Here’s where things stood at the end of 2018 in the technology revenue race:
4th place isn’t so bad, right? In the technology market cap race, Microsoft does a little better, though technology market cap rankings change all the time:
Microsoft – which has flirted with trillion dollar valuations – will be bigger than Apple, Amazon and Google – but not Walmart – if it does a few things – and Apple, Amazon and Google don’t do the same ones, which they will have a much harder time doing. Let me explain.
The success of Microsoft (and other mega technology companies) in the 20th and early 21st centuries, though not always in a straight line, is explained more by market trends and technology trajectories than by genius strategic management. Lots of companies profited from the technological revolution. Mistakes are tolerated when PCs, tablets, smartphones, networks and software applications are flying off the shelves. Of course, Microsoft won the standardization race a long time ago as it continues to “force” Windows on all of those machines. Remember how hard it fought hard during the Netscape browser war so many years ago? Most have no memory of the turbulent times at Microsoft when Bill Gates seemed to always be fighting with someone about something.
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But that was then. For a long time – and still today – Office and Windows have been cash cows. Xbox is another. Azure is growing – fast. But what does the revenue list look like and why is the list the reason why Microsoft will be bigger than Apple, Google and Amazon? According to its 2018 Annual Report, Microsoft makes money from lots of different products and services, including:
- Office Products and Cloud Services
- Server Products and Cloud Services
- Search Advertising
- Enterprise Services
The list might also include some patent revenue and some other sources yet to be developed or acquired. Which is what Microsoft must continue to do: maintain – and grow – a wide, deep, balanced, integrated corporate/consumer revenue mix. This is the key to their growth – and power in the technology world.
The Corporate/Consumer (C2) Growth Strategy
Regardless of how it happened, Microsoft has managed to do something unique in the technology sector. According to Microsoft:
“Our products include operating systems; cross-device productivity applications; server applications; business solution applications; desktop and server management tools; software development tools; and video games. We also design, manufacture, and sell devices, including PCs, tablets, gaming and entertainment consoles, other intelligent devices, and related accessories. We offer an array of services, including cloud-based solutions that provide customers with software, services, platforms, and content, and we provide solution support and consulting services. We also deliver relevant online advertising to a global audience.”
If we rephrase how Microsoft describes itself, it might sound like this:
“Our products include business tools, like operating systems; cross-device productivity applications; server applications; business solution applications; desktop and server management tools and software development tools. We also provide tools for consumers, especially gaming tools. We design, manufacture, and sell devices, including PCs, tablets, gaming and entertainment consoles, other intelligent devices, and related accessories for everyone – businesses and consumers. We support the tools with a host of services, including cloud services that provide customers with software, platforms and content, and we also provide solution support and consulting services. We also deliver online advertising to a global audience. We traverse the corporate and consumer worlds unlike any other technology vendor.”
- Microsoft is well-positioned – perhaps the best positioned– to integrate and exploit the converging consumer and corporate (C2) markets – which is the key to their eventual revenue and market cap dominance.
- Digital integration is already happening and will continue to increase as the gaps between work, play, home, office, old and young all shrink from what might be called ubiquitous computing.
- Microsoft also owns computing infrastructure. Like air bags in the auto industry, operating systems, browsers, and standardized applications like Office are product and profit staples.
- Microsoft owns a huge share of the gaming market.
- It also owns LinkedIn and all of its tentacles.
The superglue is vertical market penetration – markets that are also bleeding into companies and homes. Education is one that should be in Microsoft’s crosshairs, or, more accurately, Google and Apple should be in its crosshairs, since they’ve already heavily penetrated the education market. Media and entertainment is another. Since all vertical markets are converging toward blurred corporate/consumer integration, Microsoft can afford to be more aggressive investing in vertical markets than perhaps was the case a decade ago. Since just about every application, data base and service will be in the cloud, Microsoft should increase its already huge investment in Azure.
Microsoft should also use its corporate/consumer product/service mix to guide its C2acquisition strategy. The trends here should determine where they look, but suffice it to say that Microsoft should acquire companies that own specific shares of corporate and consumer markets where Microsoft’s infrastructure (like Windows and MS Office) can be exploited – and integrated. Its acquisition pace should increase well beyond the 19 acquisitions it made in 2018 (which was almost twice the number of acquisitions made by Google and Oracle). The two-pronged acquisition strategy should be focused on corporate/consumer products and services, and, of course, the computing and communications infrastructure that supports them all – which becomes the ultimate due diligence filter through which acquisition decisions should be made.
It’s Microsoft’s to Lose
Some of Microsoft’s competitors can copy the C2strategy. But none of them has the computing and communications infrastructure that Microsoft has, and recently Microsoft has even shown some impressive computer design chops leading at least one analyst – Mike Murphy – to state that “Microsoft is Apple Now.” Google makes a lot of things and owns search, but its infrastructure pales in comparison to Microsoft’s. Amazon is a creative global distributor that will continue to buy into new vertical industries but it will never be able to fully exploit them computationally. The corporate/consumer integration process will accelerate and reduce ambiguity about the trend, but it may be too late for Microsoft’s competitors to interrupt the future that Redmond can create. Apple needs more consumer products ASAP but still lags in the corporate market. Its iPhone-centric strategy, while flexible, is risky and assumes that the smartphone market will remain Apple’s to lose.
This will be fun to watch, don’t you think? The war among the technology giants is well underway and will continue to accelerate. But what about Walmart? If revenue is the indicator we use to measure bigness, Walmart is the elephant in the room – and then some. Over 10,000 stores in 28 countries; e-retail in 11. It’s revenue in 2018 was $485B. Microsoft’s was $110B. Different world, different game. But among the techephants, Microsoft can win.
Date: June 12, 2019