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Apple's and Microsoft's secret pact for tech domination

Galen Gruman | April 2, 2013
15 years ago, Steve Jobs and Bill Gates agreed to let Apple own the client and Microsoft the back end to thwart antitrust probes, newly discovered emails say

It's not clear how involved the two CEOs were in setting the plan in motion, as the uncovered email fragments were from 1997 and 1998, but the history of the two companies since bears out the strategy.

For example, when Apple took over the MP3 player market with its iPod, Microsoft was slow to respond, and when it did, its Zune player was clearly inferior, certain not to threaten the iPod. Microsoft didn't bother to compete with the iTunes Store for nearly a decade either. That pattern of belated, inferior competitive response by Microsoft on the client side followed in other key areas:

  • Apple's Mac OS X Tiger in 2005 solidified the Mac OS and supported Intel processors, setting in motion a wave of Macs that appealed to a broad market. Microsoft's response, Windows Vista, came 18 months later and was highly disliked by users and IT alike, flopping badly. In the meantime, Apple refined Tiger with its Leopard update in 2007, then Snow Leopard update in 2009, with Microsoft belatedly unveiling the solid Windows 7 only in 2009.
  • Apple also pushed the basic Intel technology in its MacBook Air and MacBook Pro lines beyond what PC vendors did, again with no meaningful response from the Wintel community for a couple years. The belated but highly hyped Ultrabook effort went nowhere, worsened by the strangely self-sabotaging Windows 8.
  • Although Microsoft had long dabbled with tablet PCs, none really worked as tablets; their pen interface was not well integrated with Windows, and there was no touch capability. Apple's 2010 iPad redefined the tablet the way that Microsoft never did. Microsoft didn't respond until 2012, with its Surface tablet that gave a passing nod to touch but required the traditional input methods unsuited to a tablet. Microsoft had licensed Apple's mobile technology previously -- but only under the proviso it would not use it to compete with Apple. The Surface tablets satisfied that promise, again appearing to compete but not really doing so.

At the same time, Apple licensed key back-end technology from Microsoft, adopting Exchange ActiveSync in both iOS and OS X, instantly making Exchange servers the preferred security and management system for mobile devices. Apple competitors like Google's Android and, in early 2013, BlackBerry adopted EAS, as did Microsoft Exchange rivals IBM Lotus and Novell GroupWise, cementing Microsoft's monopoly server monopoly. Also, Microsoft held back from exploiting EAS fully on Windws Phone for sveeral years, again giving Apple devices the client-side advantage while preserving its back-end dominance.

Apple has also cleared the path for Microsoft's dominance in office productivity software, providing its iWork suite that is cheaper than Office but not as full-functioned. Office remains the main productivity suite for OS X, and Apple has not provided a significant update to iWork in four years. Apple's iWork dominates on iOS (though, perhaps complicating the Apple-Microsoft arrangement, Google's Quickoffice has provided a major challenge), while Microsoft has been absent with a good version of Office on even its own Windows Phone platform. Perhaps that suggests any agreement on preserving Office's dominance didn't extend to mobile devices, or the shoe has yet to drop. After all, the latest version of Office 365 now works reasonably well on the iPad, and some pundits have suggested that the lack of Office on iOS lets it appear as if Microsoft has at least one competitive advantage for its Windows 8 tablets.


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