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Summary:

Apple, for a long time, was the David to Microsoft’s Goliath. Until now. Thanks to the iPod, as of yesterday’s market close, Apple is worth more in terms of market value than its longtime rival.

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Apple, for a long time, was the David to Microsoft’s Goliath. It was a dynamic that suited Apple, as the company used its underdog status to attract customers who saw themselves as different and apart from the mainstream. It was the iPod that first signaled a change in this arrangement.

The iPod dominated. It became synonymous with “MP3 player” in the mind of the buying public. And that would start in motion the rise of Apple into the tech giant it is today. A tech giant, might I add, that as of yesterday is worth more in terms of market value than Microsoft.

At the close of Wednesday’s trading, Apple was valued at $222 billion, while Microsoft was worth $219 billion. Apple’s shares ended the day at $244.11, while Microsoft’s finished at a seven-month low of $25.01. And it isn’t only Cupertino’s successes, but also Redmond’s failures that are responsible for the new power dynamic between the two companies. Overall, Microsoft stock is down 20 percent compared to 10 years ago, while the value of Apple’s has grown tenfold over the same period.

Microsoft CEO Steve Ballmer appears to have his head in the sand regarding the significance of this moment in terms of the two companies. When asked for comment, he told Reuters news service:

It’s a long game, we have good competitors…we too are a very good competitor. We are executing very well and that is going to lead to great products and great success. I’m optimistic.

It sounds like Ballmer, once an outspoken and not very cautious CEO, has checked out, or is downright unwilling to look at the consequences of Apple’s success with the iPhone and now the iPad. Microsoft will continue to drift toward irrelevance as long as the attitude of business-as-usual prevails there. To quote Ballmer once again, “I won’t predict some massive change,” he said. “I don’t sort of foreshadow any change in direction. We just have to accelerate plans.”

I’m less concerned with what happens to Microsoft now, though, then I am with what happens to Apple. Unlike Microsoft, I think Apple has at its core a commitment to ongoing innovation, woven into the very fabric of the company by the strong oversight of Steve Jobs. And that will persist after he’s gone. But ongoing battles with Google and Adobe tell a tale of a company whose industry agenda may still be geared towards being a niche player.

Apple is about control, even though Steve Jobs says quite the opposite in his open letter to Flash. Don’t get me wrong, I’m no big fan of Flash myself, but I do think that Apple’s intentions have more to do with controlling the nature and delivery vehicle of content than with encouraging openness. Otherwise it’d have backed Google’s VP8 open web video standard from the start. The kind of control Apple exerts works well for it as a niche player, but now that it’s arguably the most important tech company in the world, the same rules don’t apply.

Big stays big by being inclusive and cooperative, to a degree. Take Google, which works with so many partners it’s hard to keep track of, with the end goal of satisfied customers in mind. Microsoft, too, works with others more than it shuts them down, as long as the terms are favorable. Apple seems content to remain largely sheltered, even when it would be easier and more expedient to work with a partner. In fact, since the company started making its own chips with the iPad, it looks to be shutting down even further still.

Such an approach may provide some short-term gains, but rising competitors like Google will take advantage of the general bad feeling it will generate among other tech firms to form the kind of partnerships that helped elevate Microsoft to its loftiest heights 10 years ago. And Apple will still be at base camp, stubbornly refusing the aid of other climbers.

Related GigaOM Pro Research: How Microsoft Can Win Back the Tablet Market

  1. This might be a great article but I can’t read it. All I can think of is how the graphic at the top of the page appears to be someone giving me “the finger.” The graphic artist for this site appears to be having a joke at your expense and might need to be fired.

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    1. LOL. That’s exactly what I was thinking. I don’t think he should be fired, its just a little humor (assuming it was intentional).

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    2. Not intentional and no ones needs to be fired. Tone down the drama.

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      1. Thanks Josh. It wouldn’t be an AppleBlog thread without you dropping in to threaten everyone.

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  2. This of course is only my opinion, but I don’t agree with the idea that the approach will only provide short term gains.

    Of course Microsoft and Google collaborate with others as they only [mainly] do software and want all the hardware vendors to use their products. Apple is ahead of the game BECAUSE it controls the hardware/software complete package. That’s why the iPod / iPhone / iPad / Mac have been such a success.

    What Apple ARE doing different is collaborating with the media vendors, providing content through iTunes. There are also giving an easy platform for other media vendors and content providers through their app store. This has been the huge success and will continue to be for a long time.

    Also the fact that Apple constantly innovate and create new markets that others can only attempt to copy but without the quality control of hardware/software control.

    This time round, Apple have done it right.

    Each Apple employee is now worth 10 times a Microsoft Employee (20,000 Vs 200,000).

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    1. Sorry have to side with Darrell. Just look at GogleIO and all those CEO’s lined up behind Google while they declare war on Apple. That does not happen with Open.

      All these companies are now making it top priority to undermine Apple. There will be repercussions.

      Apple does not WORK with the media companies it tries to screw them. That is its history. Why do you think, apart from Music, it has not had much traction. It is because the media companies don’t want them. Still they do string Apple along (Just in case they need Apple). Video/Print industries will try as hard as they can to stop them dominating another media category.

      That is what NO-Flash is all about. Premium content will ONLY ever be delivered on proprietary technology. (Why, because you cannot secure an open field as you cannot secure HTML5)
      So to remove Flash makes Apple the only producer to consumer technology choice. Then Steve has them by the balls like the Music industry.

      Its a very bad future if that happens. Steve is as hypocritical as they come. Be warned of an only Apple future.

      Why do you think all those CEO’s are lined up behind Google.

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  3. Google fanboy? Google’s end goal is not satisfied customers, but making money, just like Apple and Microsoft. Moreover, Google is out for total control of your (our) online activity. Stop praising Google and look beyond the product for a change.

