Kenny Hemphill
Microsoft may have announced a massive investment programme, but it seems there’s little it can do to stop Apple from becoming even bigger.
Apple recently achieved a landmark, which, while barely noticed by most of its customers, may turn out to be extremely significant. On 9 March, its market capitalisation passed the $200 billion (about £133 billion) mark, making Apple the fourth biggest company in the US. It’s now valued at roughly the same as Wal-Mart, and is rapidly closing in on Microsoft, the second biggest company in the US, which has a market capitalisation of around $250 billion (about £166 billion).
For a company that, only 15 years ago, was in very real danger of calling in the administrators, this is an incredible achievement. And while there are many reasons for its phenomenal growth since then, there’s one that stands above them all: Steve Jobs. Love him or loathe him, Jobs has been the driver of Apple’s success.
Perhaps the most intriguing aspect of Apple surpassing the $200 billion mark is how quickly it’s closing the gap on Microsoft, the company that bailed it out with a $150 million investment in 1997. Since then, Microsoft’s value has barely changed. When it overtook General Electric as the most valuable company in the US in September 1998, it was worth $260 billion. Today, its value stands at around $250 billion. Apple, on the other hand, has grown from a market capitalisation of around $1.7 billion in 1998 to $200 billion today, making it one of the fastest-growing companies in the US. At that rate, Apple will pass Microsoft in a matter of months.
Jobs was so pleased when Apple became worth more than Dell in 2007 that he sent a memo to Apple employees marking the event. He reminded them of comments Michael Dell had made a decade earlier when he told a crowd of IT executives that if he was in charge of Apple he’d ‘shut it down and give the money back to the shareholders’. Today, Dell is worth $28 billion (about £18.6 billion).
And while Apple hasn’t shown any signs of animosity towards Microsoft since the day its founder, Bill Gates, appeared on screen at a Jobs keynote to announce that $150 million (about £99.7 million) investment and Microsoft’s commitment to developing Office for the Mac, you can bet that there will be cause for celebration at Infinite Loop when the inevitable happens.
By contrast, Microsoft seems lost since Gates gave up running the company full time. Windows Vista was a disaster, the Zune barely less so. The company has been unable, despite the enormous resources behind it, to compete head to head with Google in search and online advertising, and its applications business is under threat from online tools.
Its response? To invest in developing cloud applications of its own. That sounds sensible enough, and the amount of money it has committed to investing in R&D, some $9.5 billion (about £6.3 billion), is a bullish signal of intent, but comments from chief operating officer Kevin Turner really make you wonder whether it knows where it’s going or what it’s trying to achieve. At his CeBit keynote, Turner told the audience: ‘Especially in light of the tough difficult macroeconomic times we’re coming out of, we chose to really lean in and double down on our innovation. We’re going to change and reinvent our company around leading in the cloud.’
If ever there was a clear statement of intent from a company determined to innovate its way out of a crisis, that wasn’t it. Let’s assume for a moment that by ‘leading in the cloud’ Turner means that Microsoft intends to become the leading vendor of online applications. That sounds awfully like the direction Google is taking, and Microsoft hasn’t shown itself to be particularly adept at taking on the Mountain View company thus far. If anything, Google, with its Chrome browser and Android operating system, is eating into Microsoft’s share in markets where it has traditionally been strong.
Does Microsoft really intend to become the kind of business whose revenue model is based on advertising-supported free applications? Or does it think it has figured out a way to persuade users to pay for cloud applications to which we’ve all become accustomed using for free? I’m not sure the company itself knows.
Whatever the results of Microsoft’s near $10 billion R&D spend, it would seem there’s little it can do to stop Apple, whose soon-to-be-released iPad seems set to reproduce the success of the iPhone and iPod, from passing it in the league table of the biggest companies in the US. And while in real terms that might not mean a great deal to most of us, it will be highly significant in the boardrooms of Apple and Microsoft.
