Steve Jobs negotiates Apple's deal with Microsoft

Aug 6

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From: Steve Jobs
Date: Thu, 24 Jul 97 09:36:57
To: Greg Maffei
Subject: Terms

Greg,

Here is a review of the terms we last discussed, as well as some issues I have encountered.

Please ping me to let me know that you received this email.

Thanks
Steve

1 - Cash Payment of [REDACTED] (upon signing)
No issues.

2 - Stock Purchase of $150M (upon regulatory approvals)
Our Board and CFO feel strongly that any visible Microsoft hedging in the short run is unacceptable to Apple. Therefore, we suggest either a) going back to buying 4.99% of Apple's outstanding common stock (so that hedging does not require visible securities filings) and providing the balance of $150M in the form of Apple-controlled co-marketing funds, or b) buying $150M of Apple common stock and agreeing not to hedge for nine (9) months. I can sell either one.

3 - OTLC

Apple will agree to pay Microsoft any sums it receives from OTLC derived from a patent settlement with Microsoft. I got some push-back on the extra 5%, which the Board felt was petty, but I think I can sell this if its is truly important to you.

4 - Office for Mac

Microsoft will publicly agree to support the Microsoft Office on the Macintosh (Mac APIs) for at least five years. We propose that Microsoft also publicly agree that during this period it will release the same number of major releases of Office for Macintosh as are released for Windows. We agree to a private agreement that if Apple and its authorized licensees are not selling a combined minimum number of computers which run the Macintosh APIs at the end of the third year, Microsoft may elect to cease future development and releases, but will support the then most current released version for the duration of the initial five year period. Apple proposes this minimum threshold be three million units per year, based on the prior four complete quarters.

5 - Internet Explorer

Apple will publicly announce that it is bundling the most current version of Internet Explorer with its Macintosh software releases for as long as Microsoft is developing and releasing Office for Macintosh and, while Apple may include other non-Microsoft Internet Browsers in its software, it will make Internet Explorer the default selection in the choice of all included Internet Browsers presented to the user upon their first summoning an Internet Browser. The customer may choose a different Internet Browser as their default Browser at such time, or at any later time. Microsoft agrees to provide Apple current and future versions of its Internet Explorer software which are competitive with its Windows versions at no charge to Apple. Apple will modify its Macintosh software to perform as described above as soon as commercially practical. Microsoft will provide enhancements to its Internet Explorer Browser as requested by Apple from time to time to implement functionality equivelent to that shipping in Netscape Browsers (current examples include: ISP registration, customized buttons for Apple).

6 - Java

Apple and Microsoft will announce that they have entered into cooperative development on Java, with the intention of insuring compatibility between their respective Java virtual machines and extending them in some similar directions. After investigation, Apple's Java engineers feel that the current work being done by Microsoft [illegible] is not competitive in performance with what Apple has just released. We are very excited to work with the Microsoft Windows Java team in Redmond to create a portable version of the Microsoft Windows Java VM and incorporate it into Macintosh's Java VM. You and I need to noodle this issue some more and craft something that says what we both can live with.

7 - Bill Gates at Macworld

Bill will join Steve on-stage at MacWorld in Boston on Wednesday, August 6, to announce this deal, and at a press conference immediately following the keynote.

[This document is from U.S. v. Microsoft (2000).]

Original tweet

Steve Jobs announced Apple's deal with Microsoft 25 years ago today:

