E-BUSINESS SPECIAL REPORT

Apple: Microsoft’s Friend or Foe?

When Apple and Microsoft signed a pact five years ago formalizingtheir relationship, the two companies laid out a detailed road map forthe future. Included was a US$150 million shot in the arm for thethen-ailing Macintosh manufacturer, plus a slew of development agreements, highlighted by Microsoft Office and Internet Explorerfor Mac OS.

Although the companies have jointly created software for the Macplatform for nearly 17 years, the 1997 agreement marked a new beginningfor Apple in the eyes of many industry observers. In addition, the deal wasa signal to customers that Apple would pull out of its financial tailspinand move on to create new products.

Fast forward to the summer of 2002. The agreement expired, no extendedproposal has been put in place, and published reports have questioned thestate 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 Unithas changed. Earlier this week, Microsoft announced that MacBUdirector 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 thetwo companies is lagging adoption of OS X, and the resulting sluggishsales of Microsoft Office v.X.

The companies sparred this summer as reports showed Microsoft accusedApple of spending too little money to promote OS X, charging that the companyspent more on iPod marketing. For its part, Apple pointed to a high stickerprice that may have prevented Mac users from purchasing Microsoft’ssuite of office productivity software.

Apple CEO Steve Jobs said this week, as the company released itsfourth-quarter earnings statements, that Apple is on track to convert5 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 pricereduction on Office v.X earlier this month, slashing the original price of US$499to $199 with the purchase of a new Mac.

No Renewal Needed

While the Office v.X price reduction could be seen as a temporarytruce, it is questionable whether another agreement will be signed.

“We don’t see any impact of the technology agreement expiring. Applehas no other agreements with any companies like that, and neither dowe, to my knowledge,” Tim McDonough, director of marketing forMicrosoft’s MacBU, told the E-Commerce Times. “When we wereunder the agreement, [we] always exceeded the terms of theagreement, and it’s going to continue to as long as it’s a goodbusiness relationship.”

McDonough reiterated Microsoft’s ongoing commitment to Apple, andnoted that the software giant’s team of nearly 145 developers devoted tothe Mac platform is second only to Apple’s.

In the last year, Microsoft has released additional Mac softwarebesides Office v.X, said McDonough, including MSN Messenger, a remotedesktop 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 analyst Ray Valdes suggested that Microsoft’s motive for notrenewing its agreement with Apple may have less to do with sales ofsoftware and more to do with what it needs — or does not need — fromthe relationship.

“At the time of the deal, Microsoft needed to demonstrate that itwasn’t completely a bad guy and it wasn’t going to totally suck theair out of the lungs of competitors, the way they had done withNetscape,” Valdes said.

“I think they probably need each other less [now]. They can’t help eachother as much as they used to,” he added.

The lack of a written agreement, according to McDonough, is more areflection 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 verydifferent.”

Helping the Competition

While on the surface it appears that Microsoft fuels its competitor — onewhose latest “Switchers” campaign highlights users who have turned tothe Mac platform from a PC — the company is adamant that it will continueto develop software for Mac OS as long as its Mac unit remains a profitableventure.

“As long as the business is strong, we’ll always be there,” saidMcDonough, who said that rather than supporting a competitor,Microsoft is merely providing software for another platform. “There arecustomers who choose to use a Dell machine, an HP machine, and thereare customers who choose to use a Mac.”

The Yankee Group’s DiDio said she believes Microsoft does not have ahidden agenda with its Apple relationship, and that economics is thedriving factor steering the two companies’ relationship. “I think ifdemand goes up, it’ll change, and they’ll sign a new agreement,” she said.

