Mac compatible hardware (or what is Apple making such a fuss about?)

Mac compatible hardware (or what is Apple making such a fuss about?)

Macintosh "clones", or as their makers would like them to be known, "Macintosh OS Systems", are making their presence felt in the traditional Apple Macintosh marketplace. Backlogs are diminishing and new product is beginning to flow into Australia We've come a long way from the "early days" depicted by Steve Rust, GM of Apple Australia, in the November 13 issue of Australian Reseller News in 1996. In that interview Rust reported "very little impact" from clone manufacturers, and that his strategy for dealing with the competition was to "help clone companies where they are expanding our market and protect ourselves where they are attacking". Rust concluded that "we are finding ourselves very competitive in many situations and we're putting on our best front to compete".

In the light of recent correspondence from Rust to Apple's channel partners (see front page story in the last issue of ARN), Apple seems to have spat the dummy and no longer wishes to support clone companies in any area of their business. By threatening to withdraw Apple support from partners who deal with clones, Rust has laid his cards on the table.

The reason for this change of stance may have come from a report just published by the US market research firm, Dataquest. The findings, as reported by Macworld, are that Apple's share of the US PC market in the fourth quarter was 5.4 per cent, down from 10.5 per cent in the year-ago quarter. According to the report, when sales from clone vendors are factored in, that figure rises to 7.2 per cent, putting the Mac platform in fourth position behind the major Windows PC vendors.

The Dataquest report concluded that clone vendors have eaten into Apple's core markets, rather than growing the Macintosh market as a whole as the company had hoped. For example, the report added, in the business segment Apple may have lost as many sales to its licensees as it lost to the Windows platform. Dataquest expects the number of Mac system vendors to increase over the next year.

Market research company IDC Australia says Apple holds a 6.9 per cent marketshare in Australia. The percentage of marketshare held by clones is still being researched, but it believes it is not that big. Bruce McCabe, PC market analyst at IDC, says that while this may be true, "the activity of clones was vigorous enough in 1996 to make Apple Australia sit up, take notice and take action".

To market, to market

ARN has talked to the companies that distribute Mac clones in Australia to determine the state of the market from their perspective.

The only distributor that we were unable to talk to was Polaroid Computing, which distributes Motorola machines. When invited to comment, the company declined, stating that it did not have the time to discuss the issue.

The individual markets where clones are being distributed include publishing, education, music, CAD, professional graphics and video. One distributor, Computing Enterprises of Australia, is also seeking opportunities in the business market by demonstrating a totally integrated network to prove that the clones can work side by side with Windows 95.

Resellers being targeted by most distributors are current and ex-Mac resellers, and in the case of Computing Enterprises, PC resellers.

Mitsui, which distributes for Power Computing, sells through resellers, but the company doesn't target the reseller at all. Standing behind their product, Mitsui's Simon Johnson told ARN: "we don't care how our product is sold or who sells it, as long as it's sold. We focus on the end user, not the reseller," adding that "we're sending lots out through a wide variety of resellers".

When asked about a conflict of interests occurring when resellers carried both clones and Macintoshes, Johnson said: "we don't mind what they do or what else they sell as long as the product keeps moving. Our strategy is simple: as long as the price is right and the product is right, people will buy."

Mitsui is very confident that it has both the right product and the right price. Johnson believes that Power Computing's machines are "price competitive. We have the fastest computers and there is no problem with supply." At the 1997 Macworld Expo in the US, Power Computing's PowerTower Pro 225 was voted Product of the Year. " Going directARN questioned Johnson about the rationale behind the growth at executive level in Power Computing, compared to the shrinking of the same structure at Apple Computer. Johnson answered that "Power Computing is expanding daily". The growth at management level is to enable the company to stay competitive and well positioned in the market by maintaining R&D and providing accurate industry forecasts. "There will be no change in the product mix," Johnson said.

While most clones are sold through the reseller channel, Computing Enterprises of Australia is on the lookout for opportunities to sell directly. The reason for this additional outlet, claims the distributor, is that some "cut-throat" dealers are not loyal to the distributor.

Michael Owen, GM of Computing Enterprises of Australia, told ARN that when a distributor highlights a market opportunity, some resellers will seize that opportunity but use the distributor with the best price to supply the product. And of course this is often not the distributor who showed them the market opportunity. Missing out on this business has led the distributor to lose trust in some resellers and follow up on market opportunities itself.

The software distributor Australian Design and Drafting (AD&D) has just launched a new company called Mac Source Australia Pty Ltd, which is the exclusive distributor of the "Powertools" range of Power PC clones.

Mac Source sells the "Powertools" machines direct to the end user and includes in the price of the product a Honeywell one-year on-site warranty. Darren Finch of Mac Source told ARN that even though he has been approached by resellers, he is not interested in distributing to them because by keeping his overheads low, he is able to be much more price competitive and still maintain a reasonable profit margin for himself. He targets any Macintosh user when selling his product as he says that these buyers who have used Apples in the past "can see a better deal with the clones".

Supply and price

For the end user, the brand of clone, or the choice between Apple and a clone, has been determined to some extent by the supply problems which have plagued the market. "People were going for whatever they could get," explained one distributor. This was particularly the case with schools.

Speed is an important factor with graphic designers and the digital video profession at the high end of the market. These professionals are seeking the fastest machine available. Daystar, which specialises in providing for this end of the market, is not considered to be a competitor by other distributors.

