By Jim Lundy
This post, when you break it down, is about innovation. The contestants are Apple and Microsoft.
Steve Ballmer is now a short-timer at Microsoft, and he is due to retire as CEO in less than 12 months. One aspect of Steve’s tenure that can’t be overlooked is the unstoppable growth of Apple during Steve’s 13-year CEO tenure at Microsoft. The stunning turnaround of Apple while he was CEO of Microsoft may be what Steve will be remembered for most. There is much that Steve did at Microsoft and we will discuss that in other posts and research.
This blog is about the rise of Apple during Steve Ballmer’s tenure as the CEO of Microsoft.
2000: Microsoft Heyday, Apple Struggles
When Steve Ballmer was named CEO of Microsoft in 2000, Apple was barely standing. They were about to report a loss for 2000 with revenues around $6.5 billion. Apple had no new products and the PC industry had hit a setback.
There was no stopping Microsoft in 2000. They had record revenues of $22.96 billion and Windows 2000 was gaining traction. Steve Ballmer’s quote from Microsoft’s Earnings release was bullish: “We are leading the Internet revolution to its next stage, ensuring that the wealth of information and resources out there works together easily and seamlessly.”
At the same time, Apple had explaining to do. “The swift industry-wide decline in PC sales will result in Apple’s first non-profitable quarter in three years,” said Apple’s CEO Steve Jobs in their earnings release. “We’re not happy about it, and plan to return to sustained profitability next quarter.”
2001: Apple Starts the Mobile Era with the iPod
The very next year, Apple introduced the Apple iPod. The mobile era was here but no one really looked at it that way. Sony was and remains a big loser to the iPod. Generations of kids knew the Sony Walkman but after 2001, that brand faded into obscurity.
My kids loved the iPod and we have nearly every iPod model ever made. I vividly remember how they had to show me the touch functionality.
2007: The Apple iPhone Launch
2007 was a telling year for Apple: It was the year that they introduced the Apple iPhone. Microsoft continued to roll on with nearly an unstoppable force.
I was at Gartner in 2007 and there was an anti-establishment feeling about the iPhone. “It isn’t secure” was the first statement and the first ones were not. That didn’t stop adoption. Our son negotiated with us to get an iPhone and when we moved to California in 2008, he got one.
I actually asked Steve Ballmer about the iPhone during a session at Gartner Symposium in 2008. He smiled before he answered me and said, “The iPhone is for rich people.” I laughed and responded, “Steve, I’m not rich and my son has one.” Of course, the stares he gave his PR people were intense, but Steve kept it lighthearted. “I need a better line” was his only reply.
2010: The Tablet Era Arrives
The tablet era really arrived in 2007, but it took a larger device, the iPad, to make everyone believe. The iPhone was really the first next-generation tablet. That said, our take is that the Microsoft Courier was probably a better device, but Microsoft killed it. To this day, I wonder if Bill Gates and Steve Ballmer regret that decision.
Putting that aside, Microsoft tried to pre-empt the iPad announcement in 201o with its own demo of what Steve called Slates. The demo was on January 6th, 2010 and it had zero impact on the Apple iPad announcement on January 30th.
2013: The Decline of the PC, Micrsoft Buys Nokia
PCs are not being bought with the same velocity as they were in the past and the revenue and earnings of Dell, HP, and Lenovo bear that out. Today, tablets are the growth platform and everyone is racing to offer the next cool tablet.
The challenge we feel is more in the ecosystem and the apps that the device and the OS can enable. Microsoft knows it cannot be left behind, so in September 2013, they announced they were buying the Phone Division of Nokia (see Aragon First Cut: Microsoft Buys Nokia Phone Business).
We expect that Microsoft will make other moves in mobile before the end of the year. Don’t count them out.
Apple Revenues Are Double the Revenues of Microsoft
In the last 12 years, as Apple grew, Microsoft grew, too, but Apple grew at a much faster clip. For its most recent 2012 fiscal year, Apple’s full year revenues were $156,508 billion. Microsoft’s full year 2012 revenues were $73,723 billion. This puts Apple at twice the size of Microsoft, revenue-wise.
For many, Apple’s rise is a stunning reversal of roles from 2000, just 13 years ago. No one, including yours truly could have predicted this return to glory for Apple.
Ballmer Legacy
For Steve Ballmer, SharePoint will be remembered as one of his major successes during his CEO tenure, as will Office 365. Microsoft Office 365 got off to a slow start, but it has been gaining traction in the last 11 months, much to Google’s chagrin.
There are still many questions that remain to be answered about Microsoft’s new integrated strategy (hardware and software). Most of them will have to be answered by the next CEO. Apple faces similar questions on succession.