September 8, 2013

(Chapter 8 Excerpt) - Sideswipes

“If they can get you asking the wrong questions, 
they don’t have to worry about answers.”
― Gravity’s Rainbow [1]

(Excerpt From Anatomy of an Apple - The Lessons Steve Taught Us)

When you’re sitting by the side of the road, listing the hows and whys of your predicament, it’s quite possible you’ll realize that the real culprit isn’t inside your organization at all. It’s not whining to recognize treachery or relationships that hamper your success, and then take appropriate actions to get yourself back on the road to success.

Microsoft and Apple began their journeys together. Microsoft wrote the first Apple Basic programming language. Microsoft Excel and Word began on the Mac. Steve had seen both Bill Gates and Microsoft as great supporters and partners of Apple for years. However, a little farther down the road, they tried slamming Apple off the road entirely, and they very nearly succeeded.

Apple was sitting on the side of the road dented up with two flat tires in 1996. They were wounded in finances and reputation, with practically everyone declaring them ready for the junkyard. Developers and consumers were fleeing the Mac in droves and hitching a ride with the Windows ’95 hotrod. The final straw came when it appeared the critical Microsoft Office software for Mac wouldn’t be updated anymore.

During Steve’s absence, Microsoft persuaded CEO Sculley to sign a three-page agreement that effectively surrendered all exclusive rights to the Mac’s ‘look and feel’ in 1985. Microsoft threatened to pull Excel and Word off the Mac entirely, unless Sculley agreed. Sculley’s soft win was getting Microsoft to promise two more years of Excel on the Mac.

Prior versions of Windows had lacked any visual similarity to the Mac’s interface and had barely been accepted by the PC market. With Sculley’s agreement in hand, Microsoft created their version of the Mac’s ‘look and feel’ in Windows ’95. It became an overnight sensation.

Obviously, this new interface had helped Windows ’95 become the first version of Windows to win widespread acceptance.

Upholding the letter of their agreement, while violating its spirit, Microsoft continued to make Mac Excel versions. The problem was that they were always inferior to the Windows versions. Once Windows 95 was out the door, Microsoft placed Office for the Mac in hibernation, by not updating it at all. Microsoft’s defenders like to point to a fall in revenues of $200 million from the Mac Office, between 1996-1997. Five Mac versions had come between 1990 and 1994, then nothing for three years. The last new version of Office for the Mac came in 1994. For comparison, on Windows, Office 96, 97 and 8.0 were delivered over the same time span, while the Mac languished, and competing alternatives began to thrive.

Apple sued Microsoft over the agreement. In Sculley’s defense, he later claimed he was only agreeing to license Windows versions 2.0-3.0. The case was still in the courts in 1996 when Steve became CEO.

In Steve’s eyes, the case would likely result in a judgement for Apple. However, that three-page agreement made the whole legal case wobbly, at best. The judicial system was also notoriously slow moving in settling these types of cases. The bottom line was that it would be expensive and bloody to keep fighting the ‘look and feel’ lawsuit.

Steve couldn’t do much about that agreement. Instead, he moved to other methods of addressing Apple’s two flat tires.

He realized that what mattered to Apple in 1996 was restoring credibility to the company, and being able to run industry-standard office software like MS Office. Steve did the unthinkable. He set aside his enmity over the ‘look and feel’. What he was after were two spare tires that would get Apple moving quickly. He was willing to take factory seconds, as long as the price was right.

These spare tires didn’t fit well, and they were not meant for traveling long distance. Neither of those things mattered to an expert driver. Steve negotiated the deal he needed.

While the ‘look and feel’ claim was shaky, there was another patent issue involving Microsoft that was on solid ground. In 1991, Apple introduced its QuickTime architecture for digital video and media. Microsoft tried to add multimedia features to its platform with ‘Video for Windows’ in 1992. It performed poorly and had limited capabilities, compared to Quicktime.

Quicktime was groundbreaking technology, and Microsoft had hit a wall trying to match it. Microsoft decided to jump the line. They hired the San Francisco Canyon Company, a third party developer Apple had contracted with, to gain access to Apple’s QuickTime for Windows code in order to improve Video for Windows. Much of Apple’s code was simply reused by them for Microsoft.

By 1996, Microsoft had already been caught multiple times in direct code thefts from its partners and competitors. They had paid out hundreds of millions in lawsuit damages and settlements. Apple sued in 1994 over the Quicktime code theft. Apple won a restraining order in 1995 that prevented Microsoft distributing the stolen code. Steve had his leverage — Apple had Microsoft dead to rights and was ready to sue for hundreds of millions of damages over intellectual property theft.

Not only was the code infringement case in hand, there were dozens of other ready-to-file cases of patent infringement against Microsoft. The growing portfolio of patents Apple had amassed armed them against infringements related to operating system and web browser technologies.

Microsoft would invest a symbolic amount of $150M in Apple, in the form of non-voting stock that they would be required to hold for at least three years.[3] Microsoft would also agree to provide versions of Office on the Mac for at least five more years.

