AN OPEN LETTER TO LOU GERSTNER, CEO OF IBM, AND MICHAEL SPINDLER, CEO OF APPLE THAT APPEARED AS THE OCTOBER COVER STORY OF THE RED HERRING MAGAZINE

by Frederic E. Davis

Dear Lou and Mike,

I thought you guys had a deal. How come you're blowing it? Four years ago, your two companies signed an historic agreement that could have already reshaped the computer industry. Instead, you've squandered your assets by letting your corporate egos stand in the way of reaping the enormous potential rewards that a real partnership between IBM and Apple could bring.

Hey, there's no law that says you guys have to maximize the potential of your companies, and because I'm not a stockholder, I could almost care less. What prompts me to write is that as a computer journalist, it burns me to see how both of your customers are getting gypped by this lack of cooperation and it depresses me when I realize how it's not only hurting users, but also holding back the industry.

You don't have to be a financial wizard to see that times have been tough for both your companies. Apple's greed in hoarding the Macintosh as a proprietary standard, Mike, has caused your market share to dive down into the single digits. And Lou, IBM's big thrust into personal computing, OS/2, is still a giant question mark after billions of dollars in investment. And spending billions more to buy Lotus for twice its obvious market price won't save OS/2 -- nor will it ever garner the returns you might have seen had you followed through on your deal with Apple.

All too often, guys, when you're running a big corporation, too much of your attention gets diverted by corporate issues and too much of your viewpoint gets skewered by the corporate perspective. The problem is you don't understand your own assets -- otherwise you wouldn't be veering in the wrong directions. To put it bluntly, Apple's big asset is the Macintosh operating system, and IBM's primary assets are its enormous sales engine, customer base, and corporate credibility. The best way for both of you to maximize these assets should be really obvious: combine the Macintosh operating system with IBM's sales, customers, and credibility. In other words, IBM should be selling Mac clones.

Although, your PR flaks have given a lot of lip service to the idea of IBM actually adopting some of Apple's Macintosh technology, the delivery hasn't been clear and consistent. When the IBM-Apple deal was first forged, Taligent and a product called Workplace OS (at the time touted as the imminent successor to OS/2) were promised as a way to integrate Macintosh applications with IBM's Power PC offering. Unfortunately, IBM was far behind Apple in producing a mainstream Power PC system. Mike, you deserve credit for being the first major computer vendor to successfully pull off a switch of CPU without screwing your product sales, and you're the only ones who are really benefitting from the Power PC partnership. Lou, your guys have only just recently announced a mainstream Power PC system, but it looks like a non-starter, because you don't even have a decent operating system for it. Your guys looked pretty embarrassed at the announcement this June when they had to sheepishly admit that they could only offer, gulp, a beta version of OS/2 for the Power PC. Lou, if you don't smell a crisis brewing, go take a stronger whiff near the percolator.

The way I see it, the Intel-based PC market is a brutal commodity business, with razor-thin margins. The only real hope for either IBM or Apple achieving big market share in the hardware market is to make the Power PC a major standard, one that significantly challenges the Intel architecture. Lou, you're dreaming if you think OS/2 is going to do it for you. It's never proven itself on the Intel platform, let alone the Power PC. Your buddy Mike, on the other hand, has the Macintosh OS, which has not only proven itself as the only viable alternative to Microsoft Windows, it's actually a better operating system than either Windows or OS/2. To top it off, it still has a host of innovative applications and development tools, especially in key areas such as publishing, communications, and multimedia. You can certainly say that Windows may soon catch up in those areas, but you can't say that about OS/2 -- it just has too far to go.

Rather than throwing good money after bad by trying to promote OS/2 as your competitive product to Windows, Lou, you should sit back at the table with Mike and hammer out a real deal that would put IBM's full support behind the Macintosh OS. Otherwise, Bill Gates will continue to benefit by your dividing and conquering each other. I know it's a bitter political pill to have to swallow up in Armonk, but the Macintosh OS could really have a shot against Windows if IBM folded its technology effort into Apple's -- but not with Taligent. Taligent is a pipedream. The Mac is reality, with tens of millions of users.

Lou, I know your technical guys will tell you that they've already come up with a plan -- announced with a whisper -- to offer the Macintosh OS on your upcoming Power PC CHRP (Common Hardware Reference Platform) system design. But that's more of what you and your new pals at Lotus have long been famous for: too little, too late. The real opportunity for IBM and Apple isn't to pussyfoot around trying to protect each company's own market share and technology base, waiting for CHRP. The real win is for IBM to step behind the Macintosh and clone the existing system. CHRP isn't a major contender yet, and it will probably take years before it registers in the installed base. The Macintosh, on the other hand, has a respectable installed base, but what's more important, it can offer a large sales and support infrastructure complete with a robust selection of third party hardware add-ins, accessories, and services. In other words, IBM can enjoy an overnight success with a Macintosh clone, but it will have to wait years to benefit from the Mac OS on CHRP.

Lou, you didn't have the guts to clone the Mac, so now you're probably leaving over $10 billion a year in sales on the table. Multimedia home PCs are outselling color televisions, and guess what? Home PCs are not a very good product for consumers. Just ask Packard Bell, which has suffered from 20 percent return rates. Macs, on the other hand, are the only personal computer technology other than game machines that offer the design elements and reliability necessary for a traditional consumer electronic product. If IBM based its consumer computing strategy on the Mac instead of Wintel machines, it might benefit your investment in the Power PC and also challenge Microsoft and Intel in the critically important consumer marketplace.

And Mike, you need to do your part by cutting Lou a deal he can't refuse. The future of your company is in software, not hardware. If you can swallow this, why not spin off your hardware division and create a giant Mac clone company in one fell swoop? You could take the money from the spinoff -- and maybe Lou could kick in a few bucks -- to go out and buy Novell. This way you'd not only have the best client software operating system -- the Macintosh -- you'd also have the best server operating system as well. And in the client/server future, you're going to need that to hold your own against Microsoft.

As I said at the beginning, guys, the industry and customers are suffering because of your lack of cooperation. Consumers across the country are being unnecessarily punished by the complexities of DOS, Windows, and multimedia on the PC when they could have been having a much more satisfying experience running a Mac. But, Lou, until you get behind Apple and aggressively bless it as an alternative standard, most consumers will be too afraid to believe in the Mac. And Mike, you know what that means.

Sincerely,