9 Comments

  • all i can say to steve jobs is: WATCH OUT for things to come. i hope he doesn’t think for one second that gates is his, or anyone’s, ‘friend’. face the facts.. nobody can become the richest man in the world by treating people right. the more of a crook you are, the further you’ll make it in life. now for the real reason i posted this.. for those who don’t know it already, and since i haven’t seen anything else about it, i just want to let those of you who think highly of microsnot know that those crooks and thieves are accessing everyone’s computers at an alarming rate. i know someone who works for microsloth, and they tell me that they’re gathering information from over a million computers every day. you know what you see when you go to their ‘update’ site. that little box that tells you "this is done without sending any information to microsoft".. yeah right.. who the hell is STUPID enough to believe that? why do you think it takes so long, and how do you think, if they’re not ‘gathering-information’ about your computer, how could they possibly know what your computer has on it, and what else they need to force you to download in order for them to have access to even more information. also.. another thing that’s really ridiculous, and just plain STUPID of people, is using that cussed msn-messenger. that thing is one huge virus in itself. if you must use an instant messenger, go get trillian. it doesn’t allow ads, popups, or anything else, and you can also have not only that stupid and utterly ridiculous msn-system-messer on it, you can have your yahoo crap, aim, and icq, all on one messenger. the creators of trillian did an excellent job. microsloth, yahoo, icq(which is also aol), and aim, all hate trillian. ao-hell make their feeble attempts to block trillian occasionally, but those guys are a bit smarter than the idjits at aohell and fix it pretty quick. i just think it’s a filthy shame that we can’t even get on the net anymore without everybody wanting to know our business. i take pride in my work, and most of it these days consists of helping people keep other people out of their computers. whether it be microsloth, aohell, or any of the other 35-million fools out there eating up our bandwidth with all their garbage. if you want the best messenger you can get, you need to check out trillian. but.. be forewarned that you cannot use your porn-cam with it. while it does get the yahoo and other messengers’ messages, it doesn’t allow for the use of cams and all the other garbage most people think they MUST have on their computers. personally, i like the idea that i can only message with people if they want to talk to me. i don’t want to be able to see them and them see me. i don’t want to be able to talk to them on the computer. that’s just dumb as far as i’m concerned. if i want to talk to someone, i’ll call them on the phone. why would anyone who’s trying to relax a little and just cruise the net or get some work done on the computer, want to sit and have conversations and watch tv on the screen? i’ll never understand that. but.. to eat his own.. (and yes, i know what i said). 😉

  • The Microsoft vs Apple relationship continues to intrique. It is an extension of the personal tension between Gates and Jobs. These two really need each other to become the visionary and businessman extraordinaire that each wishes they were individually. Office X is a terrific product, while OS X is a fabulous idea and feat of engineering. I sure hope Microsoft and Apple can continue to manage this volatile relationship. We all benefit when they get it right.

  • With less than 20% of Windows users having moved to XP (estimated at 46M of 240M users), it might be wise for Microsoft to take a look at what’s lacking in their own multibillion-dollar advertising campaign instead of worrying about someone else’s. Boneheads!

  • "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"
    First of all, when do their sales ever meet their expectations?
    Second, at $500/copy, wouldn’t you think they’ve made a profit yet? We’re talking 150 million dollars here. At almost a million dollars per employee, I would think they’d be able to make payroll for a few years and still have enough left over to keep the lights on.
    How could anybody not be satisfied with 150 million dollars for a single product?

  • I used to use MS Word on my iMac–Word 5.1a. I’ve since switched to AppleWorks. Why pay so much for a product of dubious value when AWorks does what most of need and now will save files in Word or Excel format as appropriate?

  • I absolutely agree that it is cost. People aren’t going to pay that much money for MS Office. If it were $199 all the time it would sell like crazy. It would probably also boost the adoption of OS X.

  • It’s no wonder that Office vX hasn’t sold very well… at $779 in Canada, who would buy it? Office XP Standard is far less in price. If the price was the same for both platforms, maybe the Mac version would sell better.

  • "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 $299 with the purchase of a new Mac."
    That is incorrect, the actual price for Office with a purchase of a new Mac is $199!

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