Chen YongweiOn January 30, local time, Microsoft announced its financial results for the second quarter of fiscal year 2024 (that is, the fourth quarter of the 2023 calendar year). According to the financial report, Microsoft's total revenue in the quarter was $62 billion, a year-on-year increase of 18%; Net income was $21.9 billion, up 33% year-over-year. With its impressive performance, the current world's largest company in terms of market capitalization has further widened the gap between itself and its peers.
In the process of interpreting Microsoft's financial report, many ** pulled Apple to compare with it. In the past year or so, Microsoft has relied on its successful bet on AI (artificial intelligence) outlets, and its market value has skyrocketed by nearly 70%. Apple, on the other hand, has seen its market value increase by less than 40% over the same period. Although this is already quite a good achievement, it is overshadowed by Microsoft. And for more than a decade, Apple's market capitalization has almost always maintained its lead over Microsoft. In people's eyes, the overtaking of market capitalization is indeed a very iconic event.
Many critics are beginning to decipher what Microsoft is doing right and what Apple is doing wrong. In my opinion, for these two top companies, it doesn't seem to make much sense to "see the big from the small" to the momentary gains and losses. However, from the perspective of business history, the long-term rivalry between these two companies is indeed a rare case. Therefore, taking advantage of the opportunity of Microsoft overtaking Apple, it is very valuable to review the development logic of these two companies, and sort out what these two companies have done and what gains and losses they have made from a long-term perspective.
Early years
It all started in the 70s of the last century. In 1974, the owner of a small company named Henry Edward Roberts used Intel's Intel 8080 as a processor to produce a microcomputer for home use. Although the computer, called the Altair8800, was rudimentary by today's standards, its creation was a remarkable event for its time. After all, before that, people had the impression that computers were big things that could only fit in a house. What's more, the production cost of such a computer is only $495.
In January 1975, the Altair8800 was featured in Popular Mechanics magazine. Two young people born in the same year saw this report and keenly felt that a new era of personal computers (PCs) was about to begin. One of these two young men is Bill Gates (Billgates) and the other is Steve Jobs (Steve Jobs). At the time, Gates was studying at Harvard. In order to seize the huge business opportunities of the PC era, he dropped out of Harvard and founded Microsoft in his garage in April of that year. A year later, Steve Jobs also founded Apple. Coincidentally, his company is also in his garage.
While Gates and Steve Jobs both saw opportunities in the PC era, they had different ideas. Gates thought that in the PC age, the demand for software would increase rapidly, so the focus of his business was mainly on software. What Jobs saw was the imperfection of the hardware of the early PCs represented by the Altair8800, and believed that high-quality PCs were more potential products.
If you look at the mastery of technology, Gates is undoubtedly several grades higher than Jobs, but in terms of market sensitivity and aesthetic taste, Jobs at that time was undoubtedly much better than Gates. With these qualities of his, and the combined efforts of company veterans such as Stephen Wozniak, Apple soon launched AppLeii. Compared to the humble Altair8800, Appleii can be described as amazing. This PC sold nearly 6 million units in the following 16 years, and it can be said that it is a product that truly ushered in the PC era. Relying on the huge success of Appleii, Apple went public in 1980, and according to the stock price, Jobs was worth 2$500 million.
At that time, although Microsoft also developed some well-known software and established business relations with well-known companies such as IBM (of course, it also developed a lot of software for Apple), by the end of 1980, its sales were only 8 million US dollars, and the market was still far away. Of course, there was no direct competition between the two at that time.
However, in January 1983, the situation changed. Apple has released a new computer, Lisa, which, unlike Appleii, uses a graphical interface. It is worth mentioning that the graphical interface technology is not original to Apple, but comes from Xerox. In 1979, Steve Jobs visited Xerox's PARC Research Center and witnessed the "black technology" of graphical interfaces, and immediately realized that this was the future of human-computer interaction. In the years that followed, Jobs finally got his hands on this technology by poaching people's hands and other methods.
