January 31, 1998: Mac clone-maker Power Computing goes out of business, having auctioned off its office supplies and computers.
Apple bought out Power Computing, once the fastest-growing PC company of the decade, the previous year. As a result, Power Computing shareholders receive Apple stock as a replacement. As it turns out, that may not have been a terrible deal.
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The first Mac clones
Founded in November 1993, Power Computing set out to sell Mac clones by mail. With Dell’s mail-order computer business proving itself in the marketplace, Power Computing founder Stephen Kahng rightly figured a Mac version would do the same.
The company started talks with Apple in April 1994. By the end of that year, Power Computing secured the deal with Cupertino. Apple initially proved skeptical about working with a startup. However, Cupertino saw Power Computing as the only viable option — and issued the license. Another Mac clone-maker, Radius, later got in on the game.
You can put it down to a fear of Windows 95 if you want, but 1994 was the year Apple began to seriously consider licensing its technology.
High-up individuals at Apple, including former CEO John Sculley, put forward similar ideas before. But they had been talked into reneging on them.
By 1994, Apple was ready to roll the dice — as can also be seen by its willingness to sign a deal with Bandai, Japan’s largest toymaker, for a games console that would run Mac OS.
Power Computing released several Macintosh clones. Readers who remember using them can share their comments below. But my overriding memory is that machines like the 1997 PowerTower and PowerTower Pro were blazingly fast at the time. They certainly were not B-grade computers by any measure.
The downfall of Power Computing
In the end, Apple began to realize the error of its ways. The idea of Mac clones was to increase the Mac’s market penetration. Instead, rather than more Macs on the market, it just meant cheaper Mac-compatible machines.
Apple CFO Fred Anderson worked out that the licensing strategy actually cost Cupertino money. The $50 fee Apple received for every clone Mac sold did not come close to recouping the revenue lost from people buying third-party Macs instead of pricier official ones.
Ultimately, Steve Jobs’ return to Apple sounded the death knell of the clone Mac program. Jobs, who never liked the idea of licensing technology to “lesser” manufacturers, was keen to abandon the strategy.
On August 5, 1997, Apple became locked in a standoff with Power Computing. Apple employed a smart bit of legal jiujitsu by introducing Mac OS 8 and then arguing that the licensing deal for third parties did not extend further than System 7.
In the aftermath, on September 2, Apple agreed to acquire Power Computing’s customer list and Mac OS license for $100 million in AAPL stock and $10 million to cover all outstanding debts and costs.
“Power Computing has pioneered direct marketing and sales in the Macintosh market, successfully building a $400 [million] business,” Jobs said, as quoted in Owen Linzmayer’s excellent (though now outdated) Apple Confidential 2.0. “We look forward to learning from their experience, and welcoming their customers back into the Apple family.”
A new way to market Macs
You can argue the extent to which Power Computing actually influenced Apple’s later work. But the Dell-style focus on selling mail-order (or internet-order) Macs direct to customers was an important step in Apple’s recovery.
At the time of the clone-maker’s closure, The New York Times noted that Power Computing’s annual revenue had been headed toward $700 million. The company had “just agreed to purchase 150 acres in nearby Georgetown for a new, $28-million headquarters building.” Construction on this HQ stopped shortly after it began.
Do you remember Power Computing? Leave your comments below.