Mr. John Sculley

President

Apple Computer

20525 Mariani Ave.

Mail Stop 231

Cupertino, CA 95014

Dear John,

I remain enthusiastic about the benefits of licensing Mac technology. Currently I think the following companies are the best choices:

Northern Telecom -- a separate letter copied to NT describes my thinking here. This is a first class company.

Motorola -- their Four-Phase subsidiary is committed to the 68000. They aren't doing well. Their direct sales force is good but not so large that it will threaten the retail channel. Motorola loves the Macintosh and being in partnership with your chip designer is a natural.

AT&T -- I know you are working on this. The key is that their 68000 UNIX PC is not selling. They need a way to make Mac software run on their box. They will confuse things by trying to involve UNIX in the discussion. The mac interface should be viewed as a separate application interface that they can put on top of UNIX if they want. They will have to change the disk drive in the current UNIX PC. I believe that will be the only hardware change required.

We recently sent Chris Larson down to discuss making your 3.5" disk compatible with MS-DOS. Unfortunatley the people he talked to didn't agree with us on the importance.

I want to help in any way I can with the licensing. Please give me a call.

Best regards,

(signed)

William H. Gates

Chairman

cc: Apple

Jean-Louis Gassee

Larry Tesler

Microsoft

Ida Cole

Jim Harris

Jeff Raikes

Jon Shirley

The attached memo begins here

To: John Sculley, Jean Louis Gassee

From: Bill Gates, Jeff Raikes

Date: June 25, 1985

Re: Apple Licensing of Mac Technology

cc: Jon Shirley

Apple's stated position in personal computers is innovative technology leader. This position implies that Apple must create a standard on new, advanced technology. They must establish a "revolutionary" architecture, which necessarily implies new development incompatible with existing architectures.

Apple must make Macintosh a standard. 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.

The significant investment (especially independent support) in a "standard personal computer" results in an incredible momentum for its architecture. Specifically, the IBM PC architecture continues to receive huge investment and gains additional momentum. (Though clearly the independent investment in the Apple II, and the resulting momentum, is another great example.) The investment in the IBM architecture includes development of differentiated compatibles, software and peripherals; user and sales channel education; and most importantly, attitudes and perceptions that are not easily changed.

Any deficiencies in the IBM architecture are quickly eliminated by independent support. Hardware deficiencies are remedied in two ways:

expansion cards made possible because of access to the bus (e.g. the high resolution Hercules graphics card for monochrome monitors)

manufacture of differentiated compatibles (e.g. the Compaq portable, or the faster DeskPro).

The closed architecture prevents similar independent investment in the Macintosh. The IBM architecture, when compared to the Macintosh, probably has more than 100 times the engineering resources applied to it when investment of compatible manufacturers is included. The ratio becomes even greater when the manufacturers of expansion cards are included.

Conclusion:

As the independent investment in a "standard" architecture grows, so does the momentum for that architecture. The industry has reached the point where it is now impossible for Apple to create a standard out of their innovative technology without support from, and the resulting credibility of other personal computer manufacturers. Thus, Apple must open the Macintosh architecture to have the independent support required to gain momentum and establish a standard.

The Mac has not become a standard

The Macintosh has failed to attain the critical mass necessary for the technology to be considered a long term contender:

a. Since there is no "competition" to Apple from "Mac-compatible" manufacturers, corporations consider it risky to be locked into the Mac, for reasons of price AND choice. b. Apple has reinforced the risky perception of the machine by being slow to come out with software and hardware improvements (e.g. hard disk, file server, bigger screen, better keyboard, larger memory, new ROM, operating software with improved performance). Furthermore, killing the Macintosh X/L (Lisa) eliminated the alternative model that many businesses considered necessary. c. Recent negative publicity about Apple hinders the credibility of the Macintosh as a long term contender in the personal computer market. d. Independent software and hardware manufacturers reinforced the risky perception of the machine by being slow to come out with key software and peripheral products. e. Apple's small corporate account sales force has prevented it from having the presence, training, support, etc. that large companies would recognize and require. f. Nationalistic pressures in European countries often force foreign to consumers [sic] choose local manufacturers. Europeans have local suppliers of the IBM architecture, but not Apple. Apple will lose ground in Europe as was recently exhibited in France.

Recommendation

Apple should license Macintosh technology to 3-5 significant manufacturers for the development of "Mac Compatibles":

United States manufacturers and contacts: ideal companies --- in addition to credibility, they have large account sales forces that can establish the Mac architecture in larger companies: AT&T, James Edwards Wang, An Wang Digital Equipment Corporation, Ken Olsen Texas Instruments, Jerry Junkins Hewlett Packard, John Young

other companies (but perhaps more realistic candidates): Xerox, Elliott James or Bob Adams Motorola, Murray A. Goldman Harris/Lanier, Wes Cantrell NBI, Thomas S. Kavanagh Burroughs, W. Michael Blumenthal and Stephen Weisenfeld Kodak 3M CPT

European manufacturers Siemens Bull Olivetti Phillips

Apple should license the Macintosh technology to US and European companies in a way that allows them to go to other companies for manufacturing. Sony, Kyocera, and Alps are good candidates for OEM manufacturing of Mac compatibles.

Microsoft 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.

Rationale