How, and Why, Apple Overtook Microsoft

HughPickens.com writes James B. Stewart writes in the NYT that in 1998 Bill Gates said in an interview that he "couldn't imagine a situation in which Apple would ever be bigger and more profitable than Microsoft" but less than two decades later, Apple, with a market capitalization more than double Microsoft's, has won. The most successful companies need a vision, and both Apple and Microsoft have one. But according to Stewart, Apple's vision was more radical and, as it turns out, more farsighted. Where Microsoft foresaw a computer on every person's desk, Apple went a big step further: Its vision was a computer in every pocket. "Apple has been very visionary in creating and expanding significant new consumer electronics categories," says Toni Sacconaghi. "Unique, disruptive innovation is really hard to do. Doing it multiple times, as Apple has, is extremely difficult." According to Jobs' biographer Walter Isaacson, Microsoft seemed to have the better business for a long time. "But in the end, it didn't create products of ethereal beauty. Steve believed you had to control every brush stroke from beginning to end. Not because he was a control freak, but because he had a passion for perfection." Can Apple continue to live by Jobs's disruptive creed now that the company is as successful as Microsoft once was? According to Robert Cihra it was one thing for Apple to cannibalize its iPod or Mac businesses, but quite another to risk its iPhone juggernaut. "The question investors have is, what's the next iPhone? There's no obvious answer. It's almost impossible to think of anything that will create a $140 billion business out of nothing."

Comments

Create a $140 billion business out of nothing?

[Chas]

Uh. They most certainly did NOT create the smartphone sector. And they sure as fuck didn't do it out of "nothing".

Now I admit, yes, Apple's been disruptive, in a good way, for the industry. But can we stop slobbing the Apple knob?

Re:Create a $140 billion business out of nothing?

[putaro]

The web browsers and email in early smartphones were crap, but the phone part worked. The original iPhone was a crappy phone. Turned out people wanted a decent web browser and mail more than they did a decent phone.

Re:Create a $140 billion business out of nothing?

[Mr D from 63]

I think its pretty simple. Microsoft overlooked the entertainment part of the market, and stuck with the business/productivity focus almost exclusively. Microsoft remains dominant in business. Apple got it when it came to entertainment and social aspects, and has reaped the benefits of addressing that part of the market. Even when Microsoft tried to create entertainment products, they failed because they launched them from the business/productivity based platform.

Re:Create a $140 billion business out of nothing?

[__aaltlg1547]

They did it by striking when the iron was hot, as soon as there were well-performing touchscreens. Imagine there had been no Apple, or Apple had not seen the market. Do you really think the world would have missed the opportunity to make a similar phone? It might have been delayed one or two years at most.

But Apple's beating the competition in the market shows mainly one thing: they were working behind the scenes to realize a no-keys touchscreen smartphone before the parts were available. That shows real initiative.

Re:Create a $140 billion business out of nothing?

[sphealey]

- - - - - That's not creating a new business out of nothing, nor is it being particularly visionary. It's a natural improvement on an existing market segment. - - - - -

One has to be careful about trusting accounts written later, whether written by the winners or the losers. But multiple sources have reported that the response to the introductory demo of the iPhone at the highest levels of both Nokia and Blackberry was "that's impossible - they must be faking it". Nokia and Ericsson at least did a reality reset within a year and tried to get back in the game, but Blackberry only realized the iPhone was for real 18 months ago - say early 2014, 7 years after the iPhone was introduced.

I'd call that creating, or recreating, a new segment.

sPh

Re:Create a $140 billion business out of nothing?

[Rob Y.]

It's not that Microsoft overlooked the entertainment part of the market. Microsoft routinely 'overlooked' all parts of the market when those parts were in their early stages.

Prior to the iPod, they were able to get away with letting everybody else figure out what the new areas of personal computing were going to be. Then they picked the already established winners and used their monopoly tying power to overcome them. It worked for integrated dev tools. It worked for office software. It even mostly worked for web browsers. It didn't work for the iPod, because there was nothing that Microsoft could use to tie their late-to-market Zune players to. Apple made an appealing product, and they won the market. Plus, most iPod users were tied by their music collections to Apple.

And the iPod begat the iPhone - which was too complex for Microsoft to play quick-enough catch up and use, say, 'real IE' or exclusive connectivity to exchange to succeed. In fact, the success of the iPhone and iPad killed IE as a selling point by solidifying the notion that web sites had better not be IE specific if they wanted to get the hits. Once exchange connectivity and good enough MSOffice viewers became available on iOS and Android, the window of opportunity closed.

Re:Create a $140 billion business out of nothing?

[Rob Y.]

I think the iPhone was successful before they supported 3rd party apps. They already had the entertainment basics built in - which at the time meant playing your iTunes collection on your phone. But yeah, 3rd party apps are what prevented Microsoft from copying the iPhone and stealing the business. Apple won that one by playing one of Microsoft's games - lock in the developers and let them sell your system for you.

Microsoft tried to use Windows 8 to do that. They were able to count on selling Windows 8 to new PC buyers - and they figured that would get the deveopers back from Apple. Hasn't worked out, though. The desktop didn't need new phone apps.

In fact, other than the apps that are already there, desktops today may as well be Chromebooks. That's why Mac sales are also booming. Most home PC users are just using them for the web, email and streaming video. PC's, Macs and Chromebooks do all of these equally well. PC's still win for users that need 3rd party apps - and for gamers. Macs are fine if the particular 3rd party apps you need happen to be there. And even Linux is fine if the only 3rd party app you need is Office - and you find LibreOffice compatibility good enough for your needs.

