Alternate Universe: Apple licenses the Mac

When Apple introduced the Macintosh in 1984, the world paid attention. The Mac debuted in a commercial that featured a young woman hurling a sledgehammer into a giant screen, destroying the image of a dictator. The tagline for the ad was: “”On January 24th, Apple Computer will introduce Macintosh.

And you’ll see why 1984 won’t be like ‘1984.’””

Twenty years later, Apple is still smashing barriers with its dual processor G5 desktop and its trend-setting iPod MP3 player. But maybe Apple could have been so much more. In 1985, Microsoft chairman Bill Gates sent a letter to Apple Computer care of its president John Sculley suggesting that the Macintosh OS be licensed out to companies including AT&T, Northern Telecom (now Nortel), and Motorola.

“”I want to help in any way I can with the licensing. Please give me a call,”” wrote Gates.

Apple eschewed licensing, believing it best to hold onto its technology and sell it as a unit — hardware and OS as one integrated bundle. The gambit worked at first. The Mac sold more than 72,000 units in its first three months.

Apple may have been well satisfied, but Gates wasn’t. He knew that over the long haul it wasn’t technology that would put computers in homes and businesses but marketing, partnerships and licensing.

Gates and Apple chairman Steve Jobs reached an agreement where Microsoft would develop third-party applications for the Mac OS. Jobs stipulated that Gates not be allowed to produce software that could interact with a mouse. In November 1983, two months before the first Mac ad, Gates announced Microsoft’s new GUI called Windows at Comdex Fall in Las Vegas.

On Apple archive, former Apple employee Andy Hertzfeld describes the contractual foul-up this way: “”Unfortunately, it turned out that while the agreement that Microsoft signed in 1981 stipulated that they not ship mouse-based software until a year after the Mac introduction, that ended up being defined in the contract as September 1983, since in late 1981 we thought that the Mac would ship in the fall of 1982, and we foolishly didn’t let the ship date float in the contract. So Microsoft was within their rights to announce Windows when they did. Apple still needed Microsoft’s apps for the Macintosh, so Steve really couldn’t cut them off.””

Microsoft Windows, similar — and some might argue inferior — to the Mac’s elegant design, was born and would grow to dominate the desktop market. Apple made a serious run at licensing its Mac OS to several companies — including Motorola — beginning in 1995, but the damage was already done; Windows had an enormous head start and Jobs called it off. But what if Apple had licensed its groundbreaking OS in 1984? Would we have a different PC world in 2004? We asked four industry experts to give us their version of history.

— Neil Sutton

David Thompson, owner of Apple consultant Digital Transitions, Toronto

I’ve asked myself that question a million times. Did it make sense for them to license it out or keep it the way it is? I, for one, like the way it is because they control the whole widget so you know you’re getting a good product. If they had licensed it out they probably would have been a huge competitor against the likes of Microsoft and Novell back in the ’80s.

Alex Narvey, president of Apple consultant Precursor Systems, Winnipeg

Do I think that Apple would have greater penetration if they had licensed? Possibly, but would it be what it is in terms of simplicity and reliability and you just plug it in and it works? No way.

Owen Linzmayer, author of Apple Confidential 2.0: The Definitive History of the World’s Most Colorful Company, San Francisco, Calif.

I think some of it was arrogance — not wanting to share it. There is some truth to the long-held statement that, as Jobs liked to say, we’re the only company that makes the whole widget, meaning the software, the operating system, the applications that run on it and the hardware.

Dan Kuznetsky, research analyst, IDC, Framingham, Mass.

One could speculate that the market could have had a different set of dynamics and Mac OS would be a more important part of the market than it is today — if one considers share of shipments worldwide — if there were more organizations out marketing that technology, more organizations out building systems and software and add-ons, it would build a stronger and more diverse ecosystem which potentially could have been a more able competitor for Microsoft.

Linzmayer: Back then, it was common discussion to talk about the proprietary nature of the Macintosh and why not license it? Even at that early date, PCs were being cloned by others and gaining a lot of momentum. There’s definitely some people that like to forget that this was an issue back when the product was first introduced.

