APPLE vs. MICROSOFT; is Apple Dwarfing Microsoft?

By Adya Behera

In 1998 Bill Gates commented “He knows he can’t win” for the then Apple co-founder Steve Jobs, while being interviewed for Vanity Fair. But less than two decades later, Apple has won. Apple’s journey is no straight line, it has a winding path. It’s founder Steve Jobs had no grand plan in the beginning but his search for himself landed him upon Apple which has become a symbol of status of today’s time or in other words a juggernaut.

Apple was teetering on bankruptcy when Microsoft’s stock was at a record high in 1999, and its market capitalisation was nearly $620 billion. Microsoft’s operating system was so dominant in personal computers that it was deemed as unlawful monopoly by the government. But now the story is different. After both Microsoft and Apple unveiled their latest earning, Apple surpassing Microsoft’s revenue, which was once unthinkable, became a reality. Apple’s market capitalisation hit $683 billion, more than double of Microsoft’s market capitalisation of $338 billion. All kudos goes to iPhone due to which Apple was able to achieve such historic achievements. Apple managed to sell a mind boggling 34,000 iPhones every hour. Apple earned $18 billion in the quarter which is more than any company has ever earned in a single quarter. Even its stock jumped more than 5% when the broader market was down. Once the most dominant tech company, Microsoft’s revenue was barely one-third of Apple’s and operating income of $7.8 billion which is less than a quarter of Apple’s. Not only this, Microsoft’s shares have dropped over 9%. Such conditions have led to worries about its aging personal computer software market.

For companies to be successful they need to have vision and be radical. Both Apple and Microsoft had vision but Apple was more radical and farsighted. When IBM mainframe started to acquire the entire space Microsoft foresaw computer on every person’s desk but Apple was one step ahead. It foresaw computer in everyone’s pocket. Thus Apple ended up in manufacturing phones, the most ubiquitous consumer device in the world.

But what exactly went wrong with Microsoft?

Like other successful companies Microsoft nurtured its dominant position but at the risk of missing potentially disruptive innovations. Microsoft had been too concerned with protecting Windows over the year, to their detriment. But on the flip side Steve Jobs injected in the nerves of Apple to not to be afraid of cannibalising itself in the need of the hour. When iPod was making money he foresaw that somebody would realise that they can put music on their phones and hence decided to be the front runner in this aspect by hurting the sales of iPod. Similar was the case with iPads whose sales were hurt by bigger iPhones.

But now of course Microsoft is changing its habit of doing business. Under the leadership of Satya Nadella, Microsoft has been repeatedly trying to diversify but has always ended up being a follower rather than a trendsetter. After acquisition of Nokia, Microsoft is offering its own smart phones which has managed to gain some critical praise but there is scepticism as to whether consumers actually need a 3^rd option to Android and iOS platform. Microsoft seemed to have the better business model for a very long time but in the end it didn’t create products of ethereal beauty. Steve had a passion for perfection and believed to control every brush stroke from starting to end. Apple proved that you need to own the hardware and not just the platform. If anyone need an Android device he or she can go to anywhere but if someone needs an iPhone then definitely that person needs to go to Apple. Apple’s success story rose to such great heights when Tim Cook took over as the CEO of Apple. It’s not that Steve Ballmer and Satya Nadella have not done a great job; Microsoft was and is still a profit making company. But in order to avoid Microsoft’s fate Apple needs to understand that it is riskier to depend on one product line for the entire revenue. It is evident from the fact that 69% of the company’s revenue and 100% of its revenue growth this quarter came from the iPhone. Apple is living and dying upon its one product line and hence it’s riskier that there may be a paradigm shift. Microsoft already dominates its core businesses, leaving little room for growth but on the contrary Apple still doesn’t have massive market share in any of its core markets. Apple’s strategy has been to carve out a small share of a massive market. Cannibalising iPod and iPad turned out profitable but it is quite riskier to wholly depend on the iPhone juggernaut.

Like the Coke vs. Pepsi scenario, Apple vs. Microsoft will always go on forever. Whoever is the winner what both of them need to find out is a little bit of more innovation and exploring some new aspects of markets.

Adya Behera is a 19 year old and a privileged economics Hons student of LSR, Delhi, she has been connected with the economics since last 3 years. With a will to serve the nation it shall be the endeavor of the incumbent  to put light on the current topics and put forth the view of the columnist.

Edited by Namrata Caleb, Senior Editor, The Indian Economist