HOW AND WHY
Apple overtook
Microsoft
When Microsoft stock was at a record high in
1999, and its market capitalisation was nearly $620 billion, the notion that
Apple Computer would ever be bigger -let alone twice as big -was laughable.Apple
was teetering on bankruptcy . And Microsoft was so dominant in personal
computers, then the centre of the technology universe, that the government
deemed it an unlawful monopoly .
This week, both Microsoft and Apple unveiled
their latest earnings, and the once unthinkable became reality: Apple's market
capitalisation hit $683 billion, more than double Microsoft's current value of
$338 billion.
Robert X Cringely , the pen name of the
technology journalist Mark Stephens, told me this week that when he interviewed
Microsoft's co-founder, Bill Gates, in 1998, Gates “couldn't imagine a
situation in which Apple would ever be bigger and more profitable than
Microsoft.“ “He knows he can't win,“ Gates said then of the Apple co-founder
Steve Jobs.
But less than two decades later, Apple has won.
How this happened contains some important lessons -including for Apple itself,
if it wants to avoid Microsoft's fate.Apple, after all, is now as dependent on
the success of one product line -the iPhone accounted for 69% of its revenue
-as Microsoft once was with Windows.
The most successful companies need a vision, and
both Apple and Microsoft have one. But Apple's was more radical and, as it
turns out, more farsighted. Microsoft foresaw a computer on every person's
desk, a radical idea when IBM main frames took up entire rooms. But Apple went
a big step further: Its vision was a computer in every pocket. That computer
also just happened to be a phone, the most ubiquitous consumer device in the
world.Apple ended up disrupting two huge markets.
“Apple has been very visionary in creating and
expanding significant new consumer electronics categories,“ noted senior
Bernstein analyst Toni Sacconaghi.“Unique, disruptive innovation is really hard
to do. Doing it multiple times, as Apple has, is extremely difficult. It's the
equivalent of Pixar producing one hit after another. You have to give kudos to
Apple.“
Like many successful companies, Microsoft
nurtured its dominant position, but at the risk of missing potentially disruptive
innovations. “You have to acknowledge that Microsoft has been successful and it
still is. But clearly, they've struggled over how to protect the Windows
franchise while not having that hold them back in other areas. I think even
Microsoft would agree that they've been too concerned with protecting Windows
over the years, to their detriment,“ said Evercore analyst Robert Cihra.
Microsoft has repeatedly tried to diversify ,
and continues to do so under Satya Nadella. But “it's been more of a follower whereas
Apple has been more of a trendsetter, trying to reinvent an industry ,“
Sacconaghi said.
In belatedly buying Nokia, Microsoft is offering
its own smartphone, the Windows phone, in head-to-head competition with Apple.
While the device has garnered some critical praise, “I'm not sure consumers
need a third option“ to the Android and iOS platforms, Cihra said. Microsoft's
already tiny share of the smartphone market has been dropping.
Perhaps more surpris ing, the Apple model of
integrating all aspects of the design and manufacture of a product, long
abandoned by other manufacturers, has been vindicated. Microsoft was once
content to stick to software, ceding processors to companies like Intel and the
PCs themselves to an array of other manufacturers. “Microsoft seemed to have
the better business model for a very long time,“ Isaacson said. “But in the
end, it didn't create products of ethereal beauty . Steve believed you had to
control every brush stroke from beginning to end. Not because he was a control
freak, but because he had a passion for perfection.“
And then there's Apple's successful leadership
transition to Tim Cook, who took over as chief executive in 2011, shortly
before Jobs died. It's not that Steve Ballmer, Bill Gates' immediate successor,
and now Nadella haven't done a decent job at the helm of Microsoft. Until this
week's dip, Microsoft shares were close to a record high. But Gates is still
very much alive, and remains engaged with the company .
Some investors worry that Apple could become the
prisoner of its own success. As Sacconaghi noted, 69% of the company's revenue
and 100% of its revenue growth for the quarter came from the iPhone, which
makes Apple highly de pendent on one product line.
“There's always the risk of anoth er paradigm shift,“
he said. “Who knows what that might be, but Apple is living and dying by the
iPhone. It's a great franchise until it isn't.“
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James B Stewart
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The New York Times
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ET31JAN15
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