The bombshell Steve Jobs dropped on the Macworld Expo audience in Boston earlier this month was greeted by hisses and boos.
In his keynote speech, Apple co-founder stunned Mac users with the news that Microsoft would invest $150 million (#95.5 million) in Apple.
Despite the initial shock, in the days following the announcement, it became clear that Mac users, and indeed Microsoft itself, will more than benefit from the tie-up, which calls for a significant improvement in relations between the two companies. The $150 million will help Apple immensely, but the real gift is Microsoft's commitment to deliver the latest version of its Office suite and other application software on the Mac platform.
If Apple had lost Microsoft application support, customers past, present and future would have moved to Intel. The Mac loyalists may hate Microsoft, but the company is the largest seller of Mac software.
At first glance the deal may look like a generous donation by Microsoft.
However, on closer inspection, it is not so one-sided. Microsoft has much to gain from the tie-up, not least in its attempts to keep the Department of Justice and its antitrust investigators at bay. Microsoft needs competitors to counter criticism that it is becoming too dominant in the market.
Difficulties between Microsoft and Apple date back as far as the 1980s, with the start of a bitter and protracted dispute over whether Microsoft infringed on Apple's patents when it created the Windows operating system.
Jobs had to scold the crowds during his speech when a cameo appearance by Bill Gates was greeted with raucous booing.
"If we want to move forward and see Apple healthy and prospering we have to let go of a few things," said Jobs. "We have to let go of this notion that for Apple to win, Microsoft has to lose. OK? If we screw up and don't do a good job, it's not somebody else's fault. It's our fault."
Microsoft's $150 million investment represents a 5% share in Apple and is comprised of non-voting stock, meaning the company will have no control over the running of Apple.
The deal includes a broad cross-licensing pact which covers any patents either company files over the next five years. However, it is not clear exactly how close the two companies will work together. So far, they have announced that Microsoft's Internet Explorer will be the default browser on the MacOS, and that Microsoft has agreed to ship Mac versions of its Office suite for the next five years.
However, the deal does not cover Apple's next-generation operating system Rhapsody, which is due to go into beta soon. Some observers see this as a major shortcoming.
Microsoft chief financial officer Greg Maffei, said: "We have not formally committed to release Office for Rhapsody. We're going to basically take the lead as they bring out new operating systems."
Maffei said the two companies had also held discussions regarding Windows NT but as yet had not agreed to anything.
The other area of collaboration between the two involves the Java Virtual Machine. In essence, Microsoft and Apple have agreed that whatever one company does with Java, the other will do as well, so that both versions of the virtual machine will work together.
According to industry observers, this could put a spanner in the works for 100% Pure Java, an initiative by Sun Microsystems to encourage application developers to build their products using only cross-platform, vendor neutral technologies. Jobs said because so many web sites run on Macs (around 64%), the agreement will boost Microsoft's attempts to loosen Sun's control of Java.
Also in his speech, Jobs welcomed four new members to the Apple board, including himself. It is an impressive list, a sort of who's who in the heady world of IT. The new members are:
- Jerry Rork, former CFO of IBM and Chrysler and vice chairman of Tracinda, widely known for his contributions at both Chrysler and IBM during their turnarounds.
- Bill Campbell, president and CEO of Intuit, who was vice president for Apple from 1983 to 1987, and head of Apple's Claris software subsidiary from 1987 to 1991.
- Larry Ellison, chairman and CEO of Oracle, who created a storm when it was rumoured he was poised to put in a bid for Apple earlier this year.
- And Steve Jobs himself, who has been advisor to Apple for the past few months, after returning at the end of last year when Apple bought his software company NeXT.
The four executives join existing board members Gareth Chang and Edgar Woolard. Chang is senior vice president of Hughes and president of Hughes International. He has served on the Apple board since September 1996.
Woolard is chairman of the board of EI DuPont de Nemours, . He has served on the Apple board since June 1996.
Commenting on the new line-up, Alan Hely, Apple's UK marketing director, said: "The high quality of individuals now on the board has given total credibility to Apple. These executives would not bother to sit on Apple's board if they didn't believe the company had a future. The fact that they have taken these posts shows the whole industry wants Apple to survive."
Hely went on to say that the negative reaction from the crowd at Macworld was limited to only a few Mac enthusiasts. "For some of them it's like being a football fan - if you support one team you can't support the other, he added."
The news also boosted Apple's stock. In the days following the announcement, Apple's stock climbed by $6.56 per share on the Nasdaq stock market to $26.31. This 33% jump pushed the stock to its highest level since October last year and up more than $13 per share since the departure of Gil Amelio as chairman last month. Strangely, Microsoft's stock fell 18.75 cents to $143.12.
Michael Gartenberg, research director at industry analysts the Gartner Group, was cautiously optimistic about the announcement. "The deal is good for Apple and probably even better for Microsoft." he said. "Apple has received positive press for the first time in years and its stock price is up. But nothing substantial was really announced."
Gartenberg maintained that Microsoft was already committed to delivering Office for the Mac and that the only real news in the announcement was in Microsoft becoming a Java development partner to Apple.
"Whether Apple can return to profit is another matter altogether. Profit is based on selling computers and Apple needs to figure out how to recapture market share. However, the announcement is a good base to start with.
At least it should finally put an end to the rumours that Apple is going out of business."
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