Apple struggled to keep pace with the competition in the mid-1990s, leading to the company absorbing monumental financial blows and facing the jaws of potential bankruptcy. By 1997, the California-based firm witnessed a mammoth loss of $1 billion as it failed to have any meaningful reply to Microsoft and IBM. Apple attempted to turn things around, but the launch of its handheld Newton failed to garner sufficient reception, not to mention that its System 7 OS was outdated compared to Windows 95.
In short, the technology firm’s executives were probably mulling looking at lucrative positions elsewhere, but in came Microsoft, the most unlikely of entities, and on August 6, 1997, which makes it 27 years ago today, invested $150 million in the now trillion-dollar behemoth. Some industry watchers believe that this injection of funds helped Apple avoid any bankruptcy episode, while others commented that it did little to help the situation at the time. Regardless, we look back in time and discuss the events that caused Microsoft to take a bet on a company that investors would keenly avoid.
At the time, Microsoft was facing an antitrust lawsuit, so the $150 million investment in Apple was likely done to improve its image
The deal between Microsoft and Apple was announced by Steve Jobs at the 1997 MacWorld Expo, with Jobs stating that the investment would help grow the overall Mac software market. Microsoft co-founder Bill Gates also appeared at the event through satellite connection to cement the belief amongst the masses that Apple and Microsoft would commence a healthy business relationship. The software conglomerate also agreed to continue the development of productivity-focused apps such as Microsoft Office for the Mac for at least half a decade.
As for the investment, the $150 million was used to purchase non-voting Apple stock and was just a fraction of Microsoft’s total market capitalization. However, thousands are likely pondering why a competitor would hand out a monetary lifeline and whether it would not have been easier for Apple to fade into oblivion after it was declared bankrupt. Well, Microsoft did not make this move from the kindness of its heart, and its investment served its own purposes.
For instance, as mentioned earlier, Microsoft agreed to develop Office applications for the Mac, which added to its revenue every time Apple sold one of these units. If the latter had gone bankrupt, Microsoft would be forced to scratch off a revenue stream from its list because there would be no more Macs to sell. Another reason is that, at the time, the software giant was facing an antitrust lawsuit, and if regulators saw that Microsoft was forcing Apple to wither away, it would put closer eyeballs on it.
Furthermore, the $150 million may have been a drop in the bucket for Microsoft, but it could cash out later if Apple recovered from its downward slump. As it turned out, that is precisely what happened. Based on various reports, in 2001, Microsoft converted the invested sum into common stock, acquiring 18.1 million Apple shares. When it was time to sell, Microsoft pocketed a sweet $550 million, making it more than a three-times multiple. Even if people argue that the investment did not do Apple any favors, what matters is how the company fares today. At the time of writing, the California-based titan has a $3.17 trillion market capitalization, so it is safe to say that the company’s future is secure.
About the author: Omar Sohail is a reporter and analyst for Wccftech's mobile section, specializing in the technology and business of the mobile industry. His expertise lies in the intricate hardware supply chain, covering developments in semiconductor manufacturing, chip lithography, and camera sensor technology.
Follow Wccftech on Google to get more of our news coverage in your feeds.
