STEVE JOBS' HOLLOW DEAL WHILE THE REAL ACTION IN PCS WENT ON ELSEWHERE, THE PRESS FOCUSED ON THE MICROSOFT-APPLE DEAL. OUR SENIOR EDITOR IN SILICON VALLEY EXPLAINS WHY THE TRANSACTION MEANS NEXT TO NOTHING.
(FORTUNE Magazine) – Let me tell you about the very rich. They are different from you and me. They possess and enjoy early, and it does something to them, makes them soft where we are hard, and cynical where we are trustful. --F. Scott Fitzgerald, from his short story The Rich Boy, published in 1926
Let me tell you about Steve Jobs and how he is different from you and me. About how his immense wealth and dazzling success have done something to him; and about how meaningless the alliance he recently engineered between Apple and Microsoft really is.
If you believe the breathless coverage of the deal in both the business and mainstream media, the $150 million investment he wheedled out of Microsoft not only buys the ailing computer maker precious time to reconstitute itself, but is Jobs' deftest marketing masterstroke. Only an outright merger of the companies would be a more melodramatic way to mark his return to center stage in the industry he helped sire. The deal even landed his mug on the cover of Time magazine. As the new, improved Jobs himself would put it, "Well, golly!"
Now, some moves Jobs has made in his stint as Apple CEO pro tem deserve praise. Though he publicly denies it, Jobs clearly was behind the June ouster of ineffectual CEO Gil Amelio. And his restructuring of the board--he's installed himself, Oracle CEO Larry Ellison, Intuit President Bill Campbell, and former IBM CFO Jerry York--must be an improvement; the old board, after all, did next to nothing.
But if you really examine the marriage of convenience he arranged with longtime archrival Bill Gates, you'll see it's a hollow transaction, providing Apple little more than a quick boost for the company's stock price. Microsoft agreed to do three things: develop Macintosh software for three more years; invest $150 million for nonvoting preferred stock; and pay an undisclosed sum to cross-license Apple technology. The first move is something it probably would have done anyway; the second is a largely symbolic gesture (despite Apple's losses, with roughly $1 billion in the bank it doesn't really need cash now); and the third does little more than make it unlikely the two erstwhile foes will sue each other.
The deal does nothing to address Apple's fundamental woes: the cannibalization of Apple's sales by makers of Mac clones; the tide of corporate customers switching to Windows PCs; the company's weak morale and management; Apple's lack of a full-time CEO. No, the deal does little more than enhance Jobs' carefully cultivated image.
If anything, the big winner in the Apple-Microsoft deal is--surprise!--Bill Gates. Consider what Gates bought with his $150 million (a pittance, really, when you consider that Microsoft plunked down $1 billion earlier this year for a stake in the cable TV operator Comcast). He gets to incorporate some of Apple's most precious software technology in Microsoft's products. He gets Apple's support in disseminating Microsoft's Web browser, which lets him trump Netscape. He gets Apple's support for Microsoft's proprietary extensions to the Java programming language, which lets him snub Sun Microsystems. On top of that, imagine Gates' satisfaction when the deal was announced as he watched, via closed-circuit TV, Steve Jobs kiss his ring before an audience of incredulous Apple zealots at the MacWorld trade show.
When all is said and done, Microsoft might even make money on its $150 million investment. After three years it can convert the preferred into 9.1 million common shares for which it will have paid the equivalent of $16.50 each.
As for Apple, well, ask not what you can do for your company; ask what your company can do for you. Steve Jobs is sitting prettier than he has in years. While he publicly protests that all he really wants to do is run Pixar, the maker of Toy Story, he can take credit for "reviving" Apple without bearing the full responsibility of actually presiding over the sinking company. All he has to do now is find a CEO, and he can retire from Apple with his wonder-boy image restored.
If this sounds harsh, consider this: In June, Jobs sold all but one of the 1.5 million Apple shares he received last winter, when he persuaded the company to pay him $430 million for Next, his long-suffering software outfit. The stock may be up for now, but Jobs' move may yet prove prescient. Only a few days after the Microsoft deal was announced, Apple notified the SEC that profits would remain elusive and that sales would likely dwindle in the coming two quarters. No, despite Gates' Machiavellian largesse and Jobs' self-aggrandizing salesmanship, Apple isn't out of the woods yet. But Steve is. His money isn't riding on this sinking ship anymore.