Apple’s Golden Opportunity

Update: A podcast of an interview Phil Leigh did with me on this subject is available at http://www.insidedigitalmedia.com/downloads/apple_vs_vista.mp3.

The release of Vista and a new Office suite create a huge opportunity for Apple to wrest significant market share from Microsoft.  Chances are, however, that Apple will pass up the opportunity.

In a Fortune article titled Windows on the Mac changes everything, David Kirkpatrick writes:

“The lines between the Mac OS and Windows are starting to blur. And that portends major changes going forward in the world of PCs. At MacWorld, a little company called Parallels won awards for the latest version of its hit product, which enables you to run both operating systems at the same time on a Macintosh. It's a major breakthrough.”

Although it is really cool that you can toggle back and forth between Windows and Mac applications on a Mac and that capability probably will get Apple some additional sales, turns out that there is a more significant capability to the product from Parallels:  an upcoming version will make it possible to run Mac OS and Mac applications on commodity PCs!  That’s a big deal and a big opportunity for Apple.

PC users are being forced into a software upgrade cycle if they want to stay current.  As always, corporations and individuals say that they won’t be hurried into moving to Vista but, in the not very distant future, there’ll be new products and new versions of old products that make upgrading compelling.  New hardware will also come with Vista installed; old hardware’ll be upgraded to the new software to keep company-wide compatibility and simplify training and administration.

But what if Apple were to make a compelling offer to PC manufacturers to distribute Mac OS on PCs? 

In the past, since Apple software ran on Motorola chips and commodity PCs used Intel-style chips, this couldn’t have happened. But it sure can now.  Moreover, as the product from Parallels demonstrates, old Windows applications could be kept running on the same machine for a lengthy transition period.

Kirkpatrick quotes an email from Michael Dell: “We would offer MacOS, if customers wanted it and Apple would license it on reasonable terms...It's Apple's decision.”

What decision will Apple make?

Early indications are that Apple will choose to pass on this opportunity in favor of keeping its OS locked to its own hardware (or trying to keep its OS locked to its own hardware).  VMware has a product similar to that from Parallels which its customers are already using – without official sanction – to run Mac OS on nonApple machines.  Kirkpatrick quotes VMware CEO Diane Greene on the difficulty of getting Apple cooperation for their product even when it was not positioned as anything but a way to run Windows applications on a Mac:

“We were trying to do it the way they wanted to, but in hindsight we should have just gone ahead.  I wonder what Steve Jobs is going to do, because there is so much pressure to run Mac OS on non-Macs. There's no technical reason not to do it. He's so proprietary about everything, yet it could be a very strategic move for him to make.”

My guess is that Steve Jobs will decide not to seize this strategic opportunity; he won’t want to cede that much control over the hardware component of the user experience.  And Mac OS will remain an elegant operating system with a limited (although large and oh so sophisticated) marketplace.  This’ll please many Mac zealots enormously (see the comments on a related article at engadget); but isn’t ultimately good for either Apple shareholders or PC users.

Followup discussion:

Apple’s Golden Opportunity – Readers Respond

Comments

[Mr. Floyd]

It's like Tom pointed out in his original post. Apple has falied (once again).

Now that they're forayed into COMPETING hardware markets with their phone, we'll see how well they do. i-Stupid.

[Ben Stanford]

How about this idea?
Since the best analysts have repeatedly determined Macs are actually CHEAPER to buy than COMPARABLE PCs and far far far far cheaper to maintain than PCs, why the fuck don't you buy a Mac and get over your moronic hang ups. Alternatively just shut the fuck up and use your piece of shit Windows box already.

[John Codrey]

Tom;

Re Apple should put their OS on every PC in creation, they'll make a fortune and we can enjoy another malfunctioning OS alternative to the piece of shit Windows were stuck with, because we don't have enough brains to buy a Mac and save a fortune by using a real OS instead of a virus magnet.

Every brain dead Windows zealot has been regurgitating this Microsoft FUD, like it was an original idea, for decades. Isn't it time to educate yourself or is your emotional bond to this FUD overpowering what ever brain power you have? If you could bear to understand the Apple market you would simply never embarrass yourself with such a blatant display of your stupidity.

