Will the alliance bear fruit? - Apple Computer Inc.'s alliance with IBM Corp - Cover Story

Chief Executive, The, Jan-Feb, 1992

When Ronald Reagan opined that we may witness the Apocalypse in our lifetimes, he might not have been entirely off the mark. So far, the 1990s have seen the lions and the lambs lie down together in record numbers. James Baker brought the Israelis and the Arabs to the table. Former communist powers are teaming up with Western business interests as they embrace capitalism. David Duke went stumping on Jesse Jackson's talk show. But pound for pound, one of the strangest revelations has to be the joint venture between Apple Computer and IBM. Wasn't it only yesterday, after all, that Apple founder Steve Jobs was comparing Big Blue to Big Brother?

All that has changed under the stewardship of John Sculley. As chairman and CEO, the former Pepsi?Co marketing wiz has revamped Apple in ways that had appeared previously only in Jobs' worst nightmares. In addition to the IBM venture--by far the most ambitious of Sculley's projects--Apple announced a deal with Sony this past October to build the PowerBook 100, which Sculley says will allow customers to use laptops "in the same easy, empowered way that they had become accustomed to with Macintosh." Also, Apple will continue its long-time alliance with Motorola, which manufactures Apple's microprocessors. The IBM and Sony deals represent a major shift in strategy for Apple. Walter Winnitzki, deputy manager of Brown Brothers, says, "Apple is finally delivering what its customers want. Its previous policy has been to dictate to its customers what they should be buying."

There are four main goals Apple and IBM hope to realize through their collaboration. The big one is the plan to develop "object-oriented" software, which will break down the format barriers that currently prevent large networks of equipment from interacting. Second, they will make it easier for Macintosh and IBM PCs to work together and share software. Third, IBM will license to Motorola the right to manufacture and market its RISC chip for the new desktops. (That's bad news for Intel Corp., which had a virtual monopoly on the microprocessor market for IBM and other PC manufacturers.) Fourth, Apple and IBM will create a "multimedia" system that will allow PC users to send and receive video and audio programs.

With the alliance, Sculley hopes to move Apple out of the realm of hobbyists and educators and into the corporate world. But will it work? Patty Seybold, publisher of Paradigm Shift and president of Office Computing Group, told CE, "Sculley seems to be making the right marketing and political moves. Whether he's making the right technical moves is hard to say."

While both IBM and Apple stand to reap huge benefits if the partnership succeeds, it's definitely a "must-win" situation for the latter. Sculley's greatest task has been the transition to corporate computing which has not gone without snags. In his quest to expand market share, Sculley cut prices 30-40 percent across the board last year, thereby slicing Apple's margins to the core. In May 1990, the company reduced its workforce by 10 percent. And just when it seemed that things were turning around, Apple posted an 18 percent decline in earnings for its fiscal fourth quarter, and net for the year fell 35 percent to $309.8 million, or $2.58 a share, from $474.9 million, or $3.77 a share. But rather than resolving his company to Armageddon, Sculley is putting his faith in the joint ventures, new technology, and his own marketing savvy.

HARVEST TIME

Once the alliance between Apple and IBM establishes a uniform information highway, what can we expect?

What makes this alliance different than others in the industry is that it really starts with what's in it for the customer. The most important thing for our customers in the 1990s is going to be the reorganization of work. How do you get people to change their behavior so they'll work more productively? It's going to require that computers become a part of the workplace in a far more pervasive way than we saw in the 1980s, which means that the computers have got to be easy to use, which is Apple's great strength, and computers have got to communicate over large enterprise systems, which is IBM's great strength.

What we're doing is bringing together Apple's core competence with IBM's core competence, and creating a series of foundation technologies that can dratically improve the ability of technology to deliver on the productivity promises made in the 1980s but which in many cases were never realized.

Isn't Apple's alliance with IBM a bit lopsided given IBM has nothing like the same need as Apple to make the venture a success?

The reason why IBM and Apple joined together was that both of us are systems companies. We're both capable of creating new technologies, but if we can't get them to market and get them adopted by the application developers, then the customer will never see the end user value of it. And in order to counterweight the drift that the industry has had towards commoditization, we didn't think any one company alone, even IBM, could achieve success. That's why the two companies who had traditionally been vigorous competitors joined together for the common goal, to create new foundation technologies.