By Barton Crockett
For nearly a year, Microsoft Corp. and Apple Computer Inc. huddled in
secret talks, intent on forming a grand alliance. But the discussions
floundered and appeared headed nowhere until Apple, hemorrhaging red ink,
ousted Chairman Gil Amelio last month.
Then, Steve Jobs stepped in.
Soon after Amelio left July 9, Jobs Apples co-founder and spiritual
leader called Microsoft CEO Bill Gates attempting to kick start the
talks. He suggested that the Redmond, Wash.-based software company, once
Apples arch enemy, invest in the computer maker.
Steve got them [the talks] going in the right direction again, Apple
Chief Financial Officer Fred Anderson said.
After the call, Microsoft Chief Financial Officer Greg Maffei said
that he had several meetings with Jobs, who last December returned to the
company as a special adviser after he had been ousted 12 years ago. Later,
a larger group of executives from both companies got involved, including
On Wednesday, Jobs opened the MacWorld Expo in Boston with a stunning
admission. We have to let go of the notion that for Apple to win,
Microsoft needs to lose.
Indeed, said Maffei, recalling the alliance discussions last month,
Jobs wanted us to make a visible commitment to Apple.
We looked at the total package of things we were both bringing to the
party and [decided that] the investment made sense.
Microsoft spokesman Greg Shaw said the final agreement which includes
a $150 million investment by Microsoft in Apple and a technology sharing
agreement was signed this week, right up to MacWorld.
They were in Boston, and we were here, he said.
The investment is to be executed within a couple of days, Maffei said.
When completed, Microsoft will own just more than 5 percent of a
company that has lost nearly $900 million in the last three quarters and
will have bailed out its one-time enemy at Apples time of greatest need.
Microsofts investment is in newly issued, nonvoting stock that it has
agreed to hold for at least three years. Maffei said that Microsoft is
buying the stock at a price based on the average of Apples recent trading
range that will, in fact, be slightly below Apples opening price before
the announcement Wednesday of $19.75.
Microsoft and Apple also are cross-licensing each others patents.
Furthermore, they have agreed to work together on technology for five
years, with Microsoft agreeing to continue developing new releases of its
Office application software for Apple computers over that period. The
companies have also said that they will strive to make their respective
versions of the Java programming language compatible. And Apple has agreed
to make Microsofts Internet Explorer the default Web browser on the
Macintosh operating system.
The partnership does not address Apples next generation operating
system dubbed Rhapsody.
Analysts and company officials said that both companies stand to
profit from the partnership.
Microsoft ranks as the biggest seller of applications for Apple
computers. Mary McCaffrey, technology stock analyst at Alex. Brown & Sons
Inc. in New York, said that Microsoft gets approximately 10 percent of its
revenues from Apple products.
The preferred placement on the Mac operating system should also help
Microsoft in its browser war with Netscape Communications Corp.
Both companies could also use each others technology.
There might be a few gems in the Apple portfolio that Microsoft could
license and embed in its operating system, said Jerry Michalski, managing
editor of Release 1.0, an influential technology newsletter.
Clearly, some cross-licensing in the Internet area would be useful for
Apple, added Aaron C. Goldberg, executive vice president of market
researcher Computer Intelligence of La Jolla, Calif..
Many experts also said the deal helps Microsoft in its relations with
the Justice Department. The company has been the subject of several
antitrust probes and accusations stemming from its near-monopoly status in
personal computer operating systems.
Aiding a competitor could give Microsoft some political chits on the
It helps them a whole lot, maintained Michael Glenn, a Menlo Park,
Calif.-based attorney and former chairman of the intellectual property
section of the California bar, which addresses antitrust issues.
(Glenn also works for Netscape on patent issues unrelated to the
companys complaints that Microsoft has violated its antitrust settlement
with the Justice Department.)
But Maffei insisted that antitrust concerns werent a major factor in
We werent driven as much by those considerations, as getting a platform to
deliver Internet Explorer and other technologies for us, he said.
Paul Gupta, a partner, technology and antitrust expert with the Boston
law firm Sullivan & Gupta, said that Microsofts dominance of PC operating
systems is already so large, it would not receive any tougher scrutiny if
Apple went under.
For Apple, the gain was more political than financial. With $1.2
billion in cash, the company is not in desperate need of another $150
Nonetheless, Microsoft is an influential ally, and Wall Street clearly
loved the deal, driving Apples stock up 33 percent. Microsofts shares rose
But some analysts still see big risks. Apples market share, now at 3.5
percent, is well off its high of 12.1 percent in 1993, according to
Computer Intelligence. The critical new OS is not yet a reality, and Apple
still has three vacancies on its board, and no chairman or CEO.
Meanwhile, relations with makers of Apple clones have turned testy at
MacWorld, because of disputes over licensing advanced technologies.
They havent even stopped the slide yet, Computer Intelligences