    As for Apple vs Microsoft, there is no real comparison either. Yes, Apple is worth more than Microsoft, but Apple is a hardware company with a software shop. Microsoft is software only, and in that department they still rule the world, and probably will for a very long time.

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    1. If you are providing a service or a product, you need a satisified costumer to make money. Otherwise, they will take their business to the competitor. Nothing wrong with making money. It’s going to be ok.

      Google is a bit of a trickier scenario. They were able to lure in satisified customers with an innovative search engine. Now they are abusing those customers’ privacy in several different ways. Time will tell how Google’s customers react.

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    2. Wait, your primary take-away from this article is Mr. Etherington is a Google fanboy and what he really needs is to get some perspective?

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    3. No business has the consumer’s best interest in mind except as a means to generate more revenue and profit. The way I see these three competitors:
      * MS: They want to own the web. In order to control it. So you have to pay them. They own(ed) the desktop so the approach was to tie the web into the desktop. This was documented in a very scary internal memo that was posted on the web for a while back around the time that Passport was announced.
      This also caused the awful decicion to hardwire IE to the OS (starting around IE4).
      MS knows better, and therefore you (as a consumer) will do things their way. Controls will be put in place to make it so. Everything belongs together in one big superapp that does everything except wipe.
      MS is attempting to use marketing muscle to make up for their shortcomings. “Windows 7 was my idea…” Yeah, right. Or rename a failed OS (Vista) to mislead unsuspecting people and convince them it was good. What was that codename again? Mojave? But now that their bread no longer depends on Vista, they admit the failure.
      And they use gloss to create coolness with little or no function (ref. Bing with pretty picture and hotspots that distract you from what you came to do).
      When MS says we won’t search 10 years from now (and they call Bing a “decision engine”), to me they missed the boat. Yes – some things may be obvious, and things like intellisense is great. But when I’m looking for specific information, I don’t really want anything deciding for me what I want to see. Just give me the search results. If they’re not good enough, let me refine the search.
      * Google: They give you what you asked for. No glossies, no corruption of results or third party defined prioritization. It is what it is. And they keep track of our online lives. The knowledge amassed about us is valuable both directly and indirectly. It is used to improve earnings, targeting, and search results, and create new opportunities for themselves.
      Google doesn’t really care to control you as a consumer, they just want to keep tabs on you and get you to use their stuff.
      Apple: They are artists. Nobody can tell them how to execute their art. It is their art, and they’ll sell it to you at a hefty price when they are done. But the art is not a choice between form or function – it is the fusion of the two. Their art includes making things easy for me, the consumer. Other companies can contribute, but only on their terms. And only if they like them. Apple really cares about controlling their art. To keep it pure. So you can’t mix and match.

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  4. Looks at revenue and profits

    Nope, don’t get that one.

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  5. I think Apple is more prone to a downward shift in this than MSFT. They are heavy handed and yes their devices are cool but they are even more controlling the MSFT, I see a backlash at some point. Still love my macbook though :)

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    1. A company that is more “controlling” will always be more effective in the market given the company has excellent management, which Apple does. More control over a company means less variables that can take it in unwanted directions.

      The only concern is involvement in third parties. Fortunately for apple, third parties are dying to work with their popular products and Job’s tends to pick his partners strategically well. Hard to invision any “backlashes” unless they start invading privacy like Google.

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      1. “unless they start invading privacy like Google”
        That won’t happen anytime soon. I think Apple is satified with knowing your credit card number, they don’t care for much more.
        Guess I’d be too :D

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  6. Comparing the market caps of the two companies and declaring Apple in better shape is so deceiving that I have difficulty understanding the relevance of the article.

    Essentially, Microsoft has a mansion that fills their lot, while Apple has a nice little house on a huge lot with plenty of room for future expansion. Yeah, Apple’s lot is bigger, but MS has a much larger house – which is all that matters if you’re looking for somewhere to live with your wife and 10 kids.

    Ok, so that was a really bad analogy… ;-)

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    1. Actually I like the analogy very much. I think it is fitting.

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  7. The real problem here is that Microsoft is shrugging Apple off. While Microsoft was sitting complacently, Apple was out innovating. Microsoft sees Apple as a challenger but gives them no credit. This is a big mistake. Apple is moving from challenger status to market leader http://ow.ly/1QFTl . This reminds me of pride before the fall. Unless strategy changes at Microsoft, they will go the way of the 8-track.

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    1. MS has been the master of the desktop, and still is, but the competition is shifting away from it and to the hip. Or wherever. The death grip from desktop to web may not be relevant in the future. MS could go the way of IBM in the 80’s and 90’s…

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  8. Interesting article, I do believe that beyond a point, Apple will have to change its strategy and be a little more inclusive.

    However, I can’t understand why would stock market would think that Apple is worth more than Microsoft, when Microsoft clearly has more revenue!

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    1. A good question, but non the less easily answered:
      The stock price of any given company does not reflect only reflect the current worth of a company, but to a very large degree the expectations of the market towards the future development of a company. Apples stock price is that high becaus the investors believe that Apple will continue to grow and eventually live up to that valuation (which by the time that happens will have increased or decreased according to the then expected development).

      Will Apple live up to the expectations of the investors? Maybe, maybe not. That is the gambling part of the stock market.

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  9. Darrell, does Ballmer have his head in the sand or is he just spouting words he doesn’t actually believe?

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  10. Checkout the revenue and profit of both companies. MS is still way ahead of AAPL

    http://www.microsoft.com/msft/earnings/fy10/earn_rel_q3_10.mspx

    http://www.apple.com/pr/library/2010/01/25results.html

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