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Apple Buys Its Own Clones

By David O. Dabney

SEPTEMBER 15, 1997:  My God. It never seems to end. The latest news now out of the Apple soap opera is their purchase of the "core assets" of Mac clone-maker Power Computing. The purchase comes amid a fight between Apple and Power over the rights to license the distribution rights to Apple's Mac OS 8. Since its release, the licensing rights for Power and many other clone makers have been in limbo because of the new piece structure Apple wanted to put in place that many refused to accept. Apple executives thought that the previous prices paid by the cloners were too cheap. Apple's market share has been shrinking in the last year, and many Apple executives attribute this to a cannibalization of their market by the cloners. In essence, Apple says Power didn't expand the Mac market at all; they just took business that would have gone to Apple.

"When Apple originally designed its licensing program back in 1994, the intent was for it to be expansionary (sic) ... so that our developers could have a better eco- nomic proposition and our Power PC partners, Motorola and IBM, could have a better economic proposition," explained Fred Anderson, acting CEO for Apple. "The unfortunate reality was that the clone vendors did not sell very many systems to new customers. I'd guess 99 percent of their sales represented sales to the existing customer base. ... That's why it really was not positive for Apple and its shareholders."

Power Computing competed in the American market primarily, going head-to-head with Apple's hardware products and many times beating them when it came to price-versus-performance ratios and in the area of customer service. In my personal experiences with Power, they made better, faster machines for cheaper prices and combined that with more aggressive marketing and excellent tech support.

Power was poised to go public later on this year, and in their statement of intent the company discussed openly their plans to also branch out into PC clones , probably to hedge their bet on the Mac clone market. (The founders of the company also were the founding partners of the now defunct Leading Edge PC clone company as well as Dell Computers back in the old days.)

According to news reports the "core assets" that Apple acquired were all the company people and divisions that had to do with Mac cloning. Power will cease making Mac clones as of Dec. 31 of this year.

This could perhaps put Apple back on the track to making money. Power was a $300 million company that made all of its money on direct sales. Apple is now poised to take advantage of the lower costs and higher profits of direct sales and to negotiate openly with the employees that made Power such a success in this market. On the other hand, if Apple were to decide to go direct, the damage to its normal dealers and distributors could be enormous. Many wholesalers and channel distributors have already said that Apple's going direct wouldn't fly. "If they decide to go direct, they'd better have a really good business plan because the backlash would be severe. It could wipe out their channel business within 30 days," said Eric Walton, vice president of product management at Entex Information Services, a $2-billion-plus corporate reseller. "It's a huge risk."

This turn of events doesn't bode well for other Mac cloners in the American market. Other clone makers like UMAX and Motorola still have yet to agree on a deal with Apple for their own licensing agreements and are concerned by this latest turn of events. Apple now says that any new licensing deals must be contingent on expanding the Mac market worldwide. UMAX, a large Korean conglomerate, at least has the argument that they can provide Apple with access to the Asian markets that UMAX has dealt with for years as a possibility toward expanding the Mac market. It also offers sub-$1,000 models, while Apple does not. Motorola has not yet commented.

--David O. Dabney


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