
Microsoft Is Worth as Much as Apple. How Did That Happen? - vthallam
https://www.nytimes.com/2018/11/29/technology/microsoft-apple-worth-how.html
======
cwyers
Yes, how is it that a company that's been around as long that's a market
leader or second place in a large number of market segments can be so
valuable? Truly, it's mysterious.

~~~
ido
The real funny thing is that at first I wasn't sure if they were surprised
_MS_ is so valuable or _Apple_ is so valuable.

 _someone who remembers MS being the most valuable company in the world &
Apple being on the brink of bankruptcy_

~~~
blakesterz
Remember that final scene in Pirates of Silicon Valley where it looks like
MSFT is going to just destroy Apple? (hopefully remembering correctly) Bill
Gates is laughing and Steven Jobs is looking sad and worried. At the time it
seemed possible if not inevitable that MSFT would acquire Apple.

~~~
kemiller2002
If I remember correctly around '98 MS did invest a significant amount of money
in Apple (purchasing non voting stock). I think they offered to rewrite the
Mac version of office too.

~~~
cronix
Here's the announcement from Macworld '97\.
[https://www.youtube.com/watch?v=WxOp5mBY9IY](https://www.youtube.com/watch?v=WxOp5mBY9IY)

~~~
projektfu
\- Reciprocal patent licensing for next 5 years

\- Continued development of Office for Mac for minimum 5 years

\- Internet Explorer default browser on Macintosh

\- Collaborate on Java

\- Microsoft buys $150 million in non-voting shares of Apple at market price.

IIRC, the share price at the time was around $1. EDIT: apparently around
$8.25.

------
bryanlarsen
This story is much less about actual earnings, instead it's more about
perceived future earnings.

Apple makes almost twice as much money as Microsoft does, but their valuations
are similar. Thus the "market" believes that Microsoft's revenue is going to
grow much faster than Apple's will.

As the article says, it appears to be the massive cloud revenue that has
investors pumped. But much of that cloud revenue is probably Office 360, so is
it really the type of cloud revenue people should be excited about? If it was
categorized separately, I doubt investors would be so excited.

I suspect the answer is somewhere in the middle: Office revenue is a fairly
mature business without the growth potential that AWS or Azure has, but Office
360 is a pretty powerful tool for Microsoft to use get companies to choose
Azure over AWS.

Could Apple pull the same trick? Investors probably implicitly value App Store
revenue as more likely to grow than hardware revenue so Apple could probably
find ways to shift revenue from hardware to App Store. The next question is
how much Apple cares about short term stock market shenanigans versus long
term real growth. Apple employees hold a lot of RSU's so stock market
shenanigans are well incentivized...

~~~
GVIrish
> Apple makes almost twice as much money as Microsoft does, but their
> valuations are similar. Thus the "market" believes that Microsoft's revenue
> is going to grow much faster than Apple's will.

The market for tablets is pretty much saturated, and the market for
smartphones is no longer expanding at a breakneck rate. Laptops/desktops are
not a growth segment, so Apple doesn't have huge potential for growth anymore
unless they can find a new and very profitable product segment.

Apple isn't even really trying in any kind of serious way in the enterprise
market, and their cloud efforts are only focused on supporting iOS for the
most part. So where Microsoft (and Amazon) is poised for strong growth, Apple
isn't even on the playing field.

I think back when the iPad 1 and 2 was gaining traction and getting businesses
excited about tablets, is when Apple should've made a big push into
enterprise. I think a lot of orgs (particularly gov't and hospitals) would've
changed to being Mac shops if Apple offered the server, productivity, and
desktop/device admin tools enterprise needs. But they largely ignored that
opportunity and now the window is all but closed.

I know Apple's philosophy was to have a laser focus on what they do well,
which was consumer hardware and software. But I think they had/have more than
enough money to be a strong player in the enterprise market. What could have
been.

~~~
bryanlarsen
Apple has 1 billion users that are relatively affluent, relatively fanatical
and fairly locked in. I'm sure there are a bunch of good ways to provide value
to these people (and thus extract money) other than just the phone upgrade
treadmill. I don't know what they are, but I'm confident there are a few good
ideas among the tens of thousands of Apple employees.

~~~
shmed
Really curious about where you got the data that Apple has 1 billion active
user. I know they sold over a billion iphone overtime, but that's certainly
not 1 billion different customers buying iphones. Also, I would assume a
pretty big intersection of Mac or iPad users also own an iphone, so that
wouldn't count as many customers either.

------
mattferderer
My simple argument - Microsoft is actually focusing on "Developers,
Developers, Developers" & what developers want instead of just lip service.

