Contact us anytime to know more — Kuldeep K., Founder & CEO CISIN
Apple and Microsoft are two of the best-known and legendary rivals in business history, established separately in Silicon Valley during the 1970s as major competitors for home computer industry supremacy during their early days (Windows still holds 73% of global desktop OS market share at present).
However, this struggle continued well into the new millennium when Apple unveiled the iPhone, which opened up new frontiers of "apps" and mobile computing eras.
Apple and Microsoft remain industry titans today, each taking turns holding the top position as America's most valuable public businesses.
These two firms continue to vie with one another. Still, this essay aims to prove otherwise by exploring which of them has the more robust business strategy and why Apple and Microsoft no longer compete fiercely.
Introduction
Apple vs Microsoft which is better? I will explore similarities and distinctions between Apple and Microsoft in this essay, noting their competitive environment as the source of innovation.
It has long been acknowledged that competition leads to advancement and invention. Competition between Apple and Microsoft for control over markets and technology sectors has led to significant advancements within these areas, evidenced by their respective rankings on Fortune's list.
Apple was ranked 17th overall, while Microsoft was 37th (Noga 20).
There is an unfortunate misconception that both businesses are synonymous. Computer enthusiasts, on the other hand, appreciate both businesses offering software.
When it comes to computer production, they represent two well-known firms. Apple Inc., originally known as Apple Computer Incorporated, primarily specializes in developing, manufacturing, and designing gadgets like smartphones.
Microsoft provides, licenses, and supports computer software programs (Noga 22).
Apple's Business Model
Apple's business strategy centres around consumer electronics and hardware products. Let us look at its divisional revenue breakdown to gain more insight into its business model.
Apple divides operations into four categories: wearables, home accessories, Mac computers, iPads, and iPhones.
A summary:
- The sections dedicated to iPad, Mac, and iPhone are self-explanatory.
- Wearables, Home, and Accessories include sales of Beats devices, AirPods, Apple TV, Apple Watch, HomePod, and iPod touches as well as their associated accessories.
- Apple Services include digital content (App Store), cloud computing services such as AppleCare, sales from its advertising campaign, payment processing, and other related offerings.
Right off the bat, it is evident that Apple's flagship product and primary source of income remains the iPhone, given that it remains one of the world's most beloved smartphone brands.
Every new release's success will continue to have an enormous impact on its financial results.
Apple is quickly making services its primary source of growth. Two main drivers explain this trend. First, its Services division boasts higher gross margins - 70% compared to 35% compared to other hardware product categories.
Apple services are subscription-based. Services like AppleCare, iCloud storage space and music, Apple Music streaming subscription, and TV+ incur ongoing monthly or yearly charges; Apple derives consistent and reliable revenue through these subscriptions, while most consumers only purchase new gadgets every few years.
Microsoft's Business Model
Microsoft is focused on software and cloud computing as the two pillars of its business strategy, though gaming, social networking, hardware manufacturing, search (LinkedIn), and hardware assembly are also significant parts of its portfolio.
Their operations can be divided into three distinct business segments - More Personal Computing, Intelligent Cloud, Productivity, and Business Processes.
Key product categories can further be divided into these four areas.
Productivity And Business Processes
- Office subscriptions and products are available to consumers and commercial entities for Office use.
- Office includes subscriptions and products for Office Consumer and Office Commercial use.
Intelligent Cloud:
- Azure and other cloud services are part of server products and cloud services.
- Microsoft Consulting Services and Premier Support services are included as enterprise services.
More Personal Computing
- Windows includes the license for its operating system software.
- Devices encompass sales of Surface and PC accessories.
- Gaming covers video game sales and services and subscription services like Xbox.
- Bing's advertising revenue comes primarily from search ads.
Windows, Server products and cloud services, Office software applications, and gaming are the four top categories in terms of revenue.
As Microsoft is well known, its business plan entails diversifying revenue sources to maximize growth. Their flagship products, Windows and Office, remain among the world's most widely used desktop operating systems and office productivity suites (I wrote this post using Microsoft Word on a Windows laptop.).
PlayStation and Microsoft's Xbox have long battled each other in the gaming industry for two decades, even as Sony's PlayStation outsold Microsoft's Xbox over time.
Even though Microsoft considers Xbox a partial success due to owning other publishers/creators/publishers besides just themselves, their announcement about buying Activision Blizzard, which makes Call of Duty/Warcraft titles, will further consolidate Microsoft's position within its expected US$200B industry.
Microsoft's cloud computing division has long been considered its main growth engine. Thanks to a pandemic-induced digital shift, our lives and jobs have become more digital, prompting an expected $1.3 trillion global cloud market by 2025.
As enterprise clients gradually migrate away from traditional enterprise computing environments toward cloud-first environments, Microsoft -- now second in this global cloud market -- can rely on this segment.
Satya Nadella has publicly highlighted the significance of cloud technology to Microsoft: 'Our core purpose at Microsoft is providing productivity and platform services in today's mobile-first, cloud-first world.'
Read more: Apple's Software Revolution: Streamlining and Expanding for Maximum Impact - What Will It Cost?
Financial Performance
Let us compare their important financial ratios quickly. At first glance, Apple stands out with an extraordinary return on equity (ROE) rate of 147.44%; Microsoft also stands out with an outstanding ROE figure (47.08%; an ROI rate of 15% or greater is considered sufficient.)