From a business point of view, Lisa was not particularly successful. Although it has excellent performance and is also very beautiful, it is limited by the high development cost, and its price is as high as 9995 US dollars, and the market response is not good. However, when Gates saw this computer, he immediately realized that the graphical interface system has too many advantages over MS-DOS with white on a black background, and its appearance is likely to announce the death sentence of MS-DOS.
At that time, Apple was developing a new generation of computers, the Macintosh. Gates wanted Jobs to get Macintosh to install Microsoft's software. If the Macintosh with a graphical interface system is to work well with the software, Apple will have to reveal the secrets about the graphical interface. Gates got his wish to get the secret of the graphical interface system, and the gears of fate turned at this moment.
The fall of Apple
When Gates announced in November 1983 that Microsoft planned to develop a Windows operating system for the IBM personal computer, Steve Jobs complained, "Gates has no shame, he completely copied our product." In response to Jobs' complaints, Gates said, "Okay, Steve, I think we'll have to look at this from a different perspective." I feel like things are more like we all have a rich neighbor named Xerox. When I broke into his house and tried to steal the TV, I found that the TV had already been stolen by you. This caustic reply choked Jobs at once.
In January 1984, Macintosh was introduced. The all-new PC has a hardware and software strategy, and was set at $2,495, which is much lower than the previous Lisa. By the end of May, it had sold more than 70,000 units. However, because the performance of the computer was not as good as advertised, sales began to decline rapidly from the second half of 1984.
The decline in performance made Jobs's originally irascible temper even more unacceptable. He was at odds with his chief executive officer, John Scul Ley, and other company executives over how to turn things around. As a result of the conflict, Jobs was ousted from the company he had founded by Apple's board of directors.
After Steve Jobs left, the original dynamic company seemed to lose its soul all at once. Scully completely changed Steve Jobs's idea of trying to turn PCs into consumer goods, believing that PCs are high-tech products, and high-tech products should pursue high-quality and high-profit products. Under this philosophy, Apple's market share was quickly divided among competitors.
It is important to point out that even during this period known as Apple's Dark Ages, Apple's technology was still at the forefront of the market. However, due to the lack of Steve Jobs's business vision as a guide, his products did not have the pulse of the market. By the mid-'90s, Apple had become almost the poster child for a business school case of losers.
Microsoft wins the PC era
While Apple is on the decline, Microsoft is thriving. Fall 1985, Windows 10 officially launched. Although in terms of technical details, it is not as good as Apple's graphical interface system. However, because Apple has always adopted a closed strategy, other computer manufacturers have not had the opportunity to carry it on their own machines, and the advent of Windows has given them this opportunity. Therefore, win dows10 achieved good sales, with a total of 500,000 units sold in two years. Seeing the recognition of the market, Microsoft stepped up the iteration of the product and launched Windows 2 one after another0 and windows30。By 1990 win dows3At the time of the release of 0, Microsoft's technology for making operating systems had matured, and the market had gradually recognized the leading position of Microsoft's operating system. By 1995, when Microsoft released Windows 95, its position in the operating system was hard to shake.
As an excellent software manufacturer, Microsoft also has office software such as word, excel, and powerpoint. For the convenience of sale, they are packaged as of fice. Office is naturally more compatible with Windows than competing products. Therefore, as Windows has become the dominant operating system in the PC market, Office has naturally become the leader of office software.
All of this has led to a surge in Microsoft's performance and stock price, accompanied by a rise in Gates' personal wealth. In 1995, he was named the richest man in the world by Forbes, and for the next twelve years, the title has remained on his head.
On September 15, 1998, Microsoft's market capitalization reached $261.1 billion, surpassing General Electric to become the world's most valuable company at that time. At the end of 1999, Microsoft's market value soared to a high of $661.6 billion.
Fall from the throne
But while Microsoft is soaring, danger is looming.
