Microsoft: market share, growth and market value

Microsoft: market share, growth and market value

Summary: There are many ways to look at markets and individual companies. Each is useful to certain people at certain times and not very useful at all at other times.

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TOPICS: Microsoft
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I've been reading a number of media stories about Apple's market capitalization having shot by Microsoft's recently.  These stories often went on to point out Microsoft's large share of the market and the fact that the companies rate of growth doesn't match the company's early years.  It appears that there is some confusion out there in the media and I'd like to examine what those metrics mean.

Market value or market capitalization

Market value or market capitalization is simply the overall value of the company. It is calculated by multiplying the current share price by the number of shares outstanding. This metric is only indirectly related to the firms actual revenues, go-to-market strategies, share of the market and other views of company performance. This metric is based upon the foundation of investors' feeling about the company. A company may have absolutely huge revenues, hold a dominant position in nearly every market in which it competes and still not be properly recognized by investors.

As an aside, I remember when IBM announced a new Series 1 on the same day my employer announced a new PDP-11, a 16-bit minicomputer. Digital Equipment's stock value declined that day even though that machine turned out to be very popular. Investors obviously were enthusiastic about IBM's move and must have decided that DEC's move on the same day wouldn't pan out. They were wrong.

The value of a stock is based on many factors including investor's feeling about the company, feelings about the market segment a company plays in, feelings about the economy, news items such as the appearance of an armed conflict or new disease.

Market share

Market share is a multi-headed beast. It is based upon a comparison of a company's revenues or shipments to all others in the same market. A supplier might have a dominant share of the revenues in a given market while being way down the list when shipments of products are being examined.

Companies having a dominant (greater than 50% share of a consolidated market or twice the share of the next competitor in a fragmented market) share of market reveues are unlikely to experience the same high rates of growth as smaller firms.

A company selling many inexpensive products may have a high share of a market's shipments and a low share of that same market's revenues.

Growth

A company that increased its revenues from $1 B to $1.25 B would have experienced a 25% growth.  A competitor that grew from $1 M to $2.5 M would have experienced a 250% growth. The first company clearly is more successful than the second and yet some will base significant decisions (and media stories) on the rate of growth rather than on the actual level of growth.

Final thoughts

There are many ways to look at markets and individual companies. Each is useful to certain people at certain times and not very useful at all at other times. It's wise to remember that market share of a market's revenue is quite different than the market share of a market's shipments. It's also wise to remember that market capitalization or market value is related to, but different than market share.

Topic: Microsoft

About

Daniel Kusnetzky, a reformed software engineer and product manager, founded Kusnetzky Group LLC in 2006. He's literally written the book on virtualization and often comments on cloud computing, mobility and systems software. In his spare time, he's also the managing partner of Lux Sonus LLC, an investment firm.

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29 comments
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  • Pet the kitty

    Seems to me, this article was all about calming Microsoft's concerns about their investors opinion about them falling to #2. Sorry Microsoft you are still number 2 and falling.
    sadmglw
    • It seemed to me more like a lesson

      @sadmglw
      If you see an ulterior motive, then I must have missed it. As far as I can tell, it was an attempt to put all the media hoopla into context.
      youzer
      • RE: Microsoft: market share, growth and market value

        @youzer
        It is typical of Mac fans. When Apple's capitalization was less than MS, the metric was meaningless. Now? All important. Market share? Meaningless when talking about desktops, all important when talking about the iPod.
        Mac fans pick and choose the metrics that make Apple look good, even if it is the ones they said were meaningless earlier.
        mdemuth
      • RE: Microsoft: market share, growth and market value

        @youzer AMEN! hoopla is a good description
        ItsTheBottomLine
    • ... just had to chuckle and smirk ...

      ... is that #2 as in PILE OF #2 ... or second in an ordered list ?
      BrentRBrian
    • I think he is trying to reach you and others like you......

      @sadmglw
      That just go around thumping chests with little idea of what is behind the market value. Microsoft is not falling by the way, Apple is just growing faster at this moment. But we will say they are falling if it makes your little heart feel better.
      OhTheHumanity
  • So, if MS passes Apple in market capitalization

    next week, will we see an article talking about how it really doesn't mean anything, or will we see an article about how MS has its mojo back?
    frgough
    • Interesting to note that Apple is more Sony then they are MS

      A lot has to do with it, the interesting thing to note here is that Apple grew once they realized that they weren't going anywere based on computers, software, and OS, even today given their tiny marketshare of computers systems

      Once they started moving away, towards areas that companies like Sony and what not where competing in, then they started to grow.

