Office Wars 3 – How Microsoft Got Its Office Monopoly
September 10th, 2007
Daniel Eran Dilger
Microsoft’s Office monopoly gives the company more revenues and delivers nearly as much profit as its Windows software. How did it gain such a powerful position in productivity applications? The history of Office is rooted in decisions Apple made in the 80s with the Lisa and Macintosh, and also has an interesting correlation to Apple’s iPhone strategy today.
Office Wars 1 – Claris and the Origins of Apple’s iWork
Office Wars 2 – Microsoft’s Outrageous Office Profits
Office Wars 3 – How Microsoft Got Its Office Monopoly
Office Wars 4 – Microsoft’s Assault on Lotus and IBM
The Origins of Office.
While Microsoft has overwhelming power in desktop productivity applications today, it entered the market late. In the early 80s, Microsoft principally sold language software and struggled to license copies of AT&T’s Unix under the name Xenix.
In 1981, Microsoft teamed up with IBM to license a copycat version of CP/M as the DOS for IBM’s new PC. Microsoft didn’t really get started in applications until Steve Jobs approached the company that same year with a proposal to develop for Apple’s new Macintosh.
Entrusted with prototype Mac hardware and inside access to Apple’s development tools, Microsoft made an agreement with Apple in 1981 not to ship any mouse-based products of its own until a year after Apple introduced the Mac.
In exchange, Apple promised to give Microsoft a rare opportunity to enter the competitive desktop applications market using its entirely new Mac platform as a launching pad.
Software Sells Systems!
Prior to the Mac, Apple had released the Lisa as its first graphical desktop computer. Since developing new graphical apps for the Lisa was very different and required special training, Apple delivered its own complete productivity suite for the Lisa. It planned to open up the Lisa platform to third party development at some point after the initial launch, but the immediate focus had been to deliver a unique set of applications to demonstrate the power of Lisa’s new graphical interface.
Recalling the software focus of the Lisa development team, reader Jim Hoyt emailed me several months ago in response to “Why Apple Bounced Back,” an article crediting Apple’s recent internal software development efforts with a large role in the company’s turnaround over the last decade.
Hoyt wrote, “In 1979, John Couch, the soon-to-be head of the Lisa project, was in charge of all software at Apple Computer. He commissioned this poster: Software Sells Systems.” I’ve been meaning to publish the otherwise long since lost to history poster, so here it is, belatedly. Thanks Jim!
Apple Delivers Lisa Suite Seven Years Ahead of Microsoft Office.
The poster’s premise was obvious: the Lisa wasn’t going to sell itself; it needed practical software applications to usher in the future of the graphical desktop.
Apple developed an entire suite of seven productivity applications that shipped with the Lisa system in 1983, including word processing, spreadsheet, database, drawing, graphing, project management, and terminal emulation programs.
It was seven years later before Microsoft would first package its Word, Excel, and PowerPoint applications together as Office 1.0 in 1990.
In his February 1983 review of the Lisa for Byte magazine, Gregg Williams concluded: “As you can tell, I am very impressed with the Lisa. I also admire Apple for deciding to make the system without being unduly influenced by cost or marketing constraints. The Lisa couldn’t have been developed without such a deep commitment, and no other company I can think of could afford such a project or would be interested in doing it this way (the Lisa project reportedly cost over $50 million and used more than 200 person-years of effort!). In terms of the actual, as opposed to symbolic, effect it will have on both the microcomputer and the larger-computer market, the Lisa system is the most important development in computers in the last five years, easily outplacing IBM’s introduction of the Personal Computer in August, 1981.”
A year later, Lisa ended up being replaced by the much less expensive Macintosh, which delivered much of the Lisa’s functionality at a quarter of the price. However, the Mac did not include the Lisa’s expensive megabyte of RAM, its hard drive, or its productivity application suite. The Mac only shipped with a word processor and painting tools. [Update: Bruce Hoult notes that the original Mac also shipped with MacDraw, MacProject, MacTerminal, and MacBASIC.]
Why Apple didn’t port its Lisa applications to the Macintosh is a confounding riddle, because it had more than a half decade of opportunity to do so. The main reason for this was a paranoid fear of alienating outside developers, along with jitters related to IBM’s rapid poaching of the desktop computing world after the arrival of its PC in 1981.
Apple’s Lisa vs the Third Party Mac Platform: 1980 – 1984.
Competition inside Apple between the Lisa development group and the Macintosh team led to a different software strategy for the Mac. Since the smaller Mac group didn’t have the resources to develop a full suite of applications in advance of its launch, it planned to leverage third party development in the same way as the Apple II had.
