Apple And Microsoft – The Race Continues

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Feb 25, 2015

In the course of decades, history is made and remade. Some survive the tidal turn in fortunes but most often lose their way. No other example is more fitting of this than the rivalry between Microsoft (MSFT, Financial) and Apple (AAPL, Financial) that has spanned over decades. The reversal in popularity and earnings with Apple leading would have been laughed off as a fool’s dream in the late nineties. However, last week, the impossible had been achieved by Apple as Microsoft stayed stunned and bleak. The iPhone maker declared a market capitalisation of $683 billion, more than double of Microsoft’s current value of $338 billion.

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At the conference call, Apple’s CEO Tim Cook described the “historic” quarter’s earnings as “amazing,” during which the company sold over 34,000 iPhone 6s every hour, 24 hours a day. This quarter raked in $18 billion on revenue of $75 billion. This brilliant performance comes 17 years after Microsoft’s co-founder, Bill Gates, had claimed in a Vanity Fair article published in 1998 that he “couldn’t imagine a situation in which Apple would ever be bigger and more profitable than Microsoft.” Commenting on Steve Jobs, the rivalry between the two was well known, he had said, “He (Jobs) knows he can’t win.”

What went wrong with Microsoft?

Apple had since gone on to consolidate its market under Jobs’ radical leadership and passion for perfection. However, now that the tides have changed, it is not the time to sit complacent and bask in its glory. If one looks into the major reason for Microsoft losing the plot, is its dependence on a single product to drive its profit. Having completely banked on Windows to keep capturing the market was a mistake that cost the company dearly. With not much to show for innovation, as the popularity of Windows started decreasing, the company failed to attract more consumers and its profit steadily declined.

People could all of a sudden carry their computers in their pockets, thanks to Apple. To tackle this competition and customer alienation, Microsoft bought over Nokia to participate in the smartphone race, but it was a very late move, and other companies had already gotten a foothold by then. Though critics have praised the Microsoft software, however the consumers are already hooked on to Android and iOS systems. Microsoft failed to carve a niche, and its plan to be a leading player in the telecom industry seems to have hit a roadblock.

What does Apple have to fear?

Over dependence of a singular product to drive its profits led to Microsoft falling way behind in the race. This is a lesson Apple must learn from its rival. If one goes by data, it paints a disturbing picture of Apple too following the path –Â the iPhone accounted for 69 percent of its revenue. The other products of Apple generated barely 30% of the profit. The sale of iPhone, as pointed out by Cook, has been spectacular, but again it is the only product to have done so. If one wants an iPhone, one has to go to Apple but so was the case with Windows. However, in trying to protect its product, Microsoft failed to see the bigger picture and banked everything on Windows continuing to dominate as in the late '90s. Apple will eventually have to go on to the next level of innovation to remain in the lead and have depended less on iPhones to drive its profit. If Apple fails to do so, then the outcome may very well be different a decade later.

It is the foresight of the company which ensures sustained profitability. Steve Jobs, the maverick genius, was able to visualise and offer the next in innovation which resulted in long-term benefits. Microsoft has to still come up with the winning product which will give something more, something different to its consumer to get ahead in the race again. Meanwhile, let us wait and see what’s next on the list for Apple.