In the 90s of the last century, the Internet began to become widespread. Gates is acutely aware that this could be a big thing to change the future. In his book "The Road to the Future", he tells people that the Internet will connect all people like a highway, and in the Internet age, people's sense of identity, self and belonging will change.
So, what's the most lucrative on the highway? The toll booth that controls the entrance, of course. Similarly, on the Internet, if you want to grasp the opportunities of the future, it is of course the most important thing to grasp the entrance to the Internet, and this entrance is the browser. At that time, there were already some browser brands on the market, but since these browsers needed to be adapted to the operating system, Microsoft had a natural advantage when promoting its own browsers. When Windows 95 was launched, Microsoft simply pre-installed its own Internet Explorer browser into the system and integrated it with Windows. At this point, some browser brands were outraged.
In 1996, browser maker Netscape filed a complaint with the U.S. Department of Justice against Microsoft for using the above-mentioned sales tactics to crack down on rivals. The Department of Justice then launched an investigation into Microsoft and filed a lawsuit against it in 1998. Microsoft has been plagued by this case for several years, and even faced the risk of being broken up at one point. It wasn't until November 2001 that Microsoft reached a settlement with the Ministry of Justice. The case apparently left Microsoft with lingering concerns, and after that, Microsoft's style of doing things began to converge.
In 2000, Gates relegated himself to the background as Microsoft's chief executive with his college friend Steve Ballmer. Compared to the aggressive Gates, Ballmer is better at defending. Coupled with the impact of the anti-monopoly case, he didn't want to use Windows' "gatekeeper" status to do more things, but just wanted to keep the existing cake. In line with this concept, he has made the two businesses of Windows and Office to the extreme, and the highly acclaimed Win DowsXP, Windows 7, Office 2013 and other software were born during his tenure. During his tenure, Microsoft's annual revenue grew by about 4 times and profits increased by 10 times. However, the market does not approve of Ballmer's mediocre practice of lying down to make money. By 2014, Microsoft's market capitalization was less than $300 billion.
The King Returns
Just as Microsoft was going from prosperity to decline, Apple bottomed out because "that man" returned.
Jobs returned to Apple as an adviser in July 1997 and took over as interim CEO of the company. As soon as he returned to Apple, he reorganized the board of directors and overhauled the business, streamlining the complex business into four business lines: mobile phones, tablets, all-in-one PCs and laptops.
After a long period of recession, Apple has long been unable to make ends meet. In order to find funds to revive the business, he thought of asking Gates, an old man who had been out of contact for a long time due to the conflict of more than a decade ago. At that time, Gates had already been stirred up by the anti-monopoly case, and in line with the attitude of "it is better to settle the dispute, it is better to settle it", he agreed to invest in Apple1$500 million, and by the way, he also promised to provide office software for Apple computers.
Having straightened out the organization and business within the company, the next thing to do is to find a new growth point for Apple. Given that the PC market at the time was difficult to open up, Jobs thought it would be more appropriate to start with a new business. He noticed a phenomenon: at that time, people were very keen to take *** from the Internet and then engrave it into a CD and put it on the talking**. However, at least in those days, this was actually very unfriendly to non-specialists. For the convenience of users, he instructed his employees to develop a convenient management application - iTunes. With it, enthusiasts can easily carry out and manage it. As a software, iTunes is completely free, however, Apple has also made an iTunes Store very "intimately". In this way, users can buy some of the fees directly from the Internet, and Apple can also charge a certain amount of money from them - Apple's later important profit model "Apple tax" has since taken shape.
Now that you already have iTunes, why not just make a ** device? At that time, there were not many devices on the market, and with this in mind, Jobs suggested using a 5GB hard disk for storage. In this way, with iTunes, users can get ** from the web and then import it to ** device to listen to it at any time. Considering the slow import from a computer to a machine, he also discovered Firewire, a transmission technology that had been in the company's dust for a long time. As soon as several elements are combined, a brand new *** device is born, which is the famous iPod. Although in the eyes of many, the iPod is not really technical, but it has captured the hearts of ** enthusiasts very accurately, and thus has become one of the most popular products in Apple's history.
