In the mid-1990s, Apple was in dire financial straits and facing potential bankruptcy. The company had seen its market share decline due to increased competition from Microsoft and IBM. Apple's operating system at the time, System 7, was outdated compared to Microsoft's Windows 95. Additionally, Apple had tried to launch its own handheld device called the Newton, but it was a commercial failure.
By 1997, Apple was hemorrhaging money, with losses of over $1 billion that year alone. The company's stock price had tumbled to just $4 per share. There were serious doubts about whether Apple could survive. It was at this critical juncture that an unlikely savior emerged - Apple's fiercest rival, Microsoft. In August 1997, Microsoft purchased $150 million of non-voting Apple stock. Additionally, Microsoft agreed to continue developing software such as Microsoft Office for the Mac platform for at least 5 years.
Microsoft's infusion of cash helped stabilize Apple's finances. While a fraction of Microsoft's size, the investment was a shot in the arm for Apple. Microsoft's faith in Apple's future also helped restore investor and consumer confidence.
The deal was announced by Apple's CEO Steve Jobs at the 1997 MacWorld Expo. Jobs framed the deal as a winners' win situation, where Microsoft's investment would help grow the overall Mac software market. Gates also appeared via satellite at MacWorld and pledged Microsoft's support for continued Mac software development.
While competitively Apple and Microsoft continued to joust over operating systems and software well into the 2000s, Microsoft's bailout is credited with saving Apple from demise. The cash infusion and public display of support gave Apple breathing room to develop its next generation of computers and the eventual hit products like the iPod and iPhone. This helped set Apple on a trajectory to eventually become the world's most valuable company. Today Apple Inc. has a market capitalisation of $2.7 trillion while Microsoft Corp has a market capitalisation of $2.43 trillion.
Why did Microsoft help Apple
There are many reasons why Microsoft decided to invest in Apple in 1997. These may include:
1. Maintaining competition in the industry. While Microsoft dominated the PC market in the 1990s, Apple was still seen as an important counterbalance and innovator. Having Apple fail would allow Microsoft to fully monopolize the market, which could invite more intense regulatory scrutiny.
2. Protecting interests of Mac users. Several Microsoft programs like Microsoft Office had Mac versions. If Apple went bankrupt, it could disrupt Microsoft's ability to sell or support these Mac products.
3. Managing public perception. Microsoft was facing its own antitrust lawsuit at the time. By supporting Apple, it helped soften Microsoft's image as an industry bully trying to crush rivals.
4. Investing in a potential future partner. Though rivals, Microsoft likely recognized Apple still had strong engineering talent and brands like Mac that retained loyalty. Having a stake in the company could allow Microsoft to forge partnerships down the line that might prove strategically important.
5. Capitalizing on Apple's potential recovery. The $150 million investment was small for Microsoft, but could pay off handsomely if Apple orchestrated a successful turnaround. Essentially, Microsoft saw Apple as an opportunistic investment in a distressed asset.
6. Personal interest from Gates. Microsoft founder Bill Gates has acknowledged always having a soft spot for Apple, respecting its engineering culture. Saving Apple from demise had personal appeal even if Microsoft executives were divided on the strategic value.
What happened to the $150 million investment
In 2001, Microsoft converted its investment in Apple into common stock, acquiring approximately 18.1 million shares. However, by 2003, Microsoft decided to sell off all of its Apple shares, generating $550 million from the sale. It was an interesting chapter in the relationship between the two tech giants.