Focus on developers & they'll create awesome stuff with your product. IMO,
Apple is where they are because they made a nice piece of hardware with a
platform that allowed developers to make & sell apps on it. ITunes was great
for musical devs & IPhone was great for software devs.

~~~
oblio
Apple had first mover advantage into a niche they redefined: smartphone as
touch screen based device with a software keyboard instead of a device with a
hardware keyboard.

The real question for Apple in my opinion is: where will they go from here?
Android is creeping higher and higher in the ecosystem and smartphones are
starting to become good enough, just like PCs. They are a status symbols,
which PCs couldn't be, but as they become so widespread, their status symbol
value decreases.

~~~
scarface74
People have been saying that Apple products are a “status symbol” since the
iPod. How is a product owned by 45% of smart phone owners - at least in the US
- a status symbol?

~~~
danieldk
By product differentiation. People who do not want or cannot spend a lot of
money buy an older generation (currently iPhone 7 and iPhone 8), people who
can spend more buy the latest iteration. With the watch there is also a lot of
differentiation, from basic bands, sports bands, to expensive metal or leather
bands.

Though, I do not agree that people are only buying Apple for status. A lot of
non-tech friends just find iPhones simpler to use, does not have preinstalled
crap, and gets updated longer.

~~~
scarface74
I bought a 6s in 2015. I kept it until earlier this year, replaces the battery
for $29, bought an Apple battery case and gave it to my son. It runs the
latest OS and is still faster than most midrange Android phones coming out
this year.

~~~
slaw
iPhone 6s is faster than any android phone in single core tests. Mozilla
Kraken score for 6s is 1315ms.

------
outside1234
Satya Nadella

Seriously, this guy is amazing. So glad to have him as our CEO. Runs laps
around Larry Page and the others I've experienced.

~~~
tyu1000
I'm a NBA fan, it's been funny to see Steve Ballmer portrayed as a business
titan using his know-how to turn around the Clippers rather than as a college
buddy of Bill Gates who might have been the worst tech CEO of the late 1990's.

~~~
Delmania
The stock price remained stagnant, but under Ballmer, both revenue and net
income doubled. He may have sucked at the PR game, but he was far from the
worst CEO of the 90s.

------
resters
Apple’s lead is largely due to key decisions that competitors failed to
emulate — leveraging bsd open source tooling, removing legacy io ports,
largely perpetual OS licensing model.

But now that Microsoft is emulating those decisions it will no longer be as
crippled by its own past bad decisions.

And in the meantime it has sunk tons of money into cloud and xbox which are
massively profitable.

And Apple’s refusal to cater to budget conscious consumers is starting to
really hurt market share, while allowing competitors to extract a lot of
undeserved profit simply by offering their goods at a relative discount
compared to Apple.

Apple’s most consequential f-up in my opinion has been the way it has priced
solid state storage across its product line. This has left the door wide open
for competitors to win on the basis of consumer ignorance about subtle
performance differences, while forcing marginal apple buyers to settle for a
highly inferior user experience bc of not enough (and not expandable) storage.

Apple does a lot of things well but its weakness is that it doesn’t understand
that not all of its customers work at apple.

Even today Amazon is setting itself up to eat Apple’s lunch in educational
tablets and parental controls, a major driver of consumer purchase decisions,
but hard to understand if you are a recent grad from a top school seeking
status who took a job in product at apple.

Microsoft does a lot of things badly but seems to be willing to revert bad
decisions and try hard for market share.

Ultimately market share is what makes developers create high quality
experiences for the platform. Microsoft had this and lost it, and doesn’t plan
to lose it again.

~~~
rleigh
Apple is riding on their earlier successes, and failing to look to the future.

Take that "BSD open source tooling". It's a decade old. I depend on that
stuff, and Apple used to market its UNIX roots heavily to people like me. I
now see scripts breaking which work fine on Linux and real FreeBSD, because it
doesn't support new options added to commands over the course of _an entire
decade_. Or there are behaviour differences, or missing functionality. It's
becoming significantly less useful. Enough that I hit these problems
frequently and have to find workarounds. I want some commitment from them to
actually maintain the system I pay for.

The perpetual licensing did solve one of their problems, customers who didn't
upgrade, and reduce their support burden. But this coincides very closely with
the end of any real maintenance of the core operating system underneath the
GUI. Since 10.6 it's been sorely lacking, and the quality drop is noticeable.