The success of the iPod reversed Apple's long-term decline and transformed it from a pure PC manufacturer into a full-fledged consumer electronics manufacturer. At the time of his success, though, Jobs was acutely aware of the risks. At that time, mobile phones were on the rise, and many phones already had cameras and radio functions. Faced with these threats, he decided to take the initiative and combine his iPod and mobile phone.
Jobs believed that the new generation of mobile phones should not only be able to listen, but also send and receive emails and work with files - in short, it should be a new terminal that can replace the PC. Not only that, but it also needs to be minimalist and not have too many buttons so that there is enough space for the display. Although these requirements were too difficult for the technicians, they finally made this phone, which is the iPhone.
On January 9, 2007, the iPhone was officially released. This smartphone with a completely new concept quickly conquered users with its superior performance and beautiful appearance. In order to enrich the software ecology of mobile phones, Apple launched the AppStore in 2008. Developers can list their own apps in the Appstore, where users can purchase and**. Of course, during the purchase process, Apple needs to take a certain percentage of the "apple tax".
With the superior performance of the iPhone and the complete profit model, Apple has completely turned around, and its stock price has soared. By 2010, Apple's stock price had surpassed Microsoft to become the world's largest company by market capitalization. Although Steve Jobs died of pancreatic cancer shortly thereafter and was challenged by rising stars such as Google, Apple remained the world's largest market capitalization for most of the next 14 years. If in the PC era, the ultimate winner is Microsoft, then Apple is undoubtedly the biggest winner in the mobile Internet era.
Microsoft's comeback
Many people believe that Microsoft missed out on the entire mobile Internet era because of Ballmer's short-sightedness. Actually, this statement is not entirely fair. In fact, Baller had also explored smartphones, launching Windows Mobile (renamed WindowsPhone in a later version) with a mobile-specific operating system. But these attempts ultimately failed. The reason for this was that Microsoft was making so much money on Windows and Office alone at the time, and it was not in the interest of shareholders to divert resources from these high-quality businesses to develop new businesses with uncertain prospects – and as a result, Microsoft found itself in what Claytonchris Tensen called "the innovator's dilemma." In addition, because Windows is so successful on PCs, it is easy to bring in the various features and usage habits of Windows on PCs when developing mobile phones. Combined, these reasons have prevented Microsoft from successfully embracing the mobile Internet era.
By the time Ballmer handed over the baton to Satyan Nadella in 2014, Microsoft was a declining aristocrat in the eyes of the outside world. How to revive this declining aristocracy? Nadella's thinking was that he had to overhaul Microsoft's business structure.
After judging the situation, Nadella decisively made "mobile first, cloud first" Microsoft's new strategy, focusing all of Microsoft's resources and technical strength on the development of cloud services. As for Microsoft's former pillar products, Windows and Office, the investment was greatly reduced, and later Windows was simply integrated with several other businesses under one business unit.
Although it has been difficult for Microsoft to occupy an advantage on the C-side of the mobile Internet due to missing the opportunity, the arrival of the mobile Internet has also driven the demand of developers. A large number of these developers cannot afford to purchase sufficient IT resources and can only rent cloud services. And at the time, there were very few companies other than Amazon that offered such a service. Soon, the market proved Nadella right. With the Azure cloud bringing huge benefits to Microsoft, Microsoft's long-stagnant market value has finally begun to grow rapidly.
And that's just one aspect. In a sense, the cloud is like the aircraft carrier of Internet companies, and when giants need to project various capabilities to users, they must use the cloud as a channel. This is fully reflected when Microsoft competes in the AI market later.