Computing Enterprises of Australia told ARN that it is not targeting the home market yet, as there is not enough profit margin.

On the subject of price, Owen of Computing Enterprises of Australia explained the company's policy as offering "10 per cent more for 10 per cent less". With Apple dropping its prices to try to stay competitive with the clones, Owen acknowledges that the "10 per cent less" is no longer there but he maintains that the "10 per cent more" is still a factor because the company provides "more opportunities with the box, for example, bigger hard drives, and more margin to the dealer".

He claims that resellers who deal with this distributor can look forward to at least 15 points margin, which gives them "something to play with" when negotiating with the end user. "We don't dictate the purchase price for the end user."

Finch of Mac Source told ARN that he was more willing to accept a lower profit margin on the sale of the "Powertools" clones than he would receive on an Apple machine because he saw it as "another incentive to buy our machines over the Apple machines". He added: "yes, profit margins are being squeezed but how low can you go before you have to dismantle your infrastructure of quality? We are smaller with less overheads so we can cut a piece of the market similar to the PC industry in the late '80s."

As drastic price cuts by Motorola and Power Computing were being announced in the US, Finch told ARN that he would also be dropping his prices to "cream the lot of them". He is prepared to accept a 10 per cent margin on his sales but no less. If he has to go any lower, he told ARN, he will drop the clones and concentrate on the software side of his business. Australian Design and Drafting distributes software to both the Macintosh and PC sides of the industry. The software is specific to the Design, Multimedia and CAD industries.

ARN enquired whether resellers have responded to the arrival of clones on the Australian market eagerly or with suspicion. While all distributors who offered a comment on this question said that the response had been eager, there was some suspicion noted.

One distributor commented that resellers liked not having to rely on the whims of Apple. When Apple was the exclusive supplier of the Mac operating system, a reseller had nowhere to go if it was unhappy or dissatisfied with the treatment it received. The arrival of clones has provided an alternative and freedom of choice for the reseller.

Suspicion on the part of resellers reportedly comes from the fact that the software, and in some cases the clone hardware itself, can be unreliable. In addition, some resellers may consider that clone manufacturers are "too new in the game" to manufacture reliable machines.

Distributors feel that resellers are threatened by Apple's latest response to the mixing of clone business with Apple business. It is reported that Apple resellers are seeking alternate ways of reselling clones while appearing to stay loyal to Apple and thereby rely on their support.

ARN was told of a reseller in Melbourne that has set up a second outlet around the corner from its existing outlet. The new business retains one of the words in the two-word company name and resells Mac clones while the original outlet resells Apple Macs. Some resellers have reportedly set up new companies to sell clones to "cover all bases", some are selling a mix of products and some have left Apple and started a new company reselling Mac OSs only.

The reason given to ARN for a lack of loyalty on the part of Apple resellers was that Apple hasn't shown much loyalty to them. An unsubstantiated rumour exists in the industry that Apple may be moving in to a major retailer and selling direct to the public, even further abandoning its channel partners.

Looking ahead

All clone distributors predict that in the future Apple will increasingly lose hold on the hardware market and become "primarily an operating system vendor". Owen suggests that within five years Apple will not make any hardware and instead will concentrate on receiving money from its licences and developing software. He quotes an American industry observer who said recently that "Apple is a software company in dire need of some very good hardware and IBM is a hardware company in need of some very good software".

Owen would like to see IBM embracing Apple operating systems and Apple making more use of IBM hardware. He suggests that the future for Apple lies in part in the use of its technology within motherboards ("our machines are 100 per cent compatible with Apple"). This solution provides all parties with added flexibility, he claims. Owen also predicts that Apple's survival will come from the licensing of companies to use the Power PC platform and that promoting the Apple platform over the Windows platform is not the right way to go. He concludes that "Apple should promote a joint environment - the PC should go both ways".

Finch of Mac Source told ARN that the "Powertools" range will be CHRP2 compliant in mid-May allowing Mac users to run Mac OS, Be OS, Windows NT, AIX and Unix. "As for Apple and the other clone manufacturers, I would assume they would be going down the same path." Finch considers that this will make the corporate buyers who have had to abandon the Macintosh platform in the past have another look.

The Macintosh marketplace today is extremely volatile, with new players, price cuts and company restructuring occurring weekly or daily in some cases. According to most distributors, resellers should expect ever diminishing profit margins until the market stabilises. Some believe this won't happen until Apple makes a decision to either continue to manufacture both hardware and software or to "throw the towel in" and concentrate on its operating systems.

Power Computing distributed by Mitsui.

Simon Johnson, product manager

Tel (02) 9935 2527 Fax (02) 9935 2500

Powertools distributed by Mac Source (Australian Design and Drafting)Darren Finch, managing directorTel 1800 621605 Fax (02) 9810 0199Daystar Dig distributed by Maxwell Optical.

Nick Benkovich

Tel (02) 9390 0201 Fax (02) 9390 0201

Umax, Pulsar, Apus distributed by Computing Enterprises of Australia Michael Owen GM Tel (02) 9957 3476 Fax (02) 9957 3446Email: Mikeowen@cea.aust.comMotorola distributed by Polaroid.

Contact Maureen Hughes or Kim Cleeworth.

Tel (02) 9950 7060 Fax (02) 9950 7051

Power Tools, Infinity distributed by Australian Design and Drafting.

Darren Finch

Tel 1800 621605 Fax (02) 9935 2527

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