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Microsoft Bites Into Apple

August 6, 1997 at 12:00 AM EST
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TRANSCRIPT

MARGARET WARNER: During a year of corporate reshuffling and job cuts, Apple’s stock has fallen more than 50 percent. Today’s announcement had a big impact on the stock price, pushing it up nearly 35 percent. Microsoft’s stock went up just 1/8 of a point, essentially unchanged. For more on the deal and what it means we now have Gary Arlen, a computer technology consultant based in Bethesda, Maryland, and Ken Auletta, media columnist for the New Yorker Magazine and author of the book, The Highway Men: Warriors of the Information Superhighway. So, Gary Arlen, how big a deal is this in the world of computers and information?

GARY ARLEN, Computer Technology Consultant: Well, that’s a very big deal, Margaret. One of the questions, of course, is whether Microsoft is polishing up the Apple or polishing off the Apple because there’s a lot of questions about how this will play in the long-term. For right now, though, a $150 million investment really does keep Apple going.

MARGARET WARNER: Ken Auletta, how big a deal do you think this is?

KEN AULETTA, The New Yorker: (New York) Well, I think it’s consistent with what Microsoft is doing, and Margaret pointed out several things they have done, just some of the things they’ve done. They’re acting increasingly like a bank, investing their $9 billion in excess cash in various companies, building alliances with companies. I mean, look, if their investment today of $115 million just means that Apple’s stock continues to go up, they made a very wise investment, because they’re earning more money than they could with their excess cash and say Treasury bills.

But I think it’s also about creating business partnerships, which is very much consistent with what they’ve done with NBC and General Electric, what they did with Comcast and the cable industry, what they’ve done with Dreamworks and Hollywood studios, and what they’ve done with many industries all around the world.

MARGARET WARNER: All right. Gary Arlen, let’s focus now on Apple. What exactly does Apple get out of this?

GARY ARLEN: Well, the $150 million gets Apple a little new lease on life. Obviously, the relationship is described to begin putting some of the Microsoft software notices–notably Office 98 product–into the Macintosh world is–brings new software into that dedicated Mac audience.

I think Microsoft, though, gets one thing that is sort of a sub-context of this, and that is the Justice Department keeps looking down at what kind of anti-trust implications there are when one company, Microsoft, has such a commanding presence in the software business. This kind of relationship suggests that Microsoft is giving Apple the opportunity to keep its audience, its 10 percent market share alive and going.

MARGARET WARNER: Explain that further, Ken Auletta, if you agree with that, on this question about what it does for Microsoft legally. Now some people might say, wait a minute; these are supposed to be competitors, and now they’re forming an alliance. Why isn’t that an anti-trust problem?

KEN AULETTA: Well, the devil theory, which holds that everyone acts out of some devilish motive, would hold, as Gary just said. What Microsoft is doing is taking the heat off themselves from the federal government by saying, look, you’re worried about Apple going out of business; we’re going to keep it in business, so that you’ve got a competitor to the IBM-based system. That’s one theory. The other theory is that Apple is, in fact–there’s another devil theory, which is that we are investing in a company that has 8 million customers and if we can claim some of those customers for Microsoft, we’re doing pretty good.

MARGARET WARNER: Sticking with Apple for just one minute, but can it save Apple?

GARY ARLEN: Well, one of the things it does, for example, is it can keep Apple going. And it’s got a very loyal following–that 9 or 10 percent of Americans who are Apple fanatics. They love their Macintosh. They–it was shown in some of the clips from the media in Boston today. It also–

MARGARET WARNER: Meaning when they booed–

GARY ARLEN: When they booed the relationship with Microsoft that was taking shape, it underscores how much they love their Macs. There also are some other things going on here. I mean, Microsoft will be–the Internet Explorer, the so-called “browser” for the Internet, will become the preferred browser, the default browser, on Macintosh computers. And that is a very important point too.

MARGARET WARNER: Okay. Explain the meaning–if you buy a Mac, you might have a couple of different browsers, but it will automatically boot up Microsoft’s version unless you ask for something else.

GARY ARLEN: Unless you ask for Netscape Navigator, which is the other major one. And actually, the browser for the Internet is the only major category of software in Microsoft–in which Microsoft comes in second place. So this really brings Microsoft yet another audience, while consolidating this relationship with the Macintosh crowd.

MARGARET WARNER: Do you see that as a big deal for Microsoft, Ken Auletta?

KEN AULETTA: I mean, listen, I think Apple is a company that has made some disastrous decisions. We should not forget that. And just the decision which you mentioned in your piece to keep the proprietary system and not allow it to be used on other computer companies–I mean, that was a very stupid decision. And it’s been followed by other stupid decisions. So this is a company hanging on by its fingernails, and Microsoft is coming along, and perhaps giving it a second wind, perhaps not.

But those fanatics–and there are many–it’s a wonderful system–and it’s not just a system; it’s also a belief system. I mean, Mac–the Mac was a system that people believe was anti-IBM at first and then became anti-Microsoft. So if you wanted to fight against the big guys, you supported Mac and Apple. That is increasingly a shrinking pie. It’s not 9 or 10 percent any longer. It’s 3 percent of all computers sold are Macs, so–and last year was 10 percent. So it’s a dying business. And they have to save it. So he’s done what he thinks he can to save it.

MARGARET WARNER: All right. But stay with me for a minute, Ken Auletta. Is this–does this spell the end of that Apple culture, that exclusivity, some called it isolation?

KEN AULETTA: Absolutely.

