AS ANY Technoid knows, the computer business is not just about business. It’s religion. How else to explain what happened on Wednesday, when Steven Paul Jobs ascended a platform to address a group of people who could be called nothing else but The Faithful?
The Faithful wildly cheered the introduction of Apple’s cofounder, in exile for 12 years but now setting direction for the company. They responded enthusiastically as he announced a new board of directors and promised something that Apple had not enjoyed for a number of years: a sound strategy. But then he came to the part of the sermon that dealt with alliances, and as the crowd read a slide projected on a huge video screen, they fell silent. It said MICROSOFT. For years a prime tenet of the religion was that Microsoft’s leader, Bill Gates, controller of 80 percent of all screens, was Apple’s blood enemy. But now they learned that he would be part owner of Apple, buying $150 million in stock. For his end, Gates would continue to have his company create applications for the Macintosh, a signal to the world that Apple was still viable. There were other parts to the deal, and some were greeted with boos.
Suddenly, on the screen, there he was. Bill Gates! Beelzebub! His famous bespectacled kisser was right there on the satellite pickup, smiling amiably while undoubtedly grinding out business plans and calculating integrals somewhere in his giant brain. Many of The Faithful were too stunned to react. Others erupted in hoots, catcalls and moans of protest.
Apple’s prophet did what no one had expected: he had downsized the visions he once offered of Macintosh’s ruling the world. Today business would trump religion. ““This era of competition between Apple and Microsoft is over, as far as I’m concerned,’’ Steve Jobs told The Faithful on Wednesday. ““This is about getting Apple healthy.''
And what was the reaction? Analysts and commentators agreed that Jobs’s moves bought valuable time for a company whose sales and market share are in free fall. ““Apple has to be more pragmatic and less religious,’’ says John Sculley, who headed the company in its glory days in the mid-1980s, ““and the only one who can really do that is the person who created the religion in the first place.''
Wall Street cheered, loudly. Apple’s stock shot up 33 percent that day. And even The Faithful, when they chewed it over, realized that while an era had ended, this day had been coming for a very long time.
IN ONE SENSE, WHAT HAPPENED was a simple business deal, good for both parties but more advantageous to the stronger partner - Bill Gates. For a modest sum of money (by Microsoft standards) he was able to get concessions from Apple that extend his own dominion over the world’s computer desktops - and deny them to his enemies. This came in Apple’s agreement to use Microsoft’s Internet browser (and not rival Netscape’s) as the main way to surf the Internet. Also, Apple agreed to use Microsoft’s version of the Internet-centric Java language in its machine - a blow to Microsoft’s enemy Sun Microsystems, which created the language.
But from a broader perspective, the alliance is the conclusion to a 20-year epic that changed the world, a story in which magic and faith lost out to the blur of spreadsheet calculations. It is also a story of two visionaries, one whose exorbitant dreams exceeded his talent to implement them, and another whose methodical approach achieved an unprecedented, and still growing, impact on the civilized world.
As the 1980s began, it was Steve Jobs and not Bill Gates who was the cover boy for the age of digital entrepreneurship; he began the personal-computer revolution. Both were born in 1955, though Jobs seemed more worldly - he had gone through ’60s changes, while Gates had spent most of his youth in front of a teletype machine connected to a big computer. Gates’s company made its money in the more esoteric realms of computer languages and was working on an operating system for IBM’s much-awaited incursion into the industry. Initially Jobs’s hubris led him to underestimate that challenge. ““I was at Apple the day IBM announced [its PC],’’ Gates once told me. ““They didn’t seem to care. It took them a year to realize what had happened.’’ By then, IBM had snatched the marketplace from Apple.
The antidote was Macintosh. People scarcely remember now, but the Mac was a drastic change from all previous PCs. Many people believed that its on-screen graphics made it too toylike to be a business tool; others vowed that they would never use that strange device called a mouse. But Jobs believed this machine was the world’s only chance to stop an evil empire. ““If we don’t do it,’’ he said, ““IBM’s going to take over - it’ll be the greatest monopoly of all time, like owning every oil company and car company in 1920.''
Jobs’s key ally was Bill Gates, to whom he showed an early Mac prototype. Soon Microsoft was in line to be a key software developer for the new machine, at one time employing more Macintosh programmers than Apple itself. ““It’s a great machine,’’ Gates said to me in 1983, before the Mac’s introduction. ““It allows us to write software which is significantly easy to use.’’ He gave plenty of credit to the man who led the Mac team. ““There’s no way this group could have done any of this stuff without Jobs.''
Gates understood that the Macintosh-style graphical interface was the future of software. He also knew that besides the money Microsoft earned by selling Mac software, it could apply that understanding to applications - and a rival operating system - written for the more popular computers that followed the IBM standard. This it set out to do, with Windows.
But Gates also felt collegial toward Apple. Mac sales were lagging, and the troubles led to Steve Jobs’s ouster from his own company by his handpicked CEO, John Sculley. In June 1985, Gates sent a remarkable proposal to Sculley. ““Apple,’’ he wrote, ““should license Macintosh technology to 3-5 significant manufacturers for the development of Mac Compatibles . . . Microsoft is very willing to help Apple implement this strategy.’’ If Apple had listened, it may well have changed history, to Microsoft’s detriment. Apple, however, did not listen, and most observers think its refusal to license its operating system in the 1980s - as IBM did - is at the root of its current troubles.
