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What if Microsoft Bought Apple?

What if Microsoft Bought Apple?

While neither Apple nor Microsoft is in critical shape, it does appear that both firms need each other right now -- with an urgency that is unprecedented. It may be time to explore the notion that a little cooperation could reduce, or solve, both firms' "impossible" problems.

By Rob Enderle
04/03/06 5:00 AM PT

I spent a lot of time last week reading the Microsoft employee blogs and apparently there is some reasonably strong feeling among many folks who work there that the wrong "Steve" is running the company. This is, in my view, a "grass is greener on the other side of the fence" type of perception -- since "the other Steve," Jobs, that is, is neither known for being a good software guy nor being anywhere near as employee-focused as Microsoft's executives are. He does, however, have skills that Microsoft could use desperately right now.

This kind of outcome may seem unlikely, but then again, the last few months have been jam-packed with unlikely events.

Case(s) in Point

Let's take the acquisition of eMachines by Gateway. How likely is it that an existing management team would opt to buy another company and give up their jobs to the executives of the company that they bought?

Or how about AT&T -- how crazy would it have seemed two years ago that someone else would come in and rebuild that giant, using the same name?

Or what about Apple partnering up with Intel? Even Steve Jobs has said in the past that this was an impossible scenario. You would think he'd have lost a little credibility on this one.

Or Cisco, the large enterprise networking company buying Scientific-Atlanta to go after the consumer set-top box market?

Or Dell, which virtually never does acquisitions, buying Alienware, a firm focused on gamers, not large enterprises?

Or the biggest of all, the Walt Disney Co., which was at war with Pixar a few months ago, buying the company and basically turning its movie operation over to it?

Clearly there would be some anti-trust hurdles in an acquisition of Apple by Microsoft, but the oil companies seem to be able to get through those reasonably well and both Apple and Microsoft have clearly done the "impossible" before. Setting these concerns aside, let's imagine what might result from such a merger.

The Reason Wouldn't Be to Fix the OS

While it is easy to point to the acquisition of NeXT by Apple as an example of when a purchase fixed a problem like the one Microsoft had recently with Vista, Apple really isn't an OS company, and Microsoft's problem is vastly broader than just its OS.

Microsoft has lost the support of many of its critical employees, partners and customers, and even the U.S. government shows little interest in protecting the company from foreign threats. Microsoft has a major image problem and an apparent inability to either recognize or deal with it. In addition, Microsoft appears to have a leadership problem, one it likely shares with companies like GE, GM, and Ford these days, where the executives are isolated, regularly tricked into making bad decisions, and aren't taken very seriously.

Broad image problems are the responsibility of marketing and public relations executives. While Apple's public relations is mixed, its marketing is second to none and, having made the mistake of comparing potential customers to lemmings years ago, the company would probably immediately see that referring to its own customers as dinosaurs for not buying their latest offering, wasn't particularly wise.

In addition, Apple, particularly Steve Jobs, has a history of demanding the impossible from employees -- and getting it. Granted the employees have often been somewhat underwhelmed with the rewards that followed, but the job got done.

According to the Microsoft blogs, the one place inside Microsoft that doesn't have many problems is the Mac Business Unit, which is arguably more closely connected with Apple than Microsoft these days. This would indicate a strong foundation for the belief that Apple could help Microsoft -- but could Microsoft help Apple?

Why Apple Needs Microsoft

The obvious word here is "Office," but recall that Microsoft provided Apple with critical funding (US$150 million) when it was about to go under so that the firm could come out with new hardware and finish its new operating system. In addition, Microsoft, in continuing to support Apple with Microsoft Office, allows Apple to sell in a lot of places it otherwise would be locked out of.

Apple also has problems of its own. The firm has not been able to grasp the importance of owning standards or licensing its PC products and, as a result, its PC platform currently represents a nearly insignificant portion of the market. Apple's machines are long on usability but short on interoperability, which is almost the mirror opposite of Microsoft products like Media Center. In fact, Microsoft could help dramatically in getting Apple platform products to work seamlessly in Windows environments and make a Media Center product jointly developed vastly more attractive and profitable.

Imagine what would result if a new Apple OS was based on the new Windows kernel rather than on Unix. It would be much more acceptable to a broad cross section of companies that wouldn't touch it with a ten foot pole today.

Now recall that Apple's most successful products, iPods, are dominant because they run on Microsoft's platforms and because Apple licensed the interface, creating a Microsoft-like infrastructure of accessories and partners to surround the product. This allowed the iPod to grow to its full potential and resulted in licensing revenue that, like Microsoft's, flows directly to the bottom line.

If Not a Merger, a Partnership?

Now, an Apple-Microsoft merger may not necessarily be a good idea because it may go too far. Much of what makes both companies interesting is what is unique to each firm. I honestly don't see a chance that the U.S. government would allow such a merger to take place anyway. But how about a broad partnership?

If Apple's next generation OS -- Leopard -- was ready now the company could take some market share from Microsoft in the 4th quarter, but Apple probably wouldn't be able to hold onto it. All reports say Leopard won't be ready until 2007, after Vista ships, anyway. Furthermore, Apple users currently don't seriously look at Windows and most Windows users currently can't use Apple's system.

A lack of competition in the space is making it almost impossible for Microsoft to get new features into its new operating systems and it desperately needs credible competitors to help it conquer challenges in the European Union and Asia.

Apple has similar problems in France with the iPod and both companies are likely to see their problems spread to other geographies. Having both of these companies working for the other's defense should make both more capable of getting U.S. government support and, after all, both firms use similar practices to compete in the market. Broad rules made against either could impact both adversely over time.

Linux represents a growing threat for both firms as well and Apple, like it was with Sun on servers, could actually be hurt the hardest first by a successful Linux desktop offering.

What if Apple worked with Microsoft to make the iPod "Plays for Sure"-compliant, and Microsoft worked with Apple to make the Mac OS a true peer platform to Windows? The end result would be more competition for both companies, and it probably would grow the overall markets as well and remove a lot of the foundation driving the litigation plaguing both firms.

Employees might also move more freely between the firms, providing a formal system of cross-pollination in skills and practices that both could use. I'm not suggesting they stop competing, only that they better realize the potential of the partnership that was formed back when both companies were born.

A Dose of Reality

This is all an ideal-case scenario, and things seldom work that way. Apple historically has not been a good partner and the distrust that surrounds Microsoft is near legendary. Still, stranger things have happened. While neither company is in critical shape at the moment it does appear that both firms need each other right now -- with an urgency that is unprecedented.

It may be time to explore the notion that a little cooperation could reduce, or solve, both firms' "impossible" problems. At the very least, doing the impossible one more time would remind folks what both firms are capable of and put their collective adversaries on notice not to take either company lightly. Trust me, it is much more fun to work on fixing a problem than to constantly be hit over the head with it. Scaring the hell out of competitors would probably be just the icing on the cake.


Rob Enderle, a TechNewsWorld columnist, is the Principal Analyst for the Enderle Group, a consultancy that focuses on personal technology products and trends.


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