Crazy Idea Number 527: Should IBM Buy Apple?
December 13, 2004 Timothy Prickett Morgan
In the computer industry, some ideas come around again and again. With the industry a-buzz that IBM has ditched its $11 billion desktop and laptop PC business for a paltry $1.25 billion in cash and stock, some people are beginning to murmur, half in jest, that this might actually be a precursor to an IBM acquisition of Apple. In some ways, this makes perfect sense, and in others, it is downright crazy. Is an IBM-Apple combo thinkable, much less possible?
If IBM had the Personal Computer to do all over again, there seems little doubt that it would not have been stupid enough to outsource the core chip and software architecture to Intel and to rely on a tiny company then called MicroSoft for the operating system on its PC line. No, if IBM had it to do all over again, it would have created something very much like Apple. Think about it. Apple machines are a high-priced variant of a pervasive idea (a desktop or a laptop) that has elegance, style, and a lot of very clever engineering. For those of you who are too young to know this or too cool to know anything but the history of Linux or Windows, the IBM mainframe, the IBM System/38 and AS/400, and the Digital VAX, and the Sun Microsystems workstation had exactly the same attributes in their eras (and retain these features). To this day, all of these platforms are beloved despite the bashing and battering they take from competitive products. They have an almost cult status. The 3270 greenscreen and CICS protocol and the 5250 and twinax workstation protocol are very elegant front ends for efficient online transaction processing. They just are not cool any more.
IBM is not getting out of the PC business, if indeed it can foist what remains of its PC business off on China’s Lenovo Group (or possibly Dell or Hewlett-Packard, who are fighting for each decimal of market share to one-up each other). It is getting out of a commodity X86 business in which it cannot make a buck. If IBM could make money selling iPods, iMacs, Power Macs, and even Xserves–and there is a possibility that IBM could do this–then it is something worth consideration. The main reason that IBM could make money making these machines is simple: the spread between what it costs IBM to make a Power processor for Apple and the price it charges Apple is profit that could fall to IBM’s bottom line if such a merger or acquisition could be accomplished. This is probably not a lot of money–at best probably a couple hundred bucks per chip at the rate of a about 2 million a year. Call it $400 million. Is that much profit worth a merger with a company you would probably have to spend at least $35 billion on and put Steve Jobs on the board of directors and as an acting senior vice president?
Maybe such a merger–and I say merger because IBM cannot afford to buy Apple, since it doesn’t have anywhere near the amount of cash to do an outright acquisition–makes sense for other reasons. For one thing, IBM wants and needs to boost the demand for Power chips and Linux needs a better front end than Gnome or KDE. Mac OS X is essentially FreeBSD Unix with the MacOS graphical user interface from years gone by grafted on top. It is a very good system, and arguably the best Mac operating system Apple ever put on the market. Imagine if IBM exited the Windows-x86 PC and laptop business and made the Mac–either a desktop, a laptop, or a thin client backed by Xserve front ends–the default from end for its entire eServer portfolio? This is something that IBM should have done back in 1991 when it launched the PowerPC initiative with Apple and Motorola; it may be far too late to do it now. But application front ends are drifting away from the Windows programming model, Apple Macs are as secure as Unix, and they run Microsoft Office. This is, in many ways, an ideal platform for commercial computing. And it fits with IBM’s Power Everywhere, from embedded controllers to supercomputers.
Perhaps more importantly, IBM could use a large injection of cool and an understanding of consumer electronics that it has, perhaps with the exception of the venerable ThinkPad, been sorely lacking in. Apple may have had its ups and downs, but except when the company was going nuts after it fired Steve Jobs a decade ago, it has generally been cool. With the success of the iPod and its emergence into the server market (largely driven by its embrace of the open source Unix platform and Power processors), Apple is cool again. IBM has the reach to make Apple pervasive; Apple has the means to make IBM cool. A creature of Silicon Valley and intimately aware of the consumer electronics business (thanks to partnerships with Sony and others), what Apple might be able to help IBM most with is how to make its hardware and software more user friendly. WebSphere, to pick on just one product, could use a little help from Apple’s software engineers.
Every time the potential IBM-Apple acquisition has come around on the guitar in the past three decades, people said that IBM and Apple culture could not mix. Hogwash. IBM has loosened up considerably in the past decade, and Apple has taken a few lessons from the school of hard knocks that has given it a certain seriousness and focus. Then, of course, there is the Steve Jobs problem. But if IBM can survive and thrive with Lou Gerstner at the helm for the better part of a decade, it knows how to deal with Apple culture and a hot-headed, egotistical executive like Jobs. And if he got out of hand, IBM’s chairman and CEO, Sam Palmisano, could do what John Scully did back at Apple two decades ago: Tell Jobs to go get a new job. He always does something cool whenever he gets fired, whether it is Next Computer or Pixar.