Apple now has a market cap of $210B. Microsoft has a market cap of about $260B. To traditionalists, this must seem contradictory. Apple has fought its way into new markets, and has domination in none (except maybe the narrowly defined individual music download business). Microsoft has near monopolistic market presence in personal computer operating systems and office software. According to modern business theory from business schools, and the output of books such as Business Strategy by Michael Porter, the monopolist company has entry barriers protecting its return – and thus the ability to almost print unlimited profit. Yet this has not happened.
At SeekingAlpha.com "Apple versus Microsoft: The Value Gap is Closing" the case is made that the value difference is all due to growth. Apple's business for music devices and content is growing – quickly. Its business for mobile devices and mobile device applications is also growing very fast. Those offer substantial positive cash flow today, as well as dramatic cash flow growth in the future. So much so that many analysts wonder what Apple will do with all that money. And that doesn't even count the iPad sales which have exceeded expectations – before even available to ship. And businesses are starting to build applications for the iPad, as explained in the BusinessWeek article "Businesses want Apple's iPad, too."
On the other hand, the demand for PCs is sluggish – at best. People increasingly leave their laptop at home for extended time while the use their mobile device instead. But Microsoft is stuck in a loop of upgrade development and launch. But because of the market shift, these investments are yielding less and less return. Complexity cost is going up, and profits are going down, and growth is dropping precipitously. Products in music, mobile phones and advertising have all lost significant share to Apple, Google and others as attention has remained on the "core" business. So even though current cash flow is strong, value has gone absolutely nowhere for several years, and there's precious reason to think it will go up.
When you lose growth, even if you prop up profits with draconian cost cutting and inventory sales, you lose value. Just look at Sears/KMart. Investors were really excited when Mr. Lampert used his takeover of KMart to acquire Sears. Predictions flew that he would get Sears growing again, while simultaneously monetizing the huge real estate portfolio. But as detailed in Chicago Tribune "Sears and KMart Still Standing, but Market Share Dwindles," value has declined. Mr. Lampert has proven very good at whacking cost. But when it comes to growing revenue – something that will drive ongoing growth in cash flow for a decade or more, he's shown nothing. You can't cost cut your way to long term success.
Its good to know about a market of Apple and Microsoft.Apple’s business is growing good with music products which is good for customers also.I think that Apple knows better business strategy.
Interesting comparison, but I wonder if it is still valid to compare the two companies anymore. In reality MSFT gets most of it’s revenues from business use of its software. This is an area that will continue to yield good cashflow. Also many businesses resisted upgrading to Vista and Office 2007, but they will upgrade to Windows 7 and Office 2010 – where we can see some very good improvements. Win. Mobile 7 has also received some good support.
By contrast business is an area where Apple has invested little effort. Instead Apple has gone firmly after the public consumer markets.
The one disruptive technology which I don’t think ANY company has a handle on is mobile convergence….!! True mobile convergence will need targeted applications that seamlessly solve specific business issues – think salesforce.com – it utilized the web to solve a specific set of issues. We need similar paradigms that utilize the mobile web with its own very unique mobile user interface.
What we see Apple realizing is consumer value. What I fail to see yet is MSFT realizing latent business value by extending many of its business apps into the web and also into the mobile web. This is an area where Google is stepping into with its integrated online storage and office offering. However MSFT is much better positioned to add real value in this space then either Google or Apple – if MSFT executes well…!
When we look at the financials… Apple is focused on consumer products and services, Google is really getting it’s revenue from ads (it has not proven the case for online solutions, mobile or otherwise), MSFT gets a lot of revenues from business so any comparison has to be tempered by the relative markets that these companies are tapping into.
One final point, Google does not have anything to offer in the home. MSFT has the Xbox 360 and one thing I do see is gaming consoles having a great potential to be the home entertainment and web-social interaction center. How many parents do not have a gaming console….! And there are only three players: Sony, MSFT and Nintendo. No Apple…! These online gaming networks generate hard revenue whereas Facebook etc do not…!
One final, final point. Apple had 1st mover advantage and therefore it does have the highest market shares in online downloads. But in todays world, innovation lifecycles are seriously short and as more markets come online, Apple’s market share decreases. Apple has to innovate continually to succeed. End of this year we will see atleast 10 other iPad like devices including one from MSFT. The MSFT device (search the web) seems like it will be pretty good for businesses and students…. in other words, after you eliminate the fan factor for buying the iPad, what are the really serious (cash generating, value added) reasons for buying an iPad?