Apple Computer, one year after

By Richard Morochove

First published August 13, 1998

One year ago, Steve Jobs dropped a bombshell on the stage at MacWorld, Boston. Apple Computer's acting CEO agreed to a controversial detente with Microsoft Corp.

At that time, many predicted it was the beginning of the end for Apple. Yet Apple Computer survived and now operates profitably. How does Jobs' deal look now, with the benefit of twelve months hindsight?

Jobs accepted a $150 U.S. million investment from the software giant in return for blessing Internet Explorer as the Macintosh Web browser of choice. Jobs also agreed to a technology cross-licensing deal and to cooperate with Microsoft in developing new technologies such as Java. In turn, Bill Gates agreed to develop Microsoft's Office 98 suite of software for the Mac.

Apple appears to be thriving. The once money-losing company reported a profit for the latest three consecutive financial quarters.

Investors love Steve Jobs. Apple's shares have more than doubled in price, compared to their level just before he took to the MacWorld stage.

New products such as the speedy G3 line of desktops and the PowerBook family released this past Spring have been well received.

The cute iMac home computer, scheduled for release on Sat. Aug. 15, has received more attention than any Apple computer in years. Priced at just under $2,000, many retailers with advance orders for the machines plan to open just after midnight so anxious buyers can pick up their new computers. An Apple Canada spokesperson predicts the iMac will remain in short supply for two months.

Although the signs are promising, it's still too early to say Apple has turned the corner. While Apple has returned to profitability, revenues are still falling. Sales for the nine months ended in June failed to crack $4.4 billion U.S., down 20 per cent from last year's $5.5 billion U.S. Once the world's top-selling PC company, Apple has dropped out of most top ten sales lists.

Apple is now profitable only because Jobs cut expenses faster than revenues fell. For example, he slashed research and development expenditures by more than 40 per cent in the past year.

Has he compromised the company's future advances in technology in order to ensure its survival today? Virtually all Apple's new products introduced in the past year started development during the reign of Gil Amelio, the former CEO.

Jobs has proven he knows how to wield the axe, but can he forge a new Apple that will grow in the next millennium?

In spite of the detente, there are still palpable tensions between Apple and Microsoft. It's also evident that Apple is very much the junior partner in this relationship.

Apple abandoned its much-ballyhooed next-generation operating system, Rhapsody, opting to focus on improving the MacOS.

Ironically, it was Rhapsody that provided the ticket for co-founder Jobs to re-join Apple. Apple planned to meld the best features of the NeXT operating system, controlled by Jobs, into Rhapsody. Apple bought his company and Jobs came along to help in the transition.

Apple officials deny that Microsoft forced the company to drop Rhapsody development. Yet, with its departure, Apple conceded the high ground in desktop operating systems to Microsoft and its Windows NT operating system. I believe it's only a matter of time before Apple announces a migration path to Windows NT.

In the multimedia arena, a new version of Apple's QuickTime with streaming multimedia capabilities will put it in direct competition with both Microsoft's technology and that of RealNetworks, a feisty little company founded by a former Microsoft VP. Streaming multimedia offers real time viewing of videos as they are downloaded from the Net.

There are rumours that Microsoft has attempted to pressure Apple to abandon its streaming multimedia technology in favour of Microsoft's solution. Microsoft denies it.

Apple Computer was subpoenaed by both the U.S. Department of Justice and Microsoft to testify in Microsoft's trial that begins Sept. 8. In the light of recent developments, the DOJ is taking a closer look at last year's deal between the two companies as part of its larger probe into Microsoft's allegedly anti-competitive business practices.

Microsoft's support has also delivered some clear benefits to Apple. Microsoft's Office 98 for the Mac, which shipped last Spring, has been a big hit, offering some features more advanced than currently available on the Windows version. Without Office 98, many more businesses might have abandoned the Macintosh.

Jobs simply can't afford to play hardball with Microsoft. The Redmond, Washington-based company is the world's largest independent Macintosh developer, with some 2,000 employees dedicated to the Mac. Apple needs its continued support.

In the Realpolitik of the computer business, Apple is dancing at the end of a short leash, firmly in the grasp of Microsoft. CW