How chummy are Apple, Microsoft?

With the government's antitrust trial looming, questions linger about their business relationship.

3 min read
As Apple Computer today posted its first profitable year since 1995, questions remain about its business relationship with Microsoft, a close partner that has helped fuel the PC maker's better-than-expected earnings growth.

Avidis Tevanian, Apple's senior vice president of software engineering, will testify for the government in its antitrust trial against Microsoft, set to begin on Monday. The Apple executive is expected to provide testimony that the government will use to prove that Microsoft engaged in a pattern of anticompetitive behavior.

Tevanian is expected to testify that Microsoft encouraged Apple to back away from some of its efforts concerning software for playing audio and video broadcast over the Internet. Apple's QuickTime product is a major contender in the field for so-called multimedia streaming and now is a de facto standard. Tevanian is expected to bolster government allegations that Microsoft leaned on Apple not to market QuickTime for Windows platforms.

According to a story in today's Wall Street Journal, Tevanian may testify that Microsoft pressured computer seller Compaq Computer to back away from plans to ship machines that had QuickTime preinstalled.

The paper also reported that the government has obtained an internal Microsoft memorandum that acknowledged that persuading Apple to do anything that "significantly/materially disadvantages Netscape will be tough." Microsoft allegedly tried to influence Apple's plans to work with Sun Microsystems.

Despite the prospect that Apple See related story:
Microsoft's holy war on Java may provide evidence the government will use against the Cupertino, California, computer maker's most crucial ally, however, analysts don't appear concerned that the companies' relationship is in jeopardy. For one thing, so-called coopetition, where companies both cooperate with and compete against each other, is common in the computer industry, they explain.

And for another, Apple doesn't appear to be relishing its role.

"I don't think in this case that Apple went looking to testify," said Dwight Davis, a Microsoft analyst at Summit Strategies. "The fact of the matter is that I don't think anything that Apple says is likely to be viewed by Microsoft as particularly damaging."

Finally, given all the scrutiny over the past several years, Microsoft is not likely to retaliate against Apple even if its testimony was to hurt the Redmond, Washington, software giant.

"My suspicion is that since Microsoft is under the microscope on its behavior with its partners that any direct change in the relationship between Microsoft and Apple could be construed as related to [Tevanian's] testimony [and would] not be in Microsoft's best interest," said Pieter Hartsook, an Apple analyst. "I suspect [Microsoft] is going to be very studied in their response."

Microsoft has denied any pressuring of Apple over QuickTime.

Tevanian's testimony comes just 14 months after Microsoft invested $150 million in Apple and promised to develop a version of the popular Office software suite for the Macintosh platform. In return, Apple promised to exclusively promote Microsoft's Internet Explorer browser.

The deal came as Apple's market share was plummeting. Since then, Apple appears to have turned the corner, thanks to the popularity of its new iMac computer and Microsoft's commitment to the Mac platform, among other factors.

Microsoft and Apple, which once were fierce competitors, have collaborated on numerous projects, including new applications and a Java Virtual Machine.

But shortly after the two companies announced the partnership, word surfaced that the Justice Department (DOJ) was scrutinizing the deal. During the past few months, the government has added new allegations to its lawsuit against Microsoft, including that it intended to carve up the market for multimedia software.

Last week, antitrust prosecutors revealed in a court document that they intended to call Tevanian as one of only 14 witnesses to testify at trial. Apple has remained tight-lipped about what Tevanian will say, admitting only that the two companies have had differences in the past over the issue of multimedia software.