Sales of Apple II computers had exploded in 1979 with the release of Dan Bricklin’s VisiCalc spreadsheet software. That success was a large reason why IBM decided to get involved in the microcomputer business with the PC in the first place. It wasn’t until 1984 that Apple began making lots of money selling AppleWorks, its word processing, spreadsheet, and database package for the Apple II. It continued to sell the software with only limited updates well into the early 90s.
Apple management failed to see the potential for delivering its own suite of Mac applications as it had on the Lisa, and as it very profitably would later do for the Apple II. Instead, it became increasingly enamored with the idea of partnering with third party software developers and delegating away the work–and the profits–of creating its own Mac software.
Motivated by fears of inhibiting a third party software industry like the one that had grown up around the IBM PC, Apple intentionally stifled its own internal software development efforts and later spun them off into the Siberian gulag of Claris. That move would prove to be a devastatingly expensive mistake that would nearly destroy Apple over the next decade.
Incidentally, three of the most important products Apple would release during that decade of decline were software products:
- the profitable AppleWorks for the Apple II in 1984.
- the free 1987 HyperCard for the Mac.
- the free 1991 QuickTime for the Mac.
A Fearsome Future VisiOn for the PC: 1981 – 1983.
Another contributing reason for Apple’s rush to embrace third party developers on the Macintosh may have been related to the fear of VisiCorp’s new mouse-driven VisiOn graphical desktop environment.
VisiOn originally appeared on the Apple III in November of 1981, but the complete commercial failure of that new machine after the delivery of IBM’s PC prompted VisiCorp to announce moving its support to the PC in 1982, with a promised release target of mid-1983. Apple was still scrambling to release the Lisa and the Mac, both of which had slipped repeatedly.
While clumsy, slow, and expensive–the base VisiOn software and a mouse cost $790, each application cost between $250 and $400, and it required a $5000 hard drive upgrade on top of a $2000 PC–VisiOn was backed by the legendary VisiCorp, the company that had helped launch the Apple II to fame with VisiCalc.
VisiOn also tapped into IBM’s “up is down” PC, which despite its high price and low level of performance and innovation, had cut deeply into Apple’s business expansion plans, almost entirely due to IBM’s reputation and its monopoly position in business computing.
After witnessing its first big failure with the Apple III, and then seeing a tepid response to the $9,995 Lisa in 1983, Apple was no doubt very concerned about IBM’s PC being converted into an ugly frankenstein Mac knockoff with that $7,500 VisiOn upgrade bolted on, cheered on by a press giddy at the prospect of being bamboozled by IBM’s overpriced and under delivering PC.
The only way to compete with the threat of such a graphical system for the PC would be to deliver the new Macintosh as quickly as possible at a much lower cost with lots of applications from a variety of third party developers. Fortunately for Apple, VisiOn also slipped several months and wasn’t delivered until the end of 1983.
Right up until it completely fizzled, the press hailed VisiOn as a promising competitor to Apple’s Lisa and the forthcoming Macintosh.
By 1983, VisiCorp had fallen apart; its star development manager Mitch Kapor had left to found Lotus Development. Kapor’s new spreadsheet product, Lotus 1-2-3 for the DOS PC, destroyed the remains of VisiCorp and its VisiOn.
[VisiCorp VisiOn – Toasty Tech]
[1980-1985: 8-bit Platforms]
Frying Pan to the Fire: Apple Runs to the Arms of Microsoft: 1981.
Finding developers willing to commit to investing in Apple’s next new platform was difficult after the failure of the Apple III and the wildly successful launch of the PC. Apple later found that its developer relations would suffer at the release of the “no other software needed” Lisa.
For the Mac, Apple decided to copy the PC model by directing the majority of its efforts into courting third party developers and downplaying its own software releases, which were only intended to serve as basic placeholders. Even so, many PC developers planned to take a ‘wait and see’ approach to supporting the Macintosh.
Hoping to prime an early and explosive business success for the Macintosh in the same way VisiCalc had launched sales of the Apple II, Steve Jobs made plans with Microsoft to deliver a graphical Mac interface for its struggling Multiplan–a VisiCalc spreadsheet clone–and a new Chart application.
Microsoft had also secretly begun another Mac app initially called MultiTool Word, based on the Bravo word processor developed by Xerox PARC’s Charles Simonyi and Richard Brodie; Microsoft hired both in 1981.
The company didn’t tell Apple about its new word processor project because the Mac team had already started developing a word processor for the Mac called MacWrite.
Apple’s Problematic Partnership with Microsoft: 1981 – 1985.
