Alliance between Ibm and Apple Computers

Abstract

This case examines the alliance between two arch rivals in the computer industry--IBM and Apple. The objective of the case is to help students appreciate the awkward partnerships that arise among companies in their desire to compete against a common threat as well as to develop a new market. The case develops the background of the relationship between Apple and IBM and poses questions concerning the structure of the alliance, its alleged benefits, and the likelihood for its success based on tensions articulated in the case. Excerpt UVA-M-0460 ALLIANCE BETWEEN IBM AND APPLE COMPUTERS On 3 July 1991, two former rivals in the computer industry, Apple Computers and International Business Machines (IBM), signed a letter of intent to collaborate in the four realms of software, hardware, research, and sales. Motorola, Inc. also agreed to participate in part of the agreement. The idea of Apple and IBM—two vastly different companies—joining forces created ripples throughout the computer industry. As Wall Street reacted to the news of the alliance, rival Microsoft's stock plunged $ 4.125 a share, while Apple's stock rose 87.5 cents and IBM lost $ 1 per share on the New York Stock Exchange. Many analysts believed that the two companies instigated the collaboration to combat the encroachment of inexpensive clones and dominating forces like Intel and Microsoft. Analysts also speculated that, “sharing underlying software technology raises the possibility that IBM, Apple, and other computers would become virtual look-alikes—creating a ‘standard' that would simplify decisions for buyers but eliminate much of the competition that has driven innovation.” The move to establish a standard seemed to be a reaction to consumers' growing dissatisfaction with incompatible standards. Analyst David Wu, working for S.G. Warburg, asserted, “There is no love between the two. This is a marriage of convenience.” Other analysts seemed to share his view. From 1985 to 1990, IBM's percentage of the personal-computer market fell from 28 percent to 17 percent. IBM found that many of the companies it had helped to spawn, such as Microsoft, were directly competing with it. At the same time, Apple struggled against the corporate world's perception that the Macintosh was too incompatible with other brands to be used on a broad scale because it could not be used in conjunction with other personal computers and bigger systems. Apple also felt that software companies were increasingly reluctant to write programs for such a unique system, and it had not yet created a microprocessor that would increase the power of the Macintosh. An alliance between the two companies appeared to provide a solution to their individual dilemmas. Company Histories IBM . . .