Here’s How Microsoft Helped Create Apple’s iPhone

Source: Apple.com

Is Microsoft (NASDAQ:MSFT) indirectly responsible for Apple’s (NASDAQ:AAPL) iPhone? As recently noted by Bloomberg Businessweek’s Roben Farzad, many of Apple’s loyal users today may not be aware that archrival Microsoft once helped to keep the Cupertino-based company afloat with a significant financial investment.

In 1997, the recently returned Steve Jobs announced that Microsoft had agreed to buy $150 million worth of Apple’s stock. Although Jobs’s announcement was audibly booed by the Macworld expo audience, the move effectively saved Apple from having to declare bankruptcy. The video below reveals the level of hostility that the Macworld crowd had for Apple’s temporary partnership with Microsoft.

As noted by Bloomberg, Microsoft’s investment allowed Apple to survive long enough to develop iTunes and the iPod. However, the success of the iPod eventually fueled Apple’s development of the iPhone and the iPad, two products that were instrumental in helping to devastate the traditional PC industry. For this reason, Farzad believes that Microsoft’s $150 million may have been the worst investment in modern history.

Apple was worth less than $3 billion when Microsoft invested $150 million in the company in 1997 and today the iPhone maker is worth over $505 billion. Conversely, Microsoft was worth $556 billion a few years after its investment in Apple, today the software company is worth around $320 billion. In other words, Microsoft’s $150 million investment may have indirectly helped the company lose around $236 billion in value.

So why did Microsoft want to save its struggling rival? At the time, Microsoft was facing allegations of antitrust behavior due to its anticompetitive software bundling practices. The investment in Apple provided Microsoft with a kind of antitrust insurance policy.

“The goal was not a return on invested capital, but rather, to keep Apple’s competitive operating system viable so the antitrust folks would have a harder time proving Microsoft’s monopoly,” explained Barry Ritholtz of Ritholtz Wealth Management via Bloomberg. “From a proactive legal perspective, it was a temporary stroke of genius,” he added. In this sense, Microsoft’s infamous investment in Apple may have been a wise move for both companies.

Here’s how Apple and Microsoft has traded over the past five sessions.

304

Follow Nathanael on Twitter (@ArnoldEtan_WSCS)

Don’t Miss: Apple’s iPhone 5S and 5C Gain Two New Contract-Free Carriers.

More from The Cheat Sheet