The lessons of Apple turning Microsoft into IBM

That's the lesson of Apple's overtaking Microsoft in market cap. It's a lesson Microsoft first proved when it put IBM into its rear-view mirror many years ago.

(To the right, a five-year chart comparing Apple's stock price with that of Microsoft, from Google Finance. Microsoft's value is the flat line.)

The class market -- complex computer systems used by enterprises -- is not only less sexy than the mass market, but less profitable as well. Sales and profits don't scale they way they do when you can just serve millions-and-millions of copies of something.

This holds important lessons for open source.

All this talk about Android, about the failures of desktop Linux, matter. The Linux market share in servers represents a class market, and it's a good base, but that's all it is. The big money comes when people have your stuff in their hands, or under their fingers.

So image matters. Fanboys matter. Reputation matters. Google should be taking notes here.

There's a second lesson I gathered from a closer analysis of trends with Google Finance. The mass market is fickle, and this will be reflected in the bottom line.

For a few brief moments last summer, IBM was actually competitive on Wall Street with both Apple and Microsoft. Class revenues make good defensive plays. They don't dry up when the consumer market collapses.

But in a growing environment -- and that's what we always want to be normal -- the mass market is where you want to be. It's where the money is.

This lesson reflects poorly on Microsoft CEO Steve Ballmer, who has throughout his career been more focused on the enterprise than the masses. He was always Mr. Inside to Bill Gates' Mr. Outside. He was never about the vision thing.

Well, the vision thing matters, which may be why Microsoft isn't rushing to disavow rumors Ballmer will appear at Apple's next big conference. He doesn't want to end up like IBM, which fell on hard times after Microsoft blew by and, even with its decade-long recovery is still worth barely half what its rivals are.

That's where this is heading. Microsoft has spent this decade going "up the stack," battling Linux in the server and enterprise space, where IBM lives. It has made progress, but IBM profits remain solid and Apple has all the momentum.

Maybe Microsoft does indeed need a new strategy.