Apple of Microsoft's eye

Windows 8 is not just the next version of Microsoft's flagship operating system, but a new chapter in the story of the Redmond giant's dominance of the IT market.

Gates and Jobs were good friends, and probably still are.

Simon Dingle, contributor, ITWeb

Microsoft is finally assembling its consumer ecosystem, and this has pulled its share price out of the coma it has been in for a decade. The new direction Microsoft is taking is thanks to a market refocus that was brought on by Apple. These two companies need each other. And they know it.

There is a poignant picture that has made the rounds online featuring a young Steve Jobs next to an equally juvenile Bill Gates - the two in deep conversation. It was the early 80s and the personal computer market was beginning to heat up. No doubt Gates and Jobs had no idea at that stage they would go on to become the two most significant figures in the IT industry. Back then, with the founders in their early 20s, both Microsoft and Apple were infants. But they have been working with and against each other ever since.

There is some dispute regarding the authenticity of this photo and the others in the series - but it is well known that Gates and Jobs were good friends, and probably still are. As Charles Arthur wrote in a column for The Guardianin 2007, “... in the 1980s, when the PC industry was in its infancy and the soon-to-be-famous pair weren't that far out of it, they occasionally went on 'double dates' with their women of the moment, until Bill made the move to Seattle.”

Was this the reason that Microsoft bailed out Apple when the company was on the verge of closure in the late 90s? It's possible, but not likely. There are better reasons why Microsoft would've wanted Apple around.

For one, Apple is a great test bed for new technology. The company takes great risks in launching standards and product categories that pave the way for the rest of the industry, including Microsoft.

Apple did not invent the computer mouse, but it was the first technology vendor to make the now ubiquitous pointing device commercially available and prove its success. Apple was also responsible for the first commercially successful point-and-click graphical user interface, something Microsoft would emulate to create Windows.

And let's mention Xerox here just to silence the puritans who will point out that Xerox Park was responsible for just about all the inspiration of the early PC industry. Yes they were, from an innovation perspective - but they were rubbish at selling them.

The iMac, iPod, iPhone and iPad are all examples of device categories that Apple was first to successfully launch, preparing the market for everyone else. Others, like the Newton, were less successful commercially but provided a lot of inspiration nonetheless. Apple took the risk and everyone enjoyed the results.

Microsoft is more cautious. It waits for a segment to be created before entering it. It did that with mobile, console gaming, enterprise applications, and now with tablets.

Apple also fights off Microsoft's other competitors on the frontline.

And where would the Redmond company be without a strong competitor to keep it on its feet?

Well, firstly, it would have been crippled by anti-trust lawsuits around the turn of the century. Microsoft needs a competitor like Apple to offset its weight as a monopoly in liberal markets.

Microsoft would also have had no reason to perpetually improve its operating system with no competitors eating away at its market share. There is no doubt that OSX spurred innovation in Redmond that led to the magnificent interface of Windows 7 and the even more impressive first glances we got of Windows 8 last week. Can you imagine what Windows would have looked like now if Apple wasn't around? Think back to Windows 98 for suggestions.

That Windows 8 is beautiful and tablet-ready, with ARM processor support, can be attributed to the moulding force that Apple is in the consumer technology market. Windows Phone? Same story.

And it is with these products that Microsoft is redefining itself after a decade in the doldrums. The company has been the most consistently boring investment on Wall Street since 2000. If you had bought shares in Microsoft back then, you would've lost 12% over the last 10 years - which basically qualifies as a flat line, and especially compared to the over 1 000% growth shown by Apple in the same time.

When Gates and Microsoft paid over $150 million to rescue Apple in 1997 - the company was heading for closure at the time - I'm sure they had no idea that Apple would one day be bigger than Microsoft. With the biggest market capitalisation in the world, Apple has beaten even its own expectations.

Thanks to Jobs. Who returned to the company when his friend, Bill Gates, bailed it out. Was Steve's return part of the deal struck between the two companies? Did his relationship to Gates have anything to do with this? We can only imagine the conversations that happened behind the scenes on that one.

But it happened. A giant company bailed out one of its fiercest rivals. And Microsoft's shares in Apple are now worth more than the whole company was in 1997.

It benefited Microsoft to bail out Apple. It made money and kept alive the only company to show Microsoft any form of competition in the last decade. In the process, Apple taught Microsoft some new tricks and provided it with a new direction that shareholders are loving. Because, when all is said and done, the worst thing to be at the top of your game is alone.