Monday, August 11, 1997

Week of 08/11/1997

Apple-soft or Applesauce?
Is Apple’s deal with Microsoft a deal with the devil?
- by David Matthews 2

On August 6th, something strange happened at the Mac World convention. In a meeting with all Apple investors, co-founder and former chairman Steve Jobs announced sweeping changes to the top level of Apple Computers in order to keep the computer giant from bleeding itself to death. The changes involved the ditching of all but two members of its board of directors, and the import of some of the biggest names in the computer industry. The chairmen of Intel and Oracle were now new board members, as well as the former chief financial officer of IBM, and of course the return of Jobs himself to the board. Jobs, who is also the CEO of Steven Speilberg’s Pixar company (the animation wizards behind the movie "Toy Story"), had already turned down an offer to be the chairman of Apple. He also announced that there would be no chairman yet so that that new board can set down the direction for the company.

But the biggest bomb dropped came from an unlikely figure - Bill Gates of Microsoft! Appearing via video from his office in Redmond, Gates announced that Microsoft was purchasing $150 million in non-voting stock in Apple and would also be on the board of directors. In return, Microsoft will provide Apple-compatible versions of Microsoft Office, and their Internet Explorer would be the default browser for all new Macintosh computers.

The news was shocking to the vast spectrum of computer users, investors, developers, and engineers. Some have dubbed Bill Gates as "BillGatus of Borg" for Microsoft’s assimilation into everything involved with computer software. Indeed, you name a software application and you’ll find a version made by Microsoft. Within a decade, the success of Microsoft and the meteoric rise of personal computers made Bill Gates the richest man in America. And many have accused Microsoft of succeeding by using unscrupulous measures. Personally I can’t say whether they have or they haven’t. If they have, they’ve managed to elude numerous government probes into their business practices - something rarely possible. If they haven’t acted unscrupulously, then the problem the critics have is not Microsoft but rather the brutally honest reality of business.

Still, here are some of the realities in this Apple/Microsoft arrangement:

  • Microsoft’s $150 million investment will be in non-voting shares of Apple. Despite having Gates on their board of directors, he will have no more power in Apple than anyone else on that board. And remember, the rest of that board is composed of some of the leaders of Microsoft’s competition, so they will hardly be intimidated by Gates. So all rumors of Gates "taking over" Apple are baseless.
  • Microsoft has guaranteed that they will continue to produce Microsoft Office for the Mac’s OS. Macintosh’s fatal flaw over the years has much to do with Apple’s rigid control of OS software development, and the lack of diversity in software (not to mention hardware) has hurt Macintosh sales far more than anything Microsoft could ever do.
  • Including Microsoft’s Internet Explorer as a default browser doesn’t preclude users from getting other browsers such as Netscape. And in fact, when it comes to browsers, Netscape is still the leader in usage at a ratio of 4 to 1. Even if all new Mac owners start using IE, it will not cause a major shift in that ratio. PC users still hold an overall numerical advantage over Mac users.

Once upon a time Apple held great control in the PC market. I grew up with Apple II and later with the first all-in-one Macintosh systems. I still use Mac computers on occasion. But Apple didn’t hold onto that lead because they didn’t see the changes that would happen. Apple thought their enemy was IBM in the 80’s, and Microsoft in the 90’s. They were wrong on both counts.

Apple’s losses were not because of IBM or Microsoft. Apple’s enemy was itself, and it’s rigid control over both hardware and software applications. That’s the secret not only of their losses, but IBM’s eventual downfall in the personal computer market. When Compaq and other companies managed to "clone" IBM’s computers, they shifted the focus of the market from hardware to hardware peripherals and software. Other companies such as US Robotics, Creative Labs, Hewlett Packard, and Diamond were able to produce their own portions of the computer such as modems, sound cards, scanners, printers, and video cards. Microsoft made money on the software, but so did Berkley Systems, Symantec, Lotus, and Intuit. Apple’s rigidity limited the number of programs and hardware applications available to the Macintosh, and thus those businesses turned towards the PC’s to market their products. All one has to do is check out computer stores like CompUSA and check out the space reserved for Macintosh compared to the PC section.

Even with Gates’ help, there is no guarantee that Apple will survive. However, I agree with Jobs’ statement in that it’s time for Mac users to deal with reality and accept that Microsoft is here to stay. Apple’s survival is in its own hands.

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