As Microsoft moved forward with Windows, its relationship with Apple got complicated. On the one hand, it became, and still is, the dominant vendor of Mac applications, things like word processors and spreadsheets; it makes hundreds of millions of dollars a year from the sale of its Office suite for Macintosh. But Apple worried about Microsoft’s attempts to match its spiffy interface. Instead of working overtime to extend its technology lead, or licensing its system, Apple decided to fight in the courts, filing a copyright-infringement suit against Microsoft in 1988. Big mistake. After repeated losses, Apple lost its final appeal in 1995.
By then Apple had decided its real enemy was not IBM - with which it forged a technology alliance in 1991 - but Bill Gates, who had, with the release of his successful Window 3.0 program in 1990, become the undisputed desktop king. This version of Windows, while not as slick as the Mac system, promoted the once radical Mac ideas to a wider audience. Gates was on his way to becoming a gazillionaire. But Apple’s sales sagged; Sculley was fired. The new CEO was a reclusive German named Michael Spindler, nicknamed ““the Diesel.’’ Spindler’s regime was more like a train wreck: instead of powering Apple to new growth, the company failed to innovate effectively, and missed an opportunity to exploit the coming Internet boom. Apple’s board came to believe that the company would survive best by being swallowed, and unsuccessfully tried to peddle the once mighty brand name to a succession of reluctant buyers - IBM, AT&T, Kodak and Sun. When the last effort fell through, in early 1996, the Diesel was derailed, and in came a self-proclaimed ““transformation manager,’’ Gil Amelio.
It was Amelio who brought Steve Jobs back. After leaving Apple, the cofounder had started his own computer company, NeXT, with limited success. He did better with Pixar, a computer animation firm that made the megahit ““Toy Story.’’ When Amelio realized that Apple’s much-touted operating system of the future was hopelessly mired, he set out to buy one from outside. He settled on the NeXT technology, purchasing the company from Jobs in late 1996 for $430 million. Amelio’s plan was to improve the current Macintosh operating system for a couple of years, but emphasize that the real excitement would come with the new system, integrating the NeXT ideas, expected in mid-1998. This was dubbed Rhapsody. But Amelio would not be around to hear the music. Even Apple’s clueless board came to understand that this imperious man (who had insisted that Apple lease his private jet as part of his compensation) was wrong for the job. This June, the board gave Amelio his flying papers. And while the search for a successor began, they turned to the company cofounder to, in Jobs’s words, ““reinvent the company.’’ Steve Jobs was again at Apple’s helm.
Almost immediately, Jobs turned to his old colleague and competitor, Bill Gates. In the last year, he learned, there had been fitful negotiations between the two companies. After Microsoft came out with Windows 95, Apple people believed that parts of it violated their patent rights. (This despite Apple’s loss in the 1980s copyright dispute.) Microsoft felt confident that it would prevail but had no desire to engage in another long court battle in which it would undoubtedly be seen as a steel-booted bully stomping a pugilist long past its prime. ““We felt we should try to put these bad feelings behind us,’’ says Greg Maffei, Microsoft’s chief financial officer. So the two sides began to explore a settlement that would transform the dispute into a collaboration.
But Amelio hadn’t been able to broker a deal. He and his forces asked for the moon. ““Gil Amelio didn’t have an ability to offer a compromise,’’ says Maffei. Finally, Gates called Amelio and said that things just weren’t working.
Jobs vowed to turn that around. When he arrived back on the scene, Apple was contemplating another lawsuit. ““I said, “Guys - been there, done that.’ So I picked up the phone, called Bill and said, “Why don’t we get this thing resolved?’ ''
Gates sent Maffei down to talk to Jobs directly. The first meeting was a getting-to-know-you affair. It was a Sunday, and both parties wore shorts; Steve, in fact, greeted the Microsoftie in his bare feet. It came out that the 37-year-old Maffei had a young son, and Jobs, who dotes on his own children, told him what it was like to teach a kid to read. Soon the pair began strolling the streets of Palo Alto, finally settling down in front of the Bap- tist church. And soon they began talking about a deal. ““It was much more focused,’’ says Maffei.
Maffei was back in Palo Alto the following Sunday, again strolling with Steve and getting closer to agreement. Later in the month, Apple executives flew north to meet at the offices of Microsoft’s lawyers. Negotiations continued literally until the eve of Jobs’s Macworld speech. (For this reason, Apple executives claim, there was no time to notify the real losers in the deal - Sun’s Scott McNealy and Netscape’s Jim Barksdale. ““I didn’t think that was an acceptable excuse,’’ says Barksdale of this slight.) The finished agreement was faxed at 3 a.m. Seattle time to Boston, only three hours before Steve Jobs would take the stage to announce it to an astonished world - and the boos of the Macintosh faithful.
