Over a decade ago, archrivals Microsoft Corp. and Apple Computer Inc. were the David and Goliath of the personal computer industry. But when the fight started back in 1984, the now-mighty Microsoft was David. Apple, with its then-dominant Macintosh, was Goliath.
On Wednesday in Boston, to the sounds of robust booing from a crowd of the Macintosh faithful at the huge MacWorld trade show, the two companies said they’re tired of the David vs. Goliath game.
They announced that they have buried their slingshots.
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Microsoft will pump $150 million into Apple’s nearly empty coffers. In exchange, Apple will make Microsoft’s Internet Explorer the primary World Wide Web browser for the Macintosh. And the companies will cross-license software that could broaden the appeal of Apple’s products beyond their current niche market.
Times have changed, Apple executives said. The flower children who rallied behind Macintosh have grown into harried middle-aged corporate executives who long ago traded their bell bottoms for Brooks Brothers and opted for lower prices and IBM compatibility.
Apple co-founder Steve Jobs, who dubbed his Macintosh “the computer for the rest of us” when it was introduced during halftime at the 1984 Super Bowl game, told a restive audience Wednesday that he had called Microsoft chief executive Bill Gates less than a month ago.
In essence, Jobs said, he cried “uncle.”
In a plan that both Apple and Microsoft executives said is designed to avoid violating federal antitrust restrictions, Microsoft will buy $150 million worth of non-voting Apple stock and become a partner with Apple in developing software for business use and for the Internet.
The two companies will grant each other licenses to use virtually all of their respective software patents, including elements of operating systems and such applications as word processing, spreadsheets and Internet browsing.
“We have to let go of a few notions here,” Jobs told the MacWorld session that was carried as a live video broadcast over the Internet’s World Wide Web.
“We have to let go of the notion that for Apple to win, Microsoft needs to lose,” Jobs told 60,000 people attending the trade show.
Or, as James Staten, an expert on the personal computer industry for the research firm Dataquest Inc., put it in an interview, “Apple decided to sell its soul to Microsoft in order to survive.”
Staten said the move was Apple’s best hope, maybe its last hope. Other experts agreed.
“This appears to be a very good move by Microsoft to take advantage of the huge potential marketplace of existing (Apple) customers and yet avoid trouble over monopoly issues,” said Gerald Jenkins, a partner specializing in Internet law for Chicago’s Goldberg, Kohn firm.
In the past, Redmond, Wash.-based Microsoft has been forced by federal antitrust investigators to abandon at least one plan to acquire a competitor–personal finance software-maker Intuit Inc.
Furthermore, the company continues under scrutiny in other deals, including the recent purchase of WebTV Services Inc. and a $1 billion equity investment in cable TV giant Comcast Corp.
By agreeing that its $150 million investment will not give it a seat on Apple’s board of directors and by promising to hold the stock for at least three years, Microsoft avoids triggering federal antitrust sanctions under the Hart-Scott-Rodino Act, Jenkins noted.
“In fact,” he said, “you could argue that this is a form of antitrust insurance,” because propping up Apple will assure that Microsoft continues to have serious competition that would all but disappear if Apple went under.
Ed Black, president of the Washington-based Computer & Communications Industry Association, which has represented IBM, AT&T and Microsoft in past antitrust issues, said: “I believe there will be serious people in government who will be concerned with this. But it’s hard to predict what kind of action will come about.”
Meanwhile, Abhishek Gami, an analyst for the Chicago office of Nesbitt Burns Securities Inc., noted that Apple gains a major edge over its other competitors with the deal, which sent Apple stock soaring $6.56, closing at $26.31 on the Nasdaq stock market.
Microsoft’s Internet Explorer Web browser will replace software from another Microsoft archrival, Netscape Communications Corp., as the default browser in all future editions of Mac OS 8, Apple’s newly released operating system. “This, of course, is very bad news for Netscape, which had that same deal until Wednesday,” Gami said.
Jobs announced the browser deal along with a string of other blockbuster moves designed to turn around losses that have totaled more than $1.5 billion in the last 18 months at Apple and forced more than 6,000 workers to be fired.
Macintosh reversals have resulted in Apple’s market share plunging to less than 2.4 percent of U.S. retail sales from more than 10 percent just a year ago.
In early July, the board of directors of the Cupertino, Calif., company fired chief executive Gilbert Amelio and raised the profile of Jobs, who had rejoined Apple in December as a special adviser.
Apple chief financial officer Fred Anderson, who took over day-to-day operations of the company, said Wednesday that Jobs began calling on old friends and foes seeking salvation “as soon as Gil was out of the picture.”
The deals made in less than 30 frantic days included the Microsoft partnership and an all-but-total purge of Apple’s board of directors.
New members include Jobs, Oracle Corp. chief executive Larry Ellison, Intuit chief executive William Campbell and former International Business Machines Corp. chief financial officer Jerome York.
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York, who helped restore Chrysler Corp. to profitability as its chief financial officer in the 1980s, is credited by many with being the brains behind chief executive Louis Gerstner’s stunning successes in returning IBM to profitability after it suffered huge losses in the early 1990s.
Tim Bajarin, one of the country’s most prominent Apple analysts, said the deals with Gates, Ellison, York and Campbell are perhaps the most important of the developments disclosed on Wednesday.
“These people are among the most powerful in the industry and they all have staked their personal reputations on turning Apple around. And these are individuals who probably can make good on that,” Bajarin said.
Just what an alliance may mean for the officers responsible for their companies’ computing technology remains to be seen, said Richard Arns, executive director of the Chicago Research & Planning Group, which counts some 300 chief information officers of large companies among its membership.
“There are a lot of interesting complexities to this marriage and some strong personalities involved,” Arns said. “But our members aren’t as interested in that as whether this partnership will lead to useful new technology.
“Our members purchase billions in new technology each year, and we have a center in Mt. Prospect for neutral evaluation. . . . My challenge to this partnership is to bring your wares to our technology center to let us see it.
“The proof of this pudding will be in the tasting.”