Apple vs. Google vs. Microsoft: Battle for digital supremacy

This article is reprinted from the book Digital Wars: Apple, Google, Microsoft & the Battle for the Internet, copyright 2012, with permission of publisher Kogan Page, all rights reserved.

Digital Wars

On August 9, 2011, Apple's market capitalization briefly rose to $341.5 billion, edging it just ahead of Exxon, until that morning the highest-valued company in the world. The company Steve Jobs had co-created putting together computers, the one that Michael Dell had suggested shutting down 14 years earlier because it had no future, was now worth more than any other. The stock fell back by the end of the day, but it had made its mark; the transformation of Apple from financial basket case to ruler was complete. At the end of the day it was worth $346.7 billion; Microsoft was worth $214.3 billion and Google $185.1 billion.

Compared to the end of 1998 (Apple $5.54 billion, Microsoft $344.6 billion, Google $10 million), the aggregate wealth of the companies had more than doubled. Microsoft, though, had shrunk by 40%, after being outdistanced first in search, then in digital music and then in smartphones -- in the latter category by both companies.

The companies had changed enormously. Google was soon to celebrate its 13th birthday, having roared from a three-person garage start-up to web giant; it was struggling too with having nearly 29,000 staff worldwide. Larry Page, once more the chief executive, was forcing the divisions to justify themselves, getting divisional heads to explain their projects in soundbite-length memos. His greatest concern was that Google was getting too big and slow to act: "Large companies are their own worst enemy," he said in September. "There are basically no companies that have good slow decisions. There are only companies that have good fast decisions."

Where Apple hadn't heard of Google 13 years before, now it had gone from having a common cause against Microsoft to being just a business acquaintance, and sometimes opponent; Apple and Microsoft bid together against Google for patents covering the mobile business. Apple was seeking to disintermediate Google from search with the cloud-based voice search of its upcoming iPhone. And they were constantly niggling each other in smartphones and tablets. Even so, by September 2011 the majority of mobile search still came from iPhones, according to Google testimony at the US Senate.

Apple had changed. From just under 10,000 full- and part-time staff in September 1998, it had grown to being 50,000 strong, though around 30,000 were in its retail store chain; the core of the company in Cupertino remained small and relatively tight-knit. The old enmity with Microsoft still flickered occasionally, but strategically they almost ignored each other. Apple's position in PCs was set at 5% of the market. It had won in music. It didn't do search. Its position in phones and tablets had pushed Microsoft to playing catch-up; yet the Redmond company could rely on the sheer heft of 1.5 billion PC installations to ensure a stream of replacements and of new sales for Office. Apple's value, revenues and profits had all passed those of its old rival. Its reputation had been transformed from put-upon also-ran PC maker to world-spanning design brand. Tim Cook's influence was visible in its inventory, whose value was equivalent to three days' hardware sales.

Microsoft, by contrast, had gone from world-beater to catch-up. The staff at Microsoft (90,000 worldwide, compared to 27,000 in summer 1998) were a little battle-weary too. As Steve Ballmer, still the chief executive, spoke at the September 2011 all-hands company meeting in front of 20,000 employees, some simply got up and left, unhappy at the 'cloud computing' strategy, the stock's lack of movement, and the lack of excitement at their employer. The version of Windows that would truly work on tablets was still a year away. Microsoft seemed mired in its fabulously profitable past - not a leader or innovator in search or on mobiles or tablets or anything. People began whispering that Steven Sinofsky, who had conquered internal politics and got the Windows team to grapple successfully with the future of tablets and chip architectures, might be chief executive material.

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