Apple is now the tech leader, squeezing out Microsoft for the Top Spot- How did they do it?
Kevin William Grant
Published on
December 31, 2020
Apple Inc. rallied 1.8 per cent to $246.76 (US) [May 27 2010] as investors embrace market share gains for the iPhone and demand for the iPad computer. Analyst Kathryn Huberty raised her share forecast to $310 from $275 and put Apple on the list of "best ideas" according to a note to clients. She kept the shares as "overweight", a rathing she's held since September 2010.

Add one more insult for the Mac dude to hurl at the hapless PC guy.

Apple is now the world’s largest technology company, after overtaking Microsoft in market capitalization Wednesday (May 26 2010).

The financial scorecard – a $222.1-billion (U.S.) market value for Apple versus $219.2-billion for Microsoft – marks a symbolic changing of the guard. Only one company is worth more: Exxon.

And it parallels a remarkable reversal of fortunes for the two U.S. technology titans – one who wooed consumers, the other who chased Big Business.

The consumer won. Apple, which once relied on one-hit wonder computers, has transformed itself into a consumer electronics giant by cleverly linking its trendy devices – including the iPod, iPhone and its latest iPad – to lucrative sales of songs, books, photos and movies.

Microsoft, meanwhile, has become a stagnating giant, content to be a technology follower, too reliant on pushing its Windows operating system on business customers.

“This is a pretty long term trend,” said Michael Cusumano, business professor at MIT’s Sloan School of Management.

“Microsoft sales are stagnant. Apple has all these interesting products, the future is bright, and it’s all tied to digital content.”

Apple knew it had lost the battle of the desktop to Microsoft and its Windows operating system, but it realized that business was shifting to portable devices targeted at consumers, explained Prof. Cusumano.

So Apple launched a strategy in 2003 to marry its popular iPod music player to digital content through iTunes and to an array of applications.

“Apple had kept its products pretty closed to the outside world,” said Prof. Cusumano, whose soon-to-be published book, Staying Power: Six Enduring Principles for Managing Strategy and Innovation in an Uncertain World, features a chapter on how Apple beat out Microsoft.

“They realized they missed an opportunity to control the desktop, largely because they didn’t open up the technology to other developers, while Microsoft did.”

Apple learned from that mistake. The company blasted into the wireless market with the application-rich iPhone - and now the tablet-form iPad - which incorporates books, newspapers and magazines.

But new-found market clout in digital content has also brought the scrutiny of antitrust regulators for Apple – just as Microsoft experienced with its Windows operating system and Explorer web browser in the 1990s.

The U.S. Federal Trade Commission and the Justice Department are reportedly exploring a possible antitrust probe of Apple over policies that restrict developers from writing applications for its iPhone operating system.

Apple controls 70 per cent of the market for online digital content and has roughly the same share of the Mp3 market.

For most of its existence, Apple’s market capitalization was roughly the same as its revenue, reflecting investors’ belief that the company was far too reliant on products that were innovative, but appealed mainly to a relatively small population of computer enthusiasts. In 2004, for example, Apple recorded $8.3-billion in revenue and its shares were worth roughly the same. Microsoft, on the other hand, had revenue of $37-billion, but its market value was worth seven times that, with investors betting its fortunes would soar.

In the six years since, the trend has reversed. Microsoft’s stock has languished, and many of its new products have failed to make a splash with consumers, including the Zune Mp3 player and the Bing search engine.

Apples revenues and profits are growing quickly. Microsoft is slowly shrinking. Critics say Microsoft remains too afraid to launch daring new products, instead sticking closely to established sales channels.

Apple slipped passed Microsoft Wednesday, even as Apple shares slipped $1.11 to close at $244.11. But Microsoft fell even more, in percentage terms, losing $1.06 to $25.01.

It’s a remarkable comeback for Apple and its founder Steven Jobs, who presided over the launch of the Macintosh computer in 1984.

In years since, the computer company almost crashed as Microsoft’s operating systems dominated the industry. For a while, Mr. Jobs was exiled from his own company. And rivals suggested Apple should be wound down and the cash handed back to shareholders.

But Mr. Jobs came back in 1997. He reinvented Apple, and himself, as a purveyor of must-have computers and tech gadgets, with enticing designs that made technology fashionable and easy to use.

Part function, part art and always cool, Apple's designs stand out for their raw simplicity. The iPod is, of course, the classic example. In an era when makers of other electronic devices wanted their products' complexity to stand out, Mr. Jobs and his lead designer, Briton Jonathan Ive, created a tiny device in 2002 that could store and play a lifetime of music. It looked more like a white soap dish than a sophisticated piece of electronics. But consumers loved the functionality and convenience of the device, launching Apple’s transformation into a digital media giant.