TidBITS#394/25-Aug-97

TidBITS#394/25-Aug-97
=====================

You want analysis, we got analysis! Apple and the Macintosh
continue to swirl in a pool of rumors and speculation, this time
regarding clone licensing. Fighting the spins put on the issue by
Apple and clone maker Power Computing, Adam attempts to clarify
the situation. Also this week, we bring the German TidBITS mailing
list in-house, share responses to the Macintosh media market, and
remind developers that software should aspire to simplicity.

Topics:
MailBITS/25-Aug-97
German TidBITS Mailing List and Overseas Mirrors
Magazine Mergers, Media, and Advertising, Continued...
Clone Licensing Brouhaha

<http://www.tidbits.com/tb-issues/TidBITS-394.html>
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MailBITS/25-Aug-97
------------------

**Remember This!** In response to my rhetorical question asking if
there is anything bad about Conflict Catcher (see TidBITS-393_),
L. Carl Pedersen <[email protected]> noted that it's a
very bad thing that such an elaborate tool as Conflict Catcher is
useful and necessary. Technology should make our lives easier, and
although there's no question that technology enables us to do far
more than ever before (something like TidBITS, for instance, is
inconceivable without inexpensive and powerful computers,
software, and communications technologies), we spend too much time
on maintenance, troubleshooting, and upgrades. Those who design
hardware, software, and communications systems should keep
simplicity and elegance in mind at all times. [ACE]

German TidBITS Mailing List and Overseas Mirrors
------------------------------------------------
by Adam C. Engst <[email protected]>

Sprechen Sie Deutsch? If so, you may want to subscribe to our new
mailing list for the German translation of TidBITS. The German
translation, ably led by Walter J. Ferstl, began in December of
1995 and is one of our longest running translations. However,
we've just brought its mailing list in-house, where it will stay
for the foreseeable future.

<http://www.carrier.co.at/res/mac/tidbits/>

To subscribe to the German TidBITS mailing list, send email to
<[email protected]>. As you might expect, to remove
yourself from the list (or change your address, which requires
unsubscribing from the old address then subscribing again from the
new address), send email to <[email protected]>.

**Old Macs Rock** -- Although we rely on StarNine's ListSTAR for
the main TidBITS mailing list (about 50,000 active subscribers),
we've decided to run the much smaller (currently about 1,000
subscribers) German TidBITS list and future lists for other
translations using Fog City's LetterRip 2.0 on our oldest Mac, an
SE/30 with 20 MB of RAM and a 105 MB hard disk. Along with
LetterRip, the SE/30 runs Now Software's Now Up-to-Date and Now
Contact servers, Men & Mice's QuickDNS Pro, Maxum's PageSentry
Pro, and Apple's LaserWriter Bridge. That's impressive for such an
elderly machine.

<http://www.starnine.com/liststar/liststar.html>
<http://www.fogcity.com/>
<http://www.nowsoft.com/>
<http://www.menandmice.com/>
<http://www.maxum.com/PageSentry/>
<ftp://ftp.info.apple.com/Apple.Support.Area/Apple.Software.Updates/US/
Macintosh/Networking-Communications/Other_N-C/LT_and_LW_Bridge_2.1.sea.hqx>

We decided on LetterRip because our hybrid ListSTAR/FileMaker Pro
solution for the main TidBITS list works best when we handle both
the list maintenance and the issue distribution locally. Since the
translation coordinators don't necessarily finish each issue on a
specific day, we thought it would be best if they could distribute
the issue without needing to coordinate with us or our database.
The decision was helped by the fact that setting up a list in
LetterRip is truly simple and takes about two minutes. ListSTAR
isn't hard, but ListSTAR's impressive flexibility makes setting
up, testing, and tweaking a new list more of a production.

