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Wednesday, August 6, 1997 - Page updated at 12:00 AM

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Microsoft, Apple Join Forces -- Disbelief, Boos Greet Today's Stunning Announcement At Macworld Expo

Seattle Times Business Reporters

Providing the biggest sign of hope yet for ailing Apple Computer, Microsoft today announced it was forging a new era of cooperation with its longtime rival that includes an investment of $150 million.

The move, announced at the MacWorld trade show in Boston this morning, gives Apple a significant monetary boost - about 6 percent of the value of the company's stock - but more importantly signals to the computer-using world that the beloved Macintosh computer won't die.

News of the alliance sent Apple's stock up $7 a share, or 35 percent, to $26.75 in late Nasdaq trading. Microsoft, meanwhile, was up $1 to $144.313 on the Nasdaq.

The unexpected revelation by Apple co-founder Steve Jobs in a keynote speech at MacWorld prompted gasps of disbelief and loud boos from the audience of thousands of Mac users and software developers.

Jobs, who recently returned to Apple as an adviser and was named to its board of directors, attempted to soothe the audience, saying: "We have to let go of a few notions here. We have to let go of the notion that for Apple to win, Microsoft needs to lose."

Microsoft Chairman Bill Gates appeared on an overhead screen at the MacWorld convention to praise the new alliance. But his mere appearance spurred another round of indignant shouts from a crowd that included some of the world's most passionate users of the Mac.

The deal includes a "cross-licensing" agreement in which Microsoft - the single biggest developer of Macintosh software - pledged to continue making its popular Office software for the Macintosh. Both companies also agreed to develop programs and operating systems that work better together.

Microsoft Treasurer Greg Maffei, in a telephone conference call with reporters and analysts, said Apple and Microsoft have been talking for a year, but talks stalled when Apple Chairman Gil Amelio resigned recently.

Jobs, when he returned to the company, called Gates and talks grew more serious.

Jobs was the one who requested the $150 million investment in Apple, as a sign of support, Maffei said.

The irony of a new Apple-Microsoft accord immediately struck observers who've watched the companies fall into a near-religious war for the hearts of computer programmers and users around the world.

"They've done everything they possibly could do to attack Microsoft, to disparage Microsoft - like the Cold War between the U.S. and Russia," Rob Enderle, an analyst with Giga Information Group in Santa Clara, Calif., said of Apple. Now, he said, "Jobs is playing Gorbachev," the Russian leader who called a truce in the Cold War.

"He's saying this war is too expensive. Without admitting defeat, we've got to do whatever it takes to turn the company around."

Gates played the magnanimous role this morning in a satellite feed to MacWorld attendees:

"We think Apple makes a huge contribution in the computer industry," he said. "And we think it's going to be a lot of fun helping out."

But Microsoft, for its $150 million, gets something in return:

-- A shield from the heat of antitrust regulators. If Apple ceases operation, Microsoft has a 100 percent share of the personal-computer market.

"From Microsoft's standpoint, I think their interests are pretty much motivated by antitrust concerns," said Richard Scocozza, a software analyst at Brown Brothers Harriman. "It's in their best interest to keep Apple from failing so they don't incur any additional scrutiny from the Justice Department."

But Maffei said, "We weren't driven as much by (antitrust concerns) as looking at a platform for our applications."

-- A business boost. Microsoft's top-selling Office software, used mostly by businesses, has 8 million users. More than 200 Microsoft employees work exclusively on Mac software, and Microsoft has a staff based in San Jose to work closely with Apple and independent Macintosh programmers.

-- Help in its rivalry with Netscape Communications. Apple agrees to use Microsoft's Internet Explorer Web browser as the built-in browser for Macintosh computers. This will help Microsoft fend off rival Netscape, especially with the Mac-loving crowd that has been loyal to Netscape simply to spite Microsoft.

-- A foothold in the lucrative market for high-end graphics software. Until now, Microsoft has not been able to crack the loyalty of the artistic community to the Macintosh. If Apple begins using more Microsoft software on the Macintosh, the partnership could lessen this problem for Gates & Co.

The deal is also good public relations: "Gates kind of looks like a white knight here," said Scocozza.

Despite viewing the deal as a sign of resuscitation for Apple, observers and analysts also cautioned to watch for other consequences.

"We're still waiting for the other shoe to fall. What did Microsoft buy for $150 million?" Enderle wondered. He speculated that the real payoff for Microsoft would come if Apple agreed to use Microsoft's operating systems.

Two possibilities: Microsoft's Windows NT, its high-end operating system for business computers, could be built into future Macintosh lines, and Windows CE, the "lite" version of the operating system for devices like handheld computers, could replace the system now used in the Newton handheld "personal digital assistants," created by Apple.

Robbin Young, executive editor of Windows Watcher, a Redmond-based industry newsletter, described the deal as characteristically shrewd on Microsoft's part.

"It's extremely strategic, and it's probably a very delicate balance between supporting Apple and provoking Macintosh partisans," Young said. "And it's a very small slap in the face at Larry Ellison at the same time." Ellison, chairman of Silicon Valley giant Oracle, is often quoted for his vitriolic anti-Microsoft statements. He recently tried buying Apple; the deal fell through, but he was named today to Apple's board - a move seen by many as curious given the new Apple-Microsoft spirit of cooperation.

At a news conference this afternoon, President Clinton said the deal between Microsoft and Apple likely will be reviewed by antitrust authorities. He averted answering a question about whether he was troubled about the growing size and power of Microsoft. "We will treat them in the same way as anyone else and make the analysis of law in the Justice Department," Clinton said. "I will have to wait to hear from them about the antitrust applications."

Dennis Tevlin, marketing director for the Microsoft division that produces Office software, likened the deal to Microsoft's recent investments in the Comcast cable company and Progressive Networks, a Seattle-based Internet audio company. In those deals, Microsoft bought an 11 percent and 10 percent stake in the companies, respectively, and found partners to gain new customers for its products.

"It's a great business opportunity for us," Tevlin said.

He didn't miss the larger significance of today's events, though: "It's an historic occasion," Tevlin said. "Jobs and Gates working and talking together, and signaling to the entire computer industry that we have a renewed sense of partnership."

Material from The Associated Press was included in this report. ----------------------------------------------------------------- Details of the Microsoft-Apple deal

The news: Microsoft today announced a $150 million investment in Apple Computer. It gets Microsoft roughly a 6 percent stake of nonvoting stock in Apple, a company with a stock-market valuation of around $2.5 billion.

The why: Microsoft and Apple have competed bitterly to dominate the market for personal-computer operating systems, the software that drives the way a computer runs. Microsoft has largely won the battle, now putting its Windows operating system in about 90 percent of all personal computers, according to PC Data.

Despite the competition, Microsoft has been the leading seller of software used by Apple's Macintosh users. Microsoft wants to keep it that way. Microsoft agreed not to sell the $150 million worth of Apple stock for at least three years. Microsoft won't get voting rights with its investment.

The deal: The companies will work closely to develop and sell software for the Macintosh:

-- Microsoft will continue to develop its popular Office software, which includes word-processing and spreadsheet programs, for the Macintosh.

-- Microsoft will do the same with Internet Explorer, Microsoft's software that allows a computer user to browse the World Wide Web.

-- Apple will make Internet Explorer the easiest way to access the Internet from a Macintosh-based computer.

-- Microsoft and Apple have agreed to cross-license some patents, with an eye toward developing future software technology for the Macintosh.

-- The companies will collaborate on future development of various programming languages, including Java, used frequently in development on the Internet.

Copyright (c) 1997 Seattle Times Company, All Rights Reserved.

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