Microsoft-Apple deal mostly political move, say analysts

Microsoft's investment in Apple Computer is mainly a political move, aimed at keeping a rival alive and federal regulators away, say some industry analysts. Microsoft over the past five years has been the target of several antitrust investigations for alleged anticompetitive behavior. In 1994 the software giant reached a consent decree with the Justice Department under which the company promised to stop some of its licensing practices.

Microsoft's investment in Apple Computer is mainly a political move, aimed at keeping a rival alive and federal regulators away, say some industry analysts.

"[Bill] Gates is not an altruist," says Roger Kay, senior research analyst at IDC. The Microsoft chairman and CEO "needs a viable straw competitor to keep the Justice Department from bothering Microsoft," Kay says.

"This is excellent insurance against a Justice Department antitrust suit," says David Coursey, editor of the coursey.com industry newsletter. "If Apple goes down then Windows becomes a monopoly. It's more efficient for Microsoft to keep Apple alive, because it avoids the antitrust, it kicks Netscape and comes out looking like the good guy."

Microsoft's CFO Greg Maffei says anti-trust issues were not a top concern regarding the agreement.

Microsoft over the past five years has been the target of several antitrust investigations for alleged anticompetitive behavior. In 1994 the software giant reached a consent decree with the Justice Department under which the company promised to stop some of its licensing practices.

Just last month, the U.S. Federal Trade Commission declined a congressional request to investigate whether Microsoft is complying with the 1994 consent decree.

The request was in part initiated by complaints from Microsoft's rival, Netscape, which alleged that Microsoft gives discounts to computer makers that exclusively bundle Microsoft's Web browser with their systems, cutting Netscape out of the market. Microsoft denied the charges.

While federal regulators at this time reject the need for an investigation, Microsoft's dominant position keeps the threat of future investigations alive, analysts say.

Under the pact Apple also agreed to make Microsoft's Internet Explorer the default browser of the MacOS, a move analysts view as bad news for Netscape.

"This is a real coup for Microsoft, because Internet Explorer 4 will be come the standard browser on the Macintosh platform," says Chris Le Tocq, an analyst at Dataquest. "From a developer's standpoint the question is do they want to develop for Netscape and Java or do they want to develop for Internet Explorer and Active X."

In addition, analysts says the collaboration agreement among the two companies provides Apple with a new lease on life.

"In the near term the Microsoft investment is a shot in the arm for Apple, a tremendous positive for Apple," says Lise Buyer a vice president and tech-stock analyst at T. Rowe Associates in Baltimore, Maryland.

But Buyer also has some words of caution. "Microsoft doesn't have a history of being the greatest partner, but Apple is aware that it's putting its hands in the lions' mouth and that the lion has teeth."

However, Buyer was pleased with the mix of people nominated to the board today.

"There really couldn't be a better mix of people on the board. There is [Oracle CEO Larry] Ellison in there to keep Microsoft honest, and people who have worked with Apple and people from other aspects of the industry who have seen what an asset Apple was and what a brand name it had."

Kay says although Ellison, who has a history of clashing with Bill Gates, may be an especially strong-willed individual, the other board members "aren't wimps."

"This is going to be a feisty board, which will make it a tough job for the new CEO. Jobs serves as a foil to Ellison so he can't do too much damage," Kay says.

Longtime Apple watcher Pieter Hartsook, publisher of the Hartsook news letter, says appointing Jobs to the board will help Apple.

"I think it's great that Steve has a board position. It gives him accountability." In addition, with Jobs as a board member rather than chairman, it lets Apple appoint "a top-notch CEO that won't be seen as being a lackey for Steve Jobs."

The deal will pay off for Microsoft, which with a token investment of US$150 million will protect an important revenue stream, namely the sales of its Macintosh applications, analysts say.

"Gates and Microsoft are going to make money selling Office suites to Mac users," Kay says.

More importantly, however, the patent-portfolio cross licensing agreement between the two companies will pay off for Microsoft, giving the software giant access Apple's technology while it eliminates the threat of any patent disputes, analysts say.

"Apple has some things Microsoft wants and they can now cherry pick," Kay says, naming Apple's graphical user interface and multimedia technology as some of the technologies that will benefit Microsoft.

Similarly beneficial will be the announced intention that Apple and Microsoft will collaborate in Java development.

"The Java Virtual Machine on the Macintosh will now be the same as the virtual machine on Windows," Dataquest's Le Tocq says. "I would say that this is a big blow for Sun and Netscape and a big coup for Microsoft."

While Microsoft stands to gain a lot from the deal, it remains to be seen if it helps Apple in the long term.

"All this is not enough to ensure that Apple survives," Coursey says. "It may stop some of the bleeding but it won't encourage developers to start developing for the Macintosh again."

Wall Street, however, liked the news today. Apple stocks finished at $26.45, up almost 7 points from yesterday's closing price of $19.75.

(Additional reporting by Marc Ferranti, Niall McKay, and Ed Golden.)

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