**Overseas Mirrors** -- The Web site for the German translation of
TidBITS lives in Austria, where it's readily accessible to
European readers. Also, those of you who are not in North or South
America should note that some other translations and the English
version of TidBITS exist both on our main Performa 6400-based Web
server in Seattle, plus on mirror sites throughout the world. If
you are in Europe, Asia, or Australia and aren't getting good
performance from our Web server, a mirror site may be a better
choice (check the home page for each translation for an up-to-date
list of translation mirror sites). Webmedia, an Austrian non-
profit organization, hosts a mirror of recent issues in England,
and SVMMac hosts a full mirror site in Paris, France. In addition,
the Social Sciences Research Centre at the University of Hong Kong
hosts a mirror in Hong Kong for Asian readers, and Sensei
Consulting provides an archive of back issues in Australia.

<http://www.tidbits.com/about/translations.html>
<http://www.tidbits.com/about/sites.html>

Magazine Mergers, Media, and Advertising, Continued...
------------------------------------------------------
by Adam C. Engst <[email protected]>

Talk about a topic that won't die. People obviously feel strongly
about issues surrounding the Macintosh media and how it affects
our world. We thought we'd share the following notes before
letting the topic drop for the near future.

**Graeme Challis** <[email protected]> passed on
the word that despite our comment about how the Macworld/MacUser
merger affected only the U.S. publications, Australian Macworld
and Australian MacUser have independently decided to follow suit.
I'm not entirely surprised, since the international versions of
Macworld and MacUser tend to have smaller circulations and
probably face similar issues regarding ad revenue. It's certainly
possible that other mergers will take place, although we haven't
heard definitive word of any at this time.

**Adrian** <[email protected]> writes:
I'm from the U.K., and I buy (or, perhaps, used to buy) MacUser
U.S., and a selection of U.K. magazines. I buy the U.S. magazine
because I cannot find the sheer breadth of information here. But I
buy U.K. magazines because they include fantastic CD-ROMs. Every
time a new piece of software appears on the Internet, my main U.K.
Mac magazine (MacFormat) includes it on a cover-mounted CD-ROM. I
have a library of CD-ROMs from the magazine covering the last two
years. When I see a piece of software I want, I do a search and
hopefully copy it from a CD rather than spend 15 minutes on the
Internet downloading it. [Something that's not always as easily
done in countries outside of North America. -Adam] I have about
half a terabyte of data waiting for me thanks to MacFormat.
Perhaps the new Macworld could try something along these lines.

<http://www.futurenet.com/macweb/>

**MacHome Journal** may not be as well known as some of the
magazines aimed more at professionals, but several people have
commented that it offers a level of Macintosh news and information
that's better targeted toward novice Macintosh users than most
other magazines.

<http://www.machome.com/>

**Neil Ticktin** <[email protected]> of MacTech Magazine
writes that my comment about most magazines making most of their
revenues on advertising may be true for many publications, but
there are also significant exceptions.

Your comment is quite accurate for many publications out there,
but you stated it in such a uniform way that it seems like you are
saying it's true for nearly all publications (except the examples
you cited). Because of this, I've already received feedback from
readers asking "Why are your subscription prices high when you
make your real money from advertisers?" MacTech, for instance,
earns revenue from three main sources: subscriptions, advertising,
and the CD. Newsstand sales are not really worth doing, and
advertising isn't anywhere near the main source of revenue.

**Ads and Catalogs** -- Roy Leban's comments about the catalogs
refusing to carry products for which ads weren't purchased
generated a few dissenting notes from people who had successfully
ordered products that weren't featured in a catalog. And, some
catalog vendors, such as Developer Depot, will carry any
appropriate products (developer tools, in Developer Depot's case)
regardless of advertising. In addition, Steve Chambers
<[email protected]> wrote:

I can't speak for other catalog companies, but I know from
intimate experience (four and a half years in the technical
support department) that MacWarehouse carries an enormous amount
of product that never reaches the catalog. However, what Roy may
be referring to is the marketing department's refusal to carry
some products because of the perceived market for those products.
In other words, if the marketing rep for part of the catalog does
not feel a product will benefit the bottom line, they won't carry
that product without an ad buy. And believe me, those ads are
expensive!