For everybody else, Chromebooks get the job done. Even if many Slashdotters can't wrap their minds around that, Microsoft can. That's why they're trying to kill off Chromebooks with an equivalent stripped-down Windows platform. Not sure if it even matters any more, though, since it's the change in how PCs are used, not the specific competitor, that's changed the landscape.

Re:Create a $140 billion business out of nothing?

[dgatwood]

It wasn't Apple that killed Nokia; it was Android. Their big niche was cheap feature phones. When Android came along, suddenly, there were cheap smartphones, and nobody wanted cheap feature phones when they could get cheap smartphones. To be fair, Apple had a lot to do with forcing the UI changes in Android that made it popular, but the mere existence of Android in any form would have pretty much cut the legs out from under Nokia.

As for Blackberry, Apple didn't really start killing them until much later, as iPhone hardware wasn't really all that welcome in the business world until after Apple started adding stuff like mobile device management. I always found it odd that they were a hardware manufacturer, given that their hardware was fairly boring, and most of their interesting creations involved software and services. I'd expect them to reinvent themselves as a software and services company fairly handily, and freed from the shackles of having to build their own hardware, I'd expect them to do fairly well.

Ericsson got bought out by Sony, who still builds plenty of phones and other devices. Given Sony's size, I wouldn't count them out just yet. But if somebody does drive them out of the market, it will be Samsung, by undercutting them.

Let's glorify genius when incompetence is to blame

[KDiPietro]

From where I'm sitting, it seems like Steve Jobs is getting credit for Steve Balmer's profound and pervasive ineptness.

You may not have noticed...

[CaptainOfSpray]

....but Steve Jobs has passed on.

Those that follow, are exactly that, followers. Neither Apple nor Microsoft has anybody capable of the vision thing.

My money is on the Next Big Thing coming out of the Maker movement.

Japan: and the $0.02 market analysis.

[Anonymous Coward]

NTT had them in Japan.

Apple did make smartphones a mas consumer device, added more functionality, and made them easier to use than the others.

And there is their marketing - well, Jobs' - genius.

Jobs made the smartphones sleek, stylish and into a fashion statement and luxury product. Apple's market share is dwarfed by Android's, but Apple's profitability makes the Android people look like peasants.

Re: Japan: and the $0.02 market analysis.

[symbolset]

Bringing the utility of ubiquitous pocket computing to over 1 billion new people who would not have had it is hardly "no value".

Re: Different markets...

[asliarun]

I disagreed about apple being jewelry alone. Microsoft made products that people grumblingly put up with - so they could get the job done and be more productive.

Apple made products that people finally liked to use, and could use it easily enough, and fairly intuitively. When you create a great user experience like this, especially with a very low learning curve, people will adopt and use it in extraordinary ways. Once they feel good about using your products, they will feel special, like it was their private special thing. They will then become your biggest marketing team.

If anything, the industrial design aspect of Apple's products and even high price were side effects. The first was a nice to have, the second not so nice to have. But it didn't change a damn thing. It was always about the core user experience.. And how even most of the third party apps gave you the same sense of familiarity and consistency.

In a cynical way, this is like marketing a drug. You give the first few doses for free and make people realize how easy it is to use the drug and how shiny their world becomes when they use it regularly. Then step back and enjoy the fun. Apple gave people a tiny little pill yto swallow and even gave them little travel packs. Microsoft made people goto the doctor and get the drug injected up their backsides.

Both Apple and Microsof started as "Makers"

[localroger]

Both companies started in the world of garage built computers. They entered a field dominated by well funded business partners like IBM and DEC and showed that "toys" affordable to ordinary mortals could be fun and useful. Now Apple and Microsoft are today's IBM and DEC, and twenty years from now there will probably be new players in their place.

Re:They did not.

[hawguy]

Apples customers pay more so they make more money. Desktops with Windows still dominate the market.

But do Apple customers pay more in the long run? It's still the case that Macs tend to just "work", no weird crashes due to bad drivers, Windows has come a long way in reliability, but I know in my office, the desktop support calls from Windows outnumber those for Mac, and we have about 5 times more mac desktops than windows desktops. By controlling the hardware and the software, Apple can provide the customers with a smoother experience, at the expense of flexibility - you can't build your own mac, or add new hardware to it... which is fine for almost all consumers.

But Microsoft is a software company which are plagued by piracy - non paying customers.

If Microsoft could get every Windows user to pay a license cost as low as the OS X cost - their revenue would overcome Apple:s revenue with ease.

Since it's nearly impossible to buy a PC without Windows installed (or at least a license to run windows), it's hard to believe that piracy is affecting operating system sales, at least in the USA. I know that China has a high piracy rate, but those users probably aren't going to buy a Windows license anyway. I know I have license keys for WinXP, Win7, and Win8 that are completely unused because the computer I wanted wasn't available without a Windows license (well in one case it *was* available unbundled, but the computer was cheaper *with* the license.

Microsoft still has a lock on the corporate desktop, that's where they have the most to fear from Apple since the consumers that use and love apple hardware at home want to use that same hardware at the office.

If you sum up the Microsoft sphere. Microsoft, Spotify, Netflix, Adobe etc and you will find them a lot larger. Include all "partner" companies and Microsoft becomes quite large compared to Apple.

How is Adobe part of the "Microsoft Sphere" when the likely sell more photoshop licenses for Mac than Windows? Likewise, why is Netflix on the Microsoft side when their product is cross platform?