How long until Apple is bigger than Microsoft?

How long until Apple is bigger than Microsoft?

Summary: Could Apple become a bigger company than Microsoft? Unless Microosft learn from past mistakes, yes, it could.

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TOPICS: Apple, Banking, Microsoft
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AppleInsider's Prince MacLean offers some interesting weekend food for thought:

26-10-2008-16-41-16.pngWhile Microsoft executives like to talk about Apple as an insignificant company with less than 5% of the worldwide market share of all PCs and servers sold, the Mac maker now has more cash than Microsoft and earns more than half of its profits and over three fourths its revenues.

The numbers are incredible:

Microsoft

Revenue: $15.1 billion | Net profits: $4.3 billion | Cash & cash equivalents: $20.7 billion

Apple (non-GAAP)

Revenue: $11.7 billion | Net profits: $2.4 billion | Cash: $25.5 billion

All of which raises an interesting question - How long until Apple is bigger than Microsoft? And before you scoff at that idea that dismiss me as an Apple zealot (which I am not), it very much is a possibility given that Microsoft's quarterly revenues grew by by only 9%, while Apple's (as measured non-GAAP) grew by a staggering 75%.

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The difference? Well, I think that it's all down to the philosophies of the two companies, and how Microsoft might have made a long-term misjudgment as to where the money is.

For example:

  • Do you really need a huge user-base to rake in huge profits? Microsoft believed you did, but Apple is hitting the high numbers on a low user base.
  • Is the real money in having your OS on a computer, on in selling that OS/hardware package as a single product? It's clear that Apple is gaining ground on Microsoft by selling a product that it controls very precisely. Apple also manages to score very highly when it comes to customer satisfaction.
  • Is there still huge profits to be made on the desktop, or does Microsoft need to follow Apple's model and go mobile.
  • Advertising. Advertising! ADVERTISING!!! Compared to Apple, Microsoft's advertising is awful. Rather than maintain that it's a bigger, better company than Apple, Microsoft (along with probably most of the cellphone industry) needs to take a closer look at how Apple has managed to grad the profits that it has with such a small market share. Clue: Advertising, customer satisfaction, mega-hype!

Let's be clear though, it's not all plain sailing for Apple. The economy is a bit choppy right now and Apple isn't totally recession-proof. But then again, neither is Microsoft.

Five years ago I don't think that there were many people who seriously believed that Apple could seriously compete with Microsoft. How times have changed. It'll be interesting to see how things stand a year from now.

[UPDATE: Quick response to a few comments:

  • "The numbers are wrong for Apple!" Check out the GAAP and non-GAAP data
  • "Apple is consumer-focused, and that is a weakness." Maybe, who knows in future quarters. But so far, with tech companies suffering, Apple isn't suffering. Rather than trying to predict the future, looking at what's been seems to suggest that Apple's tactic is so far successful. Also, let's not forget that Apple's consumer focus has helped increase its customer base in education and business.
  • "The economic downturn will hit Apple hard." Maybe, but with no debt and more cash than Microsoft has, it is very well placed to weather the storm.
  • "Microsoft's diversity is key." Hmmm, Xbox, Zune, Marketplace, MSN ... hardly racking in the cash. One problem I see with Microsoft right now is that the company is floundering in areas it doesn't understand.]

Thoughts?

Topics: Apple, Banking, Microsoft

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301 comments
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  • Re: Apple > Microsoft

    I don't really think this is ever going to happen. Apple really only has a few markets that it actively works in. Microsoft is far more diverse.
    derekerdmann
    • Their diversity is leaking money

      and they know that they are spread too thinly.

