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Microsoft to invest $150 million in Apple

Unlikely bedfellows Bill Gates and Steve Jobs join to announce Microsoft's $150 million investment in Apple and extensive agreements.

Dawn Kawamoto Former Staff writer, CNET News
Dawn Kawamoto covered enterprise security and financial news relating to technology for CNET News.
Dawn Kawamoto
4 min read
BOSTON--Microsoft (MSFT) is lending Apple Computer (AAPL) an unexpected and somewhat controversial helping hand.

Microsoft chairman Bill Gates said today As the Macworld turns that the software giant will invest $150 million in Apple and will develop and ship future versions of its Microsoft Office, Internet Explorer, and development tools for the Macintosh.

Gates, who appeared via satellite link, and Apple director Steve Jobs made the announcement here today at the Macworld Expo trade show.

Both Apple and Microsoft executives denied that the Microsoft investment represents a path to converging the companies' operating systems. However, they said they had agreed to work out a settlement to a long-standing dispute over whether Microsoft's Windows operating system infringes on any of Apple's patents.

More important, Microsoft said it has pledged to offer the Office business productivity software suite for the Macintosh platform for the next five years. Mac Office 98 is expected to debut by the end of the year.

"This deal strengthens Apple's viability. It's a new era in terms of Apple and Microsoft working together," said Apple chief financial officer Fred Anderson, who has been assigned to run the company's daily operations until a successor to outgoing CEO Gilbert Amelio is found.

Fred Anderson, Apple CFO, on Apple-Microsoft collaboration

Observers say the deal, while a shot in the arm for Apple, also may help Microsoft by keeping antitrust charges at bay. Apple represents one of the only alternatives to Microsoft's Windows and the Microsoft-Intel hegemony.

Microsoft chief financial officer Greg Maffei discounted such talk. "Frankly, we weren't driven as much by those kind of considerations as looking at it as a platform for our applications," he said.

Dwight Davis, editor of the Windows Watcher newsletter, said the real benefit for Microsoft is that it gains an ally against Sun Microsystems' Java programming language. "Apple has not been the bogeyman to Microsoft in a long time. They are more than happy to have a legitimate threat to their business, and it's called Java."

For Apple's part, Anderson said, "Microsoft Office is very important to our Mac customer base, and this deal provides for continued availability of the outstanding Microsoft Office product on the Mac platform."

More than 8 million customers use Microsoft Office for the Macintosh, making it "the single largest revenue Mac application," Maffei said. "It's a very important application for Apple and its customers, and it's a very important application for Microsoft and its customers. It's a several-hundred-million-dollar item."

Analysts said that Microsoft's assurance of providing its latest applications on the Macintosh may be more important to the company's long-term viability than the $150 million investment.

"The decision to produce Office on the Mac will be a big boost for Apple. It has been a year-to-year waiting game in the past as to whether Microsoft would support the Mac with new versions," Davis said.

"Gates even suggested that Microsoft might produce the next version of Office first for the Mac. That's a notable commitment from Microsoft. If they withdrew Office support, that would have been the straw to break Apple's back."

Davis also said that given the size of Microsoft, a $150 million commitment amounts to little more than good public relations. "Remember, they spent $450 million on WebTV. The investment still doesn't give Apple a coherent strategy for turning things around."

The companies also agreed to collaborate on the Java programming language and other programming languages to ensure they run consistently on both Windows and Macintosh platforms. In addition, Apple agreed to make Microsoft's Internet Explorer the default browser for the Macintosh platform.

The news, coupled with Steve Jobs's announcements of new Apple board members, pushed the company's stock up more than 40 percent in morning trading. Apple gained more than 8 points in early trading over its closing price yesterday of 19-3/4. (See related story)

"It's very exciting to renew our commitment to Apple," Gates told attendees via satellite.

Jobs, who took the stage to a standing ovation, said that the Microsoft

Anderson on how Jobs put the MS deal in motion
investment cannot be sold for three years and covers non-voting shares in the company. "We have to let go of a few things here. We have to let go of the notion that for Apple to win, Microsoft has to lose," Jobs told the crowd soon after it reacted negatively to Gates's satellite appearance.

Davis said the investment means that Apple will now toe Microsoft's line on Java. "If Java is a threat to Windows, and all operating systems, then it's a threat to Apple and the Mac OS."

The agreement includes no commitments for Apple to use Windows NT, Microsoft's corporate operating system, although previous discussions on the topic have been held, Anderson said.

"NT was not part of this agreement and there are no current plans on this, but this doesn't forego something in the future," Anderson said. He noted there have been no discussions with Microsoft to license Windows CE, the operating system designed for handheld devices, settop boxes, and other non-PC products.

Anderson said that while Internet Explorer will become the default browser on the Mac OS, Apple has a browser distribution agreement with both Netscape (NSCP) and Microsoft.

"Although the default browser will be Internet Explorer, it doesn't preclude the use of [Netscape's browser]...The Netscape deal will continue," Anderson said.

Apple, which ended its third quarter with $1.2 billion in cash, will use the additional $150 million to invest in its core markets of education and creative content, Anderson said. He added that the company expects to gain a higher percentage of its revenues from software and services in these core markets in the future.

Microsoft paid a share price slightly below the market but an average of the recent trading, Maffei said. He confirmed that the software giant has agreed to hold onto its shares for at least three years.

Apple expects to close the investment deal in the next few days.

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