Apple strikes deal with Microsoft – forging strategic partnerships

After their death, people’s reputations begin to eclipse the real facts of their lives. ‘Steve Jobs fired as Apple chairman’ and ‘Steve Jobs strikes pragmatic deal with Microsoft’ are not the sort of sub-heads you find in most of the obituaries.

Apple versus Microsoft

Steve Jobs was the genius who founded Apple Inc, the quirky, creative corporation that was (in the popular imagination) the corporate antithesis of everything that Microsoft stood for. Jobs, in this version of reality, started Apple in a garage in Silicon Valley with his friend Steve Wozniac (that much is true, and worthy of legend) and built it into the multi-billion dollar success story that it is today. Driven, uncompromising and motivational, Jobs inspired his organisation to ever greater heights of creativity, driven by his own remarkable vision of how things might be, rather than how things currently were.

I wouldn’t want to argue with much of that analysis, but I wonder how many people now remember that Jobs was effectively fired from the company that he had created (partly because of sliding sales but mainly for having become the chairman from hell, and a serial corporate plotter) and that when he achieved the astonishing feat of becoming the CEO of Apple for a second time, he set out to do the unthinkable – to make a partnership with Microsoft. Apple staffers booed Jobs when he made the announcement at the Macworld Conference in Boston in 1997. The fact that Apple was nearly bankrupt and that the deal was a lifesaver didn’t fit with their world view, in which Apple were the good guys and Microsoft was the evil empire.

A keyboard and a screen!

Steve Jobs founded the consumer electronics corporation, Apple Inc, with Steve Wozniac in 1976 and launched the Apple I Personal Computer Kit: an assembled circuit board. The next product, Apple II, represented a huge leap forward. It was the world’s first commercially successful personal computer, incorporating such radical features as a keyboard, a screen, a case and twin floppy disc memory drives. The new company went public in 1980, generating more capital than any stock market launch since the Ford Motor Company in 1956, and creating about 300 new millionaires overnight. In 1985 Steve Jobs was removed from managerial duties in a boardroom power struggle with John Sculley, whom Jobs himself had appointed as Apple’s CEO, and resigned from the company that he had created.

Eleven years later, in 1996, when Job’s subsequent venture, neXT Computer, was bought by Apple, Jobs re-emerged as Apple’s CEO. (Along the way, Jobs happened to have bought a little company called The Graphics Group, which he turned into Pixar – but that’s a different story).

With Apple struggling and near bankruptcy, one of Jobs’s first actions was to arrange a strategic partnership with the software giant Microsoft, with whom Apple had been engaged in a drawn-out and costly series of legal wrangling over patent rights. In 1997, at the Boston Macworld Expo, Steve Jobs took to the stage to deliver one of his famous keynote speeches. He stunned his audience—for whom the world had become defined by the struggle between the underdog Apple and the increasingly all-powerful Microsoft Corporation—with the following announcement.

A meaningful partnership

‘Now, I’d like to talk about meaningful partnerships’, said Jobs.

‘Apple lives in an eco-system and it needs help from other partners; it needs to help other partners. And relationships that are destructive don’t help anybody in this industry as it is today. So during the last several weeks we have looked at some of the relationships, and one has stood out as a relationship that hasn’t been going so well, but that has the potential, I think, to be great for both companies. And I’d like to announce one of our first partnerships today, a very very meaningful one. And that is one with Microsoft.’

As he began to summarise his announcement, Jobs said:

‘We have to let go of this notion that for Apple to win, Microsoft has to lose . . . the era of setting this up as a competition between Apple and Microsoft is over as far as I’m concerned. This is about getting Apple healthy and [. . .] about Apple being able to make incredibly great contributions to the computer industry, to be healthy and prosper again.’

The deal set up a number of arrangements for the cross-licensing of patents. It guaranteed that Microsoft would continue to release Microsoft Office products for the Mac platform. Apple undertook to make Microsoft’s Internet Explorer the default browser on all new Mac products. Microsoft also bought $150m of non-voting Apple shares at market prices and undertook not to sell them for three years. Microsoft now had a vested interest in seeing Apple’s share price increase, rather than collapse. When the market heard about the deal, Apple’s stock rose by 35%.

Steve Jobs was a dreadful manager – visionaries generally are. But he was certainly a great leader.  Forging strategic relationships – with major competitors if necessary – is one of the hallmarks of great leadership.

These ideas are explored further in chapter 98 , ‘Look for Partnerships’, in  100 Great Leadership Ideas .