When Apple and Microsoft signed a pact five years ago formalizingtheir relationship, the two companies laid out a detailed road map forthe future. Included was a US$150 million shot in the arm for thethen-ailing Macintosh manufacturer, plus a slew of development agreements, highlighted by Microsoft Office and Internet Explorerfor Mac OS.
Although the companies have jointly created software for the Macplatform for nearly 17 years, the 1997 agreement marked a new beginningfor Apple in the eyes of many industry observers. In addition, the deal wasa signal to customers that Apple would pull out of its financial tailspinand move on to create new products.
Fast forward to the summer of 2002. The agreement expired, no extendedproposal has been put in place, and published reports have questioned thestate of the relationship. To date, neither company has made overtures toward signing another agreement.
At the same time, the leadership of the Microsoft Mac Business Unithas changed. Earlier this week, Microsoft announced that MacBUdirector Kevin Browne will be transferred to the company’s Xbox division.
Sales of Office v.X Sagging
Some analysts believe the major point of contention between thetwo companies is lagging adoption of OS X, and the resulting sluggishsales of Microsoft Office v.X.
The companies sparred this summer as reports showed Microsoft accusedApple of spending too little money to promote OS X, charging that the companyspent more on iPod marketing. For its part, Apple pointed to a high stickerprice that may have prevented Mac users from purchasing Microsoft’ssuite of office productivity software.
Apple CEO Steve Jobs said this week, as the company released itsfourth-quarter earnings statements, that Apple is on track to convert5 million users to OS X by the end of 2002.
But Office v.X has sold only half as many copies as expected — about 300,000,as opposed to the 750,000 anticipated by Microsoft — according to Yankee Group senior analyst Laura DiDio.
In response to the sales shortfall, the two companies announced a limited-time pricereduction on Office v.X earlier this month, slashing the original price of US$499to $199 with the purchase of a new Mac.
No Renewal Needed
While the Office v.X price reduction could be seen as a temporarytruce, it is questionable whether another agreement will be signed.
“We don’t see any impact of the technology agreement expiring. Applehas no other agreements with any companies like that, and neither dowe, to my knowledge,” Tim McDonough, director of marketing forMicrosoft’s MacBU, told the E-Commerce Times. “When we wereunder the agreement, [we] always exceeded the terms of theagreement, and it’s going to continue to as long as it’s a goodbusiness relationship.”
McDonough reiterated Microsoft’s ongoing commitment to Apple, andnoted that the software giant’s team of nearly 145 developers devoted tothe Mac platform is second only to Apple’s.
In the last year, Microsoft has released additional Mac softwarebesides Office v.X, said McDonough, including MSN Messenger, a remotedesktop connection client and Windows Media Player for OS X.Microsoft also is working on a Mac version of its MSN software.
Apple did not return calls seeking comment.
Microsoft No Longer the Bad Guy?
Gartner analyst Ray Valdes suggested that Microsoft’s motive for notrenewing its agreement with Apple may have less to do with sales ofsoftware and more to do with what it needs — or does not need — fromthe relationship.
“At the time of the deal, Microsoft needed to demonstrate that itwasn’t completely a bad guy and it wasn’t going to totally suck theair out of the lungs of competitors, the way they had done withNetscape,” Valdes said.
“I think they probably need each other less [now]. They can’t help eachother as much as they used to,” he added.
The lack of a written agreement, according to McDonough, is more areflection of the changing times than a sign of waning commitment.
“I think the relationship has been stronger than it has ever been,”he said. “The technology agreement is now over five years old,and it was signed at a very different time when the needs were verydifferent.”
Helping the Competition
While on the surface it appears that Microsoft fuels its competitor — onewhose latest “Switchers” campaign highlights users who have turned tothe Mac platform from a PC — the company is adamant that it will continueto develop software for Mac OS as long as its Mac unit remains a profitableventure.
“As long as the business is strong, we’ll always be there,” saidMcDonough, who said that rather than supporting a competitor,Microsoft is merely providing software for another platform. “There arecustomers who choose to use a Dell machine, an HP machine, and thereare customers who choose to use a Mac.”
The Yankee Group’s DiDio said she believes Microsoft does not have ahidden agenda with its Apple relationship, and that economics is thedriving factor steering the two companies’ relationship. “I think ifdemand goes up, it’ll change, and they’ll sign a new agreement,” she said.