While he worked with the team on new product planning and yet another round of restructuring, Steve also took on a unique project he’d been handed by Anderson: to convince Bill Gates to continue to support the Macintosh with new versions of the company’s productivity applications, like Excel and Word, which Microsoft would soon begin to bundle into a suite of productivity programs to be called Office.
Earlier in 1997, Gates had said that he couldn’t guarantee that Microsoft would build a new version of Office for the Mac. His reluctance made sense. With Macintosh sales in a tailspin following the introduction of Windows 95, it was more difficult for Gates to justify the expense of supporting the Mac. Microsoft made good money from its Macintosh software, but as Mac sales tanked, so too did Gates’s enthusiasm for supporting Apple.
“Reaching an agreement with Microsoft was absolutely critical to laying the foundation for Apple to be saved,” recalls Anderson. “But Amelio couldn’t get it done.” If Gates said no to Steve, Apple could have found itself in the same position as NeXT had been back in 1988. Without Microsoft’s applications, which had become the de facto standard tools used in most businesses, Apple, like NeXT, might cease to be relevant.
Apple did bring a stick to the negotiations. The company had a long-standing patent suit against Microsoft alleging that Windows, which largely replicated the conventions of the Mac’s graphical user interface, infringed on Apple’s own intellectual property. Many observers thought Apple had a good case, and Gates really wanted it settled. But Amelio had insisted on a variety of ancillary agreements and never could close the deal.
When Steve called on Gates, he kept things simple. He explained that he would be willing to drop the patent litigation, but for a price. Not only did he want Microsoft to publicly announce a five-year commitment to provide Office for the Mac; he also wanted his powerful rival to publicly, and financially, make clear that this was an endorsement of Apple’s new direction by purchasing $150 million in nonvoting shares. In other words, Steve wasn’t asking for a loan, he was asking Bill to put his money where his mouth was.
“It was classic,” remembers Gates. “I’d been negotiating this deal with Amelio, and Gil wanted six things, most of which were not important. Gil was complicated, and I’d be calling him on the phone, faxing him stuff over the holidays. And then when Steve comes in, he looks at the deal and says, ‘Here are the two things I want, and here’s what you clearly want from us.’ And we had that deal done very quickly.”
The deal closed at quite literally the eleventh hour of the night before Steve gave his MacWorld keynote address in a downtown Boston theater called the Castle. By Steve’s standards, this speech was on the short side, clocking in at just about thirty minutes. He had no products to introduce or demo. Instead, he presented the corporate equivalent of a State of the Union address. Pacing the stage like a caged tiger, Steve was visibly tense. He wore a white, long-sleeved T-shirt underneath a black sweater vest that was buttoned up in a lopsided way—the lowest button didn’t have a free buttonhole, so one side of the vest hung lower than the other. A couple of times he had trouble getting the remote control to advance the slides projected on the enormous screen behind him. But once he got rolling, his presentation was one of his most concise, and a clear signal that things would change—for the better—at Apple.
[...] After about twenty minutes he turned to partnerships. What he really wanted to talk about was one business relationship—the one with Microsoft. His first mention of Bill Gates’s company drew only tepid applause, and a few hoots. But in short order, he laid out a five-point deal that would prove to the world that “Microsoft will be part of the game with us,” and later adding that “we have to let go of ... this notion that for Apple to win, Microsoft must lose.” Once it all sank in, however, the crowd warmed to the idea, booing only at the mention of Internet Explorer becoming the default browser on future Macs. When Steve introduced Bill, who appeared via a live video feed from Seattle, the audience forced the Microsoft CEO to wait while it applauded before he could make his short statement.
The moment turned out to be Steve’s worst case of stage management ever. Bill’s face, with his familiar smile that can border on a smirk, was about six feet tall on the massive screen above and behind Steve. He looked down on Steve as if to say, “I’m sorry, little people, while I enjoy gracing you with my presence, I can’t be bothered to fly down to your little campfire singalong.” The comparisons with Apple’s old “Big Brother” ad were inevitable.

From Walt Mossberg:

Walt Mossberg @waltmossberg

2/ There are a lot of myths about this transaction, which I discussed in detail at the time with both CEOs. For one thing, Microsoft got a patent cross-licensing pact out of the deal. For another, it got to be able to tell the government and others that it had competition.

From Steven Sinofsky:

Steven Sinofsky @stevesi

Thoughts on the Apple-Microsoft deal from @waltmossberg who talked to both CEOs at the time more than most anyone. He captures the true nature of this deal. Permit me to amplify some of what he shared with a few thoughts. 1/

Walt Mossberg @waltmossberg

1/ Twenty-four years ago today: the @nytimes gave front page play to the news that @Microsoft had bought $150 million in non-voting stock to help the struggling @Apple. https://t.co/o8em77xHom

From Cathy Booth for TIME:

Less than 12 hours before his big announcement, nobody here knows yet about the bombshell to come. In fact, Jobs is still negotiating it here at the Castle—on a cell phone. "Hi, Bill," you hear him say in the echo chamber of the old hall. Then his voice drops, and for nearly an hour he paces the stage, running through last-minute details with Gates. All the while, he leans over his computer, paces, lies down on the stage, paces, lurks in dark corners, paces and talks, paces and talks.
This is the fateful call for the boy titans of the personal-computer revolution, meant to settle the war. At one point, talking about Apple, Jobs says, "There are a lot of good things, happily—and a lot of screwed-up things." Then, to his crew, he yells, "Have we got satellite contact with the other side?" Assured this has been taken care of, he answers a question from Gates about what to wear on the morrow ("I'm just going to wear a white shirt," he assures him), and he finally ends the conversation with a heartfelt "Thank you for your support of this company. I think the world's a better place for it." And so that's how Apple and Microsoft, Steve Jobs and Bill Gates, finally seal it—on a cell-phone call.
The deal is vintage Jobs. Amelio began the process of repairing relations between the two longtime rivals. But once he was out the door at Apple, Jobs contacted Gates to try to get talks started again. Gates dispatched his CFO, Gregory Maffei, who met Jobs at his home. Jobs suggested they go for a walk. Grabbing a couple of bottles of mineral water from the fridge, the two took off for a stroll around Palo Alto. Jobs was barefoot. "It was an interesting scene," Maffei recalls. "It was a pretty radical change for the relations between the two companies." The two walked for nearly an hour, through Palo Alto's green university area, as they pounded out the details of a potential deal. Jobs, Maffei says, was "expansive and charming. He said, 'These are things that we care about and that matter.' And that let us cut down the list. We had spent a lot of time with Amelio, and they had a lot of ideas that were nonstarters. Jobs had a lot more ability. He didn't ask for 23,000 terms. He looked at the whole picture, figured about what he needed. And we figured he had the credibility to bring the Apple people around and sell the deal."

Previously: Bill Gates: “Our discussions with [Amelio] have not been going well”