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Why did Microsoft save Apple from bankruptcy?

The upcoming entrepreneurs who look up to big companies like Apple, Microsoft, Amazon, and other companies know little of their fallouts. They hence cannot understand the complexities involved in it.

Every start-up in their initial days goes through a tough time financially and so did Apple. This article unfolds one of the most interesting topics in the tech world- How and why did Microsoft save Apple from falling out?

A case in point: when we think of Apple, we paint an image of the jaw-dropping headquarters and the trillion-dollar Market valuation attached to it.

But, little do we know about Apple’s hard times and the fact that it was on the verge of bankruptcy, and how Microsoft saved Apple.

So, how did Apple manage to make a paradigm shift from bankruptcy to a trillion-dollar company? The answer lies in the famous rivalry between Apple and Microsoft.

Chain of Events

This article will explain the chronology of events that led to Microsoft investing in Apple. It will explain why there was a feud between Apple and Microsoft in the first place.

It will not be a direct explanation but rather an extensive study of the chain of events that led to the investment. The following table highlights the chain of events:

Xerox ParcPioneered desktop computing Jeff Raskin, a professor working leading a division finds Xerox PARC interesting. He tried convincing Atkinson, Jobs’ most trusted friend in Apple who was also his student to convince Jobs to pay attention to Xerox.Xerox’s Venture capital division wanted to purchase the deal and Jobs agreed to it before Atkinson could persuade him. Jobs allowed Xerox to purchase Apple’s share for one condition: Xerox will have to share the confidential development of their technology
AppleDeveloped the same technology with expertise and took a leap in digital computing. Meanwhile, Microsoft continued developing the applications for Apple.
MicrosoftTook advantage of the license expiry and developed similar applications for IBM infuriating Steve and the suit followed.

Enter Xerox PARC

The birth of Macintosh is a result of the unfolding of the technology that Xerox PARC had possessed even before Apple or Microsoft had any vision of what personal computing would be like.

The creation of Macintosh was possible only because of Xerox PARC. So, the question is, what is Xerox PARC?

Xerox Parc Sinage
Picture Credit: Xerox

Xerox PARC (Palo Alto Research Center) was founded in the year 1978 to ensure that the digital development in computing sees its growth in every possible measure and they went ahead of their time with this ideal and successfully developed a model that would ultimately become the first model of personal computing and will serve as a parent company of Apple from where all the ideas came forth.

So, how did Apple get access to the technology that Xerox PARC was developing? It’s a long story, but brace yourself for it now.

It all started with Steve Jobs’ search for a new product that he could call his own. The Apple II was mostly credited to Steve Wozniak and so he wanted a product that could outperform Apple II and it is in this search that Xerox PARC came to his attention.

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Steve had three complex divisions to consider: Apple III, L.I.S.A. & an inexpensive computer that could work as an appliance for the masses. The first two options were not showing any result and the third was under Jeff Raskin who Steve considered a shithead.

It was Raskin who had an idea of what Xerox was up to and knew that Steve would not pay attention to him. However, he convinced his student, Atkinson to convince Steve to have a look at Xerox.

Before Atkinson could even persuade Jobs, Xerox’s venture capital division had shown interest in purchasing the shares of Apple in the year 1979. This is how the future was built.

Jobs agreed to let Xerox purchase Apple’s shares on one absolute condition: To show the technology that it was developing and the deal of the future would start the rivalry between Microsoft and Apple.

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After Xerox had its shares, it was time for Apple to unveil the screen of Xerox under which the technology was kept. The two scientists who were assigned to brief Steve about the technology were reluctant to showcase everything that they had developed.

But, after Steve applied his aggressive tactics with the top management of Xerox and when finally the confidential technology was unveiled, Steve cried in joy and couldn’t stop hopping seeing what he had seen. This was the inception of Macintosh. 

The Apple team would develop these technologies on their own and customize each aspect of desktop computing that Xerox had developed.

From bitmap to Graphical User Interface to a low-cost mouse with one button. The development took a lot of time and resources but it was worth it.

