Can we thank Microsoft for the iPhone?

On the eve of another Apple event, where the company will unveil a lineup of iPhone 16 phones that will likely be little different from those from last year, and where tech consumers in general will rush to buy them because, well, it’s Apple, it’s worth remembering that perhaps none of this would have been possible without an act of mercy and calculation from Apple’s once-biggest rival: Microsoft.

It reminded me of the days when Apple, long past its prime, was limited to failed Newton Handheld computers, ill-conceived partnerships with Bandai (the Pippin games console/internet device), and an almost complete departure from reality.

In the years after Apple co-founder and CEO Steve Jobs was ousted and returned in early 1997, Apple saw its revenues drop from $11 billion to $7 billion. By 1996, losses had ballooned to $125 million. There was talk of a merger with Sun Microsystems, which then-Apple CEO Gilbert Amelio would not confirm and spokespeople denied. But it was clear that such talk was making it even harder to sell Apple’s then-mostly weak Power Macintosh and Powerbook computers.

While there was some disagreement about the level of Apple’s red ink at the time, even Jobs admitted just months after his return that there was work to be done to “bring Apple back to health.” It was during that memorable presentation at Macworld 1997 that Jobs laid out his plan to bring Apple back. Interestingly, there wasn’t a single new product announcement; it was all about new leadership, new partnerships, and a cash infusion from Apple’s biggest rival.

People remember this day only because Microsoft agreed to buy $150 million worth of non-voting shares of Apple.

The Price of Survival

Apple and Microsoft 1997

(Photo source: Getty Images)

“Yes, but the important part of it that didn’t get enough attention is that it involved an open license for Microsoft to use the graphical interface for Windows,” longtime Apple analyst and president of Creative Strategies Tim Bajarin told me. Bajarin has been involved with Apple almost since the company’s inception.

People like Bajarin, who knew Jobs and knew the dire state of the company, welcomed the decision to bail it out (“it was a good and strategic win for both sides”), but not those present at Macworld.

They booed the stock purchase and other elements of the landmark deal (Microsoft’s promise to release MS Office for Macs over the next five years had been met with a more positive response). When Jobs explained that Apple had agreed to make Internet Explorer the default web browser for Macs, one attendee shouted, “No!”

The reaction was understandable. Apple’s business was built on an anti-PC foundation, the opposite of Microsoft’s Windows and its more corporate worldview. Antagonism once seemed to drive both companies. But those days are long gone. As Jobs noted in his presentation, “Relationships that are destructive don’t help anyone in the industry that it is today.”

Microsoft wasn’t entirely altruistic, of course. As part of the deal, Apple agreed to a broad patent settlement and cross-licensing agreement “for all patents, including those filed within the next five years.” That meant Apple wouldn’t pursue Microsoft for using a too-similar-to-Mac OS GUI in any version of Windows.

Putting Internet Explorer on yet another platform helped Microsoft solidify its rapidly growing lead in the web browser space. I’m not sure that move helped it when it faced an antitrust lawsuit in 2000.

Within a year, the value of Microsoft’s investment practically doubled and has only grown since then.

An act that paid off

Apple and Microsoft 1997

(Photo source: Getty Images)

While there were myriad reasons for Apple’s demise (Jobs described the company as “doing a lot of the wrong things very well”), there was reason to believe the brand could be not only strong but potentially powerful. During his presentation, Jobs described the brand’s incredible brand recognition and enviable market position in education and creative content.

In 1997, 64% of all websites, according to Jobs, were designed on Macs, and 60% of all computers in education were Macs. These numbers are all the more startling considering that Apple’s own estimates put it at about 20 million customers. Today, the company has more than 2 billion.

But Apple lacked a founder and visionary for more than a decade. Jobs came in with ideas (and the remnants of the NeXT platform). Bajarin credits the cash injection for giving Apple time to develop the iconic iMac, which hit the market in August 1998.

Of course, it gave us much more. One could argue that without Microsoft’s $150 million lifeline, Apple might not have survived. It is possible that then it would have been

No iPod
No iPhone
No iPad
No Apple Watch
Do you understand what this is about?

I can’t argue that we wouldn’t ultimately achieve that goal, but the mobile computing revolution could be delayed by five or more years.

Think about it, it only took $150 million to save a company that changed our lives and was ultimately worth trillions.

So while you’re raving about the latest iPhone 16, AirPods Pro, and Apple Watch, raise a toast to Microsoft and, yes, Bill Gates, who was heartily booed when he appeared on screen at Macworld in 1997. Without them, the Apple of 2024 might not even exist.