It's the same problem other manufacturers face when breaking into
markets - competition for shelf space. It matters little whether
or not that shelf is in a small strip mall storefront or a huge
warehouse. The fact remains that the people who own the shelf
space have publishers over a barrel. Even if retail stores owned a
larger share of the market (as in the PC business) Roy would have
the same problem - no shelf space, making it difficult for a small
company to get ahead in this world.

Roy Leban <[email protected]> replies:

I can't speak for how the catalog companies treat other companies,
but I know no catalog company was willing to carry our products
without us first buying ads. Even with an ad purchase, the catalog
companies would not make any commitment to stock our product. If
we bought an ad, they wanted payment up front. If they bought
product, they wanted to pay in 60 or 90 days, with a guarantee
that they could return everything they bought for full credit at
any time.

I've also spoken with people at other companies about this issue.
The president of one company told me they would advertise each of
their products for one month on a rotating basis so that they
always had an ad. That way, the catalog company would keep their
products in stock. If they dropped the ad for a month, they would
get all the products sent back.

Of course, all this is a side issue to the fact that the money
siphoned off by the catalogs has hurt magazines tremendously, and
that's a loss for consumers. What we get is two or three catalogs
mailed to each of us every month instead of better magazines. In
my view, that's not a good trade.

Clone Licensing Brouhaha
------------------------
by Adam C. Engst <[email protected]>

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 so
me 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.

* First, Apple is concerned that clone manufacturers are cutting
into Apple's sales. That's definitely happening to some extent,
but I'd be surprised if there's much Apple can do to prevent it.
It's possible Apple is trying to slide some restrictions into the
new licensing agreements to prevent increased cannibalization of
Apple's sales.

* Second, there's debate as to whether Mac OS 8 is covered under
existing license agreements, since it's not the Mac OS 8 that was
initially promised back in 1994 and 1995. This disagreement seems
to be a question of the letter of the contract versus the spirit
of the contract. Apple is interpreting "Mac OS 8" according to the
letter of the contract (which is a little fishy, since in March
1997, Apple jumped from Mac OS 7.6.1 to 8.0 rather than 7.7 as
initially planned). The clone manufacturers prefer the spirit of
the contract, which says that "Mac OS 8," when initially written,
was meant to be Copland, and since Rhapsody has effectively
replaced Copland, "Mac OS 8" should now mean Rhapsody.

* Third, with the advent of CHRP (Motorola and UMAX showed CHRP-
based Macs at Macworld Expo in Boston a few weeks ago), clone
manufacturers can now license just the Mac OS and not Apple's
proprietary hardware. Apple has no problem with that but wants to
raise the fees for licensing the Mac OS to make up for the
artificially low fees originally charged.

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.

* The solution that most people expect is that Apple and the clone
manufacturers will compromise on the license fees such that Apple
makes enough to justify the licensing program and the clone
manufacturers pay little enough that they can keep costs down.
Obviously, if it were this simple, the ink would have been dry on
the contracts months ago. I suspect the price ranges (what Apple
wants to charge versus what the clone manufacturers want to pay)
are too far apart for the two sides to split the difference and
call it a day.

* Some reports, based on wording in an Apple SEC (Securities and
Exchange Commission) filing, indicate that Apple might be
considering dropping the clone licensing program entirely
(although Apple would continue to honor existing contracts).
Although this solution might make sense for Apple on a close-
minded financial basis, the public relations nightmare it would
cause would certainly be far more damaging. Apple just put a lot
of effort into a positive PR move with the Microsoft announcement
(see TidBITS-392_); to destroy that with a move that would
eliminate the clone manufacturers is asinine.

[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>

* Personally, I'd like to see some creative negotiation. For
instance, perhaps Apple could charge less for Mac clones sold into
new markets or for innovative hardware solutions that don't
compete with Apple's Macs. Or, perhaps the clone manufacturers
could promise not to undercut Apple's prices when selling into
Apple's existing markets, allowing customers to make purchasing
decisions based on other variables, such as bundled software,
custom configurations, or technical support.

* Rumors have surfaced saying that Apple plans to purchase back
the Mac OS licenses from Power Computing, Motorola, and/or other
licensees. I suppose it's a possibility, but one that makes little
sense to me. Power Computing isn't going to close shop just
because it can't make Macintosh clones any more, so why would
Apple pay $100 million or so to turn Power Computing into a PC
clone manufacturer? That's twisted.

