised hardware brands in the world, do people still keep having the same 'brilliant' revelation every few years that what Apple really needs to do is stop selling computers altogether and concentrate on software, from which they currently make virtually no profit?

Probably the same reason why everybody thinks that Apple and Microsoft are enemies; Despite having started out as a computer manufacturer, and having been responsible for most of the iconic computers of the 20th century, people have got it into their heads that Apple really wants to be a software company. This may have something to do with the fact that Apple didn't decide to run Windows like everybody else (at least, not until recently...) - if they had, this would probably never have come up.

Lets compare Apple with IBM - Like Apple, IBM has a history of making both hardware and software. They basically invented the PC, and despite having embraced MSDOS and then Windows, they have produced a steady stream of software over the years including ViaVoice, one of the first and most successful natural-language word-processing applications, and even had a decent stab at writing their own OS, which everybody said was great (before not buying it.)

But nobody ever suggested IBM should give up its hardware business, even though they actually have now jumped out of the home user market to concentrate on servers. If IBM had stuck to their guns and made OS/2 a success then perhaps now people would be saying that IBM should forget about those silly servers and concentrate on boosting its OS market share.

But instead it is Apple that bears the brunt of criticism from these fantasists who seem to believe that if only Apple wasn't being distracted by shiny white plastics it might be able to take on Microsoft in the operating system wars and boost its OS market share by 20% or so by selling OSX to the beige box brigade.

I can just imagine what Steve Jobs is thinking; "Genius! Why didn't we think of that? Yes, of course, now that we're running on Intel we could just let Dell build the boxes. Think how much money we'd save! Think how many more users would be willing to spend $130 on a copy of Tiger instead of $1500 on an iMac when they already own a beige breeze-block they bought from the local supermarket. How foolish we were to lock down our OS to run on proprietary hardware that we sell for a premium when instead we could be selling software at a lower margin to a slightly larger market..."

I think the easiest way to put this in perspective is to compare the pros and cons of letting Dell build Macintoshes (or rather let people run Mac OS on the PCs that Dell already builds, which would be much simpler.

Pros

• The (currently unknown) proportion of Windows users who would be willing to spend $130 on Mac OS and who-knows-how-much on a complete new suite of applications (Microsoft Office alone is $600) but who aren't prepared to pay for a Mac would now become Mac users, providing Apple with $130 extra revenue every 18 months (assuming they upgrade their OS frequently, and that they buy their software instead of trespassing on it).
• The (currently unknown) proportion of new users who are only put off buying Macintoshes by the extra $150 or so price differential of a Mac Mini over a budget PC will now not have to worry about it.

Cons

• Apple loses a guaranteed profit margin from every single Macintosh user of several hundred dollars on every Mac they purchase.
• Apple, instead of relying on hardware which cannot be illegally copied, now has to make its money from software, which means having to combat piracy.
• Instead of supporting a few dozen computer models with known components, Apple now has to try to make software that runs on thousands or even millions of hardware configurations, something which they have no experience of doing before. If they get it wrong, the hard-earned reputation of OSX's stability will be lost.
• Apple now has to compete directly with Microsoft instead of being able to co-exist - as they do now - without treading on each others toes.
• Apple loses their reputation as premium product provider - no longer will people be able to spot a Mac every time they see one in a film, instead people will have to squint to see if the mouse cursor on the screen is black or white. Their product visibility is gone.
• Without the revenue from hardware, Apple has to bolster its market share so it can make a comparable profit from its software. But with a bigger market share they lose the benefits of being the little guy; security for example suddenly becomes a much bigger deal - OSX viruses will finally move from theory to reality, something which Apple may not (yet) be ready to contend with.
• With Boot Camp, Apple have created a whole new market selling Macintoshes as high end PCs. Affluent business users who need to run Windows but want to have the smartest laptop in the office can buy a Mac. Who knows they might even take OSX for a spin when they're at home and become a convert. That possibility vanishes if Apple stops making hardware.
• Perhaps worst of all, instead of dictating the next big thing in computer technology, Apple will have to follow the trends. Apple was responsible for popularising USB and Firewire, the first to include Wireless LAN as standard in their laptops, and the first to put Bluetooth in all their machines. Now they'll have to wait and see what Dell thinks is the next big thing instead.

And from a user's perspective there are further disadvantages:

• If Apple needs to make money from OSX, they will need to start charging more for it. Instead of $130 for a copy of Mac OS X, users can expect to pay $200+ as they do for Windows XP.
• Apple's need to fight piracy will impact directly on the user. That means license codes, compulsory online 'product activation' and maybe even Apple Genuine Advantage.
• Those of us that actually like Apple hardware will have to make do with the poor substitutes provided by the likes of Dell or Sony.
• Apple may have to resort to more product placement tactics of the subtlety we saw in Blade III... bleugh.

Apple is not a software company that happens to make hardware for it to run on - they are a hardware company that makes great software exclusively for their own hardware to sweeten the deal so that people will buy it. Just as iTunes exists only to sell iPods, Mac OS exists only to sell Macintoshes. And Steve Jobs doesn't care what some nearsighted market analyst thinks is the best way to gain market share. As he says himself:

One of the nice things about having four or five percent market share is you don't really care if [the PC] market is down.

But I suspect that there's actually more to it than that. It is patently obvious to any fool that Apple could increase its market share by making cheap mini-towers for the business and school markets - and Steve is no fool. So it follows that Apple's market share is exactly what Jobs needs it to be right now so that he can make exactly the kind of computers that he wants to make - exactly the kind that Mac users want him to be making - and make billions of dollars in the process.