In 1997, Apple was in dire straits. The company had been struggling for years and was on the verge of bankruptcy. Steve Jobs had returned as CEO, but he knew the company needed an injection of cash from a source that the industry respected. Existing shareholders were pulling out of Apple, and potential investors were afraid of buying stock in a company that was expected to fail. On the other hand, Microsoft was enjoying a little too much success with a 98% share of the PC operating system market. This dominance attracted attention from the U.S. Department of Justice, as many considered Microsoft and their Windows operating system a monopoly. Eventually, formal charges were brought against the company after it was revealed that Microsoft included their own Internet Explorer browser with Windows while making it difficult for users to download Netscape.
Their biggest competitor in the browser space, so both Apple and Microsoft were facing problems. Apple needed cash, and Microsoft needed competition. Jobs and Gates both understood this and saw an opportunity for a mutually beneficial partnership. The plan was for Microsoft to buy $150 million worth of non-voting shares in Apple, and this would help strengthen the company and reduce the risk of bankruptcy. This was also in Microsoft’s interest because losing their biggest competitor in the computer market would almost certainly result in the company being ruled a monopoly.
But there was another risk to consider: what if Apple suddenly became widely successful under the leadership of Steve Jobs, who had recently returned to the company? In that case, Microsoft still wouldn’t be too concerned. Apple competed in the high-end computer market, which had lower sales. Microsoft was focused on high volume because they received the same licensing fee regardless of a PC’s retail price. Both Jobs and Gates understood that their companies not only needed each other but could successfully coexist, so they struck a deal that shocked the entire tech industry: Microsoft invested $150 million into Apple, and Apple allowed Internet Explorer to be the default browser on MacOS.
This announcement about jobs was met with a groan from the audience, as Mac users not only saw Microsoft as their biggest rival but also considered Internet Explorer as one of the worst browsers. Despite some initial backlash, the partnership went as planned, with Microsoft successfully appealing the Department of Justice’s antitrust lawsuit, and Apple avoiding bankruptcy long enough to release the wildly successful iMac the following year in 1998
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