To: John Sculley, Jean Louis Gassee
From: Bill Gates, Jeff Raikes
Date: June 25, 1985
Re: Apple Licensing of Mac Technology
cc: Jon Shirley

Background:
Apple's stated position in personal computers is innovative technology leader. This position implies that Apple must create a standard on new, advanced technology. They must establish a "revolutionary" architecture, which necessarily implies new development incompatible with existing architectures.

Apple must make Macintosh a standard. But no personal computer company, not even IBM, can create a standard without independent support. Even though Apple realized this, they have not been able to gain the independent support required to be perceived as a standard.

The significant investment (especially independent support) in a "standard personal computer" results in an incredible momentum for its architecture. Specifically, the IBM PC architecture continues to receive huge investment and gains additional momentum. (Though clearly the independent investment in the Apple II, and the resulting momentum, is another great example.) The investment in the IBM architecture includes development of differentiated compatibles, software and peripherals; user and sales channel education; and most importantly, attitudes and perceptions that are not easily changed.

Any deficiencies in the IBM architecture are quickly eliminated by independent support. Hardware deficiencies are remedied in two ways:

The closed architecture prevents similar independent investment in the Macintosh. The IBM architecture, when compared to the Macintosh, probably has more than 100 times the engineering resources applied to it when investment of compatible manufacturers is included. The ratio becomes even greater when the manufacturers of expansion cards are included.

Conclusion:
As the independent investment in a "standard" architecture grows, so does the momentum for that architecture. The industry has reached the point where it is now impossible for Apple to create a standard out of their innovative technology without support from, and the resulting credibility of other personal computer manufacturers. Thus, Apple must open the Macintosh architecture to have the independent support required to gain momentum and establish a standard.

The Mac has not become a standard
The Macintosh has failed to attain the critical mass necessary for the technology to be considered a long term contender:

a. Since there is no "competition" to Apple from "Mac-compatible" manufacturers, corporations consider it risky to be locked into the Mac, for reasons of price AND choice.
b. Apple has reinforced the risky perception of the machine by being slow to come out with software and hardware improvements (e.g. hard disk, file server, bigger screen, better keyboard, larger memory, new ROM, operating software with improved performance). Furthermore, killing the Macintosh X/L (Lisa) eliminated the alternative model that many businesses considered necessary.
c. Recent negative publicity about Apple hinders the credibility of the Macintosh as a long term contender in the personal computer market.
d. Independent software and hardware manufacturers reinforced the risky perception of the machine by being slow to come out with key software and peripheral products.
e. Apple's small corporate account sales force has prevented it from having the presence, training, support, etc. that large companies would recognize and require.
f. Nationalistic pressures in European countries often force foreign to consumers [sic] choose local manufacturers. Europeans have local suppliers of the IBM architecture, but not Apple. Apple will lose ground in Europe as was recently exhibited in France.

Recommendation
Apple should license Macintosh technology to 3-5 significant manufacturers for the development of "Mac Compatibles":

United States manufacturers and contacts:
Ideal companies --- in addition to credibility, they have large account sales forces that can establish the Mac architecture in larger companies:

Other companies (but perhaps more realistic candidates):

European manufacturers

Apple should license the Macintosh technology to US and European companies in a way that allows them to go to other companies for manufacturing. Sony, Kyocera, and Alps are good candidates for OEM manufacturing of Mac compatibles.

Microsoft is very willing to help Apple implement this strategy. We are familiar with the key manufacturers, their strategies and strengths. We also have a great deal of experience in OEMing system software.

Rationale

  1. The companies that license Mac technology would add credibility to the Macintosh architecture.
  2. These companies would broaden the available product offerings through their "Mac-compatible" product lines:
    they would each innovate and add features to the basic system: various memory configurations, video display and keyboard alternatives, etc.
    Apple would lever the key partners' abilities to produce a wide variety of peripherals, much faster than Apple could develop the peripherals themselves.
    customers would see competition and would have real price/performance choices
  3. Apple will benefit from the distribution channels of these companies.
  4. The perception of a significantly increased potential installed base will bring the independent hardware, software, and marketing support that the Macintosh needs.
  5. Apple will gain significant, additional marketing support. Every time a Mac compatible manufacturer advertises, it is an advertisement for the Apple architecture.
  6. Licensing Mac compatibles will enhance Apple's image as a technological innovator. Ironically, IBM is viewed as being a technological innovator. This is because compatible manufacturers are afraid to innovate too much and stray from the standard.

Copyright 1985