MARGARET WARNER: Yes.

KEN AULETTA: No question.

MARGARET WARNER: And do you think we’re going to see, Gary Arlen, a lot of cross–other kinds of cross-pollenation between the two? I mean, is this the forerunner of even these two systems kind of merging?

GARY ARLEN: Well, there’s a lot of things going to change in this business. One of the things Apple does bring to it is the emphasis it’s put on the so-called information appliance. Microsoft is very interested in this. It’s–

MARGARET WARNER: Explain that.

GARY ARLEN: The information appliance or the set top box that really starts to bring the computer to the television set, and you can do a lot of computer things on a TV set or a cable system. Microsoft is very interested in that. It spent over $400 million a few months ago to buy a brand new company called Web TV.

Apple has worked strongly in that area for several years. It’s interfaced the kinds of user-friendly facilities it’s always developed and brought this into the set top. They are developing something called PIPPIN, a very cute little interfacing set top box that brings the computer to the TV set. Microsoft and Apple can work very closely together on that project. And that’s really the future of how most Americans and most people in the world will get computers.

MARGARET WARNER: So you’re saying this is not a one-way deal. I mean, Apple, there are some things Apple can actually bring technologically to Microsoft.

GARY ARLEN: Absolutely.

MARGARET WARNER: Ken–

KEN AULETTA: I wouldn’t overstate that.

MARGARET WARNER: You wouldn’t?

KEN AULETTA: Because Apple, in fact, has been cutting its R&D budget, while Microsoft has been increasing it dramatically. And, in fact, one of the things that’s depressing about Apple is they’ve allowed a whole generation of programmers and brilliant people to flee and go over to places like Disney.

GARY ARLEN: In fact, the people who started Web TV came from Apple.

MARGARET WARNER: All right. Ken Auletta, let’s go back to a point you made right at the beginning, what we haven’t had a chance to get to yet, which is that this was part of a–this much greater strategy on Microsoft’s part, and we’ve outlined it–that they’re going into all these alliances. This may sound like a stupid question, but why? Why does Microsoft want to keep getting bigger and bigger and bigger?

KEN AULETTA: Well, what Microsoft wants to do. I mean, they’re hedging their best. No one quite knows what the dominant or the ascendant–we don’t know whether we’re going to be watching television on our computer screen or on a TV screen, or maybe our telephone screen, and we don’t know what systems we’re going to be using and what software. So what Microsoft is trying to do is get a seat at many different tables. Web TV gives it one seat; Comcast and cable investment gives it another seat. The Apple investment gives it another seat.

The NBC–MSNBC investment is still another seat. And they have alliances with hundreds of companies around the world and in the market, and they’re trying to hedge their bets. They’ve got all this money–$9 billion in cash, excess cash–and they say, let’s use it and build alliances and maybe one of these bets or several of these bets are going to pan out.

MARGARET WARNER: Do you agree?

GARY ARLEN: Absolutely. And that’s the exciting part. We don’t know which ones they’re going to be.

MARGARET WARNER: But Microsoft has got to make sure that it’s got a front and center position whichever way it goes.

GARY ARLEN: It has that position already. It’s how far they can push it.

MARGARET WARNER: Ken Auletta, what do you think this is going to mean for other competitors?

KEN AULETTA: Well, actually, I want to know–one of the things I want to know is what Larry Ellison is saying. Today, I noticed that one of the analyses–

MARGARET WARNER: Explain who he is.

KEN AULETTA: He’s the head of Oracle, and he is perceived as public enemy No. 1 of Microsoft, and it was announced today–

MARGARET WARNER: Because Oracle is the No. 2 software company next to Microsoft.

KEN AULETTA: Correct. And they have different visions of how the future may work itself out. And it was announced today that he is joining the board of Apple, and he happens to be one of Jobs’ closest friends, and yet, he’s an enemy of Bill Gates. So how does that work out? I mean, I’m fascinated to hear more about that.

MARGARET WARNER: Any theory? Any theories?

KEN AULETTA: Well, I mean, one theory would be that a smart businessman sits back and says, look, Gates can help save Apple. But Ellison is a very emotional, passionate man. And I don’t know how his passion squares with his logic. I’d like to know.

GARY ARLEN: I think it’s very exciting and very interesting about the consolidation that’s about to take shape, not only Ellison joined the Apple board, but you had folks from an IBM veteran, a Hughes aerospace spokesman–Java–Sun Microsystems, so there’s–altogether–there’s consolidation, the mishmash of people working together while working competitively. It’s a very interesting future, this business.

KEN AULETTA: There’s also a notion, we shouldn’t forget, when you go back to the mid 70′s, when Apple is formed. There may be some–there may be some–there may be two characters in a garage today creating the next Apple.

MARGARET WARNER: Yes. But in the meantime, going back to this less competition, is this good for consumers or not?

GARY ARLEN: Short-term probably not. Long-term, I think there can be some very interesting issues of standardization, things to take away the confusion that have permeated this business since the beginning. It’s what–60 percent of Americans don’t have a home computer right now, and really that’s the market these kind of things are looking for, how to get some of that un-computerized households into this world.

KEN AULETTA: That’s a very important point, the notion that one of the reasons that television is a mass medium is that it’s easy to use. Computers is not a mass medium. It’s under 40 percent usage because it’s not easy to use. And so once you can replicate those common standards so that everyone could talk to one another and do it as quickly as you can with a remote control, then you have the possibility of making computers a mass medium.

MARGARET WARNER: Which will be exciting for us all. Thank you both very much.