Apple Is NOT Going to License the Mac OS to Other Hardware Makers

37 Comments

I am sick and tired of hearing this over and over again.

It’s been on so many blogs, and even in Mac Addict magazine – that Apple will/should license the Mac OS to other hardware manufacturers, so that, for example, you could legally run OS X on a Dell machine.

The comment thread on this post on Theocacao was really the last straw for me, so I set out to prove that this can’t be true.

And I’m absolutely positive that Apple will never do this. So positive, in fact, that if I’m wrong, I’ll eat my shoe.

Here’s the proof:
Only 5% of Apple

Only 5% of Apple’s revenue in the most recent quarter came from software sales. Keep in mind, software sales include sales of Final Cut, iWork and iLife, FileMaker, etc, which means that less than 5% of their revenue comes from sales of Mac OS X.

Can anyone really explain why Apple would completely give up 33% of its revenue?

37 Comments

Matt

@Rod, yea I guess they are a hardware company (for the majority), but does not mean they can not expand their software or revenue from it.

Many people probably wont like this, but look at MS. They were mainly a software company and have made some strides in hardware. Yes, the first Xbox ran them $4bil in debt, but with the 360 they are making strides and will be turning profit per console sold soon.

Just because a company is what it is now, does not mean they can not expand.

Also, for someone who walks into an apple store and then to a dell store, would probably say “well, Windows XP runs on this machine and it is $XXX amount cheaper”. I do not think the average computer person (ie, mother father buying for thier kid) really cares that much about the OS, in regards to cost. They will buy the cheaper hardware, because…it is cheaper.

J.

Steve Jobs doing something because the shareholders “demand” it? What are you on? The only person Jobs listens to is Jobs, and Apple is making far too much money for the shareholders or Board to ditch him. Apple will never license OS X as long as Jobs works there—plain and simple.

Bob Hodgen

I’d love to see Apple release OSX on a live CD, like a lot of linux distros. The OS would run from the CD but not be installable. You’d be able to order the CD for free.

Just enough stuff would work to give the average beige box owner a flavor of running OSX. I think that lots of them would run to the nearest Apple Store and buy a Mac. Most of them don’t know what they’re missing, giving them a taste would be a great way to promote sales.

ksgant

While I agree that they won’t be licensing OSX anytime soon, you can NEVER say NEVER. Wonder how many people out there were saying that Apple would NEVER go to Intel.

Also, please I beg of you all, don’t say the “Apple is a hardware company” line. I’m so sick of that. You mean it’s written in stone? They can never, ever become a software company? Gee, I think they can pretty much do what they want. If they wanted to dump all their hardware and just sell software they could do that. It’s been done before you know, and to success. Again, I don’t ever see them doing that, but I have an open mind and I’ve learned never to say never.

Hobbs

Its time to think outside the box. Leopard should be released to all PC users to thwart Vista (which is close enough to Os X that many users may not switch). Since Leopard “ultimate Edition” will cost around $129 or so, it can have Vista for lunch which has a “Wow! or Ouch!” pricing scheme.

Leopard also runs on less demanding hardware. Right now Apples hardware is quite competitive for its specifications. It would only lose the low cost conscious purchasers, but would gain from the OEM revenue for Leopard.

Peace!

Marcos

I have long agreed that it makes no sense for Apple to license OS X to other computer makers so long as so much of their revenue depends on Mac hardware sales. But, look at that pie chart you have there and then look at it from 5 years ago.

Mac hardware sales produce way less of their revenues that 5 years ago – the iPod took care of that. This trend will continue as they start selling iPhones (presuming that line does well.)

And, the less they depend on physical Macs to bring in revenue, the easier it would be to license OS X to other computer makers now. Now, will MacOS X run well on some hand made box someone assembled in their garage? I doubt it. And device drivers would be a problem. Currently, OS X depends on EFI which I don’t believe any current PCs use… so, someone like Dell would have to make machines specifically for OS X – it wouldn’t be a buy OS X at the store and install it on your current machine.

Still, while unlikely in the near future, it remains a possibility as Apple grows into new areas.

Jim Dempsey

Correct me if I’m wrong, but is Apple not the 3rd largest computer maker behind Dell and Gateway? I fail to see how this is a problem and why they should license the OS. I think people confuse the OS marketshare with the hardware marketshare. Apple does pretty darn good in hardware sales, and the software is a sales tool for the hardware.

