Why Apple Can't Afford to Lose the Mac Clone War

Apple is currently locked in a fierce legal battle with a small-time PC maker from Florida, and the outcome of this case could decide whether Apple will continue to have control over what hardware the Mac OS is installed on, and consequently the status of the Mac clones. It’s important for Apple that it wins this case because at stake is no less than the company’s entire business model.

Back in April of last year, a small company from Florida called Psystar started selling Mac clone systems, which is really just a fancy name for PCs with the Apple OS shoehorned onto them. Yes, contrary to what most people believe, it is possible to install the Mac OS onto a standard PC. It’s not easy, and not everything works perfectly, but it can be done.

These Mac clone systems were not only cheaper than the standard Apple offerings, they were also a lot more powerful, which meant that these systems offered better value for money. On the face of it, these systems seemed like a great deal, despite some of the early reviews being less than glowing (it’s worth bearing in mind that very few products – short of Apple products! – get glowing reviews in the real world).

Shortly after news of the Mac clones hit the media, Apple filed a lawsuit against Psystar, which wasn’t surprising given that Apple routinely lets the legal hounds off the leash. Ten months later, the case is working its way through the courts and Psystar continues to sell Mac clones.

My guess is that Apple was expecting Psystar to have rolled over and shut up shop at the first sign of legal trouble. After all, Apple is a multi-billion dollar company with a big prestigious law firm on retainer, while Psystar is a no name company. Faced with Apple’s legal juggernaut, most companies do indeed just cave in under the pressure.

But Psystar didn’t fold. Instead it found its own law firm (one that had dueled with Apple previously, and won) and stood its ground. Psystar then took the extra step of filing a counterclaim against Apple, claiming that the Cupertino giant is not only abusing the DMCA, but that the EULA that it is relying on is bogus and unenforceable. Psystar’s defense is that each and every copy of Mac OS X that is it loading on the Mac clones has been bought and paid for, and so there’s no problem. It then became clear that Psystar wasn’t giving up without a fight.

So, what’s really at stake here? Well, first off there’s Psystar’s survival. If Psystar loses, it’s almost a certainty that there will be little more than a smoking crater left after Apple hits it with claims for compensation and damages.

But what happens if Psystar wins, and the court rules that it can continue to market Mac clone PCs? Well, first off it would be a major slap in the face for Apple, one of a sort that it hasn’t experienced previously. But what would be much worse than the loss of face would be that the ruling would open the floodgates and basically allow everyone out there to legally build, market and sell Mac clones.

Just imagine being able to buy a Mac-based system from Dell, HP, or Lenovo…

Think about that for a moment. What’s the biggest difference between the way Apple does business, and how OEMs such as Dell, HP, or Lenovo do business? There’s one huge difference, and it comes down to price. Apple doesn’t compete on price. In fact, Apple deliberately keeps prices higher to give off that warm fuzzy feeling that it’s selling a luxury product. Sure, it’s little more than an illusion, but it works.

It works to the tune of nearly $25 billion cash in the bank and no debt. But any third-party involvement, and certainly any that involved a price war of any kind, could be very bad for Apple. Image a $599 Mac-clone desktop PC, or a $399 netbook system running Mac OS X. Apple really doesn’t have anything worth buying that sells for under $1,000. (Well, OK, there’s the Mac mini that’s in urgent need of a refresh, and a classic MacBook, but if you want something decent, you’ll have to spend some serious cash.)

While there’s no doubt that Apple has a band of dedicated customers that would still buy Apple-branded products in the face of cheaper clones, Apple would undoubtedly need to work harder at convincing those less dedicated to the brand that it was worth spending extra to get a real Mac. This would be the first time that Apple would have to compete head on with the big PC OEMs, and there’s no doubt that competition would mean good deals for consumers on Mac-powered machines.

But even winning the case wouldn’t be good for Psystar. After all, by winning the right to sell Mac clones, what it’s really doing is winning the right for other companies, bigger companies, to do the same. Faced with any competition from the big OEMs I really can’t see Psystar managing to become a big player. I guess fading into obscurity is far better than the alternative.