Next to IBM, Apple was among the first companies to realize that getting into a business partnership with Microsoft was a really bad idea. Throughout 1983, Microsoft employees began intense discussions with Apple about how the Mac system software worked internally, involving issues unrelated to desktop application development.
The reasons for this became obvious when Microsoft made a surprise pre-announcement at the Comdex trade show in November 1983 of a clone of Apple’s Mac environment for the PC called Windows, along with the release of a text-based Word for DOS using a mouse.
Apple had previously worried about VisiCalc’s independent VisiOn appearing for the PC, but now its own partner had taken its internally developed graphical desktop work to deliver a competing product on IBM’s platform. Microsoft had discovered a loophole that allowed it to ignore its exclusive agreement with Apple because the contract had tied the year-long waiting period to the Mac’s planned ship date in 1982; that contract date wasn’t updated as the project slipped into 1984.
It turned out that Word for DOS wasn’t very popular, since DOS PC users didn’t see much benefit from only using a mouse with a single application. It also turned out that Microsoft couldn’t deliver on its promise to ship Windows 1.0 by early 1984; it wasn’t actually available until 1985, and even then was a complete joke of a product and fully unusable.
However, the problems Apple would suffer for trusting Microsoft were only just getting started. Windows 1.0 wasn’t much to look at, but it did offer an advancement beyond the neanderthal text interface of Word for DOS. Apple also had reason to worry when it found Microsoft was directly collaborating with IBM in 1985 to deliver a new DOS replacement called OS/2.
Apple Grows Dependent upon Third Party Software: 1985 – 1990.
Apple’s partnership with Microsoft continued to worsen. Microsoft finally shipped its spreadsheet for the Mac in 1985, but threatened to also release it for the PC as well, prompting Apple CEO John Sculley to sign away rights to a variety of Mac system software details to Microsoft in 1985 in exchange for exclusive Mac development of the graphical Multiplan for two years.
Microsoft’s Multiplan and Chart applications for the Macintosh were among the strongest software features Apple touted in its 1984 advertising. (Click to view full size).
A very young Bill Gates appeared next to Mitch Kapor of Lotus Development in Apple’s Mac ads to observe, “To create a new standard takes somethings that’s not just a little bit different. It takes something that captures people’s imaginations. Macintosh meets that standard.” Were he not trying to sell Windows Mobile today, he might say the same of the iPhone!
Sculley had been arrogantly dismissive of Bill Gates’ July 1985 suggestion that Apple work quickly to broadly license its Mac technology to Northern Telecom, Motorola, and AT&T. Instead, Apple sought to retain control of the unique Mac desktop as a way to sell its hardware.
At the same time, Apple grew increasingly reliant upon Microsoft to deliver updates to its applications for the Mac, and worried about threatening any of its third party Mac developers with its own internal application software efforts.
However, in 1984 Apple had released AppleWorks for the Apple II. That program rapidly became the top selling software title of any computer platform, despite Apple’s minimal efforts to market it. It was nearly an embarrassment for Apple, which wanted to push the graphical new Macintosh, not a text-based 8-bit program.
By 1987, Apple had spun off its own apps–including AppleWorks, MacWrite, MacDraw, and MacPaint–into the Claris subsidiary. Claris went on to profitably develop and acquire a suite of Mac productivity apps, but operated at an arms’ length distance from Apple.
By 1990, Sculley realized the vast profit potential in application software. Apple had two solid platforms: the Apple II and the Mac. The company’s minimal efforts to market any software for them was clearly a huge mistake. Sculley subsequently decided to retain Claris as part of Apple rather than spinning it off, but that late decision shattered the subsidiary because its employees and managers had been given the expectation that a Claris IPO would make them rich. Many left in disgust.
Microsoft Becomes an Applications Company: 1985 – 1989.
At the same time, Microsoft’s graphical Multiplan for the Mac–which ended up being combined with the Chart app and renamed as Excel in 1985–became a huge seller for Microsoft. In contrast, the textual DOS version–which retained the Multiplan name–couldn’t compete with the top selling Lotus 1-2-3 on the PC side.
Two years later in 1987, Microsoft’s deal with Sculley expired and the company released Excel 2.0 for the PC, along with Windows 2.0, which copied more of the Mac desktop, including the basic ability to display overlapping windows. No OEMs shipped Windows 2.0 on their PCs, but anyone buying the new Excel got a copy of Windows and a taste of the graphical Mac environment, albeit with Microsoft’s garish colors and its horrific MDI-style interface.
Apple Sues to Stop Graphical Copycats, But Only On the PC: 1985 – 1988.
