Dries Buytaert

This week I was in New York for a day. At lunch, Sir Martin Sorrell pointed out that Microsoft overtook Apple as the most valuable software company as measured by market capitalization. It's a close call but Microsoft is now worth $805 billion while Apple is worth $800 billion.

What is interesting to me are the radical "ebbs and flows" of each organization.

In the 80's, Apple's market cap was twice that of Microsoft. Microsoft overtook Apple in the early 90's, and by the late 90's, Microsoft's valuation was a whopping thirty-five times Apple's. With a 35x difference in valuation, no one would have guessed Apple to ever regain the number-one position. However, Apple did the unthinkable and regained its crown in market capitalization. By 2015, Apple was, once again, valued two times more than Microsoft.

And now, eighteen years after Apple took the lead, Microsoft has taken the lead again. Everything old is new again.

As you'd expect, the change in market capitalization corresponds with the evolution and commercial success of their product portfolios. In the 90s, Microsoft took the lead based on the success of the Windows operating system. Apple regained the crown in the 2000s based on the success of the iPhone. Today, Microsoft benefits from the rise of cloud computing, Software-as-a-Service and Open Source, while Apple is trying to navigate the saturation of the smartphone market.

It's unclear if Microsoft will maintain and extend its lead. On one hand, the market trends are certainly in Microsoft's favor. On the other hand, Apple still makes a lot more money than Microsoft. I believe Apple to be slightly undervalued, and Microsoft is to be overvalued. The current valuation difference is not justified.

At the end of the day, what I find to be most interesting is how both organizations have continued to reinvent themselves. This reinvention has happened roughly every ten years. During these periods of reinvention, organizations can fall out out favor for long stretches of time. However, as both organizations prove, it pays off to reinvent yourself, and to be patient product and market builders.