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The empire strikes back: Microsoft returns to the top of the world
WASHINGTON, Dec 2, 2018 (BSS/AFP) – Microsoft is back at the top of the
technology world following an extraordinary comeback to close the gap with
Apple, some three years into a transformation of the onetime leader by chief
executive Satya Nadella.
Microsoft regained its title as the world’s most valuable company when it
closed Friday at a higher market value than Apple for the first time since
2010, after a brief move ahead of the iPhone maker earlier in the week.
At Friday’s close, Microsoft’s market capitalization was $851.2 billion,
having tripled in value since Nadella took over in early 2014.
Apple’s valuation stood at $847.4 billion, having dropped some 20 percent
in the past eight weeks. Not far behind were Amazon ($826 billion) and Google
parent Alphabet ($763 billion).
In the 1990s, Microsoft held the crown as the top tech firm and most
valuable company as it powered the revolution in personal computers with its
Windows operating system.
But in recent years, it appeared headed to obscurity after spectacular
failures in mobile computing, while Apple, Google and Amazon saw their
fortunes rise.
Analysts say patience, diversification and the willingness to jettison
failing ventures helped fuel Microsoft’s surge.
“Microsoft is firing on all cylinders right now,” said Jack Gold,
technology analyst with J. Gold Associates.
“Satya Nadella has been doing a fantastic job in leading them away from
dead-end areas and being more innovative.”
– Thriving in the cloud –
Microsoft still draws considerable revenue from Windows, the software that
powers the vast majority of PCs.
But it has leveraged its position to bring business customers to its cloud
computing platform known as Azure, and has developed a steadier revenue
stream from its Office software suite for both consumers and enterprises.
“Azure has been really big for Microsoft,” Gold said.
For companies already using Microsoft systems for PCs and servers, “it’s
easy for them to stick with Microsoft, and that’s the advantage for
Microsoft.”
Microsoft has become far less dependent on a single product than in the
past, with strong growth from its cloud services and revenues from its Xbox
gaming business, Bing search, Surface tablets and PCs, as well as the
professional social network LinkedIn acquired in 2016.
It won a $480 million contract with the US Army last month to supply
HoloLens devices that will help troops train using augmented and virtual
reality. It is also competing with Amazon and others for a multibillion-
dollar contract for Pentagon cloud services.
The diversified revenue stream is in contrast with Apple, which still
relies on iPhone sales for the vast majority of revenue and profit.
“Microsoft is pretty well-balanced across a number of different
categories,” said Bob O’Donnell of TECHnalysis Research.
“For Apple, we’ve reached peak smartphone and it’s a very challenging
market. Longtime observers of Apple knew this would happen at some point, and
the question is how quickly they can transition to services.”
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Microsoft’s emphasis on business services makes the company less visible
to consumers, but “it means they are not subject to the whims of tech
fashion, and their revenue base is more solid and more stable,” O’Donnell
said.
– Learning from failure –
A big part of Microsoft’s transformation came when it decided to throw in
the towel on its Windows mobile phone business after acquiring the device
business of Nokia but failing to get a foothold in the sector dominated by
Apple and Google-powered Android smartphones.
“I think Satya Nadella exercised extraordinarily good judgment,” said
Roger Kay, a consultant and analyst at Endpoint Technologies Associates.
“He ceded the consumer business to Apple and focused on the corporate
sector and the cloud.”
Microsoft’s failures in mobile may have actually helped it by forcing the
company to work with rival operating systems, analysts say.
Apple, meanwhile, has largely required its own devices for its services, a
strategy which Gold called “troubling.”
“That’s the same path Microsoft went down a decade ago,” he said. “Apple
is going to have to change that.”
The company appeared to move a step toward opening its services in the
past week, agreeing to offer its streaming music on Amazon’s Alexa-powered
devices.
“Apple has a great track record when it comes to reinvention,” said a
research note from Gene Munster and Will Thompson of the investment firm Loup
Ventures.
It anticipated that the company’s “next reinvention does not involve
product replacement; rather, it will require a shift in mindset to consuming
Apple products as a service.”
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