While a number of companies delivered graphical environments in the pattern of VisiOn for various computer systems of the time, Apple was only threatened by those that promised to deliver the Mac look on the PC.
For example, Apple ignored Berkeley Systems’ mouse-based, windowing GEOS environment, offered initially for the Commodore 64 and later Apple’s own Apple II systems.
However, when CP/M maker Digital Research introduced its GEM/1 for the DOS PC, Apple sued and won an injunction that forced the company to remove certain features Apple had originally developed for the Mac, the most obvious of which was its use of graphics regions to draw sophisticated overlapping windows.
At the same time, GEM/1 was also being sold for the 1985 Atari ST, but Apple completely ignored that product, enabling Atari to deliver a system so similar to the Mac it was commonly called the Jackintosh, after Atari CEO Jack Trammell.
Apple also ignored overlapping windows in the 1985 Commodore Amiga, and a similar graphical desktop in the 1987 RISC OS developed by Acorn Computers. Apple was certainly aware of the British Acorn’s RISC OS, as the two companies had partnered to form ARM in order to develop a new generation of RISC based processors powering Acorn’s RISC PC and later, the Newton. Those same ARM processors now power iPods, the iPhone, and the vast majority of all mobile devices.
However, Apple went ballistic upon the release of Microsoft’s Windows 2.0 in 1987. One reason was that Microsoft was pointedly using the product as a way to move its Mac applications to IBM’s PC, a move Apple correctly feared would quickly erode the unique value of the Macintosh.
Additionally, Microsoft was also describing Windows as the basis of a new interface for IBM’s promised OS/2. Apple was livid that the trusted partner it had launched into the applications business would immediately sell it out and migrate those same applications to directly benefit its main hardware competitor.
Despite the fairly insignificant sales of Windows 2.0, Sculley’s Apple sued Microsoft in 1988 over the use of Mac software details it had taken from Apple in its 1985 agreement. It also sued HP over a Windows 2.0 add on pack called NewWave, which supplied additional Mac-like features to the PC.
Meanwhile, sales of Excel on the PC gradually began to grow and Microsoft worked increasingly hard to replace its Mac partner and then destroy it, using Windows as a tool to port its Mac applications to the PC instead.
Apple Loses Jobs, Opportunities: 1986 – 1988.
In 1986–as Apple’s panic over Microsoft moving its Mac apps to the IBM PC was just getting started–Steve Jobs’ plans to rapidly move the Macintosh into the business and server arena were getting shot down by the more conservative minded Sculley. Apple’s board feared that increased investment in the Macintosh might spread the company too thin.
Jobs subsequently left Apple in frustration to form NeXT, Inc, and develop his own ideas for business oriented workstations. Sculley replaced him with Jean Luis Gassée, who shared Sculley’s vision for dabbling in impractical technology ventures like the Newton and keeping Mac models configured for high end markets.
Apple continued to make outstanding profits from increasing sales of the Mac and continued sales of the Apple II, but the company had made a grave mistake in ignoring and avoiding the software business. Even worse, it was now dependent upon a rival company to maintain key software titles for the Mac.
Apple was also losing key engineering talent to Jobs’ NeXT, which by 1988 was delivering the first release of what Apple itself should have been working on: its next generation of hardware and software.
Sculley’s Apple Bungles Office Applications.
While Sculley’s Apple fought Microsoft’s Windows in the courts, it did little to effectively compete in the marketplace, either with the Mac as a platform or in the applications arena to take on what would become the Microsoft Office suite in 1990.
To deliver Office, Microsoft simply paired Word and Excel with PowerPoint, a Mac presentation application Microsoft acquired in 1987. Had Apple simply ported its Lisa applications to the Mac, it would have had a head start of several years to develop and refine its own applications suite, and could have maintained them as unique to the Mac without giving away its crown jewels to Microsoft in 1985.
After ten years of trying, even Microsoft could eventually deliver a good enough copy of the Mac with Windows 95 in late 1995. After that, Microsoft pulled the plug on Office development for the Mac and didn’t release another update until 1998.
Apple’s Squandered Opportunity in Software Sales.
The bizarre thing was that Apple was making money selling AppleWorks on autopilot, and continued to do so from 1984 into the early 1990s. Additionally, the new ClarisWorks for the Mac easily captured the top spot in Mac software sales from Microsoft’s Works within its debut year in 1991.
Even so, Apple did little to capitalize upon the discovery that software would indeed sell systems, just as Couch had foreseen back in 1979. Apple had a printing press for creating money, but simply left it idling while Microsoft delivered low innovation software titles and raked in millions of dollars in Mac software revenues.