      When you've failed miserably at forcibly owning everything technological (with 100% of the might of the financial markets behind your bullsiht), there's only one way to go, and it isn't up.
      fr0thy2
      • Stock Split

        Yes but you've pointed to the obvious solution - a company split. Microsoft will likely become a family of related but independent subsidiaries producing software, hardware, games and applications. This will actually recapture much of the "leaking" revenue and increase efficiency with the adoption of smaller direct management over individual projects. The problem with predicting disaster with companies as large as Microsoft is that they have more resources to adopt new production methods and a much longer event horizon for disaster. They can see problems years before they become critical and have plenty of resources to change direction. Finally, as easy as it is to bash Microsoft, the fact is that no company anywhere is the size that Microsoft is by failing miserably. We may not like them but their products work well the majority of the time for the majority of consumers or they would be in the same situation as Chrysler.

        No one can argue that the Xbox venture has been anything short of a success and Microsoft is now the benchmark for online play and game distribution. You can hate it but they do some things very well.
        whcressall@...
        • XBox is a smashing success? Since when?

          $1 billion to go fix the red ring of death

          Only this year did the xbox venture started showing mediocre profits - after how many years of losing $$?

          Oh wait - are you one of those "yes, I know we're losing money on a per unit basis, but we'll make up for it in volume!"?????
          goodb0fh@...
          • You wont understand Im sure...

            So maybe Ill use Sony as an example. Sony bleeds money on every Playstation rev for years too. Yet the PS resurrected the brand and has carried the company.

            Consoles are about investing in your brand and capturing a youth audience.

            You lose lots of money (LOTS) on hardware for YEARS up front b/c you have to sell a very sophisticated machine at consumer prices.

            Then once manufacturing has caught up, you make money. You also make money on software (Halo = $1B franchise) and services.

            The only exception is the Wii but Nintendo is capitalizing on corporate image and properties established since the EIGHTIES. ONLY Nintendo could do that.

            But of course on the web you find posters and pundits who "know it all" while demonstrating that they know very little about these industries they offer opinions on.
            mlambert890@...
          • Sorry,

            but when your ROI is measured in decades, you have a problem.

            And Sony loses money on consoles but makes it up in games. The
            problem with Xbox is that MS has lost SO much money on it, the
            games haven't been able to make up the difference. Halo3 finally
            pulled a profit for the unit last year, but the total ROI on this
            thing is still hugely negative. The only reason MS has been able to
            survive the debacle is because they are fat off Windows and Office
            profits.
            frgough
          • Explain how it's possible

            to make up money in volume if you're losing on a per-unit basis. A quick math lesson: -1 x 10^9 is still negative.

            Next time you come up with a baseless claim at least make sure you don't contradict yourself in the same sentence... It makes you look quite foolish.

            MS's strategy with the Xbox 360 was to price the machine at a low price so people would buy it, losing money on the HARDWARE. But they made money on licensing and the XBox live service (that includes the subscription revenue itself, movie downloads, the deal with Netflix, etc). Sony had a similar strategy with the PS3.

            Yes, the XBox is successful.
            tikigawd
          • I'm not a console kinda guy

            but yesterday i walked into a warehouse and i wanted to look at the Wii which is currently priced at 250 euros and was sold out. (Even the show model)

            All the XBOX 360 models were available and the cheapest going at 180 euros.

            If the XBox is a succes, the Wii is an uber success.
            TedKraan
          • I think that was sarcasm...

            a play on the old "Sell at cost, make it up in volume" joke.
            914four
    • Not going to happen because...

      ...Adrian's only comparing one quarter's results - the one in which Apple launched the 3G, the sales rate of which isn't sustainable.

      Silly comparison is silly.
      Sleeper Service
      • Stating opinion

        as fact does not make it so. There is no evidence iPhone sales are
        unsustainable other than your wishful thinking.
        frgough
        • Actually there is...

          ...if you look at:

          1) Sales rate for the iPhone v1.0 - bear in mind you have to strip out the international sales from November 2007 onwards.
          2) The IMEI distribution for the 3G kindly provided by Bullish Cross.

          Both show a marked decrease in burn rate after the first two months.

          Apple will have another peak in demand when they release the product in the remaining sales markets - and you may pause to consider why Apple are doing a phased release - but after that it'll flatline particularly when you consider the high level of subsidy paid by the carriers (look at AT&T's reults) which pretty much guarantees a contract lock in for the full 18 months.