You're right about the storage pricing. When you spec out a fully loaded Mac
Mini, the pricing is obscene. I do need a new Mac to support Mac development
for my customers. I need a system as a CI server, and for interactive testing.
A Mac mini would be ideal for a small office. The old ones were woeful. The
new ones are better on some fronts but terrible on other counts like graphics.
And the pricing is insane for what you're getting. I don't _need_ laptop parts
in a tiny case. I do need an affordable system which will last a while, rather
than an expensive fashion statement. If it was twice or even four times the
size, I wouldn't care. I do however care that the storage is expensive and
soldered. What if I wear it out in a few months after thrashing it soundly
with CI builds and testing. The whole system will be an expensive brick. A
single NVMe slot would have solved that.

This does drive away developers, particularly ones who develop applications
which require higher-end systems, such as scientific computing. Apple doesn't
have a high-end system to offer. But I can get or build a PC with a fantastic
spec for less than the cost of the Mac mini and run Linux or Windows on it.
Microsoft have even started tools like vcpkg which significantly lower the
entry barrier and maintenance cost for developing on Windows. It still has a
number of disadvantages over Linux or MacOS, but they are actually catering to
a real need while Apple stands aloof, ignoring the needs of people who would
drive the use of their hardware and software.

~~~
rleigh
Actually, I missed out what I really want.

When it comes to CI, a Mac Mini is acceptable only because it's the cheapest
bit of Mac hardware for the task. Not because it's the most appropriate. What
I'd _really_ like is to be able to run it on VMware on the hardware all my
other CI systems are hosted on. Because paying for an overpriced bit of anæmic
hardware for it to sit on a shelf in a machine room is a complete waste of
money and space, as well as being a complete pain to administer.

Better still would be some support for native containers in MacOS, do I can
use docker or an equivalent directly, and run every build in a properly clean
virtual environment. But I doubt the current Apple care about such things.

I'm perfectly happy to pay for real Mac hardware for development, testing and
end-user deployment. But for the back-end stuff, it's awful, just plain awful.
If I could purchase a MacOS licence specifically for VMware usage, I'd do so
immediately.

------
jacknews
The articles seems to answer it's own question.

Apple if anything has become a consumer electronics company, whereas Microsoft
appears to have kept focus on business and infrastructure.

With many people fearing a recession approaching, the relative valuation
shifts make sense.

------
dekhn
MSFT is in this position because they executed better than Google in cloud
(also cleverly placing their fat profitable office revenues in cloud) and the
market rewards growth in rapidly expanding markets because it's a signal that
of future revenue and market share.

------
taneq
It happened because all of their asshole stuff about pushing everyone onto a
single platform, deprecating all their previous platforms, forcing telemetry
into everything, and a merciless focus on 'as a platform' and 'store'... is
working.

I mean, I hate it, but I gotta call it how I see it. It's an evil play but not
a dumb one.

------
beginningguava
People aren't as hyped for iPhone 13ABC and aren't upgrading as soon as
possible. I haven't seen the news covering the multi-day long wait lines at
Apple stores for years.

Microsoft also got it together after dropping Balmer

~~~
mattferderer
I would really like insider insight on the last years of Steve Ballmer. A lot
of the good things Microsoft is doing started under his last few years.
Whether he deserves credit or not, is another story. I know Scott Guthrie gets
a ton of credit from a lot of people for turning the company around,
especially with Azure & Open Source.

I'm also curious what really happened with the Nokia debacle. Microsoft had
some die hard phone fans & many people wish they could have one that ran
Android apps but with the MS Phone UI so they could have the best of all
worlds.

~~~
vtesucks
Surface is Ballmer

3x revenue is ballmer

He quit because gates opposed Nokia deal

Cloud is essentially Ballmer too

~~~
Delmania
These are the key points that people should read. Ballmer is constantly
criticized, yet under his watch, revenue and net income doubled. The release
of the Surface, Azure, and o365 also started under his watch. Natya was a
great choice to take the reins, but the people who think Ballmer was terrible
only paid attention to his poor PR and stock prices. The man knew how to make
money.

------
lostgame
Does nobody seem to remember 18-20 years ago or so when Microsoft actually had
to bail out Apple in order to avoid becoming a monopoly?

~~~
scarface74
It wasn’t a bailout. The monetary amount was only $250 milllion. Apple turned
around and spent $100 million the same quarter to buy out Power Computing’s
Mac license.

A net $150 million wouldn’t make or break Apple even then.