[Peter]

While I won't necessarily agree with Jim's conspiratorial leanings, I think we'd see a different affect on the market if Apple were to distribute Mac OS X via OEMs.

Let's do some math, just for fun. Last quarter, Apple sold 1,606,000 CPUs and made $2,410,000,000. If we do some entertaining division, the average Apple computer sold for $1500. Gross margins were 31% or so, so Apple made $465 from every CPU they sold. Not too shabby.

Now, Apple would need to undercut Microsoft. How much does Microsoft charge OEMs for each copy of Windows? Well, that depends on the version of course. But what the heck, let's come up with a random number for Mac OS X--$75. So for Apple to make the same amount of money they sold selling one computer, they would have to sell 6.2 copies of Mac OS X via OEMs.

So OEMs would have to sell 9,957,200 computers with Mac OS X installed every quarter in order for Apple to make the same money they did selling 1,606,000 Macs.

Now, let's go back to last quarter. According to IDC, HP shipped 11 million PCs and Dell shipped 9.5 million. Those two companies together were responsible for 34% of computer shipments (each had about 17%), so that again means sales were about 60 million PCs. So for Apple to make the same amount of money, they would have to have about 16% of the market.

Another way to think of it: If Dell sold every PC they sold last quarter with Mac OS X, Apple would have made less money than they did this quarter.

I agree that Microsoft would not take this lying down. Their solution: Cut-rate pricing. They now have a competitor and it's a race to the bottom! Microsoft has 40 Billion Dollars sitting a warchest. Apple has--what--12 Billion? Guess who'd win the race to the bottom?

So if Apple sold Mac OS X for $75, Microsoft would sell Windows for $37.50. Windows PCs would still be cheaper. Microsoft has the money to wait out Apple. Once they're dead, Microsoft releases a "new and improved" Windows and goes back to their old pricing. Game over, man.

Tell me again why this is a good idea for Apple to do?

[John M]

Apple does want to control both software and hardware. There is another option:

Apple creates a whole new company division to sell the new "Spartan" line of computers. These machines are promoted as elegant Windows machines and will come with pre-loaded XP or Vista. They could be designed with a feature set that other makers do not have. They will look great and range from inexpensive office fare to hot game machines. But of course, they can also be ordered with a companion Mac OS and application suite. Apple knows how to make good computers; why not market a Windows brand?

Its all in the details but it could work...

[Mr. Floyd]

Every Mac disciple says, "Apple is a hardware company."

It seems to me that their hardware, aside from being really chic, sucks. How can you be hurt by having hardware makers compete?

The OS, on the other hand, is very cool.

You may look really cool at Starbucks with a $4,000.00 laptop; but that's where it ends. This is why Apple continues to appeal primarily to bubblegumers and PC's are everywhere.

Go on - continue to fight the fight by taking on the world. My computer is a tool - not a fashion accessory.

[Jim]

It amazes me that people don't see the dire consequences that would result from the Mac OS being made available for generic PCs, after they have been pointed out a thousand times over the years. It has nothing to do with Steve Jobs' egomania or megalomania. Once again:

Making OS X available on generic PCs would be a direct frontal assault on Microsoft. Redmond will brook no serious competition on generic PC hardware. Going after Microsoft's bread and butter will result in a lot of direct and indirect action by Microsoft to sabotage OS X, including: crippling or discontinuing Office for Mac; killing all other Microsoft Mac software; and making it extremely difficult for Mac software to interact with programs, file formats and plug-ins that Microsoft controls.

Clearly, this would be a suicidal move for Apple. The competitive and technological landscape would have to be a lot different for such a move to succeed, meaning in particular that Apple would have to have an answer pre-cooked in the lab for every Microsoft attempt to thwart them. I think Apple has a lot easier ways to make money sitting on the table than an all-out war with Microsoft.

[Bill]

I could see it happening. If people are going to do it anyway, you might as well sell the product and make some money. Maybe other people's harware won't fail as often as my brand new top-of-the-line iMac. A person can only hope for improvement. I can't believe they brought back the Crashintosh.