Microsoft Stalling, Apple Growing

When will Apple have more revenues than Microsoft? How about later this year?

by Adam Hartung

Many of us remember the first Apple vs. Microsoft battle. Apple pioneered much of the personal computer business, and led the innovation curve for years with its implementation of the mouse and on-screen graphics. But eventually Microsoft successfully copied the innovations with Windows, and went on to drive Apple to the brink of bankruptcy at the turn of the millennium. At that time, it was inconceivable that Apple would ever challenge Microsoft for sales domination.

Source: Robin Bloor, Bloor Group, Reproduced in SeekingAlpha.com

But the impact of a decade of Defend & Extend Management has left Microsoft with little to no growth. Its growth in operating systems now looks like it has been a single quarter event, with the OS7 launch which has done little to drive new PC sales. Meanwhile, office automation products actually saw a net decline in revenue year-over-year last quarter. Signs of a growth stall are imminent for Microsoft – and we all know that fewer than 8% of companies ever consistently grow at a mere 2% once revenues stall for two consecutive quarters.

It’s not often we see a big company stall, and then falter. But I’ve been predicting this for months through this blog. Microsoft has been working at Defending its “base” but it has done too little trying to enter new markets and find growth. As people shift to mobile devices – from the smartphone to ereaders – Microsoft simply is seeing its “base” in the PC market threatened. How many PCs will be purchased in 2015? Versus how many smartphones or iPads (there will be 12million iPads sold in 2010 alone).

This inability to maintain growth translates into serious value deterioration for investors.

We now can see that Apple is entering new markets, and gaining revenue at 20-40% per year by moving beyond Defending the Mac. Because Microsoft has not done something similar, preferring Defend & Extend Management applied to old markets rather than applying The Phoenix Principle and getting into new markets aggressively, not only is its revenue superiority threatened, but Microsoft most likely will have a lower market capitalization than Apple within a few months

If it seems like I’m beating this horse – well it’s not often we see the kind of changes happen to competitors in such short time as we’re seeing happen to Microsoft and Apple. It takes more than a little courage to predict the demise of a behemoth (see “Microsoft’s Dismal Future” at Forbes.com) that has had near-monopolistic power in a market the way Microsoft has.

More importantly, more companies are behaving like Microsoft in 2008-2010 than acting like Apple. And that is a shame. Until management teams reverse their thinking, how can we expect America to successfully return to high industrial growth rates and job creation?

There is little about Microsoft to excite investors. I’d go so far to say that there’s little more exciting about Microsoft than there is at General Motors, or AIG. These companies are huge, and were once great, but unending defense of their outdated Success Formulas is leaving them extremely vulnerable to decline and failure.

In the end, you have to ask yourself – do you want to be Microsoft in three years, or Apple? Do you want to be working hard to maintain revenues and valuation – or growing and driving higher value? I think most of us know which is better. It’s time we start

1. using scenario planning to develop future plans
2. obsess about competitors so we learn better ways to compete
3. implement disruptions to move our businesses into growth markets and
4. use White Space teams to help us update into new Success Formulas.

Companies that follow these four steps of The Phoenix Principle can expect to have a great 2011. They can perform like Apple, Google, Cisco Systems, Virgin, Nike, Johnson & Johnson. For everyone else, we can expect growth stalls and, well, …

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Adam Hartung, author of “Create Marketplace Disruption“, is a Faculty and Board member of the Lake Forest Graduate School of Management, Managing Partner of Spark Partners, and writes for “Forbes” and the “Journal for Innovation Science.”