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When Apple (Nasdaq: AAPL) and Microsoft (Nasdaq: MSFT) signed a pact five years ago formalizing their relationship, the two companies laid out a detailed road map for the future. Included was a US$150 million shot in the arm for the then-ailing Macintosh manufacturer, plus a slew of development agreements, highlighted by Microsoft Office and Internet Explorer for Mac OS.
Although the companies have jointly created software for the Mac platform for nearly 17 years, the 1997 agreement marked a new beginning for Apple in the eyes of many industry observers. In addition, the deal was a signal to customers that Apple would pull out of its financial tailspin and move on to create new products.
Fast forward to the summer of 2002. The agreement expired, no extended proposal has been put in place, and published reports have questioned the state of the relationship. To date, neither company has made overtures toward signing another agreement.
At the same time, the leadership of the Microsoft Mac Business Unit has changed. Earlier this week, Microsoft announced that MacBU director Kevin Browne will be transferred to the company's Xbox division.
Sales of Office v.X Sagging
Some analysts believe the major point of contention between the two companies is lagging adoption of OS X, and the resulting sluggish sales of Microsoft Office v.X.
The companies sparred this summer as reports showed Microsoft accused Apple of spending too little money to promote OS X, charging that the company spent more on iPod marketing. For its part, Apple pointed to a high sticker price that may have prevented Mac users from purchasing Microsoft's suite of office productivity software.
Apple CEO Steve Jobs said this week, as the company released its fourth-quarter earnings statements, that Apple is on track to convert 5 million users to OS X by the end of 2002.
But Office v.X has sold only half as many copies as expected -- about 300,000, as opposed to the 750,000 anticipated by Microsoft -- according to Yankee Group senior analyst Laura DiDio.
In response to the sales shortfall, the two companies announced a limited-time price reduction on Office v.X earlier this month, slashing the original price of US$499 to $199 with the purchase of a new Mac.
No Renewal Needed
While the Office v.X price reduction could be seen as a temporary truce, it is questionable whether another agreement will be signed.
"We don't see any impact of the technology agreement expiring. Apple has no other agreements with any companies like that, and neither do we, to my knowledge," Tim McDonough, director of marketing for Microsoft's MacBU, told the E-Commerce Times. "When we were under the agreement, [we] always exceeded the terms of the agreement, and it's going to continue to as long as it's a good business relationship."
McDonough reiterated Microsoft's ongoing commitment to Apple, and noted that the software giant's team of nearly 145 developers devoted to the Mac platform is second only to Apple's.
In the last year, Microsoft has released additional Mac software besides Office v.X, said McDonough, including MSN Messenger, a remote desktop connection client and Windows Media Player for OS X. Microsoft also is working on a Mac version of its MSN software.
Apple did not return calls seeking comment.
Microsoft No Longer the Bad Guy?
Gartner (NYSE: IT) analyst Ray Valdes suggested that Microsoft's motive for not renewing its agreement with Apple may have less to do with sales of software and more to do with what it needs -- or does not need -- from the relationship.
"At the time of the deal, Microsoft needed to demonstrate that it wasn't completely a bad guy and it wasn't going to totally suck the air out of the lungs of competitors, the way they had done with Netscape," Valdes said.
"I think they probably need each other less [now]. They can't help each other as much as they used to," he added.
The lack of a written agreement, according to McDonough, is more a reflection of the changing times than a sign of waning commitment.
"I think the relationship has been stronger than it has ever been," he said. "The technology agreement is now over five years old, and it was signed at a very different time when the needs were very different."
Helping the Competition
While on the surface it appears that Microsoft fuels its competitor -- one whose latest "Switchers" campaign highlights users who have turned to the Mac platform from a PC -- the company is adamant that it will continue to develop software for Mac OS as long as its Mac unit remains a profitable venture.
"As long as the business is strong, we'll always be there," said McDonough, who said that rather than supporting a competitor, Microsoft is merely providing software for another platform. "There are customers who choose to use a Dell (Nasdaq: DELL) machine, an HP (NYSE: HPQ) machine, and there are customers who choose to use a Mac."
The Yankee Group's DiDio said she believes Microsoft does not have a
hidden agenda with its Apple relationship, and that economics is the
driving factor steering the two companies' relationship. "I think if
demand goes up, it'll change, and they'll sign a new agreement," she said.