**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.

* Power Computing president Joel Kocher, previously of PC clone
manufacturer Dell Computer, resigned last week, reportedly because
he had urged that Power Computing sue Apple for breach of
contract. Power Computing's board of directors seemingly
disagreed, and Chairman and CEO Stephen Kahng is once again
negotiating with Apple. Power Computing is known for its in-your-
face marketing campaigns, but its attempts (encouraged by Kocher?)
to rally the Macintosh community against Apple in this situation
have met with mixed results. Other clone manufacturers have kept a
much lower profile.

* Apple has notified the clone manufacturers that it won't certify
CHRP machines (or machines based on the new PowerPC 750 chip) as
Mac-compatible while it reviews licensing agreements. Without
certification, the clone manufacturers (notably Motorola, which is
set to ship CHRP machines in September, reportedly with or without
certification) cannot label their machines as Macintosh-
compatible. Given Motorola's and IBM's roles in developing and
manufacturing the PowerPC chip and CHRP itself, dropping CHRP
certification or support wouldn't appear to be a simple decision
for Apple. I can't imagine that Apple dares to anger Motorola and
IBM in that way, since the companies are two of Apple's most
important partners.

* One cloudy area surrounds the issue of innovation. For the most
part, clone manufacturers haven't pushed the Mac platform in
interesting ways (short of using faster chips before Apple). This
lack of innovation has caused conflict with Apple, but at the same
time, Apple hasn't allowed the clone manufacturers to innovate in
many ways, such as in the notebook computer market. Failing to
certify CHRP machines would also prevent the clone manufacturers,
most notably Motorola and UMAX, from creating innovative new Macs.

* Various calls for action and petitions have circulated on the
Internet. Almost all seem to come down on the side of the
continuation of cloning, which is good, but many ignore the fact
that there is no easy solution. Cloning both solves and creates
problems for Apple, and as much as I and most Macintosh users want
the clone manufacturers to survive, few people seem to have
considered what would happen to the clone manufacturers if
licensing harms Apple too badly. After all, the clone market dries
up if Apple eliminates clone licensing, but it also dries up if
clone licensing eliminates Apple.

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

* Comparisons with the licensing of Microsoft Windows 95 to PC
clone manufacturers aren't particularly relevant since Microsoft
doesn't manufacture PC clones and has built its entire business
model around software. In contrast, Apple is a systems company and
although it makes some money from software sales (such as the 1.2
million copies of Mac OS 8 that sold in the first few weeks of
distribution), most of Apple's revenues come from hardware sales.

* I've seen numerous comments about how individual users will
switch to Windows 95 if Apple eliminates clone licensing. In my
view, that's an inane decision. If you have a real reason to buy a
Windows machine, that's fine, but to throw away years of
experience and potentially thousands of dollars of software and
hardware to protest a business decision that probably doesn't have
the slightest effect on you makes no rational sense. In the end,
you must always buy a computer because it's the right computer for
your needs, not because the salesperson is cute or because the
company that makes it has a neat logo. It's like the standard rule
for deciding when to buy a computer. You buy the best computer for
your needs when you need it, since the price will always drop and
the performance and features will always improve. If a Macintosh
is still the best computer for your needs and you need a computer
now, then you should buy one. If the Macintosh is not the best
computer for your needs then you shouldn't buy one. You're buying
a computer, not investing in a company. It's as simple as that.

* Developers of Macintosh software have expressed serious concern
regarding clone licensing, and for them, it makes perfect sense.
The primary goal of clone licensing was to "contribute to the
proliferation of the Macintosh platform," which translates
directly to a larger potential market for software. If Apple pulls
back on clone licensing, Macintosh developers will have to
revaluate the potential future market for Macintosh software.
Since Apple hasn't proven capable of expanding the Macintosh
market by itself in recent years, developers may have trouble
justifying further Macintosh development without clone
manufacturers.

**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.

$$

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