Tangled Webs
The Art of the Deal
Aug 27, 1997
Issue 2.11

Let's Make a Deal

I really don't consider myself to be a disagreeable person, but I remain in constant disagreement with popular opinion about the fate of Apple Computers. For the last seven years I've argued strongly and often against "experts" who claimed that the company was about to go belly up any minute. Now public opinion has turned, Wall Street is ecstatic, Apple has a new lease on life, and I think it may be time to call for last rights.

Don't get me wrong. I love the Macintosh. I've been a Mac user since 1984, and I desperately want to believe that this deal will be good for Apple. Unfortunately, I can't shake the uneasiness that comes from knowing that no company has ever befitted by sharing intellectual property with Microsoft. None. Never.

One time heavyweight Sybase has watched its market share atrophy after a similar deal allowed Microsoft to license the technology to create SQL Server. IBM was almost driven out of the personal computer market when Microsoft took OS/2 technology and created Windows. Citrix, Spyglass, and INSO fared even worse, so Apple should approach this deal as it would approach a land mine.



What's In It for Apple?
In real terms, nothing that they don't already have. The $150 million stock investment is fiscally insignificant to both companies. Apple currently has cash reserves of $1.2 billion and Microsoft of over $8 billion. The investment was just a public display of support from Microsoft, and that display sent Apple's stock soaring.

Wall Street didn't seem to know that the Macintosh has had that support for years. Microsoft is the largest seller of Macintosh software, and are hiring Macintosh programmers faster than other companies are letting them go. In fact, until very recently, Microsoft made more money per Mac user than per Windows user.

As part of this deal, Microsoft agreed to ship the Macintosh versions of Office and Internet Explorer that they are currently developing, and to continue to ship those versions for at least five years. However, Microsoft has stated that they are not promising to develop products for Rhapsody, the OS that will ship with new Macs starting early next year. This part of the bargain amounts to little more than a Microsoft promise to market its existing products.



What's In It For Microsoft?
Many have suggested that Gates is just covering his assets and avoiding anti-trust legislation by supporting Apple. While there may be some truth to that, Microsoft has gained a great deal more from this arrangement.

Apple's many lawsuits against Microsoft are now settled, and Microsoft is free to license any Apple technology that could prove a threat to its dominance. Technically, it's a cross-licensing agreement, but the technology flow between the two companies has always been one way: from Apple to Microsoft. Windows technology that found its way onto Macintosh desktops, such as OLE, was usually forced there by Microsoft, often by means of questionable legality.

Microsoft's current objective, however, is not the desktop but the Internet, and this partnership deal hits both Netscape and Sun hard. The bundling of Internet Explorer with new Macs has received a lot of attention, but I believe the collaboration on the Java virtual machine will prove to be far more significant.

Future Windows and Mac implementations of the Java virtual machine will be compatible with each other, but there is no guarantee that they will be compatible with anything else. Microsoft long ago learned that there is no profit in supporting standards it does not own, and this deal gives them an excellent chance to undermine Java's cross-platform independence and redefine the concept of cross-platform computing.

Over the next few years, we may see Apple eschew open standards like 100% Java, JavaBeans, and CORBA in favor of proprietary Microsoft Java, Active-X and DCOM. Macintosh versions of these Microsoft technologies are already in development, but Apple has not yet abandoned the open standards. If they do, Microsoft will have successfully turned the concept of open-computing into something controlled by and licensed from Microsoft.



The Fine Print
OK, just because Apple negotiated roughly the same deal Galileo got from the Inquisition doesn't mean that all is lost. Apple has over 25 million users, most of them fanatically loyal, and Macs are in many ways far superior to Windows machines. Unfortunately, Apple's corporate game plan at this point seems to be roll over and play dead.

What I found most disturbing about the Apple-Microsoft love-fest in Boston was not Bill Gates addressing MacWorld from a giant video monitor (Where's an Olympic runner with a hammer when you really need one?), but Steve Job's comment that "We have to let go of the notion that for Apple to win, Microsoft has to lose."

This is true only if your definition of "win" is "avoid bankruptcy for a few years." For Apple to remain remain a significant force in the computer industry and maintain a healthy and expanding user-base, Microsoft does have to loose. Microsoft has to loose market share, they have to loose mind share, and they have to loose the stranglehold they have on corporate computing and the software industry as a whole. If they don't, the Macintosh will go the way of OS/2 and the Amiga -- fantastic products with an ever-shrinking number of loyal users.

A worse omen still, when Apple climbed into bed with Microsoft, it kicked out the companies responsible for recent increases in MacOS market share. Thanks largely to the Macintosh clone makers, MacOS market share actually increased slightly in 1996, but Apple holds only about 80% of it.

Apple is understandably upset with its loss of market share, but instead of trying to increase sales by increasing the MacOS market, they are cannibalizing the existing one. They have held up licensing of OS8 to clone makers, and Apple representatives are stating publicly that it may be time to rethink the entire licensing strategy. Driving out of business the companies that promote the MacOS does not strike me as sound long term strategy. Things do look bleak, but I remain hopeful that Apple will turn out to be the fist company ever to benefit from a Microsoft partnership. To pull it off, however, Apple needs to believe in itself and remain willing to compete with Microsoft. It needs to understand that the OS wars are not over. Unfortunately, Steve Job's comment that "Apple needs to find where it is still relevant and focus on those areas" seems tantamount to surrender.


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