~~~
beautifulfreak
Microsoft paid $150 million, not $250 million. And Apple had $1.2 billion in
cash at the time, so they weren't on the brink of bankruptcy, just headed that
way. It looks as if Apple would have won its patent infringement case against
Microsoft, since there were thousands of lines of quicktime code found in
Windows media player (probably added by mistake, but even so...). That was a
smart deal by Apple, dropping the infringement suit, because Microsoft pledged
to develop Office for Macs. No Office, no Mac sales to businesses. There was a
time when Macs couldn't open Word .doc files, not with formatting intact, so
it was an incredible barrier to communication.

~~~
scarface74
Office was available for Macs before it was available for Windows. Word for
Mac came out in 1984, Excel in ‘85 and PowerPoint in ‘87

Office for Windows didn’t come out until 1990 and it wasn’t very popular among
PC users.

Microsoft promised to continue developing Office for Mac.

------
spinchange
It's always seemed curious to me that Berkshire Hathaway had major positions
in IBM and now with Apple and Buffett and Gates are like BFFs, but BRK has no
position in MSFT and seemingly never will. MSFT has _always_ seemed like the
more BRK-style investment to me than any of them, besides.

~~~
gregw2
lmddgtfy

2018 version: [http://fortune.com/2018/05/05/warren-buffett-berkshire-
hatha...](http://fortune.com/2018/05/05/warren-buffett-berkshire-hathaway-
microsoft-stock/)

1997 version: [https://buffett.cnbc.com/video/1997/05/05/why-buffett-
doesnt...](https://buffett.cnbc.com/video/1997/05/05/why-buffett-doesnt-
invest-in-intel-and-microsoft.html)

TIL: Apparently he bought 1000 shares from Gates pre-IPO? (Source:
[https://www.quora.com/Why-did-Warren-Buffett-never-invest-
in...](https://www.quora.com/Why-did-Warren-Buffett-never-invest-in-Microsoft)
)

~~~
spinchange
I'm familiar with his position on tech companies generally, as was kind of the
premise of the comment (he doesn't "do" tech but does IBM and Apple and he's
BFF's with Gates).

What I didn't understand was there are several CEOs and executives of BRK
portfolio companies on the BOD and why is there a not conflict there, but
would be with MSFT...the reason, it seems to me is none of those portfolio
company execs on the BOD report earnings separately from BRK. (wholly owned)

------
izzydata
It's my impression that Microsoft is invested in a ton of different segments
and Apple is only in a few. If the mobile phone market is Apples huge majority
and it starts to decline it becomes a putting all your eggs in one basket
problem.

------
linuxftw
Microsoft knows how to ink large deals with enterprises to move them onto
their Azure platform and sell them additional products and services. Their
cloud, while IMO the UX is inferior to AWS, is an easy sell to large
corporations with a large MS footprint already. I expect their revenue to keep
growing, but their P/E multiple is a little high IMO.

~~~
joeax
It's inferior to GCP's UX as well. I love many of their products but Microsoft
is overdue for a vast revamp of their UI.

~~~
askvictor
Didn't they do a massive revamp of their ui only a couple of years ago?

------
throwaway456321
What amazes me is apple is that valuable. What do they have that you can't get
much better for much cheaper elsewhere?

~~~
Steko
Show me a phone with much better silicon for much cheaper. I'll wait.

~~~
e12e
Huawei?

~~~
bunnycorn
It's not cheaper and the silicon is much worse.

~~~
e12e
Looks like the huawei p20 pro retails for about 0.6 the price of an iPhone x -
and I'm not sure I'd describe it as _much_ worse? Maybe the cpu? [ed: but I
don't think the p20 qualifiés as "much better and much cheaper" either]

~~~
bunnycorn
[https://i.imgur.com/O3tSaJO.png](https://i.imgur.com/O3tSaJO.png)

The cheaper P20 comes with Kirin 970 (10nm), you'll have to pay $1000 for the
Kirin 980 (7nm), which is worse than a iPhone 7 CPU.

------
woodandsteel
People misunderstand Microsoft. They look at how it dominates both home and
business computing, and so naturally they assume that it must be equally
competent at both. Now it is true that, from the beginning MS has been
brilliant at figuring out how to make software useful to businesses.

However, when it comes to home users, that is not at all the case. What
happened was when home computers started to take off, they were new and so
potential users had no idea which of the many brands that were available were
really good.

But then IBM came along and got into home computing and it had this reputation
of being the king of computing, so everyone just assumed its home computer was
best. and in addition people who had learned to use a PC at work decided to
buy a similar computer for home use.

And so the PC became the overwhelming choice and dragged MS along with it,
even though DOS and the PC architecture were quite inferior to some of the
other choices. And then the GUI was invented by Apple, which is truly expert
at making computing easy for ordinary people.

But then the smart phone came along, and MS stumbled there, so now MS has
intelligently decided to focus on its real strength, business computing.

