On August 6, 1997 Steve Jobs announced that Microsoft would be investing $150 million in Apple and was committing to producing Microsoft Office for the Macintosh for at least five more years.
Q: The deal included a technology sharing agreement between the companies. What was that all about?
A: The driving force in this deal was the resolution of a long-standing dispute over patents.
Q: The investment was in non-voting stock, which Microsoft was committed to holding for a minimum of three years. If the investment was a "gift" on Microsoft's part, why the three year minimum term?
A: Because it wasn't a gift -- this is how the companies worked out their legal differences. Additional cash was quietly exchanged behind the scenes. How much was not disclosed.
Q: Microsoft committed to Office for the Mac for five years. If this commitment was completely voluntary, how can the five year term be explained?
A: It can't be explained that way, because it wasn't voluntary. These were the agreed-upon terms.
A few of most common myths about the Microsoft-Apple deal debunked:
Myth 1: Without Microsoft's investment, Apple was doomed.
Reality: Apple had lost over $1 billion in the 18 months before the investment, but in August 1997, they still had $1.2 million in cash on-hand and annual sales of around $7 billion. The $150 million investment did not "save" Apple, though arguably the positive publicity did.
Myth 2: Microsoft was acting to preserve their market for Mac Office.
Reality 2: A nonsensical argument. Was the Mac's 5% market-share worth $150 million to Microsoft? If Apple went out of business, would Apple's former customers revert to yellow legal tablets and pocket calculators before they'd buy a Windows computer and Office for Windows?
Myth 3: Microsoft invested in Apple to give them "cover" in the on-going federal antitrust investigation.
Reality 3: This assumes Microsoft's commitments were essential to Apple's survival. If this is so, does Microsoft's ability to issue a life or death sentence over their only competitor make them look MORE or LESS like a monopoly? In fact, within weeks of the announcement, the deal was investigated by the Department of Justice. If this move was intended to give Microsoft breathing room in the antitrust case, then it certainly didn't work. It didn't, because it wasn't.
Myth 4: This deal was a "big win" for Bill Gates.
Reality 4: Apple gained at least $150 million, Microsoft's public endorsement, and a lot of positive press. What did Microsoft gain? Bill Gates appeared on a big screen at MacWorld, where he was roundly booed by the audience. They also got Apple to call MSIE the Mac's "default" browser, even though Apple would still be distributing Netscape. This fabulous deal only cost Microsoft $150 million, and then some.
Myth 5: Microsoft owns a big part of Apple.
Reality 5: At the time it occurred in 1997, the $150 million investment amounted to roughly 5% of Apple's market capitalization, but was held in a special class of nonvoting shares. According to the terms of the deal, Microsoft was allowed to liquidate these shares in three years, which they've almost certainly done by now.