      But then they also picked up a lot more competitors along the way, with the recent rise of Android and android based phones surpassing sales of the iPhone, Apple's future will now allways be tied to the "next big thing".

      Sure they'll release a 7" iPad next year, and many with the 9" will buy that, but as they grow, it becomes even harder to do so, as the market becomes saturated.
      John Zern
    • The media will tell you how

      @frgough
      But if you're going to let the media do all the decision making for you, you really can't blame them now, can you?
      youzer
  • RE: Microsoft: market share, growth and market value

    I guess there is no use trying to explain stock values and their relative meaning to the market to idiots: What's the phrase? You can't fix stupid?
    BrianTX
    • Can't fix stupid

      No, but APPLE is coming close to fixing STUPID ... but who'd a thunk MICROSOFT was THAT STUPID.
      BrentRBrian
  • MS has a PR problem which affects its stock price

    As I indicated <a href=http://www.zdnet.com/tb/1-82114-1573448?tag=talkback-river;1_82114_1573448>here</a>, MS has been plagued by image problems for the past 10 years, which is largely the reason for its poor stock performance. When MS addresses its image problems through PR efforts, its stock price will be at the point it should be.
    P. Douglas
  • By your logic Apple can grow to be many times larger than Microsoft is now

    That's scary!<br><br>You wrote: <i>"Companies having a dominant (greater than 50&#37; share of a consolidated market or twice the share of the next competitor in a fragmented market) share of market revenues are unlikely to experience the same high rates of growth as smaller firms."</i>

    That means that Apple will be able to keep growing like mad and by the time they reach those levels they will be a tremendous colossus, several times larger than Microsoft was circa year 2000.<br><br>That's a real scary thought man!
    OS Reload
    • Misunderstood...

      @OS Reload
      I think you are misunderstanding the dynamic being explained. It's more difficult to sustain a high rate of growth as the size of a company's market share increases.
      youzer
      • And that means there's nothing to stop Apple from growing and getting there

        @youzer

        I understood the article quite well, it's you who misunderstood my post.
        OS Reload
  • Thank you Daniel Kusnetzky!

    I'm glad someone took the time to put this into context. But I was a little disappointed that you didn't go a little further and show where Apple and Microsoft are competitors and where they are not. I feel the comparison between the two is no longer as relevant as it used to be. Thanks again.
    youzer
  • RE: And that means there's nothing to stop Apple from growing and getting t

    @OS Reload
    I apologize if I'm misunderstanding what you're saying. I'm really trying. But could you elaborate on how you get to the conclusion that there's nothing to stop Apple from growing? Thanks.
    youzer
    • If Apple executes flawlessly and the market chooses their products then...

      ... the only force that will slow their growth is market saturation.<br><br>If/When they achieve market domination at the level Microsoft has achieved, Apple will be several times larger than Microsoft ever was.
      OS Reload
      • Only if Apple's market includes more than the one Microsoft serves

        @OS Reload
        Apple certainly operates in a broader market than Microsoft. Although, Microsoft still dominates in its market. I see your point now. Thanks.
        youzer
  • Agree with Apple being more like Sony

    (Trying to reply to John Zerns post keeps throwing an error)

    Apple knew they would only ever be a niche player in the PC market because the vast majority of people don't need the high value, high end products they offer. There is nothing wrong with Apple taking that approach to the PC market, "market skimming" is an established marketing technique, but like all techniques it has limitations. Ultimately though, Microsoft are a software company and Apple are a hardware company that bundle software with their kit, just like Sony and Nokia.

    Where it gets problematic for Microsoft is in the smart phone market. Do they produce both the device and the OS, like Apple, RIM and Nokia, or do they simply supply the OS, like Google. They don't have enough experience of making hardware for the former to be attractive and Google have already dictated the model for third party OS - free to manufacturers with the development company making money back from demographic data collected from users. Unfortunately for Microsoft, they haven't done anything yet to suggest they can leverage demographic data anywhere near as well as Google can. Another avenue open to them is to maximise interplay between the phone OS and Windows / Exchange / Live, but they can't block access to these services from Apple / RIM / Android devices without alienating their users who would then likely leave Live in droves.

    All in all, Microsoft have been pushed into a bit of a corner in the consumer space and although you can never count a company with their resources out, I can't help but feel that to turn things around with consumers is going to require a radical rethink in what they are aiming to do beyond what the current management team are capable of.
    Tom-Tech