Apple's ROE is impressive due to the company's aggressive share buyback program. Since 2007, they have been purchasing shares at an alarming pace, which may continue for another fifteen years or more.
Furthermore, their higher debt-to-asset ratio indicates more leverage used within its capital structure - one with a more significant debt load decreases equity percentage and thus increases return on equity.
Microsoft's business model--selling software typically yields higher margins than selling hardware--allows it to enjoy superior gross and net profit margins.
Within five years, Apple and Microsoft have performed exceptionally well as leading IT corporations. Apple saw its revenue jump 60% year over year to US$365.8 billion while net profit spiked 96% year-on-year to reach 94.7 billion; during that same period, Microsoft increased both net profit by 140% to US$61.2 billion while sales expanded 74% year-over-year to US$168.1 billion.
Similarities
One thing unites Microsoft and Apple as businesses: their founders represent one point of similarity: both were brilliant people in business renowned for their achievements worldwide.
Microsoft co-founder Bill Gates is known to people worldwide for fulfilling his goal of placing computers on billions of desks worldwide, while Steve Jobs, co-founder of Apple and an excellent businessperson himself, possessed great entrepreneurial abilities; both had been listed amongst the 25 world-most-important individuals from 2004-10 (Noga 26).
Both companies produce portable media players and smartphones - which Apple quickly capitalized upon in response to Microsoft's production of Zune High Definition (Noga 30).
Apple responded with the iPod Touch. Both devices offered 30GB storage, holding over 7000 audio files each, and MP4 and MP3 support systems. Both businesses also produce phones bearing specific branding.
Apple boasts the iPhone, while Microsoft offers its well-known Windows phone. Apple and Microsoft have established parallel stores to better service their customer needs and give access to these items.
Applications are sold exclusively in these branded stores, such as Windows Phone Store and iTunes Store, respectively, for their devices.
Both companies manufacture tablets (Noga 35); Microsoft produces the Surface, while Apple creates iPads. Although their differences are evident, both instruments share many characteristics that cannot be ignored: both are premium categories of the tablet market with touch screens and similar thicknesses and were quietly introduced at similar times.
Surface was explicitly created to compete with the iPad's nearly overwhelming presence.
As previously discussed, both businesses share retail locations; many may find this surprising given that Apple boasts more than 200 store locations while Microsoft only owns 20 (Noga 40).
However, their environments at these stores remain primarily similar.
Differences
Apple is widely revered in the electronics industry for creating entertainment gadgets like iPods and personal computers that meet customer demand and developing product advancements to satisfy them.
Meanwhile, Microsoft stands out with its Office suite, Windows operating systems, apps, and Office suite. In contrast, Apple dabbled with software development, creating both iLife (an Apple multimedia program) and Nuga 42 (another well-known multimedia program).
Additionally, they employ different strategies when entering their markets (Noga 45). Microsoft takes an aggressive and forceful approach when entering markets, seizing any novel concept that arises and using it to establish supremacy over competitors like Apple.
While Microsoft primarily seeks dominance rather than profitability for profits, Apple works to develop its ideas while meeting market requirements through innovation; for example, developing concepts through maturity through market analyses before offering them directly to consumers, as opposed to Microsoft, which prioritizes dominance over profitability despite products offered for sale.
Apple's approach to marketing online features is typically minimalistic (Noga 49). They claim their clients lack time or are too time-constrained to search extensively through the internet in search of solutions.
However, their marketing plan offers several choices so the client may take his/her time looking for what he/she believes to be the best option - offering regular advice via wizards to guide customers towards finding it quickly. Critics use this tactic as evidence that both entities target the same market: customers.
Pros And Cons Of Investing In Tech Stocks
Before buying shares in Apple, Microsoft, or any other technology company, investors must understand all their benefits and drawbacks.
Pros
-
Significant growth potential: Recent years have witnessed tremendous technological stock gains, providing investors with numerous investment opportunities.
Early investment into any such enterprise can yield huge dividends; investors who take this path often reap great returns.
- Technology is the future: As evidenced in financial services, healthcare, travel, and other industries, technology remains at the core of daily operations in more sectors - it will only become more prominent over time.
-
High demand: Technology remains highly valued by society and equity markets alike, both during market distress and periods of rising markets.
Tech stocks constitute an overwhelming portion of S&P 500 indexes like this one.
Cons
-
High valuations: Technology businesses may be valued more on what their investors project they will accomplish than what has occurred, with any fall shorts falling into disfavor.
When businesses fall below specific standards, this can become detrimental.
- Limited diversification: Investment in technology stocks need not be seen as harmful; however, limiting yourself exclusively to these stocks could leave your portfolio less diverse and more exposed to market fluctuations.
- Not known for dividends: Investment in technology stocks need not be seen as harmful; however, limiting yourself exclusively to these stocks could leave your portfolio less diverse and more exposed to market fluctuations.
Conclusion
As is evident from their discussion, both businesses differ and share similarities; however, due to direct competition, differences tend to outshout similar traits as each business attempts to outwit its rival.
Apple vs Microsoft's marketing strategies are engaged in an innovation war that transcends physical products; rather, it embodies ideologies, business plans, and future aspirations that vie with one another for dominance in their respective tech fields.
As Apple and Microsoft compete to find what could become their "next big thing," tech fans should get excited as this industry faces exciting days ahead.
