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Bill Gates is the John D. Rockefeller of our age. Not because his wealth rivals that of the nation's most famous, and unapologetic, monopolist. Nor because Gates has built a fortress-like estate on Lake Washington near Seattle, just like Rockefeller did on the Hudson a century ago. No, I'm talking about Gates's ability, like Rockefeller, to turn a government antitrust assault to his advantage. The way Gates has recently done just that has big implications for rival Apple Computer.
First, a little history. In the early 1900s, Rockefeller controlled oil the way Gates does 90% of the world's PCs. Back then, chances were the oil that lit your lamp or heated your home was found, refined, and distributed by Rockefeller. After a protracted struggle, the government finally broke up Rockefeller's Standard Oil into separate companies that became known as the Seven Sisters. All prospered, making Rockefeller richer than ever, since he was the controlling shareholder and shadow executive of each one. But Rockefeller used his wealth in a new way -- building universities and curing diseases. In doing so, he transformed himself into a revered philanthropist.
TRAINING TEACHERS. Now, albeit on a much smaller scale, Gates is poised to pull off a similar transformation. In a tentative settlement of the government's antitrust suit against Microsoft, Gates has offered to spend $500 million to build and maintain educational computer systems in poor school nationwide. To be eligible, 70% or more of the students must come from families receiving federal meal assistance. Some 12,500 schools with 7 million students qualify.
It's a spectacular offer. Gates is not just giving away computers. Ninety million dollars would go to train teachers how to use the computers, and another $160 million to provide ongoing technical support. Microsoft would also donate one million refurbished PCs.
Building computer systems for kids from low-income families doesn't address the core issue of the antitrust case: that Microsoft used its stranglehold on computers to defeat competitors large and small. Yet it doesn't take a college degree to figure out that the deal extends Microsoft's control of computing all the way down to kindergarten level. Federal and state attorneys prosecuting Microsoft are making noises that they are likely to accept the deal, if only to end a messy and exhaustive case. If they do, Gates will become a hero. And Apple, one of the leaders in the educational market, will face a daunting new challenge from an old adversary.
SCHOOLS OF THOUGHT. Gates's school offer comes at a critical moment for Apple. It's fighting hard to shore up sales to schools, the company's single largest market. Apple still has the largest installed base, but Dell Computer has again regained the lead in new sales to schools, largely through aggressively low pricing that Apple can't match. In the second quarter, Dell garnered 37% of all new sales to elementary and high schools. Apple was in second place, with 23% of the market, according industry consultant IDC.
If schools take the bait, Microsoft's offer could transform the education market, making customers of schools that were previously too poor to build educational computer networks. To their credit, Microsoft executives have said up front that schools are free to build any kind of system they want, whether PC, Mac, or Linux. As Microsoft CEO Steve Ballmer has said: "The benefits we provide can be used for PCs or Macintoshes."
In truth, Microsoft's offer only increases the momentum toward Windows-based systems in schools. Sure, there are some independent, strong-willed school administrators, but most have a herd mentality. The flock right now is mainly buying Window-based PCs. Poor schools will be choosing, as better-off schools are now selecting, a Windows-based system using Microsoft software. It's a nearly irresistible course for those bred to play it safe.
DO THE HUSTLE. All is not lost, however. No computer company understands schools better than Apple. The company isn't talking publicly about its strategy. But if Apple can get to poor schools first, demonstrate the ease of using and maintaining Macs, and set up systems that run everything from attendance to grading, Apple stands a fair chance of winning a good share of this emerging market. After all, Microsoft Office runs as well, if not better, on a Mac as it does on a PC.
It will all come down to hustle. If Apple can get its foot in the door first, it too can share in Gates's Rockefeller-like benevolence.
Haddad, Atlanta-based correspondent for BusinessWeek, is a longtime Apple Computer buff. Follow his weekly Byte of the Apple column, only on BW Online Edited by Thane Peterson
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Copyright 2001 , by The McGraw-Hill Companies Inc. All rights reserved.
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