I for one am perfectly happy if things stay just the way they are.

mcloki

Why wouldn’t Apple just become their own OEM? Make the motherboards and sell them to The “White” market PC houses. Apple could build a whole ecosystem of motherboards, cases and peripherals. They could own it all, Why license. Apple’s sales problems are functional. They are logistical. ie. I can’t get the one that I want right away. and I can’t get what I want, the way I want it. Apple sells computers like hamburgers in a fancy restaurant. you order it, wait a while and it comes to your table. Unfortunately most people want to buy computers like they buy hamburgers at Burger King. Walk in, Hold the pickles, hold the lettuce, 30 seconds later, here it is, and on your way.

Matt

I agree completely. Apple is a hardware company, has always been a hardware company, and shows no desire whatsoever to be anything but a hardware company. Apple’s real competitors are Sony, Dell, HP, etc., not Microsoft. Why is this so hard to understand?

DWalla

Will never, and shouldn’t, happen. One of the primary reasons that the MacOS is as tight as it is, is simply because Apple has their hands on every piece from top to bottom. They know EXACTLY what is in their boxes. They aren’t dealing with endless mixture of motherboards, BIOS, RAM types, hack 3rd party video cards, low-budget no-name brand peripherals, etc. Much like the same reasons game developers love writing for consoles, they know all the elemennts inside the box. As I said… the hardware is what allows the Mac experience to be what it actually is.

Anderson Imes

@Rod:

I totally agree that Apple won’t sell their OS, but I still don’t agree that because their hardware sales are relatively larger than their software sales is the only reason they aren’t going to license it.

An Apple product is about the whole package. The image of their product is based on the fact that you don’t have to install a crapload of drivers or perform surgury on your hardware to make it run the latest software. Apple is a company all about image. To create an OS that runs on a large number of hardware platforms is difficult to make work and run solidly. A crashing computer would hurt Apple’s image, which is why I believe they don’t sell their software.

If Apple’s only drive was to make more money it doesn’t make sense for them not to go after a market of millions of PCs with their software product. They could sell that OS to a jillion PC users at $200/pop with a physical production cost of about $.12 to print the CD. Why don’t they do it?

Image, baby. It’s not to hurt their sales, because everyone and their brother owns an iPod and will own an iPhone (I predict). It’s just product image. Marketing 101.

OM

why don’t people realize that if apple opened it’s OS to be able to run on any CPU, then people would just buy the software and not the hardware.

then what does apple become? microsoft.

to be honest, i would love to build a $500 CPU and install OS X on it. but then the user experience is gone. my primary system is a Mac Book Pro, my second system is a user built PC (used mostly for testing and running that PC only application). i hate my PC and use it much less with the installation of Boot Camp.

but if i had OS X on the PC box, it wouldn’t be the same as OS X on my Mac Book Pro.

i’ll continue buying apple hardware with apple software.

but the point to this post is apple makes more money and has more control over their product with retaining control over the OS.

i’ve rambled enough.

thanks.

OM

Al

Apple only sells 5% software because it gives it away with Macs. If the software could be bought/used on any machine, this figure would equal that of the iPods I’m sure.

The only thing that would drop is the desktop figure (and thats because they’re so plain expensive) Apple would still sell bucketloads of Macbooks.

Frank

I also agree that it’s unlikely as long as Jobs is CEO, but not impossible. Jobs has shown an increasing interest in taking on the world (phones, music…creeping ever more into MS’s space), but a total lack of interest in the enterprise/business market space. There’s little sense in licensing the OS if your goal is to simply be the world’s best home computer.

I also think that Apple’s corporate culture is not into the idea of providing business IT solutions. They’d rather work on iMovie, and god bless ’em for that.

In terms of the actual numbers, let’s have some fun!

Let’s assume that Apple’s decision to license OS X means they lose ALL their desktop/laptop hardware revenue (unlikely, but hey, let’s go crazy), but they lose zero iPod sales (since iPods work great with Windows anyway).

Also remember that Apple’s miniscule OS revenues come from upgrades only. As HWH points out @12, the rest of the OS revenue is rolled into the hardware sales and thus doesn’t show up. M$ has this awesome deal where they sell a copy of the OS everytime Dell or HP sells a box.

Apple had a $7B quarter. So you’re looking at about $2.3B in desktop + laptop sales, according to the chart above. That’s roughly $700M in pure profit (assuming 30% margins). If it all goes away, they’d need to make it up with sales of about 7M copies of OS X per quarter, at an OEM price of $100/license. (Would Steve charge Michael Dell the full $129/copy, just ’cause he could? probably, but let’s assume $100 to make the math easy).

7M per quarter is 28M copies of OS X per year. IDC projects worldwide PC sales of 250M this year. Assuming every PC goes out the door with a licensed copy of an OS on it, Apple would need a plan that guaranteed 11% of worldwide PC sales shipped with OS X to maintain their current levels of profitability. Assuming only 200M PCs (80%) ship with a licensed OS inside, Apple would need to capture 14%.

