Apple's alternate universe

Economic history is littered with missed opportunities, and none is larger than when Apple ignored Bill Gates call in 1985 to license the Mac OS to third parties.
Written by John Carroll, Contributor

Economic history is littered with seemingly minor decisions that have massive consequences. That certainly holds true in the software industry, a fact that was driven home in an article on lowendmac.com that I found by way of OSNews.

Bill Gates, apparently, wrote a letter to John Sculley, then president of Apple Computer, to suggest that they license their operating system to outside manufacturers, thus helping to make the Macintosh a standard. But, it's silly to rewrite what was said quite well in the article, so I shall quote shamelessly from it.

After the public unveiling of the Macintosh, Bill Gates personally wrote John Sculley, urging him to license the software and ROMs to outside manufacturers so that the Macintosh would become the new standard in personal computing. (This was two years after Microsoft began development of Interface Manager, renamed Windows shortly before release.)

The proposal, dated June 25, 1985, was soundly rejected by Jean-Louis Gassée, who was given control of the Macintosh and Lisa after Steve Jobs had been stripped of management responsibilities. Gassée reasoned that the Macintosh was so vastly superior to the existing PC graphical environments that Apple would never face any serious competition and would be able to rely on profit-rich hardware sales (with margins over 55% until the early 90s).

The article tries to defend Gassée's intransigence, but follows by noting that Microsoft had very good economic reasons for favoring the growth of the Macintosh operating system.

Besides protecting profits, Gassée was probably a little distrustful of Microsoft's motives. It was in Microsoft's interest to maintain the IBM PC standard for as long as possible, since Microsoft controlled most of the operating system market and most of the developer's tools market. In Gassée's mind, the proposal could have been an attempt to sabotage the Macintosh.

In later interviews, however, Bill Gates himself points out that Microsoft made a lot more money selling a Mac user a copy of Word and MultiPlan (the predecessor of Excel), than selling an OEM DOS licenses, so a Macintosh standard would have benefited both companies in the long term.

In the end, Gassée's team won the day. Microsoft continued with its development of Windows, leading to a flurry threatened lawsuits, settlements, then suits actually filed over Microsoft's supposed use of copyrighted Macintosh UI elements (the notion of which I WILL NOT allow any fan of Linux to defend), the last of which was settled in Microsoft's favor in 1993...a few years before the release of Windows 95 that sealed Microsoft's status as the maker of the dominant operating system.

I find it rich, though, that no less than Bill Gates sent a letter telling the CEO of Apple Computer what it would take to be what Microsoft ended up becoming. I also find it odd to imagine a world where the relative economic standing of Apple and Microsoft were very different. Quoting from the article One Last Time...

Sculley couldn't allow Microsoft, a company that had only $25 million in sales in 1983 (compared to Apple's revenues well over $1 billion) to so flagrantly rip off the Mac, even if Word and MultiPlan accounted for two-thirds of all Macintosh software sales.

In other words, Microsoft was the scrappy little guy, and Apple was the big bad incumbent. Sort of puts paid to the notion that little guys don't stand a chance against larger software companies.

One last seed to plant in your ear (which is an odd turn of phrase, as you probably don't want plants growing out of your head): Would Steve Jobs have agreed to license the Mac OS if he was at the helm? He's a smart guy, but as Gassée noted, there were huge profits to be made from hardware sales, and most of the industry (IBM included) still thought that real market power lay in sale of hardware, not software. For Jobs to have made the right decision, it would have taken an ability to see past the software economy as it was currently architected (and a balance sheet currently dependent on hardware sales) to a world that would only be apparent in ten years when Microsoft bestrode the world as the operating system used by hundreds of OEMs.

On the other hand, Steve Jobs saw the future of computer animation, and the iPod blossomed under his watch.  Jobs is a visionary, and it's possible that he would have seen past short term pain (changing a business model isn't free) to the promise of becoming the center of the software economy.

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