At a time when most of the PC manufacturers were basically just cloning a standard design, there wasn’t a lot of money. The volume was huge and the margins were small. If you do the math, then it worked out that it was profitable. Apple has smaller volumes with huge margins — I forget the exact numbers but almost double or triple the margins that the clone manufacturers were making. I think that papers over a lot of mistakes when you’re just raking in the money.

It’s easy to look back on things and say it would have been different, but nobody had the foresight to think about licensing the Mac at the time. As reproduced in my book, there’s a letter written by Bill Gates to Apple in 1985 suggesting that very thing: that Apple had failed to make the Mac a standard and the only way to do so was to license it widely. Bill Gates was encouraging them to do so and was also talking to them about: “”I’ll put you in touch with the right people and the right company.”” He was trying to help them.

Kuznetsky: I don’t think they have the personality or corporate culture that Microsoft has. The dynamics are very likely to have been very different. I think that Microsoft’s success could be centred on almost every other issue but their technology: their approach to the market . . . understanding that the dominant use of desktop systems centred on personal productivity and communication with larger systems. Also, understanding that often good-enough technology excellently marketed will win over excellent technology that’s poorly marketed.

Linzmayer: The reason that Gates was interested in expanding the Mac’s market share was that he was making more for each Mac sold than Apple because he was selling them lots of software.

Thompson: I don’t think Apple’s ever going to be dominant OS, one, because of cost and two, because of maybe lack of applications. Linux is probably going to overtake the Mac OS in terms of market share. It seems to me, though, that everybody keeps turning to Apple to see what they do. If you look at things that Apple is implementing in their OS itself, everybody seems to be copying it.

Linzmayer: Gates didn’t rip off Apple at all. Gates had a licence from Apple to copy some of the Mac user interface in Windows. The argument has always come down to: how extensive was that licence? Apple contends that the licence only allowed Microsoft to use only certain OS elements in the first version of Windows. And then Microsoft says, ‘Oh, that’s nonsense. Software always gets updated. You can’t say you can use it for the first version and not the second version.’

Narvey: I mean, when I see what Windows customers go through, it’s laughable. They’ve got the world’s most insecure systems, they crash all the time and you need a full-time IT person at every site to deal with them. With Macs, you turn them on, you put in any digital camera, you don’t have to load any digital cameras, the customer doesn’t need to know their ass from their elbow and they’re perfectly happy. You can’t beat that.

Thompson: The Apple way of life is definitely a culture. You get everybody that works at Apple and outside Apple to preach the name and preach the product. It’s truly a geek phenomenon the way it is. Apple’s always been a hardware company. This whole thing with operating systems was brought into the light by Microsoft with Windows 95. When you bought a Mac OS back in the 80s, you didn’t buy Mac OS 7, you bought an Apple computer that had an operating system on it.

Linzmayer: I think what they failed to realize that the real differentiator for the Mac was not the physical computer but it was the software in that computer — the operating system — that made it so special. The software business is dramatically different than the hardware business. They kept thinking, ‘We make cool hardware’ even though it’s really cool software.

It was also the mistaken belief that if you build a better mousetrap, the world will beat a path to your door. That’s not always the case. You have to prove to people that you’ve built a better mousetrap and you can’t charge a lot more money than your neighbour for catching mice. I think Apple believed it was just a matter of time — if you just showed people how great the Mac was, they’ll all rush to it. They really didn’t sell the advantages and push it hard enough. They lost the momentum because they over-priced it and didn’t get it into as many hands as possible early on.

Thompson: Yeah, they probably made a mistake, but they tried to rectify that by licensing out the OS (in the mid-1990s) and look what happened: it almost drove them out of business.

