Does Microsoft Regret Helping Apple?
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Twelve years ago today, Steve Jobs stood onstage at MacWorld and told the crowd that Apple had found an investor to help cure its financial ills: Microsoft. "We have to let go of this notion that, for Apple to win, Microsoft has to lose," said a darker-haired Jobs, dressed in a white long-sleeved shirt and dark vest. "For Apple to win, Apple has to do a really good job." In August 1997, Apple found itself in what The Big Lebowski's Walter Sobchak would have called a World of Pain: The stock had plummeted, former CEO Gil Amelio had been given the boot by Apple's board, and Jobs had yet to release the successful iMac. To some outside observers, Apple must have seemed on the verge of shaking apart like a space-shuttle built by sweatshop workers. But Jobs had already been talking with Microsoft about the possibility of a deal. If Apple survived, government antitrust regulators would have that much less of a case against Microsoft as a PC monopolist; in addition, the Macintosh would also provide Microsoft with an additional market for Office and Internet Explorer. In return, Apple would drop a long-running lawsuit against Microsoft, alleging that Redmond had copied crucial aspects of the Mac operating system when creating Windows. So Microsoft bought $150 million worth of Apple's non-voting shares, pledged to not sell them for at least three years, and thus became a significant investor in its rival. At the time, with Apple valued at around $2.5 billion, that number of shares translated into around a 6 percent stake for Microsoft, which got to position itself as a benefactor, maybe even a savior. Oh, how times change. For the quarter ended June 27, Apple reported profit of $1.23 billion, a rise of 12 percent over the same quarter in 2008. Much of this was on the strength of iPod and iPhone sales, although its Mac sales managed to rise 4 percent year-over-year. By contrast, Microsoft reported a 17 percent decline in its year-over-year revenue for the same period, undershooting Wall Street estimates by a cool billion. During Microsoft's annual Financial Analyst Meeting on July 30, CEO Steve Ballmer suggested that Apple's gains in the hardware arena posed zero threat to Redmond. "Apple's share, globally, cost us nothing," Ballmer said at the time. "You can't be high-priced. That doesn't get us to the high volume that we aspire to." He insisted that Microsoft's latest ad campaign had repositioned Windows-loaded PCs as a better value proposition over Macs, to positive market effect. Yet Microsoft, even as it positions itself as unaffected by its rival's resurgence, seems determined to replicate some of Apple's moves - to varying degrees of success. In 2006, it rolled out its own digital music player, the Zune, which despite some cool features (including the ability to communicate wirelessly between Zunes) never really seemed to gain substantial market traction. And this fall, it plans on rolling out the first Microsoft retail outlets, with early-concept floor plans heavily evocative of what Apple has done with its own storefronts. It's a definite jump-ball as to whether Microsoft's stores will gain any market-traction - especially if Redmond continues with its plan to open many of them next door to Apple's locations - and I've never seen anyone actually using a Zune. But the retail stores and the Zune aren't part of Microsoft's core market, and Microsoft even managed to gain a few points of market share over Apple in the U.S. PC market for the first quarter of 2009, according to a research note by Gartner. Because of that, and the revenues that Microsoft earns from the Mac versions of its software, Microsoft probably doesn't regret that long-ago cash infusion - but sometimes, its executives probably wish that Apple weren't quite so successful in the marketplace. |
Comments (3)
Apple is a niche computer maker, it caters to those with more money mostly. As such there is a point where its not going grow any further. UNLESS, Apple creates more manufacturing ability for Mac, and starts selling lower priced computers that will not cripple the higher prices ones it already sells. This is the real danger to MS and its OEM's. Apple has taken away the market with the highest profitability for the OEM's, laptops that cost over $1000 in mature markets.
MS bought that 150 million share of Apple stock cheap, and made good money on it. Most likely, Apple would have made it without the help of MS.
Its unlikely that the Laptop Hunters commercials are going work to take back that $1000 plus market from Apple, its been backfiring so far. Instead, MS needs to look at the reasons people buy the expensive Macs, instead of the OEM computers with Windows on them. Think they will find, that in most cases, its not so much the hardware, but the security and stability of the nix system that is OS X over Windows. Linux also provides and even better security model, and is making great gains on the low end.
Now all the user interface and taskbar changes are not a "reason" for most of us to go out and buy Windows Seven. MS needs to do 2 things, they need to address the core issues for users, and they need to give the users what they want. The core issue is "internet security," that is what is causing the flight to alternatives. MS made an "Secure Windows" version for the US Army, why not make one for the public, setup with a default normal user account. And make that "Secure Windows" version, and XP version, and drop Vista/Seven train wreck over the cliff.
Posted by Chips B Malroy | August 6, 2009 5:56 PM
Some of you may have notice, that Net Applications changed the way they collected or rather, tabulated data for its Desktop Operating Systems Market Share. Mac OS X lost half its share overnight, while near 10%, it went do to 5%. Windows gained the 5% to show at 93%. Linux gained 18% only to stay at near 1% of the market, accordingly to Net Applications.
The question is, why should we trust a company that data is so unreliable? And its still very wrong with its data. MS funds Net Apps site as the largest sponsor as well as Apple. And yet, according to Steve Ballmer and Microsoft, Linux not Apple has a larger share and is the bigger competitor:
http://www.osnews.com/story/21035/Ballmer_Linux_Bigger_Competitor_than_Apple
Notice the pie chart, from a slide that Ballmer used. Notice that Linux is bigger share than Mac, guessing at least 2 or 3 % total more of market share than Mac. So by MS figures, if Mac has 5%, then Linux has 7 or 8% (maybe more) of the desktop share already.
You can see the desperation and why MS does everything to keep Linux off Netbooks in the USA mature market.
Posted by Chips B Malroy | August 6, 2009 6:06 PM
Was it worth it to Microsoft? Well, does Microsoft still own the Apple stock shares they purchased? If so, how much are they worth now? If they sold them, when did they sell, and for how much? How many sales of Mac Office and Mac Word have they had since 1997?
Those are obviously key questions to this discussion. Yet, I don't see them addressed in the blog post.
Please compare Mac sales worldwide to PC sales. You can see that Mac sales are a tiny blip compared to what Microsoft sells.
Considering all that Microsoft has gained from its investment in Apple, including insurance against antitrust enforcement, it seems safe to say it was a positive investment for Microsoft.
The real competition these days is in net applications, and handheld devices. Those are the key markets in the future. Google is currently the main player in net applications. Apple is the main player in handhelds, at least in North America. Don't count Microsoft out, however. They have a way of catching up.
What Microsoft ought to regret is not diving into net apps and handhelds sooner and more thoroughly.
Posted by Andrew H | August 7, 2009 9:17 AM