August 14th, 1997

Advantage: Apple
August 14, 1997

by: Jon Bodner ([email protected])

There have been very few moments in Mac history as unexpected as the Microsoft-Apple deal announced at MacWorld. Common sense and conventional wisdom have decreed that Apple was "saved" by a combination of Microsoft's good will and its desire to avert any anti-trust actions by the U.S. government.

As is often the case in these matters, common sense is nonsense. Microsoft has never shown any good will towards a competitor. Ask IBM how Microsoft helped "save" OS/2. Ask Netscape how it feels about Microsoft giving away Internet Explorer and integrating it into Windows 98. If you'd like an even earlier case, ask whoever owns DR-DOS this week what happens when you fight Microsoft in the OS wars. Microsoft has never taken any prisoners and it seems odd that they would have a sudden change of heart.

Furthermore, the Justice Department has rolled over and played dead for Microsoft repeatedly. Despite numerous anti-trust complaints, Microsoft has gotten away with only ineffectual slaps on the wrist which did nothing to right past wrongs. Microsoft is has so much influence with the US government that there's even a tax break in the current U.S. budget targeted solely for Microsoft's benefit. With that kind of clout, there's little reason to believe that the government is going to step in and break up Microsoft if Apple fails.

So, if common sense is wrong about why Microsoft and Apple kissed and made up, why did they do it? The best way to determine who benefited the most from a deal is to look at what each side gave up and what they received. Let's list what each company gave and got.

Apple agreed to cross-license all of its patents for the next five years with Microsoft. In exchange, Microsoft is giving Apple an undisclosed amount of money but Apple is not giving Microsoft any money. Apple will also make Internet Explorer the default browser with future system releases. Apple and Microsoft will work to make sure that their Java environments are compatible. Microsoft, besides the aforementioned patent payment, is also buying $150 million worth of non-voting Apple stock which they can't sell for three years. Microsoft is also promising to develop Mac OS versions of Office for the next five years.

So, as Deep Throat said, "follow the money." Microsoft has given a small chunk of money to Apple. More importantly, other money will follow. The Wall Street analysts and corporate buyers give a seal of approval to any company in which Microsoft takes an interest. Overnight, the aura of death lifted from Apple in the eyes of the world. There was no way Apple could have gained that sort of good will alone.

Apple gave Microsoft three things, none of which are of any true consequence to Apple. Making Internet Explorer the default Mac browser is meaningless; after all, Internet Explorer is included with Mac OS 8 already. Apple simply changes a few settings in the bundled third-party Internet Config utility, and Internet Explorer is the "default browser." If any users want to make Communicator (or any other browser, for that matter) the default, it will only take a few seconds.

The other parts of the deal are much more controversial. Apple agreed to share its much-valued software patents. Since Microsoft has been finding ways to incorporate its own versions of Apple's software innovations for years, these patents are probably not as valuable as most Apple fans think they are. The whole issue of software patents is only interesting because Microsoft is paying Apple an amount of money large enough to be spread out over several years.

Finally, Apple is going to work with Microsoft to keep their Java Virtual Machines in sync. Since Microsoft has announced that they will deviate from the Sun standard in several ways, this has caused a great deal of concern in the Pure Java camp. Once again, this isn't an issue. Sun, while not quite ignoring the Mac OS, hasn't put forth much effort toward its Mac Java efforts. The Mac is over six months behind the WinTel and Unix world in Java support, and much of the blame for this can be laid at Sun's feet. Only extreme arrogance on the part of Sun can explain any expectation of loyalty from Apple after this snubbing. What's amazing is that Apple is still committed to Pure Java, as Webintosh revealed earlier this week. It's likely that Apple will simply support both the Sun Pure Java spec as well as Microsoft's extensions, since adding the Microsoft extensions does not preclude supporting Sun's standards. Furthermore, Microsoft has announced their own home-grown JVM for the Mac. Since Microsoft's JVM for x86 is faster and more stable than Sun's, it's likely that these benefits will carry over to the Mac as well.

So, what did Apple get out of the bargain? A higher stock price, industry confidence, reimbursement for its research and development, new software from Microsoft, and the most universal JVM in the industry. And Microsoft? They got to pay Apple. Some bargain.

Microsoft is too smart of a company to make such a lopsided deal. There are behind-the-scene factors which we will never know about in detail. Suffice it to say that Apple came out ahead. Let's hope that the new Apple management team can use this once in a lifetime deal to save the company.