Why Microsoft invested $150 million in Apple in 1997

It was 28 years ago this week, on August 6, 1997, that Apple and Microsoft reached a truce, to the tune of $150 million. The whole event had a weird vibe to it and probably was just as confusing today as it is now. In this blog post, I’ll explore what was in the deal for both of them.

Uncomfortable 1984 vibes

The announcement couldn’t have started off any rockier. Steve Jobs made an introduction on stage and Bill Gates’ image appeared on a giant screen. It had a real Orwellian 1984 vibe to it, with Gates upstaging Jobs. And this was at an Apple event. Apple’s first Macintosh commercial went out of its way to be the anti-1984. As the crowd booed, Steve Jobs pleaded with them. He said “We need to let go of a few things here. We have to let go of the idea that in order for us to win, Microsoft has to lose.”

And he had a point. Although the two companies were rivals, they did have somewhat of a symbiotic relationship. It was more true in the 1990s than it is now.

Let’s break down what was in it for both companies.

What was in it for Microsoft by investing in Apple

The first concession Microsoft made was that it would continue producing Microsoft Office for the Macintosh. Word and Excel had always been very popular on the Mac. To my knowledge no one ever challenged the idea that Excel was the best spreadsheet on the Mac in the 90s. While there were numerous other word processors for the Mac, Word was among the most popular. And it worked better with Excel than any of the other word processors did. When Microsoft started bundling both of them along with PowerPoint into Office, the popularity of Word and Excel insured it was going to be a winner too.

But over time, Office for Windows received more attention from Microsoft than the Mac version. The Mac version didn’t always have all of the features the Windows version did, and it didn’t always get all the bug fixes either. I remember trying in vain to troubleshoot failed mail merges on Macs where the merge worked just fine with the same files on a PC. The problem wasn’t the files, and it wasn’t the Mac. It was the software.

Promising to continue development wasn’t much of a concession for Microsoft, however. An absurdly high percentage of Mac owners purchased Microsoft Office. The exact figures were much easier to find then than they are now, but I remember running the calculations and telling someone that Microsoft was making an average of $200 every time a Mac sold.

Increased market share for Internet Explorer

The major concession Microsoft got from Apple was making Internet Explorer the default browser on the Mac. Internet Explorer was the most popular browser on Windows, largely because it was the default browser on that platform. Netscape had more holdouts on the Mac. Microsoft saw a future where applications would be written for web browsers rather than for operating systems. So they really wanted a monopoly on web browsers, or as close to a monopoly as they could legally get. It was 13 months later, in September 1998, that IE passed Netscape in market share for the first time.

Antitrust protection

The other major thing Microsoft had to gain by propping up Apple was some degree of antitrust protection. Microsoft was under investigation from the Department of Justice for abusing its dominant position in operating systems to gain a monopoly in other areas, including web browsers and office suites. There was serious talk in the 1990s that Microsoft could potentially be broken up into multiple separate companies.

The antitrust concern that Google is receiving now, in 2024-2025, is the closest thing today to what Microsoft was going through. But I think the stakes for Microsoft were much higher. At this point, Apple was the only remaining competitor in the operating system space with enough market share to be viable. Propping Apple up so they could make the argument that they didn’t have a monopoly in operating systems was well worth whatever market share they lost plus the 150 million dollars.

There was also speculation that as part of the deal, Apple would consider using Windows. But this might have caused anti-trust problems. Microsoft was so desperate to be able to argue they did not have a monopoly in operating systems that I think Windows NT’s compatibility with PowerPC based computers except for the ones made by Apple was a deliberate choice.

I think Microsoft thought if they let Apple live, they could get away with killing Netscape. And that is pretty much how it turned out.

What was in it for Apple taking Microsoft’s investment

Apple had significant cash reserves, but its share price was stuck and the company looked like it was near death. It was during this time frame that Michael Dell said, unironically, but Apple should just return all of the money to its shareholders and go out of business. Microsoft investing $150 million in non-voting shares had the potential to stabilize the stock price without any danger that Microsoft would join up with any activist investors and try to change the direction of the company.

The second major concession Apple received was that Microsoft would continue developing Microsoft Office for the Mac. At that point in time, Apple did not have its own office suite like it does now. Microsoft Office was one of the best selling software products for the Mac. And even in the early I’m a Mac / I’m a PC ads, Apple said their computers can run Microsoft Office.

There has been much speculation over the years that there was more to the agreement and that Apple received more from Microsoft than was publicly disclosed. If Apple did indeed get more than that, this makes it a more compelling deal. If they didn’t, I understand why they made the deal anyway. Apple wasn’t playing to win, they were playing to stay in the game. And taking $150 million to calm down investors helped Apple stay in the game. It’s the infinite game mindset.

What they were thinking

In Microsoft’s case, they got two things they really wanted. As long as Apple was alive, Microsoft could argue they weren’t a monopoly in operating systems. And they inched closer to a monopoly in web browsers as part of the same deal. And it wasn’t writing Apple a check for $150 million either. They received equity in the company, so even if the stock went down in value, they could get at least some of the money back if they ever needed to, just by selling the stock. And as we know now, the value of that stock increased rather than decreasing.

Microsoft got a sweetheart deal. They were able to squeeze Netscape out of business and they were able to run out the clock to avoid being broken up. Clinton’s department of Justice was willing to break up Microsoft, and on June 7, 2000, the order came down from the District of Columbia Court to do so. Microsoft appealed, gambling that they’d either be able to win on appeal, or that Bush would win the 2000 election and that his Department of Justice would be willing to drop the case or settle on terms more favorable to Microsoft. That’s what ended up happening. On November 1, 2001, they settled, with Microsoft agreeing to share all details of its APIs rather than keeping some of them secret.

How Steve Jobs snookered Microsoft

The main thing Apple needed was time. Their operating system was out of date, third-party software development was stagnating, and they needed to slow down the bleeding until their modern operating system, what became OS X, was ready.

In exchange for giving up the default web browser, they received a promise that Microsoft Office would continue receiving development and some stability in their stock price. They stabbed Netscape in the back, but it wasn’t clear at the time how much longer Netscape would be around anyway.

Over time, Apple was able to create a viable operating system along with its own web browser and office suite, so Apple is far less reliant on Microsoft software today than it was in 1997. On August 11, 2011, 14 years and five days later, Apple became the world’s most valuable company in terms of market capitalization. So the deal worked out for both companies.

Dave Farquhar

David Farquhar is a computer security professional, entrepreneur, and author. He has written professionally about computers since 1991, so he was writing about retro computers when they were still new. He has been working in IT professionally since 1994 and has specialized in vulnerability management since 2013. He holds Security+ and CISSP certifications. Today he blogs five times a week, mostly about retro computers and retro gaming covering the time period from 1975 to 2000.