Xerox PARC Had a Major Role in Microsoft and Apple feud

When Microsoft started to develop the GUI for IBM, it used Xerox PARC as a reference when actually it was coping with the Macintosh and Steve Jobs knew that very well and therefore he filed a suit and started the feud. 

Animated Macintosh Image

Macintosh’s technology was developed only after Xerox PARC had shown what they were developing under the tagline of desktop computing.

Xerox PARC failed miserably in providing a product that it wanted to provide to its users when it launched its computers. 

Taking this as an advantage, Apple learned from their mistakes and developed the correct desktop computer for the masses and this was further copied by Microsoft while developing some applications for Apple but denied that it had copied the GUI from Macintosh and instead referred to Xerox PARC as their reference model.

The techies knew that Microsoft was copying the Mac and that the suit filed by Apple made absolute sense and the rest as they say is history.

To understand how it led to Microsoft investing in Apple and the deal between them, the following passages will be helpful for the readers.

1982: Macintosh and the deal With Microsoft

Steve Jobs’ baby, the Macintosh, had some features like MacPaint developed by Microsoft. Jobs was a revolutionary in tech in that period, and Gates was still in the shadows, but the limelight was waiting to shine on him.

Microsoft signed a deal with Apple to develop graphical Versions of a spreadsheet called Excel, a word processing application, and a new BASIC.

The Deal

Jobs’ obsession with Excel made his deal with Gates about Microsoft. The deal was to make Microsoft Excel exclusively for two years for Apple and not to replicate the same for IBM PC’s and in return, Apple would license Microsoft’s BASIC. The deal turned out to be the reason for the feud between the two tech giants. 

Graphical User Interface (GUI)

While working with Apple, Gates and his team had developed a curiosity about the Macintosh operating system. One of the engineers working at Apple suspected that Microsoft might try to create a carbon copy of the User Interface, which Apple was developing and they were right.

Macintosh was to be launched in the year 1983 but it was delayed, and as per the agreement, the two years reserved for Apple’s application were about to end.

Considering this as a loophole, Microsoft started to develop their own GUI system for the IBM version PCs that had identical hardware & software features that Macintosh had.

The reaction of Jobs: Steve asked one of his crew members to summon Bill Gates, and a fiery speech was lashed on to Bill Gates.

In the end, Bill ended the confrontation by saying that Microsoft was not copying Mac and was instead following the model of Xerox Parc as was observed by Apple.

The Savior

The two giant heads were in a legal battle for patent and copyrights until John Sculley surrendered the fight and licensed the Graphical User Interface for Windows 1.0 and, in return, made Excel reserved for Apple for two years.

However, Microsoft was sued by Apple in the year 1985 with the charges that their deal didn’t cover Windows 2.0

By the fall of 1997, Apple had lost the battle except for a few litigations. The battle was perpetuated.

With Steve back at Apple, Jobs made the first call to Gates confronting two companies’ positions about their issues.

Jobs was confident enough to suggest that Apple would end up winning a billion-dollar patent suit in the future. Moreover, he needed help and so took the opportunity to resolve Microsoft’s issues once and for all.

Before Jobs, Bill Gates had been trying to strike a deal with Amelio, the then CEO, but the agreement’s content was immensely complicated.

With Jobs back on the leadership front, he decided to make the deal simple with Microsoft’s commitment to work for the Mac(iMac) and an investment of $150 million with nonvoting shares.

The Renaissance

At Apple’s Macworld auditorium, Jobs makes an announcement, and the Apple crew members are astonished seeing Bill making an announcement on the screen and becoming the ironical Big brother as their Savior.

The Microsoft investment saved Apple as the iMac became a booming product bringing Apple back into the business of creating the right products as a result of the ‘Think Different’ campaign. With it, the Renaissance of Apple was apparent.

Ajit Kumar Yadav
Ajit Kumar Yadav is an analyst interpreting different technologies and keeping track of their events. He understands the business part of technology and construes it from social, political, economic, and cultural lenses.


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