For Bill Gates, getting hooted at in an auditorium on the other end of the continent was a very small price to pay for a very big coup. The money he gives Apple - in addition to the $150 million purchase of nonvoting shares, Microsoft will pay an undisclosed sum to settle the patent issue - doesn’t mean much to a company with $9 billion in cash. It’s just another chip in a vast portfolio that includes investments in the Comcast cable-TV operation and MSNBC. And its commitment to keep releasing versions of its Office suite for the Macintosh system is not much of a concession; work is almost done on the next upgrade anyway, and it’s unlikely that Microsoft would abandon its lucrative role in writing Mac applications.
What was really important for Microsoft was getting access to Macintosh desktops. Microsoft sees Internet-connected computer screens as a distribution point for software upgrades, and even media content, on television-style ““channels.’’ With the addition of Apple, Microsoft now has access to everybody’s computer. It’s as if General Electric had persuaded television manufacturers to automatically tune in NBC when people turn on the set. Netscape, which still claims a majority of browser users, is claiming indifference to this move, noting that Apple users will have the option of switching to Netscape’s program. But in a future Apple operating system, the Microsoft browser might be built into the system - as Microsoft will do with its upcoming Windows 98 program. In that case, the switch might not be so easy.
Microsoft also used the opportunity to deal a body blow to another rival. Ever paranoid, Gates fears that at some point Sun’s Java computer language may be used in low-cost ““network computers’’ to fight off the relatively top-heavy Windows machines. Since Java is designed so that it doesn’t matter which kind of computer it runs on, software authors conceivably could write Java programs to run on Windows, Macintosh and these new machines. Gates’s scheme to stop this is to create his own kind of Java, somewhat customized for Windows. Now Microsoft will work with Apple to create a similar and compatible scheme for Macintosh. Sun CEO McNealy charges that such Java is not ““100 percent pure,’’ and that ““neither company can dare ship a computer that won’t run a 100 percent pure Java application.’’ But with this deal, Microsoft can get its flavor of Java to run on both Mac and Windows. There’s not much else out there.
And since the agreement gives both companies full use of each other’s patents for five years, Apple and Microsoft are now talking about all sorts of collaborations. As far as computers connected to the Internet are concerned, the differences between the Apple and the Microsoft systems might vanish. And guess who will be calling the shots.
BUT EVEN IF BILL GATES looks like the big winner, it’s clear that his old friend Steve Jobs emerges victorious in this as well. As Apple prepares for its survival run, Jobs is visibly at the helm, delighting in the spotlight and recommitted to his first corporate love. Almost every day he heads to its Cupertino campus, to the office he keeps next to the ““official’’ leader, chief financial officer Fred Anderson.
Some of his strategies are controversial, particularly his disdain for the idea of licensing clones of Apple’s computers. In an attempt to win more users to its system - and stop current users from defecting - Apple has allowed a small number of companies to license the Macintosh operating system. Some of these companies have done so well - beating Apple’s price and service - that Jobs thinks they’re stealing revenues from him; he even called them ““leeches’’ in a speech last spring. But Macintosh customers think that hurting the clone-makers is a slap at them.
Another controversy deals with the crucial question of the computer’s future operating system. It now appears that Jobs is not fully committed to developing Rhapsody, the system built on the $430 million purchase of his former company. He considers Apple to have two prime assets: its brand name and the current operating system that is at the core of its religion. Even though his director of software engineering denied this week that Apple was backing away from Rhapsody, Jobs made it clear to NEWSWEEK that his failure to mention the system in his Macworld speech was deliberate. ““Apple’s about the Mac operating system . . . the strategy has to be to enhance and extend the Mac OS,’’ he says. ““A lot of Rhapsody will be in the Mac OS, rather than the other way around.''
But undoubtedly Jobs’s most significant accomplishment thus far has been reformulating the board of directors. Apple’s failures ultimately could be laid at the feet of these overseers, led by Mike Markkula, who helped start the company from his early fortune as an Intel executive. Working with Ed Woolard, chairman of Du Pont, Jobs decided to oust all the members but Woolard and one other, and replaced them with people who truly understand Apple’s industry and problems. The new members include Jobs himself, former Appleoid and current Intuit CEO Bill Campbell, Oracle head Larry Ellison (an avowed foe of Bill Gates’s) and Jerry York, former CFO of Chrysler and IBM. (Warning to Apple employees who have survived layoffs so far: York says that the key to turnarounds is ““to get the right cost structure.’’) As of now, there is no chairman, leaving the option to give the job to a new CEO. It was the selection of the board as much as the Microsoft deal that charmed Wall Street.
Whoever Apple’s leader turns out to be, he or she will head a very different company than the one that once stood on the mountaintop of computing. At its introduction Jobs had described the Macintosh as the computer ““for the rest of us,’’ meaning the mainstream of humanity who didn’t plot vectors for kicks. Now he had a new line: you have to be different to buy a Macintosh. It was an acknowledgment that, now and possibly forever, all but the edges of the bell-shaped curve of keyboard-tappers belong to Microsoft. The events of last week can provide hope to the The Faithful that their beloved machines may survive into the next century. But only at the dispensation of Bill Gates.