Linzmayer: The legal cloning of the Mac started in the mid- to late-90s with Power Computing and then Motorola and a number of different vendors were legally allowed to clone the Mac. The problem was at this point that Apple had basically waited too long to allow clones, and then when they did they were negotiating from a position of weakness. They basically were getting less per unit sold through a clone. The clone licensing was insufficient to make up the R&D cost that Apple had been putting into it. It’s ridiculous with Apple at 100 per cent market share, clearly making computers in great volume, was not able to compete on price and performance with clone manufacturers.

Kuznetsky: I think they didn’t like the fact that other people could build very able systems at a lower cost. Rather than looking at that as a symptom, and saying, ‘How come we can’t build systems at lower cost,’ they cut the competition out. For organizations that required a second source, that also meant Apple had been cut out. Many organizations at that time required that there be multiple sources of systems and software and they insisted that they all be compatible. This allowed them to overcome the problem of a vendor going out of business, or changing portfolios, or licensing or something.

Narvey: My experience working with clones was bad. I mean, the clones were junk. I couldn’t wait for them to stop licensing clones.

Linzmayer: Steve Jobs said, “”This is a stupid agreement we’ve got. We’re just not going to be in this business anymore. We’re too fragile at this point to sustain more losses.”” So he put an end to the clone market shortly after coming back to Apple. A lot of vendors were very upset about this. How can you trust Apple’s word? They make a deal with you and then they renege on it.

Kuznetsky: They tried the clone market, waited for people to start to build a business, then took it away from them. If an organization works with friends to make a bigger pie, everybody can have a larger slice. If you fight over the pie that exists, everybody ends up with whatever size of piece they’re able to get.

Linzmayer: There’s nobody at Apple who doesn’t know things couldn’t be very different in the world of computing had Apple licensed (when the Mac was first launched). But I also think that they are following the same path: a closed system (with) iTunes and iPod. This was a situation where Apple came into market with a product that was so vastly superior to everything else being offered, just the way the Mac was superior at the time to everything else on the market. The difference is, this time it worked.

Narvey: I’m not really sure how that will play out. Apple’s had fantastic penetration with the iPod into a lot of retail outlets that weren’t normally Apple places. They might carry the whole Apple product line, but that’s irrelevant. It seems that it’s a good strategy for future market penetration, because there are a lot of happy iPod users out there.

Kuznetsky: I’m not sure that you could demonstrate that Apple has learned all of the lessons that it needs. If you notice with the iPod, they’re very upset that somebody else could feed music to it. If they truly learned the lesson, they’d understand that the more important they make their device, the more of a standard they make their device, the more opportunities they have for adjunct good and services.

Thompson: I think Apple’s done the right move by being the industry leader they are right now. Giving up a chunk of space to partner with a company like HP they can get it out there and sell bundles and whatnot. I think they’ve done the right thing by making it cross-platform on Mac and Windows and whatever else. I don’t agree that they’re not letting other companies plug their products into the iTunes music store. But I understand their reasoning that the music store is only there to sell more iPods.

Narvey: Have you seen the new ads for the iMac G5? The first 60 seconds is all about the iPod, as if Apple was an iPod company that decided to make a computer. It’s hilarious.

Linzmayer: You’ve got to remember Apple never had anything equivalent back when the Mac came out, the Apple II. Their marketshare was never anything approaching the sort of dominance that they have now with the iPod. I think now they’re smart enough that they recognize that certainly someone else could try to come up with a different system that was more appealing than the iPod. I think Apple will be smart and change their licensing strategy for the iPod and open up iTunes to other vendors.

Kuznetsky: I think that Apple is a very interesting company that brought forth a number of very innovative products and has not really always understood that a complete ecosystem must come with the innovation or it will eventually be supplanted by something.

Thompson: If they (licensed the OS) right from the get-go, then they definitely would have had a lot of market share, yes. By doing that now, they would be cutting their own throat again. It’s too late now, unless they’re going to fully open source the operating system like Linux. I don’t think there’s any way they can possibly do it.

Comment: [email protected]

Previous Alternate Universe:
HP doesn’t buy Compaq

Why we created Alternate Universe:
History in the faking

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