          That's just how product cycles go. Those of us who understand economics get this, those of you who don't, well... don't.
          Sleeper Service
          • "Those of us who understand economics get this"

            Yet another BS claim to superior knowledge from an armchair economist. You have no more specialized knowledge of this subject than anyone you belittle, please stop pretending to some sort of holy wisdom on the subject which you categorically do NOT have.
            bmerc
        • Dont forget..

          Google phone and Blackberry Storm WILL hurt iPhone sales. Not to mention many that are unhappy with the iPhone (including myself). I went back to my Blackberry last month after using the iPhone v1 since release.
          jaredo
        • Yes, there is...

          it is called basic econ. iPhone will reach an equalibrium, but
          do not confuse this with sustainability.
          cashaww
          • Missing the point

            yes, the iPhone will reach saturation at some point, but that
            wasn't the original point. The original point is that it has peaked
            NOW, and there is simply no evidence of that happening.
            frgough
        • Sure there is ...

          Apple dramatically cut the price of the original iPhone much earlier than expected. Despite very high sales volumes for the iPhone, they were way behind Apple's expectations. They introduced the iPhone 3G early in order to shore up sales.

          They cannot maintain their extraordinary growth unless they continue to offer innovative products at premium prices. If you're selling innovation, your cannot sit on your laurels too long or the competition will match your product line at lower pricepoints.

          Moving into a recession will make it that much harder for Apple to innovate especially under pressure form the competition at lower price-points.
          M Wagner
      • Not Just SILLY -absolutely STUPID!

        If homes and not businesses were the big consumers, maybe. If college media junkies were big consumers, for sure. As long as people like me run IT departments for corporations, ain't gonna happen McGee, or Adrian.

        WJ Kennedy
        CATS
        SF CA 94102
        cne@...
        • hmmm

          With an attitude like that how long are you going to keep
          your job?
          jgpmolloy
        • Yesterday is not tomorrow

          What a narrow-minded response.

          What happened yesterday isn't any kind of
          guarantee, nor even a reliable indicator, of
          what will happen tomorrow.

          Just by applying the math of Microsoft's
          pathetic 9% v Apple's staggering 75% quarterly
          revenues, indicates that the Net Profit gap will
          close and Apple's cash reserves will continue to
          grow accordingly.

          There comes a point when people have to
          extract their heads from up the dark side and
          work out what's actually happening,and stop
          pretending that it's all about numbers.

          Apple IS increasing its enterprise base, and will
          continue to do so. When Dell fails, who do you
          think will be lined up to grab the client book
          and distribution networks?

          And Apple has reached the position it's in with
          far fewer staff than MS. Over the coming years,
          Windows won't be the only bloated aspect of
          Microsoft's operation. Expect to see them shed
          thousands of people as their profits are hit
          further.

          Expect at the same time, to see many more
          bright people choosing not only to buy many
          many more Apple products, but to get involved
          in Apple application development.

          For more than 30 years, Microsoft has taken
          the credit for leading the way without actually
          ever doing so.

          It's Apple who have consistently skated to
          where the puck is going to be again and again.
          iMac, PowerBook, OS X, iPod, iPhone, Cloud
          Computing - all products and services Apple
          has pioneered in. The move to Intel was a
          massive success, as have been all their major
          product releases since 1997.

          Only Google excels more in one of these areas.
          Indeed Google is Apple's biggest threat. The
          same cannot ever be said of MS. Indeed their
          list of fails is endless.

          The list of products they are actually losing
          money on also happens to coincide with the
          list Ballmer likes to shout about so much: Zune
          [HUGE TURD], X Box [Massive loss maker],
          Windows Mobile [Dead], Vista [They had to
          rename it to fake customer acceptance],
          Windows 7 [Rushed to try and stem the haemorrhage caused by Vista]. Then there was
          Plays for sure, Surface Coffee Tables... Not Just
          SILLY -absolutely STUPID!
          Graham Ellison