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For Microsoft, The Worm Turns Through Apple

By - December 11, 2012

(image) Wow. That’s about the sum of my initial reaction to this story from ATD: Exclusive: Microsoft Pressing Apple to Take a Smaller Cut on Sales Inside Office for iOS.

The wow isn’t that Microsoft is trying to reduce the 30% cut Apple takes on every dollar that flows through the iOS ecosystem. That’s to be expected, though I very much doubt it will happen.

The wow, to me, is how massively the world of software has changed, in particular as it relates to Apple and Microsoft.

I started covering this space in 1987, when Apple was a heroic underdog and Microsoft ruled the world. Apple built bespoke computers that struggled for marketshare in the face of the Windows hegemony. Microsoft, on the other hand, eschewed hardware but built lots and lots of software. Its core profits came from the PC software and OS businesses, but it also had a small division that made Macintosh applications. Because Microsoft’s Windows OS was a major competitor to Apple, we reporters would constantly speculate that Microsoft was was close to pulling its support for the Apple platform, just to  hasten the demise of Apple’s competing offering.

In fact, at one critical juncture in Apple’s history, Steve Jobs practically begged Bill Gates to keep making software for the Mac, then cut an investment deal with him which kept Apple in business.

But regardless of whether you bought a Mac or a PC, once you had your computer, you then bought applications for it – separately, and without any platform tax. The PC and the Mac were what Jonathan Zittrain calls generative ecosystems – anyone could build a business on top of IBM or Apple’s computers, and Microsoft certainly did.

If you had told me back in 1987 that within one generation, Microsoft would be forced to give Apple a 30% cut of its software revenue just to be available on the iOS platform, well, I would have told you to step away from the bong. What a ridiculous notion!  But that’s the way the worm has turned – Microsoft is now at the mercy of Apple, and is playing a high-stakes game of chicken. On the one hand, it needs to distribute its apps on iOS devices (iOS is particularly important to Microsoft’s cloud ambitions, and that is at the heart of this dispute). On the other, Microsoft’s DNA – remember Ballmer has been there since 1980 – is violently opposed to Apple’s pay-to-play business model.

It’s actually possible that Microsoft could abandon its commitment to building for Apple – but for entirely different reasons than any of us might have imagined some 25 years ago. Fascinating stuff.

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  • Juara Retardino

    Yes, there is some irony in Apple becoming the 10,000 pound gorilla, extracting profit from everyone else. Of course, Microsoft still does pretty well. :-)

    By the way, this is a nit but your reminiscing refers to your start in the industry in 1987 “when Apple was a heroic underdog and Microsoft ruled the world.” I have to remind you that in 1987 Microsoft hardly ruled the world. The company went public in 1886 and received warmish reception but nothing like the insanity we see today (FB) in terms of stock price. They didn’t ship a decent version of Windows until Windows 3.0 in 1990 and it wasn’t really until 1995 that they became a huge force in computing.

    • Craig

      Yes, 1997 would have been more correct time. But what is also tells us is that because Apple is king now, in 2025 it could be some entirely different, yet to be founded, company.

    • johnbattelle

      True about 3.0, but Windows driven PCs already ruled the roost by 1987 (and everyone was hoping Apple would win, they didn’t…)

  • george

    It’s truly an amazing turn of events. Almost surreal…is it Apple’s turn to save MSFT?

    • johnbattelle

      That’ll be the day!

  • http://www.facebook.com/peter.rj.austin Peter Austin

    This is only a short-term problem. Microsoft has an app store too. It pays royalties to Apple’s store, but it receives royalties from it’s own App store. In the long run, these will cancel out or leave Microsoft ahead.

  • Snoggler

    making office available on iOS is like surrendering the enterprise tablet market to Apple

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