The era of AI
In 2016, Gates met with members of OpenAI, a small organization that had just been founded. According to Gates's later recollections, he was very impressed by this group of people who were committed to the development of AI, and he has kept in touch ever since. Soon after, due to internal turmoil, Musk, one of the founders of OpenAI, left, and the institution also fell into trouble due to lack of funds. As a result, under the recommendation of Gates, Microsoft has invested in OpenAI since 2019 and vigorously supported its AI research and development. In mid-2022, Gates made a request to OpenAI: to train an AI that could pass an advanced biology exam and be able to answer questions for which it was not specifically trained. Originally, he thought that it would take at least a few years to complete the project, but in fact, it was not long before the founder of Ope NAI, Samalt Man, turned in his answer sheet and ChatGPT was born. Gates himself claimed that he was shocked to see that ChatGPT was as good as he could answer the various questions he asked, just as he did many years ago when he saw a graphical interface system. However, in my opinion, in addition to the shock, he should have another sense of relief, because it means that Microsoft has bet on the treasure.
Soon after, ChatGPT became popular all over the world, achieving more than 100 million users in just one month. All of a sudden, OpenAI became the focus of the world. However, from a business point of view, Microsoft, hiding behind OpenAI, is the biggest winner. Under the cooperation agreement with OpenAI, Microsoft has priority access to OpenAI's various AI products. Soon, Microsoft equipped Office, Bing, and the new version of Windows with GPT, and also used Azure to deliver these AI capabilities to customers. It is with the AI developed by OpenAI that Microsoft has successfully overtaken Apple's market value and regained the throne of the world's largest market capitalization.
Why isn't Apple leading the AI revolution this time? In fact, Apple has not ignored AI, and Apple's CEO Timcook has repeatedly said that general-purpose AI will be the future. However, perhaps, like Microsoft back then, it has also fallen into an "innovator's dilemma" because of its oversuccess in its existing business. It is interesting to note that, just as Microsoft was caught in an antitrust dispute before its boom turned into decline, Apple has recently encountered antitrust troubles in the United States and Europe.
So, will Apple really decline from this? In my opinion, it may be too early to judge. On February 2, Apple unveiled its new MR (MixedReality) headset, Apple Vision Pro. It is said that many new technologies, including AI and spatial computing, are integrated into this product, and it may lead to a new terminal revolution. While it will take some time to see how the outside world reacts, Microsoft has already preemptively requested the development of an Office app for it — and it seems that Apple, at least from Microsoft's point of view, is very bullish on Apple's old rival.
Conclusion
Looking back at the development of these two companies over the past few decades, we can draw a lot of useful inspirations, to name a few:
First, technology research and development is important, but according to market needs, it is the key to make good use of it. As we have seen, Xerox has long had graphical interface technology, but it cannot be used to the fullest, and it will inevitably decline eventually. Apple and Microsoft, on the other hand, eventually became kings in their respective fields by developing this technology. The so-called "although Chu is talented, Jin is practical", for science and technology enterprises, this lesson has to be taken seriously.
Second, competition in the digital age is essentially a competition for ecology and entrance. Whether it is Microsoft's hegemony in the PC era, the revival of the cloud era, or Apple's attempt to win the mobile Internet era, it is fundamentally to achieve control over the ecology, especially the ecological entrance. This is more important than simply making a product.
Third, no matter how successful the business model is, it cannot guarantee the long-term peace of mind of a company. In the era of the digital economy, technology is changing rapidly, and the market position and business model attached to the technology are like edifices on the beach. If you can't react to the market in a timely manner, then even Microsoft and Apple may fall behind. It is important to note here that there is no linear sequentiality between different technologies, and there will be periods of overlap between new and old technologies. In the beginning, old technology will be more attractive to profits, but if companies abandon the focus on new technology, they will fall into the "innovator's dilemma" and eventually fall behind.
The competition between Apple and Microsoft for the world's first place will continue for a long time to come. As bystanders, it's hard to simply predict who will emerge victorious. But what is certain is that the wrestling between them will also give us many wonderful stories, valuable experiences, and profound lessons.