That’s a big increase from their current 3% worldwide market share. It’s ambitious, but certainly not impossible.

Again, I don’t think this is likely. And I haven’t considered that there are all sorts of integrated and specialized vertical markets out there, plus very very cheap PCs sold with Linux or a pirated copy of Windows. None of those are necessarily a candidate for Mac OS, at least not right away. Take all those out of the equation and the remaining PC market shrinks considerably, meaning Apple has even more work cut out for it.

Still… fun to think about.

Dave M.

I suspect that this was said above, but I’ll say it too if so.

If Apple did sell OS X to the masses. They would indeed sell a bunch of them. However, here is the reason “I” believe that they don’t.

Average Joe user walks into an Apple store, sees all the Mac’s and their prices and sees the OS. He’s impressed with the OS, but not so much with the price of the hardware.

Now, Mr. Average Joe walks down to the Dell Kiosk, sees a bunch of Dell desktops and sees them running OS X. However, the hardware prices are about half that of Apple’s prices.

What computer is Mr. Average Joe going to buy? A Dell of course. Here in lies the problem. What inspires Mr. Average Joe to buy an Apple computer, when he can get a Dell for nearly half the price and still get the same great OS that Mac’s have?

It may be stubborn of Mr. Jobs and maybe a little selfish of him to want to keep OS X with Mac’s, but he and his company has a way with making hardware that other companies cream over. It’s one of the biggest reasons the company is still in business.

bjorn

Why would Apple be the stupidest company in the world and stick to an idea just because they can. If we can just assume that the analytics believe that selling OS X to all PC users would significantly increase their revenues, then there is no reason why they wouldn’t do that. No reasyn at all. Simply saying that they are a hardware company doesn’t take away the fact that they would get higher revenues by selling their software. It doesn’t and it’s important to realise that.

Manufactories like Dell and HP have said that they would easily dump Windows and bundle their computers with OS X if they could. I don’t know what’s best for Apple, but if their advisors believe that selling OS X to other hardware would be a good idea, I want them to do that. Companies and even countries has fallen apart when they have stuck to ideas whiteout reason. You don’t want Apple to be one of them.

HWH

First of all, I strongly agree that Apple is unlikely to license its OS. That being said, the premise of your argument is flawed.

The theory that Apple could make more money licensing OS X is not strictly based on revenue, but on margins. MacBook revenues essentially comprise three components: (a) commodity hardware [essentially zero margin] + (b) Apple hardware design & integration awesomeness [high margin] + (c) OS X software component.

That is to say, there is a limit to how much Apple can charge for a+b+c given the commodization of hardware. MacBook price – equivalent Dell price – Dell payment to Microsoft = Apple premium = b + c.

In theory, Apple could command the same premium (certainly component c, at least), if it licensed OS X to others. And if others could expand the market for OS X substantially enough (due to better channel, distribution, logistics, etc.), then theoretically all those additional (c) margin dollars could add up to be greater in magnitude than the resulting brand dilution [and higher development dollars for development testing]. In turn, this would then be a reasonable business decision.

Because I strongly disagree with the viability of the last two sentences I typed in the last paragraph (the cost of brand dilution and compatibility testing is stratospheric), I believe it to be highly unlikely that Apple will license its OS.

Rod

Oops, I was typing too fast.

there’s very little incentive to them to make it easier for people to NOT have to buy their hardware in order to use their hardware.

should read:

there’s very little incentive to them to make it easier for people to NOT have to buy their hardware in order to use their software.

MySchizoBuddy

If Apple does license its OS, does that mean hardware manufacturers will start writing device drivers for macs. NO.
Apple will be in the same situation as linux, where hardware manufacturers simply refuse to write device drivers for linux. and Linux developers having to reverse engineer the drivers.

yes u will be able to buy Mac OSX and put it on dell, and when ur new exotic graphics card won’t work on it, u will be pulling ur hairs out. which will give bad rep to macs, as operating system that simply doesn’t work.

Why would Apple want to do that. By keeping its software and hardware together it can make sure that whatever hardware gets in a mac there is a driver in the software. so it all works seamlessly.

Rod

@ Matt, Anderson,

It’s because Apple is not a software company. They are a hardware company. They sell MacOS as something to run on the hardware that they sell.

If they license MacOS to run on a Dell, then they won’t sell as much hardware, since people won’t need it in order to run the software. Since most of their business is hardware (from the pie chart, 13% desktops + 20% portable + 48% ipod + 4% peripherals == 85% of their revenue) there’s very little incentive to them to make it easier for people to NOT have to buy their hardware in order to use their hardware. They would be effectively throwing away a very lucrative existing business model and fanatic customer base to try to sell more of something that they currently make almost no money on. That would be incredibly stupid business logic.