In return, Apple would settle its patent infringement and civil damages claims against Microsoft. Those claims were worth at least $1.2 billion according to Computerworld reports from the time. Apple also ended the lawsuits over ‘look and feel’ and agreed to include Microsoft’s Internet Explorer on future shipments of all Macs for the next five years.

Steve called Gates mere moments before taking the stage to make the announcement at Macworld. “Bill, thank you for your support of this company,” Steve said. “I think the world’s a better place for it.” Mission accomplished — or so it seemed.

Microsoft quickly realized that Steve was not just blowing smoke. Apple was seriously picking up speed. He was rejuvenating Apple and closing the gap. Microsoft slammed on the brakes.

Microsoft reasoned that, if Apple had a fairly current browser on its new machines, the platform might become actual competition. Microsoft decided to kick Apple in the shins.

The US Department of Justice uncovered the repeating internal phrase at Microsoft: “Embrace, extend, and exterminate”. Microsoft used that phrase to describe its strategy for entering product categories involving widely used standards, extending those standards with proprietary capabilities, and then using those differences to disadvantage its competitors.[4] Now, the Mac was entering the Microsoft kill zone.
By design, the Mac’s inferior version of Internet Explorer was unable to render websites that used Microsoft’s proprietary ActiveX. It also couldn’t render media encoded in their Windows media formats. Clearly, these two major liabilities slowed the Mac’s acceptance. But that wasn’t enough for Microsoft.

Eager to shut down competition entirely, Microsoft leveraged the agreement that forced Apple to continue shipping IE on Macs, while they simultaneously refused to update it. As a result, consumers would only see a below par IE on Macs, and ultimately consider Macs inferior. It was dastardly, and it worked.

Steve knew that in order to reach his destination, he must replace those spare tires the minute he could. Since Apple’s problem was being tied to a company that didn’t want to play fair, Steve would simply replace their factory defective components.

To replace the now pitifully out-of-date and sadly performing Mac version of IE, Apple’s software engineers got to work building Apple’s own browser, Safari.

Contrary to common misconceptions, Apple started with the open source KHTML that Linux had been using as the engine in its web browsers, tuned it up to support more modern standards and generally sped up the performance.

Safari provided the Mac platform with a browser that was truly compatible with the Internet standards of the day, fully utilized the Mac’s unique advantages and performed impressively.

One faulty spare tire was now replaced. There was one still to go.

While it served to limp Apple along during a critical moment, MS Office versions for the Mac were continually being handicapped by Apple’s supposed partner.

Bill Gates himself declared internally that the Microsoft strategy for competing was to prevent any platform competitor’s ability to compete, while touting to the world how ‘open’ and ‘compatible’ they were. It was disingenuous.

During their monopoly trial, a 1998 memo to the Office product group from Bill Gates himself contained the damning admission that, “One thing we have got to change in our strategy – allowing Office documents to be rendered very well by other people’s browsers is one of the most destructive things we could do to the company. We have to stop putting any effort into this and make sure that Office documents very well depends on PROPRIETARY IE capabilities. Anything else is suicide for our platform. This is a case where Office has to avoid doing something to destroy Windows.”[5] There was nothing vague about the plan.

There were glaring deficiencies in the Microsoft Mac Office software. Mac users found that basic Macros didn’t work properly in Excel spreadsheets. Data filters, Excel tables, and sorting features were missing.

Simple, everyday, things were broken. For example, images inserted by drag and drop or cut and paste resulted in a document that couldn’t display the inserted graphic when viewed on the Windows version.

Vital Office for Windows components were given no Mac equivalents. Microsoft’s Publisher was missing. Microsoft’s diagramming application, Visio was, too.

These inferior products left Apple scrambling to explain to consumers why the Mac needed a workaround for Office issues. Critics dismissed the explanations as whining. What consumers saw was that, when they tried to use it on a Mac, it just didn’t work.

Then, Steve got to why-ning. Why don’t our consumers have a quality Office compatible suite? Our partner won’t provide a truly competitive version.

Easy fix. To the garage he sent their engineers, and they returned proudly displaying Apple’s Pages for word processing and page layout, Numbers for spreadsheet calculations, and Keynote for presentations.

Each offered the maximum possible compatibility with Office formats, opening and editing them directly. The only limits were those Microsoft imposed by refusing to license some required recent Office formats. Now, Apple’s powerful and first class office solutions gave them traction and they were ready to move on at full speed.

Sometimes in the long run it’s good when a partner pisses you off. Always keep moving forward. It doesn’t hurt to pack a sturdy tire-iron, either.

On Sale Now

[1] Pynchon, Thomas. Gravity's rainbow. New York: Viking Press, 1973. Print.
[2] Griffin, Kate. The midnight mayor. London: Orbit, 2010. Print.
[3] in his first year as Microsoft’s chief executive, Steve Ballmer sold the stock for around $182 million (an investment return of roughly 20%). If Microsoft had held its Apple shares, they would today be worth around $9.1 billion.