------
ksec
The market is basically valuing Apple using the old Hardware Company matrix.
Unit Sold, Profit Earn Per Year. An equation used for when you are selling
commodity like Fridge, TV etc. And because consumer can always switch into
another brand in their next purchase, it has a Low P/E.

But in reality the Apple has a software ecosystem lock in, most consumers
don't want to leave the iOS. And most are willing to pay for not having them
worry about their next upgrade move. Now by this point someone would say
Google Photo, Dropbox etc and your data is etc etc. Most consumers, 95%+ of
them aren't geeks. They don't know what is Google Photo, they never heard of
Dropbox.

Apple stock Price doesn't even account for the Asset Apple has, its brand
value, its Cash. And I have been saying for years, if it wasn't a ridicously
large amount of money, Apple would have been an instant take over target.

I really wish / think Apple should start their iPhone Subscription Services
Worldwide. Allow contract with 24, 36 , 48 months of payments with AppleCare+
and iCloud within the period. Your iPhone repair will at least be affordable
by default, along with free Battery Swap during your Subscription period.
iCloud will protect you from Data loss, along with options such as Apple
Music, Apple TV etc. You are allowed one free upgrade during your subscription
period which will reset your cycle again. This way, most users are simply
paying a monthly price and stick to an Apple devices for effectively forever.

The great thing about this is it would be very hard for its Android competitor
to copy. Most smaller players need the immediate cash flow, Android users also
enjoy being able to switch between manufacturer. And if they do, the monthly
difference between an Apple and theirs will be small in numbers in monthly
cost they might actually decide to go with Apple.

------
michaelcampbell
1\. EMBRACEd Linux by buying a board seat on the Linux Foundation

2\. provide a Linux-y OS, and EXTENDed it; but require a proprietary lock-in
by requiring Windows and VS-Code to code for it

3\. Who can guess what happens next?

------
bunnycorn
A few months from now on... Apple is worth much more than Microsoft, and lots
of idiots lost money on this opportunity, how did that happen.

Seriously... fake news, like there are every year of "supply cuts, demands and
whatever"... oh, and "Chinese chips" on the servers too...

------
mbroncano
How did the other way around happen? I still have around that Wired magazine
issue ‘Pray’

------
alkonaut
The iPod and iPhone happened. Otherwise it would still not be close.

------
ry4n413
Recurring Revenue

------
manishsharan
How? Just Bing it and find out how!

------
lotsofpulp
Articles that conflate worth and market cap should be flagged as clickbait.

~~~
iamgopal
How worth and market cap different things ? Isn't market cap reflection of
worth ?

~~~
bunderbunder
Benjamin Graham's "Mr. Market" allegory [1] is a decent illustration of how
seriously we should take fluctuations in market prices.

To take another angle on it: Market cap is simply the number of shares
outstanding, multiplied by the last price anyone paid for a share. This means
that market cap is determined by the tiny minority of people who are actively
trading shares in a company. That group may or may not be deciding what the
company is worth according to the same criteria that you or I or the vast
majority of people who are simply quietly holding on to their shares might
want to use.

[1]:
[https://en.wikipedia.org/wiki/Mr._Market](https://en.wikipedia.org/wiki/Mr._Market),
[http://www.berkshirehathaway.com/letters/1987.html](http://www.berkshirehathaway.com/letters/1987.html)

~~~
addicted
Another way of phrasing that is the market cap is determined by the people who
have the information, and resulting conviction, to put their own money on the
idea that the company may be worth that much.

Further, the reason why the market cap works is because every transaction has
a buyer and a seller. The seller believes the price they are getting is above
what it should be, while the buyer believes it’s below what it should be. As a
result, the actual price is a consensus between people who have very different
outlooks on the company, and as such almost necessarily incorporates a lot of
different, and likely non overlapping, information.

~~~
perl4ever
"As a result, the actual price is a consensus between people who have very
different outlooks on the company"

A better word would be "compromise", since there is no consensus by
definition.

But another point is that I always think of the price of a stock as
deceptively precise. If you measure anything in a scientific sense, there is
an associated +/\- uncertainty. The value of a company always has an
uncertainty and it might be quite large as a percentage of the total size. So
when you look at the price going up and down, maybe it's only fluctuating
within the zone of uncertainty.

------
porpoisely
Microsoft has maintained a decades long monopolistic position in OS and Office
Suite software. It also has a significant presence in corporate software
development ( NT server, Visual Studio, SQL Server, etc). It has been one of
the most valuable and profitable tech companies in the world for a very long
time.

Is this really a nytimes article? Why are we getting these types of articles
from the nytimes of all places? What's next? "Bill Gates is one of the
wealthiest men in the world. How did that happen?"

