The Day Apple and Microsoft Traded Places

The Day Apple and Microsoft Traded Places

On this day in economic and business history...

On Aug. 6, 1997, Steve Jobs walked onto the main stage at the Macworld expo in Boston and announced that Apple had forged a "meaningful partnership" with Microsoft . Jobs spent several minutes highlighting the key points of the deal; some, including a $150 million investment from Redmond to Cupertino, were met with applause, while others prompted boos and hisses. Jobs then introduced Microsoft CEO Bill Gates, who appeared via satellite link on the big screen above Jobs' head. Beaming down ominously on a dubious crowd of Apple loyalists (the scene would later be described as having a very Big Brother vibe), Gates spoke of renewing Microsoft's commitment to the Macintosh.

Almost no one understood it then, but this was the moment that Apple and Microsoft began to trade places in the technology pantheon.

As part of the deal, Apple and Microsoft agreed to a perpetual cross-licensing agreement for all existing patents and all patents that would be filed in the next five years. This ended a long-running legal battle between the two companies over similarities between Windows and the Macintosh operating system. Microsoft also pledged to provide as much support for a Mac-based Office suite as it had in its native Windows, and Internet Explorer became the Mac's default browser.

In exchange for all these agreements, Microsoft acquired preferred non-voting shares worth $150 million, giving it a stake in the future of its erstwhile rival. By keeping the Mac alive, Microsoft also avoided the appearance of a complete and unchallenged monopoly of computer operating systems, thus forestalling a building antitrust crusade against its dominance.

It looked like Microsoft was digging its tentacles into Apple for little more than pocket change, but the markets understood that Apple was a big winner as well. The Mac maker's shares soared 33% that day, compared to a $1 gain in Microsoft's $144 share price. It wasn't because of the cash infusion; Apple actually had more than $1 billion in cash on hand at the time -- but because it created a perception that Apple might finally recover from one of the worst points in its history. Apple's share of the personal-computing market had fallen significantly in the Windows era from a peak of 12% in 1992 to little more than 3% in 1997. Its market share would continue to fall for years afterwards.

But something else changed. Jobs, who at the time held no official executive title within the company, became Apple's interim CEO a month later, in large part due to the impact of the Microsoft deal. Early in 1998, Jobs flexed his executive muscles and cut the company's less profitable product lines, ended the licensing of its operating system, and began development of the iMac. Three years later, Apple launched its retail stores and the iPod. From then on...well, you know the story.

The decade that preceded this deal was all Microsoft's: The company's share price soared by 5,200%, while Apple's shares lost half their value. Microsoft was well on its way to becoming the largest American company in history before the deal was announced, and Apple's market cap was a paltry $2.5 billion. But afterward, how the tables turned. Apple's shares gained 2,000% in the decade following the deal, while Microsoft's managed a double -- a rather tepid performance by comparison. As the 13th anniversary of the deal approached, Apple's market cap finally passed Microsoft's. Two years later, Apple would surpass Microsoft's nominal high-water mark to set a new record for American public companies. By this point, Apple's shares had gained nearly 9,400% from the day of the company's deal with Microsoft. Microsoft shareholders had seen their investment grow by 120%. One of those companies was still focused on the PC. The other had moved past it many years earlier. You know the story.

Surfing the Web on day one
Internet pioneer Tim Berners-Lee launched the first website of a connected world on Aug. 6, 1991. No one really knew it at the time, because only a small team of technologists working with Berners-Lee at CERN could even access the website, but this was the day that marked the beginning of the World Wide Web. Every website you visit today -- including this one -- owes its existence to Berners-Lee's developments at CERN and traces its lineage back to that first website.

You can still see a later copy of that foundational website at the site of the World Wide Web Consortium (click here to take a look), which Berners-Lee founded a year after he released the underlying technologies of the Web into the public domain. That magnanimous gesture ensured that the Web would take off in a big way -- and it certainly has: There are now an estimated 634 million websites accessible today, providing content of interest to nearly 2.5 billion Internet users.

The development and propagation of the World Wide Web took place right at the beginning of the longest sustained bull market in the history of the Dow Jones Industrial Average . From the day Berners-Lee first clicked on the simple links of his proto-website to the market's peak, the Dow grew at an annualized rate of about 18% -- a growth rate exceeded by only two other bull markets in modern history. Excitement surrounding this transformative new technology also led the market to one of the largest valuation expansions in its history. Only the Roaring '20s, which saw the spread of electricity, automobiles, flight, radio, and film at the same time, enjoyed greater annual gains or a larger increase in valuation. Will the next big tech boom take another five decades to arrive? If technology does indeed advance faster with each passing year, the next boom might be just around the corner.

The forgotten network shuts down
Everyone knows the early days of television were dominated by the "Big Three": CBS, NBC, and ABC. But what's often forgotten is that there was a fourth network called DuMont. This fourth player in the TV industry survived one turbulent decade before closing down on Aug. 6, 1956. DuMont, crippled by an FCC mandate that shut it out of new markets, carried out its final 11 months with only sporadic sports broadcasts, the last of which was a boxing program.

The DuMont Network was an outgrowth of TV-manufacturing innovator DuMont Laboratories, which would have stood it in good stead as a broadcaster if not for one fatal flaw: It competed against three established radio broadcasters that were making the leap to the small screen with a wealth of radio programming on hand, much of which could be, and was, readily adapted for TV. Lacking a roster of programs or stars, DuMont was forced to draw on funds provided by Paramount Pictures, which bought 40% of DuMont's parent company several years before the launch of its first stations.

Few of DuMont's programs survive to this day, but it was hugely influential in establishing the sci-fi genre on television. Captain Video, a low-budget daily, was the first sci-fi program ever aired on TV, and it also marked the first televised appearance of robots. In a way, Star Trek and its ilk owe much to DuMont and Captain Video. However, none of DuMont's efforts could overcome the ample technological, financial, and regulatory obstacles in its path. It was not until 1986 that the Fox television network again expanded the Big Three to a foursome. Fox learned from DuMont's failure in more ways than one. In addition to drawing on the deep pockets of owner Rupert Murdoch, Fox also found ways around the regulatory roadblocks that had crippled DuMont's expansion by broadcasting just enough programming to avoid being legally labeled a network.

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