Sculley’s Apple essentially sat back and granted Microsoft full opportunity to clean out its entire business model without a fight, hoping that the law would rush in to correct the inequities at some point in the near future. Instead, the court deliberated for a tech eternity until 1994, and then threw out Sculley’s “look and feel” lawsuit, largely on the basis that Sculley had earlier granted Microsoft limited rights to Mac ideas back in 1985 in his desperate bid to keep Microsoft as a Mac developer.
The bitter irony was that between 1985 and 1995, Microsoft needed the Mac at least as much as Apple needed Microsoft. Even in 1997, Steve Jobs could get Microsoft to agree to a half decade of continued development of Office for the Mac by simply adding Internet Explorer to the Mac desktop. Jobs turned down the hardball demand that Apple kill QuickTime, and even got a public relations coup out of the deal by having Microsoft announce a $150 million investment in Apple.
Sculley’s penny wise, pound foolish conservative greed destroyed Apple and directly transferred the vast potential wealth of value Apple had originated at great expense for its 1983 Lisa graphical office suite to Microsoft, which subsequently ran with it and deserted the company.
Microsoft Betrays IBM and Uses Office Against OS/2.
Apple wasn’t the only partner Microsoft exploited, turned on, and then tried to drive out of business. The earliest and most obvious example was IBM, which had launched Microsoft into significance as a reseller of DOS.
Microsoft betrayed IBM in the development of OS/2, first by pulling out of the operating system partnership, then by canceling Office for OS/2 after shipping an initial version for it in 1992.
IBM later bought up Lotus and worked to compete against Microsoft’s growing influence with Office. Microsoft responded by using its new monopoly positions to punish IBM in various moves documented in the Microsoft monopoly trial. That story follows in Office Wars 4 – Microsoft’s Assault on Lotus & IBM.
Using the Office Monopoly Against NeXT.
Jobs carried lessons learned from watching the implosion of Apple under Sculley to NeXT. His initial goal for NeXT was to build a software platform. However, nobody was shipping hardware up to the task of running an advanced operating system, so NeXT began following the business model of Apple, selling new hardware with advanced software.
While Jobs had found it challenging to find software partners for the Mac at Apple, the task was even more difficult at NeXT, which Apple had forced into the ultra high end of the workstation market using a non-compete agreement.
NeXTSTEP pioneered advanced rapid development frameworks to make it easier for third parties to deliver software for the new system. When Jobs discovered that Lotus was working to deliver a new spreadsheet paradigm for OS/2, he gave the Lotus team a NeXT system and got involved in refining the software to show off the features of his new platform.
In contrast, Microsoft used the productivity applications monopoly it had been handed by Apple to impede adoption of NeXT. When asked about writing software for NeXTSTEP, Microsoft’s Bill Gates famously fumed, “Develop for it? I’ll piss on it.”
Gates also announced plans to immediately deliver his own advanced operating system with object oriented development frameworks called Cairo, which turned out to be a vaporware lie Microsoft repeated from 1991 until NeXT was acquired by Apple in 1997.
Microsoft’s Murderous Partnerships.
Microsoft helped to ensure that neither NeXT nor OS/2 could acquire a broad enough computing platform to drive a self-sustaining software business. Apple was able to maintain a struggling niche platform on the Mac, but fears of stepping on third party developers’ toes actively prevented the company from actually building on that potential until the late 90s.
Ironically, Microsoft did just that, by developing its solo PC platform with Windows and then using it to destroy third party developers it viewed as competitors. By tying its Windows and Office products together, Microsoft could strangle its own former partners–the top developers of MS-DOS applications–including WordPerfect, Lotus’ 1-2-3, database and developer products from Ashton-Tate and Borland, and really every major developer on the PC that in any way challenged Microsoft.
Microsoft’s coldly calculated murder of every rival DOS application developer and later many of its Windows developers, from Novell to IBM and Sun to Netscape, is an oddly public fact treated as a taboo secret by Windows Enthusiasts, who avoid all mention of it as they talk about how Apple “can’t work with partners” in the rich, supportive way Microsoft supposedly has.
Any competition between Apple and third party developers–even with shareware programs–is paraded through the insufferable blogs of ZDNet and the pages of IDG’s InfoWorld/PCWorld/Computerworld and described as unconscionable conduct. This is from writers who all witnessed first hand Microsoft’s massacres of any and all “partners” the company decided no longer suited its fancy. Have these wags all been brainwashed, or are they just lying for money?
As a side note, the Office Wars and Microsoft’s monopoly position in applications provide interesting insight into how Apple is deploying its iPhone software strategy, which the next article examines: Six Reasons Why Apple May Never Open the iPhone.
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