What gives? Has Gates, 42, become kinder and gentler since getting married and passing the big four-zero? Has he given up his goal of having Microsoft dominate everything it touches? No way. It’s obvious to even a nontech type like me that Microsoft isn’t helping Apple to help Apple. It’s helping Apple because Microsoft is better off having an enfeebled Apple alive than having Apple dead.
How does keeping Apple alive help Microsoft? In at least two ways: legally and financially. To understand the legal benefit, let’s take a brief excursion to the world of medicine. Consider a polio vaccine. To produce it, you weaken a polio virus to within an inch of its life. This feeble remnant of a once dangerous organism - known as an attenuated virus - stimulates the patient’s immune system but isn’t strong enough to cause trouble. Think of Apple in its current form as an attenuated antitrust virus (of the noncomputer variety) for Microsoft. Apple’s computer operating system used to be a dangerous rival to Microsoft’s operating system. Microsoft’s empire is based on its dominance of operating systems, which tell computers what to do. But for years, Apple has been, shall we say, attenuated: alive enough to immunize Microsoft against charges of having no competition but not strong enough to pose a real threat.
And make no mistake, a dead Apple could be big trouble for the big M. For years, Apple has been little more than a failing company with glorious memories, but it still gets obsessive attention from techies and the news media. Including, of course, this NEWSWEEK cover package. Why a company with less than a 4 percent market share gets so much ink is one of life’s mysteries. But because Apple is so high profile, you can be sure that if it stopped making computers or collapsed completely - both distinct possibilities before last week’s dramatic rescue - federal trustbusters would feel heavy pressure to take one more swing at the Microsoft monolith. The Feds have gone up against Microsoft several times and gotten essentially nothing, but lawsuits are easy to file. An Apple collapse might send some of Microsoft’s other rivals scurrying into court, too. Legal bills alone would probably cost Microsoft more than the $150 million that it will invest in Apple by buying nonvoting stock. (It’s also making patent payments of undisclosed size.) The 150 mil is big bucks to most of us, but it’s chump change for Microsoft, whose last balance sheet showed $9.1 billion of cash on hand. And it’s little more than a symbolic boost to Apple.
As things stand now, Microsoft has most of the computer biz by the short hairs - but that could change if the technology shifted and Microsoft got caught going the wrong way. Most new PCs come with tons of Microsoft software that computer buyers get as part of the basic purchase price but for which computer makers pay Microsoft through the nose. For example, when I bought my spiffy new Gateway 2000 last year, Microsoft’s Money and its Internet Explorer Web browser were part of the deal. I couldn’t save anything by not getting them, so I took them. If I want to use Intuit’s Quicken instead of Money or Netscape’s Navigator instead of Explorer, I have to shell out money. Fat chance. The point? If you develop one or two great programs, you have to convince retail buyers like me to buy your stuff to replace Microsoft programs we got free with our computers. Don’t hold your breath. Or you have to persuade computer makers to install your program instead of (or in addition to) the full line they buy from Microsoft. Good luck.
Microsoft’s stranglehold could loosen quickly if Web browsers evolve into substitutes for computer operating systems, as some gurus predict. That’s why Microsoft got so uptight when Netscape and the Internet suddenly exploded on the scene a few years ago. Netscape’s goal was to establish browser dominance and use it to build an empire the way that Microsoft used its dominance of operating systems to create the colossus we see before us. Guess what? As part of last week’s deal, Apple, which had allied itself with Netscape, will now favor Microsoft’s browsers. Microsoft has already taken a good piece of Netscape’s market share by offering browsers as part of a complete software package. Now it gives Netscape another kick in the chops.
And then there’s just plain money. Microsoft made a ton investing in cable-TV operator Comcast, because news of its $1 billion investment sent Comcast stock soaring. Ditto for Apple. I couldn’t get the precise number, but Microsoft said it’s paying $16.50 a share for its $150 million of Apple stock. Apple closed at $26 13/16 on Friday, giving Microsoft a paper profit of about $90 million. Not bad for a three-day-old investment. Another example, in case you need one, of how Microsoft is always looking out for No. 1. And of how Bill Gates got to be worth $40 billion.
