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FEBRUARY 21, 2003 COMMENTARY By Stephen H. Wildstrom A New Twist in the Mac-Windows Waltz Microsoft's purchase of a program that allows Macs to emulate PCs doesn't necessarily mean Apple fans should be worried
That may have been the beginning of a two-year slide in relations between Microsoft (MSFT ) and Apple (AAPL ) -- tensions that explain why Mac fans reacted with fear and loathing on Feb. 20 when Microsoft announced it had purchased Virtual PC, a program that allows Macs to emulate a Windows computer, from Connectix Corp. Jobs & Co. has a problem at this point, however: Apple and its customers need Microsoft now more than Microsoft needs them. Contrary to the fears expressed on Mac message boards, Microsoft didn't buy Virtual PC either to kill it or to give itself an excuse to stop development of native Mac products. The acquisition was something of an accident: Microsoft really wanted a forthcoming Connectix product called Virtual Server, which allows servers to run multiple versions of Windows simultaneously, and it got Virtual PC for Mac in the bargain. Microsoft made money from Virtual PC for Mac even when it was sold by Connectix (as it will continue to be for the next six months) because every copy included a licensed copy of some flavor of Windows. FRAGILE ALLIANCE. Still, Mac users' suspicions are entrenched and have some basis. The histories of Apple and Microsoft are deeply intertwined, but these companies have never much liked each other. Microsoft's first big success was a hardware-software combination that allowed the then popular CP/M operating system to run on the Apple II. Today, it's all but forgotten that the first version of Windows was based on technology licensed from Apple, and that Office, Microsoft's great gusher of profits, began as a marketing ploy to get buyers of the Mac's popular Excel spreadsheet to also buy the slow-moving Microsoft Word. The Apple-Microsoft relationship reached a zenith in August, 1997, when Jobs and Bill Gates stunned a Macworld audience by announcing that Microsoft was taking a $150 million equity stake in the floundering Apple. Jobs & Co. agreed to drop pending litigation against Microsoft, and Gates's Gang pledged to develop a new version of Office for the Mac to replace a product that, it was generally agreed, was all but unusable. Microsoft made good on the bargain. Office 98 for the Mac was a far better product than even the then current Windows version, and Office v. X was one of the first major applications to ship for OS X. Although Microsoft's formal five-year commitment to develop Office for the Mac was not renewed when it expired last year, it insists that the change in the contractual situation has had no impact on its product efforts. FIGHTING BACK. Beneath the surface, unhappiness was brewing, however. Microsoft was miffed when Apple built a decent e-mail program into OS X and then greatly improved it in the Jaguar update to OS X earlier this year. With OS X Mail, many Mac users no longer needed either Microsoft's free Outlook Express nor the Entourage component of Office. Apple rubbed some salt in the wounds in January when it released Keynote, a competitor to Microsoft PowerPoint, and a trial version of Safari, a top-notch Web browser likely to displace Internet Explorer on many Macs. Apple executives made no secret of the fact that a driving force behind the creation of Keynote was Jobs's unhappiness at having to write his presentations in PowerPoint. While Apple has always tapped into the adventure of computers, the bottom line of Microsoft's Mac offerings has always been the bottom line. And over the years, Microsoft has made a lot of money selling Mac software. Sales of Office v. X started slow, but Tim McDonough, director of marketing and business development for the Mac Business Unit, says they have "really taken off" since Apple released Jaguar last fall. McDonough says a new version of Office is under development and hints that it might be released in as little as 18 months (see BW Online, 2/21/03, "A 'Perfect Marriage' for Microsoft?"). MURKY FUTURES. Of more immediate importance are Microsoft's plans to improve Mac support for the Exchange mail and collaboration system, which is increasingly important to large corporations. Microsoft released a version of Outlook for the Mac in 2001, but it was far inferior to the Windows product and hasn't been rewritten for OS X. Instead, Microsoft plans to incorporate key Exchange and Outlook capabilities into a new version of Entourage this summer. Mac users won't enjoy all the collaboration features available through Outlook on Windows, but they'll get full access to mail, address books, and shared calendars. The future of Internet Explorer and Outlook Express are murkier. Since Microsoft gives both away, profits aren't available, and both have been rendered superfluous by OS X Mail and Safari. A key factor in IE's future may be whether Apple decides to charge for Safari or offer it free for all Macs. In any event, the dance between Apple and Microsoft is likely to continue. Jobs, in particular, can be expected to poke Microsoft with a stick at every opportunity. And as long as Microsoft can make money on its Mac business, it will stay in the game. But as any Mac lover will tell you, Microsoft is a very unsentimental company, and if the business goes south, it will abandon Apple with few regrets.  Wildstrom is Technology & You columnist for BusinessWeek Edited by Douglas Harbrecht Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. 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