Apple Buys $200 Million Stake in EarthLink
Apple Computer Inc. invested $200 million for an 8% stake in Pasadena-based Internet access provider EarthLink Network Inc. and announced free e-mail, data storage and other Internet-related services for iMac buyers.
Apple Chief Executive Steve Jobs also formally dropped the “interim” from his title, two years after returning to lead the company he co-founded.
And in a speech to a semiannual conference of Apple developers, users and vendors on Wednesday, Jobs softened the news of another delay in shipping the company’s next operating system, Mac OS X, by showing off its new user interface.
“This is the dream interface for people who have never used a computer,” Jobs said, promising a summer release for the often-deferred system.
Apple stock rose $1.50 to close at $104. The company agreed to pay $46.50 a share for the stake in EarthLink, which gained $2.81 to close at $44.69. Both stocks trade on Nasdaq.
Apple has been steering its customers to EarthLink for two years and will now get a bigger fee for each consumer that signs on for the $19.95 monthly service, the companies said. Apple also gets a seat on the board of EarthLink, which will become the second-largest Internet access provider after America Online Inc. when it merges with MindSpring Enterprises Inc.
“We believe this will become a real revenue stream,” Apple Senior Vice President Avie Tevanian said of the alliance. EarthLink Chief Executive Garry Betty said his company is working on partnerships with other computer makers as well.
The EarthLink deal is a modest one strategically for Apple, which decided not to offer its own brand of Internet access. And several of the new Internet services announced at the conference, including e-mail, electronic greeting cards and free storage on Apple servers, echo those offered by other companies.
“At least we’ve got a first step in the Internet strategy,” J.P. Morgan Securities analyst Daniel Kunstler said.
Jobs also demonstrated a new application that offers a twist on programs aimed at keeping children away from undesirable Web pages by assessing site content.
Apple’s KidSafe works the opposite way, allowing users to reach only pre-screened sites, about 50,000 of them to start.
A personal computing pioneer two decades ago, Apple has retreated to a niche strategy targeting publishing professionals, schools and some consumers.
It has returned to profitability under Jobs with strong marketing and the popularity of the iMac, but its market share remains small.
In the third quarter of last year, Apple’s share of the market for desktop and notebook computers fell to 4.2%, or seventh in the United States, from 4.4% in the previous quarter, according to International Data Corp.
“Apple’s done a lot of great things, the stock is up, and they have cool products,” International Data analyst Roger Kay said. “But where’s the substantive business model to get them to the next phase?”
One of Apple’s historical strengths has been its easy interaction with the user. The promised Mac OS X is the easiest yet, with pull-down menus that can be made nearly transparent, so as not to obscure content, and windows that can be set to close automatically when a new one is opened.
“I love OS X,” Kunstler said. “It is cool to look at. It’s highly graphical.”
