When Apple officially invited Microsoft into its inner circle this week, the media went wild. But the deal doesn't mean much to either company's balance sheet - and the Steve Jobs-Bill Gates virtual handshake didn't press any flesh that hasn't made contact before.
Redmond and Cupertino have been dancing the two-step since Jobs and Steve Wozniak incorporated their garage-cultivated start-up in 1977. That year, the two Steves licensed the Microsoft Basic interpreter for the Apple II and released it as Applesoft Basic. Soon Microsoft was developing apps specifically for the Mac.
While the relationship has been at times tempestuous and spiked with copyright and patent-infringement lawsuits, industry observers say it has been an important one to Microsoft for 20 years now.
"They have a commitment to the Mac platform that's not an emotional commitment - it's a sales commitment," said Jeff Tarter, publisher of the software industry newsletter Softletter. "There's a substantial market there, and there never was a question about whether Microsoft would continue to do versions of Office for the Mac."
Indeed, Microsoft Office is the highest revenue-generating Macintosh application, with 8 million customers and annual sales in the "hundreds of millions," says Microsoft CFO Greg Maffei. His Apple counterpart, Fred Anderson, called this week's agreement, which involves a purchase of US$150 million worth of non-voting Apple shares, a promise to develop future versions of Office for the Mac, and a bundling of Internet Explorer into the Mac OS, "a new era of Microsoft and Apple working together."
The media concurred. The New York Times, for example, trumpeted the deal as "a stunning alliance that could alter the map of the computer industry." But pulling things apart and looking inside, it doesn't look like a lot has changed.
The $150 million is pocket change for Microsoft, which routinely drops big money into acquisitions and partnerships, like this year's $425 million for WebTV, $1 billion into Comcast, and an undisclosed amount for a 10 percent stake in Progressive Networks. Apple, on the other hand, certainly can use any handouts it gets - having reported losses of more than $1.6 billion in the past year and a half. But the company's $8 billion annual break-even point makes the Microsoft money look inconsequential.
Besides, new eras of cooperation have been announced before. In 1992, Microsoft agreed to develop software for the Power PC in the midst of a copyright suit over Apple's user interface, and in 1989, the two companies agreed to share font technology. Microsoft has even purchased Mac-oriented companies to shore up its position in the market. In November, the software giant gobbled up ResNova Software Inc., a small California maker of Mac-based server software, and assimilated five of the company's key employees.
At January's Macworld in San Francisco, news leaked that Microsoft would establish a separate application development unit devoted to the Mac platform. The 100-person group was set up with separate profit-and-loss responsibility, and is now considered to be the largest Macintosh software organization outside of Apple-owned Claris Corp.
Microsoft spokesman Greg Shaw, who says his company has been "the leading applications and tools developer for the Macintosh since before there was a Macintosh," can reel off a lengthy list of occasions the two companies have worked together.
"In 1979, we introduced our first retail product, the Softcard system, which allowed the Apple II to run the CP/M operating system," Shaw says. "Then in 1985, Gates and Jobs launched Excel for Mac, which was credited with providing the proof that the Mac was a viable business computer. I think the mainstream press tends to miss the nuance that there's been competition on the systems side of the business, but cooperation on the tools side."
Microsoft's sincerity about cooperating is called into question by some, however. "Their history is full of stories about supposed cooperation that were really much more like a Trojan horse," said Roger Kay, an analyst with International Data Corporation. Reminiscing about slow-booting versions of Excel and buggy copies of PowerPoint, Kay said: "I think a lot of what they were doing was a slow crippling of Apple without being too obvious about it."
Others question whether this week's announcement will change the allegedly slipshod apps. "They're in a market where there's as close to zero competition as you could imagine, and historically they've reacted to the absence of competition by producing really bad software," said Softletter's Tarter.
While Microsoft's Shaw argues that the deal is proof of Microsoft's commitment to Apple, Montgomery Securities analyst David Readerman said the deal is all in Redmond's favor. With a chuckle, he pointed out that Microsoft recouped about a third of its investment the day the deal was announced at Macworld in Boston, as the stock price soared by more than 30 percent.
Barbara Ells, an analyst with Zona Research, concurred, saying Microsoft "is poised to earn a big return on that investment." The Apple-Microsoft alliance is "nothing dramatic," she added, "just good business for Microsoft."