And the $10k Rolls Royce analogy is dead on. People are willing to pay money for the integrated “it just works” experience. If they separate the experience it won’t be as seamless (if you don’t believe me, consider Microsoft OS on a Dell == sucks) and they’ll completely alienate their existing user base.

I literally had almost this exact conversation with my Dell rep the other day when he saw my MacBook on my desk.

Anderson Imes

I agree with Matt. I don’t really understand your logic here. Most computer hardware sold are PCs. Explain why the fact that Apple currently doesn’t make much on software sales is the reason they would avoid increasing their potential market for it?

Matt

I dont know if you can just assume that if they liscnese their OS out, that they will lose on hardware. I can think of some people that won’t go to an Apple OS, because they don’t want to buy their hardware. You could sell the software to that person. Therefore, you increase software revenue and hardware revenue stays the same.

sunshwr

Apple has always been preaching that they make “the whole widget” with both hardware and software, and therefore are able to do things others aren’t.

Most recently it was in the Macworld keynote where Steve quoted someone saying “People who are serious about software should make their own hardware”.

It will never -ever- happen under Jobs’ rule.

Michael Houghton

Simple. Jobs would give up his hardware revenue if his software revenue was going to be substantially greater, if it would expand the market for Apple’s other software, and if his support costs would drop. Apple don’t sell many standalone copies of OS X now because few people need it. Next quarter, when Leopard comes out, that figure will be larger, for one thing.

Whether or not he will licence, and whether or not it is a good idea, I don’t know, but your argument is not going to be why he doesn’t. The other shareholders will have something to say on the matter, too.

My bet is that he will, one day. I figure we will see a handful of licensed hardware providers producing tightly regulated designs, when the time is right again. The economics of Vista’s almost inevitable failure will begin to make it incredibly tempting for Apple’s shareholders to demand it.

Whether it’s a good idea or not, that’s another matter.

GCFiedler

If Apple were to give up their computing hardware, and concentrate on an making only an OS – one might argue that their superior OS would drive enough sales to make it worth their while. But it’s trading one set of headaches for another.

The problem I have with Apple is their lack of truly mobile computing platforms. Mac sales in Japan (the world’s second biggest economy and consumer market) are quite poor and have been getting worse with each quarter. Although many factors are likely, the lack of a laptop under 4lbs has a lot to do with it. Japanese consumers like small compact things, because most people commute by train, bike and foot. People don’t want to lug around ‘MacBricks’ when they can get laptops between 1-2kg that meet their needs.

If Apple were to actually release an ultraportable – that would certainly help their sales here. But even the MacBook Pros are heavy compared with Windoze laptops of equal caliber from several makers.

Gareth

Bill,

You’re right. Steve Jobs isn’t stupid. He’s one of the few people in the industry who understands that the only way to make a really usable product is to control both the hardware and the software. This is why the iPod is so successful.

iTunes + iPod = Good user experience.

If Apple license OS X to other PC manufacturers they would then have to divert development time away from cool applications (like photo booth) into making sure their OS works on a wider hardware base. Not only does the hardware base grow significantly, so too does the backwards compatibility support required.

For the same reason the iPhone is currently (and will probably remain) closed to third party developers. Apple (and SJ) wants to control the whole experience.

Julian Bennett Holmes

Even if Apple does increase their software revenue so it’s a bigger piece of the pie, they’re still giving up something.

And you’re right, Steve Jobs isn’t stupid. That’s why he doesn’t want to use a Dell.

Apple is never going to make a computer to please everybody. Just like there’s no $10,000 Rolls Royce. Some companies make luxury cars, and some make cheap cars. If Rolls Royce made a $10,000 car, you can bet your life they would lose a lot of respect from the people who buy the million dollar Rolls Royce.

Apple doesn’t make super-low-end budget computers, and they never will.

Bill Cook

Your premise is backward, and assumees that they would have to give something up.

The whole idea is that apple would be increasing their software revenue so that it would be a larger piece of the pie.

At some point, as their market share grows, apple will either have to license the OS or start making about 400 different models of MAC, because they will hit a point where they can’t sell stylish plastic macs to people who need ruggedized machines, for example. Or big, luggables computers. Or whatever form factor you wish to name. It may not be this year, or next, but if they are going to give PCs a run then they will have to do it at some point. Steve Jobs isn’t stupid, and he understands this. I’ll bet it’s in the plan somewhere.

Comments are closed.