Should we thank Microsoft for the iPhone?
On the eve of yet another Apple event, one that will see the introduction of a collection of iPhone 16 devices that likely won’t be all that different from the year before, and the collective tech consumer making a purchase because, well, it’s Apple, it’s worth remembering that none of this would have been possible without an act of charity or calculation from Apple’s once greatest rival: Microsoft.
I was reminded of the days when Apple, still in the rearview mirror during the company’s heyday, was relegated to failed Newton Handhelds, poorly thought out collaborations with Bandai (Pippin game console/internet device) and near irrelevance.
In the years after Apple co-founder and CEO Steve Jobs was fired and returned in early 1997, Apple saw its revenues plummet from a high of $11 billion to $7 billion. It saw its losses widen to $125 million in 1996. There was talking about a merger with Sun Microsystemsone that then-Apple CEO Gilbert Amelio would not confirm and spokespeople denied. But it was clear that such talk further hampered sales of Apple’s then-moderate Power Macintoshes and Powerbooks.
While there is some disagreement about the extent to which Apple was in the red at the time, even Jobs admitted just months after his return that there was work to be done to “get Apple healthy again.” It was during that momentous Macworld 1997 Presentation that Jobs outlined a plan to bring Apple back. Interestingly, there was not a single new product announcement; it was all about new leadership, new partnerships, and a cash injection from Apple’s biggest rival.
What people remember from that day is that Microsoft promised to buy $150 million worth of non-voting Apple stock.
The price of survival
“Yes, but the key part of this that didn’t get enough attention is that this included an unlimited license for Microsoft to use a graphical interface for Windows,” said Apple analyst and Creative strategies Chairman Tim Bajarin told me. Bajarin has been following Apple almost since its inception.
People like Bajarin, who knew Jobs and how bad the company was, applauded the bailout (“it was a good and strategic victory for both sides”), but those at Macworld were not happy.
They canceled the stock buyout and other elements of the historic deal (Microsoft promised to release MS Office for the Mac within the next 5 years and received a more positive response). When Jobs explained that Apple had agreed to make Internet Explorer the default Web browser for the Mac, one attendee shouted, “No!”
The reaction was understandable. Apple’s company had been built on an anti-PC foundation, the antithesis of Microsoft’s Windows and its more corporate worldview. The antagonism had once seemed to fuel both companies. But those days were long gone. As Jobs noted in his presentation, “Relationships that are destructive don’t help anybody in this industry as it is.”
Of course, Microsoft wasn’t entirely altruistic. As part of the deal, Apple agreed to a broad patent settlement and a cross-license agreement “for all patents, including those filed in the next five years.” This meant that Apple wouldn’t sue Microsoft for using a too-similar-to-Mac OS GUI interface on any version of Windows.
By putting Internet Explorer on yet another platform, Microsoft was able to solidify its rapidly growing lead in the web browser space. I’m not sure that move helped when it faced an antitrust lawsuit in 2000.
Within a year, the value of Microsoft’s investment has nearly doubled and has only grown from there.
An act that paid off
While the reasons for Apple’s fall from grace were numerous (Jobs described it as “doing a lot of the wrong things really well”), there was reason to believe that the brand could not only be strong, but a potential powerhouse. During his presentation, Jobs described the brand’s incredible brand recognition and enviable market position in education and creative content.
In 1997, Jobs said, 64 percent of all websites were designed on a Mac, and 60 percent of all computers in education were Macs. The numbers are all the more surprising because Apple, by its own count, had about 20 million customers. Today, the company has more than 2 billion.
What Apple lacked for more than a decade was its founder and visionary. Jobs came up with ideas (and the remnants of the NeXT platformBajarin believes the capital injection gave Apple time to develop the iconic iMac, which was released in August 1998.
Of course, it gave us much more than that. You could argue that Apple might not have survived without Microsoft’s $150 million lifeline. It’s possible then that
- No iPod
- No iPhone
- No iPad
- No Apple Watch
- You get the idea
I can’t deny that we wouldn’t have gotten there eventually, but the mobile computing revolution could have lasted five years or more.
Think about it: it only cost $150 million to save a company that would change our lives and eventually be worth trillions.
So if you’re marveling at the latest iPhone 16, AirPods Pros, and Apple Watches, raise your glass to Microsoft and, yes, Bill Gates, who was heartily booed when he appeared on screen at that 1997 Macworld. Without them, the Apple of 2024 might not even exist.