Aug. 6, 1997: Apple Rescued — by Microsoft

1997: Microsoft rescues one-time and future nemesis Apple with a $150 million investment that breathes new life into a struggling Silicon Alley icon.

In a remarkable feat of negotiating legerdemain, Apple co-founder Steve Jobs got needed cash — in return for non-voting shares — and an assurance that Microsoft would support Office for the Mac for five years. Apple agreed to drop a long-running lawsuit in which they alleged Microsoft copied the look and feel of the Mac OS for Windows and to make Internet Explorer the default browser on its computers.

Microsoft got to look like a noble competitor, for a change, for what amounted to a rounding error on their annual revenues. Timing mattered: The company was in the midst of an image-tarnishing antitrust fight over its heavy-handed promotion of IE during the height of the browser wars with Netscape.

The Apple faithful had already been conditioned to expect the unexpected when Jobs was in the house. But this surprise announcement, at Macworld in Boston, was pure Jobs theater. And it came with an oddly juxtaposed video feed of then-Microsoft CEO Bill Gates piped into the auditorium, dwarfing Jobs on stage.

The imagery may have been unintentional but the metaphor was entirely accurate: Apple had a tiny share of the desktop computer market, had not yet revolutionized the music industry with the iPod and couldn’t possibly dare to dream it would disrupt the smartphone market with the iPhone — because there was no such thing as a smartphone.

Over the next few months, more changes followed — each of them a repudiation of one Sculley initiative or another. The number of product lines was winnowed from 15 to four. The retail channel was streamlined: Instead of selling through competing chains in a misguided drive for “shelf space,” sales were unified through an exclusive national dealer.

While another suitor or White Knight may have emerged instead, the Microsoft deal provided a number of things: a cash cushion, the neutralization of Apple’s chief tormentor, continued independence and — perhaps most important — a way for Jobs to make his Phoenix-like return and assemble the small inner circle that still runs everything at One Infinite Loop.

And without the alignment of these particular stars it is anyone’s guess if the iRevolution — iMac, iTunes, iPod, iPhone — would have ever happened.

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