Internet Outlook with Richard Wiggins | 55

Microsoft and Apple: Why All the Fuss?

By Richard Wiggins

ou'd think that Ford and GM had announced a merger. The Microsoft-Apple deal announced on at Macworld on August 6 immediately set the media abuzz. The New York Times put the story on the top of Page 1, including a delicious photograph of Bill Gates on a big screen TV dwarfing Steve Jobs. Time and Newsweek both featured the deal on their covers. But how big a story is it? This column examines the meaning of the Microsoft-Apple deal, especially as to how it concerns Internet developments.

Is $150 Million a Lot of Money?

Microsoft's investment of $150 million drew the most attention. For most individuals, and for that matter, for most businesses (including, say, your average regional Internet Service Provider) an infusion of $150 million would be a very significant amount of new capital. But let's put that figure in perspective:

• Falling profits date back to 1993, when Apple fired CEO John Sculley and laid off 15% of its workforce, or 2500 employees.
• In January 1996 Apple announced a quarterly loss of $69 million and laid off 1300 workers. In March 1996 they announced a loss of $700M, followed by a loss of $32M in June.
• In January 1997, Apple announced losing $120 million in its previous quarter. The March loss was $708M, reflecting in part the $400 million acquisition of Next Inc. The best news Apple could announce for its quarter ending in June 1997 was that its $56 million loss was smaller than expected.

In the context of far greater annual losses, $150 million hardly seems like the kind of sum that'll save the company. CEO Gilbert Amelio was fired in part because his rosy predictions of a return to profitability that never materialized.

Another curiosity is the question of what kind of company Microsoft is investing in to begin with. Microsoft has by and large made its money in software and services -- two areas where the marginal cost of the next unit is low, and the potential profit margin is very high. Other than a few peripheral items, such as the Microsoft Mouse and the infernal "ergonomic" keyboard, Microsoft has stayed out of the hardware business. Does Microsoft see Apple at this point as a hardware company or a software company? With so little money involved, and with no real transfer of any power, the answer is probably that Microsoft's investment was tactical, not strategic, and they don't care what kind of company Apple is.