News Analysis: The agents of Apple with licences to kill

Motorola pulls out of the Macintosh clone market as CEO Steve Jobs announces a licensing curb

Motorola pulled out of the Macintosh clone market at a cost of $95 million after failing to come to terms with Apple?s new licensing policy, leaving some users openly criticising the strategy being put in place by Apple?s acting chief executive Steve Jobs.

Rumours have been rife in recent weeks that Jobs? tough stance on curbing the Mac clone market would lead to the breakdown of relations between Apple and its Power PC consortium partners, Motorola and IBM. The rumours were boosted last week when Apple bought out its biggest clone partner, Power Computing.

Motorola has confirmed that it will cease production of its Star Max range of Mac clones from the end of this year, and openly blamed the Jobs-inspired campaign, which has meant that Motorola could not license Mac OS 8. Motorola?s third quarter results, due to be released on 6 October, will carry a $95 million charge to cover the withdrawal from the clone market. The company has pledged to honour all warranties to Star Max customers.

Motorola stated that negotiations had been under way with the old Apple management under ousted CEO Gil Amelio since February, and that ?essential agreement? had been reached between the companies in June. But then Amelio was removed, and an interim management team under Jobs was put in place with a mission to shut out the clone makers.

Joe Giglielmi, general manager of Motorola Computer Group, said: ?This announcement brings to an end our effort to reach agreement with Apple on terms that would have supported our continued Mac OS investments.?

Apple, Motorola and IBM have been working partners since 1991 when they teamed up against the Wintel axis in a bid to develop a new generation of processors and operating systems. All eyes are now on IBM, which has reportedly also given up efforts to reach agreement on licensing Mac OS.

The collapse of the Motorola tie-up has left some Mac users asking if Apple can afford to break away from such powerful allies, in favour of what many see as a deal with the devil, namely Microsoft.

On Thursday, the Mac bulletin boards were filled with confused and angry users. One wrote: ?Jobs is killing the Mac. He doesn?t care. How can you get out of licensing, Power PCs, alliances with IBM and Motorola, go to bed with Microsoft and still think you?ll succeed??

Many observers have commented that Apple entered the licensing game too late. If it had started in the mid to late 1980s, instead of waiting until 1993, Mac OS might be the standard today, rather than Windows.

Following the announcement of the Power Computing acquisition last week, Apple executives dismissed this speculation as ?hypothetical and really academic?.

There can be no doubt that the cloning clampdown is being driven by Jobs. In a recent phone call to the publishers of the Mac In Touch Web site, he admitted that the cloners had helped to slow down a potential migration away from the Mac by users, but argued that Apple had to clamp down on its licensing policy in order to ensure a return to profitability.

The terms of the licensing agreement were undoubtedly unfavourable to Apple. For example, a sale of a $3,000 system would yield a clone maker a gross margin of 25 per cent and only about $50 for the OS licence, but would only generate $750 gross profit for Apple.

This situation might have been tolerable had the clone market been an expansionary one, but Apple insists that 99 per cent of clone maker sales went to the existing Apple customer base. In practice, every time a licensee shipped a clone, Apple subsidised that clone to the tune of several hundred dollars.

Apple?s explanation for tying itself into such an economically unviable contract was that it needed to attract licensees to counter Windows? dominance in the operating system market. Had the platform expanded as hoped, the terms could have been adjusted over time.

Jobs is prepared to consider some forms of licensing as long as they meet Apple?s definition of expansionary. One example given was a licensee who would focus on an Apple-weak geographic region. He is not prepared however to subsidise competition against Apple.

But there will be a price to pay for this latest policy reversal by Jobs. Apple?s recent statement to the US Securities & Exchange Commission contains the following: ?Apple?s ability to produce and market competitive products is dependent on the ability of IBM and Motorola to supply adequate numbers of microprocessors.?

It goes on: ?The desire of IBM and Motorola to continue producing these microprocessors may be influenced by Microsoft?s decision not to adapt Windows NT to run on the Power PC microprocessor. The Microsoft relationship [with Apple] may have an adverse effect on [Apple?s] relationship with other partners.?

While the industry waits to see how Jobs? gamble will pay off ? he has asked for 90 days to complete all the changes he has up his sleeve ? users appeared to be in a state of shock this week. ?As a long time Mac and Apple fan, it?s distressing to see the way the Mac clone world and Macs themselves are crumbling,? wrote one UK user. ?Jobs may have invented the Macintosh, but it?s my belief that he?ll kill it too.?