August 7, 1997 in Nation/World

Apple Turns To Microsoft For Survival

David E. Kalish Associated Press
 

Ending years of impassioned rivalry, Apple Computer and Microsoft jolted the computer world Wednesday by agreeing to share technology in a deal that gives Microsoft a stake in Apple’s survival.

Apple hopes that by linking up with Microsoft other developers will feel safer about pouring money into new programs for Macintosh computers.

The move stunned passionate Mac users, who consider Apple a crucial buffer against Microsoft chief executive Bill Gates’ domination of the computer industry.

When Apple co-founder and newly named board member Steve Jobs announced the alliance at the MacWorld Expo, flashing a satellite image of Gates on a huge screen, many in the audience booed and gasped.

“You’ve got to be kidding!” exclaimed one audience member.

Apple’s capitulation to what some of its loyalists see as the enemy shows how far its fortunes have fallen since the late 1980s when it was widely regarded as the easiest computer to use.

“We think Apple makes a huge contribution to the computer industry,” Gates told the MacWorld audience, adding that the combined expertise of the two companies should help bring technological innovations to market faster.

Gates’ face looming over the audience was eerily reminiscent of the famous “1984” ad that year that launched the Macintosh with a rebel smashing a Big Brother-like figure on an overhead projection. At the time the ad, which ran only once during the Super Bowl, was meant to signify Apple’s rejection of the IBM computers that used Microsoft’s arcane DOS operating system, the predecessor to Windows.

“We have to let go of the notion that for Apple to win, Microsoft needs to lose,” Jobs told the crowd. “The competition between Microsoft and Apple is over as far as I’m concerned.”

The pact was signed early Wednesday after a year of secretive on-and-off talks. Microsoft said it would invest $150 million in Apple - worth about 7 percent of the struggling computer maker. It also is paying Apple an undisclosed sum that could add up to hundreds of millions more to resolve bickering over each other’s patents.

Under the agreement, Microsoft will not sell the $150 million worth of Apple stock for at least three years. Microsoft won’t get voting rights with its investment.

Microsoft agreed to continue to release upgrades of its popular Office business software in Macintosh formats for the next five years. Office is already the single biggest Mac application. For its part, Apple said it would make Microsoft’s Internet Explorer browser the easiest choice for accessing the Internet from a Macintosh-based computer.

Moreover, the former opponents are now freer to integrate the best aspects of each other’s software. For instance, Microsoft can now adopt features from Apple’s QuickTime software for multimedia programs, which is considered superior to Microsoft’s version. Several analysts viewed that prospect as an important reason for Microsoft signing the deal. The companies insisted they don’t currently have plans to share QuickTime.

“The fault line is still yet to be determined as to how far it will go,” said Richard Doherty, an industry consultant who is director of The Envisioneering Group, based in Seaford, N.Y.

Such potential sharing unnerved Mac users but Apple executives said they would try to keep Mac and Windows distinct.

“I don’t believe this agreement will lead to an homogenization,” said Guerrino DeLuca, Apple’s executive vice president of marketing. “We’ll maintain differences where differences are important.”

Investors seemed to agree Apple has more of a fighting chance now. News of the alliance sent Apple’s stock up $6.56 per share on the Nasdaq Stock Market to $26.31. Microsoft, meanwhile, rose 12.5 cents to $143.44 on the Nasdaq.

Jobs, the object of on-and-off speculation that he would be Apple’s next chairman, said the company had not yet decided who would lead it. But in a suggestion that Jobs no longer heads the list, company officials said Apple hoped to choose a new chief executive with world-class stature who would also be chairman within the next few months.

With Microsoft on Apple’s side, the job of finding a new CEO should be easier, said Apple chief financial officer Fred Anderson. “Now we have a much better story for Apple.”

For years, the Macintosh operating system’s popularity was based on its ease of use compared with the hard-to-remember commands that Microsoft’s DOS required. But with the launch of Windows 95 two years ago, Microsoft matched and in some cases surpassed those advantages.

Macs accounted for 2.9 percent of all personal computers sold through retail stores in the first quarter, down from 10.2 percent a year ago, according to Computer Intelligence, a La Jolla, Calif.-based market research firm.

It was unclear what impact the new alliance might have on an on-going Justice Department probe into Microsoft’s dominance of personal computer software.

Asked whether he was troubled by Microsoft’s phenomenal growth, President Clinton told a press conference: “I have to wait to hear from (the Justice Department) about whether there are any antitrust implications in this.”


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