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June 25, 1985: Microsoft co-founder Bill Gates sends a memo to Apple execs suggesting that Cupertino should license its Mac operating system and additional technology to other companies.
Apple CEO John Sculley and Macintosh boss Jean Louis Gassée ignore the advice of the 30-year-old Gates, who at the time is best known as a Mac developer. Five months later, Microsoft releases Windows 1.0.
Bill Gates’ memo offers advice to Apple
The fact that Gates sent such a memo to Sculley and Gassée seems amazing, considering the divergent paths that Microsoft and Apple ultimately took. Despite briefly entertaining the idea of licensing Mac OS, Apple stuck to its guns as a maker of both hardware and software. Gates, meanwhile, dominated the computer industry by making Windows the standard on almost every non-Apple PC.
At the time, though, Gates wasn’t viewing it like this. In fact, he was willing to offer this advice to Apple.
“Apple must make Macintosh a standard,” he wrote in his June 1985 memo. “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.”
He went on to argue that Apple should license Macintosh technology to between three and five significant manufacturers to build Mac clones. Ideally, these would be large companies such as AT&T, Digital Equipment Corporation, Hewlett Packard and Motorola.
Microsoft could help with Mac OS licensing strategy
Microsoft, he continued, “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.” (You can read Gates’ memo in its entirety.)
Sculley, it seems, was interested. Gassée, who had taken over the Mac division from Apple co-founder Steve Jobs, was not. Gassée thought the Mac was so superior to its rivals that it would not face any serious competition. He also thought Apple was better off sticking to its high-profit-margin strategy of selling Mac OS only on Apple’s own computers.
Ultimately, Apple decided not to go forward with the proposal in Gates’ memo. The company then made the error of signing an agreement with Gates that allowed Microsoft to use elements of the Mac’s look and feel in Windows.
Microsoft goes up, Apple goes down
The deal gave Microsoft a “non-exclusive, worldwide, royalty-free, perpetual, nontransferable license to use [parts of the Mac technology] in present and future software programs, and to license them to and through third parties for use in their software programs.”
At first, Gassée was quite correct. Rivals couldn’t hope to measure up to what Apple was doing. Windows 1.0 was almost laughably bad, and certainly no real competition to Apple. But relations soured between the two companies when the new, improved Windows 2.0 arrived a couple of years later in 1987.
Apple sued, alleging that Microsoft copied 189 different design elements illegally. U.S. District Judge William Schwarzer ruled that the existing license between Apple and Microsoft covered the interface elements in the new Windows.
This set the tone for Apple and Microsoft’s trajectories in the first half of the 1990s. Microsoft went on to conquer the world with Windows 95, while Apple came dangerously close to bankruptcy. Ironically, Apple eventually licensed Mac OS to third-party manufacturers. However, this strategy only made things worse for Cupertino.
It took Steve Jobs’ return to Apple in the late 1990s to reverse the companies’ courses. In 2024 — nearly 40 years after Gates’ memo to Apple and with AI driving the markets — Apple and Microsoft remain neck-and-neck (with Nvidia in the mix) for the title of world’s most valuable publicly traded company.
