Apple Outsmarts Microsoft: How Apple Gained Competitive Advantage - Essay Sample

Introduction

Fierce competition among companies, together with the advancement in technology makes it difficult to gain a competitive advantage. It took Apple several years to gain a competitive advantage over Microsoft. Apple was on the verge of collapse, and it had to adapt and be creative and innovative (Rothaermel, 2019). What made it even more difficult was that Microsoft was well established, commanding a considerable share of the market so to gain competitive advantage, Apple had to introduce superior products.

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Sustaining competitive advantage is harder than gaining it. Market forces are ever-changing, and competitors are investing in technology and skilled labor to gain a competitive advantage. A good example is the smartphone industry where new phones are introduced frequently with new features. It takes only one release to gain a competitive advantage. Since competitors have no control over resources, sustaining competitive advantage is difficult. It is not easy to attain customer loyalty, and even if a company attains it, a superior product by a competitor shifts the odds in their favor. The other factor that makes it hard to sustain a competitive advantage is the ease of copying or imitating (Economou & Chatzikonstantinou, 2009). Google is believed to have coined the idea of the cloud (Regalado, 2011). However, Microsoft has copied the idea and may end up making better use of it (Regalado, 2011).

Competitive Advantage of Microsoft versus Apple

Apple has a competitive advantage overall, but in some approaches, Microsoft has a competitive advantage. One of these approaches is the Return on revenue, which is a ratio of net profits to revenue. The ratio determines what part of the sales is converted to profits. In this case, Microsoft had a ratio of 21.5%, while Apple had 20.6% (Rothaermel, 2019). In terms of shareholder valuation, Apple had the edge over Microsoft. This is measured using market capitalization, which is a product of the number of shares and the price of each share. The reason Microsoft lagged behind Apple is its transition to cloud that saw a decline in its valuation. However, the market cap has increased steadily, and if the transition is a success, Microsoft is on course to regain a competitive advantage. One ratio that points to this that makes Microsoft look 'best' is the intangibles to revenue ratio. Microsoft has a ratio of 4.4% as compared to 1.5% for Apple (Rothaermel, 2019). This superior ratio means that Microsoft is building a stronger intangible intensity, thus placing the company in a position of power in the future.

Nadella's Microsoft Strategy

Microsoft's initial strategy involved the creation of a market for its Windows-based operating system and then selling software such as Microsoft Office that works with the software to its users (Rothaermel, 2019). Personal computers and servers used Windows operating system with some coming preinstalled. The users then had to pay for software through monthly or yearly subscription, which helped Microsoft to gain command of the industry.

Microsoft Chief Executive Officer, Satya Natella's strategy of 'mobile-first, cloud-first' is designed to move Microsoft from its previous strategy (Rothaermel, 2019). Part of the strategy involves selling software through the cloud where customers pay monthly subscriptions as opposed to the issuance of licenses. The new model is a genius idea that in the long-term will help Microsoft gain a competitive advantage. Cloud-based software offers its users the latest software that can be used anywhere and allows online collaboration. It is also advantageous for the company as it will reduce cases of piracy, thus increasing revenue from sales. From a shareholder perspective, Microsoft is fast increasing its valuation following increased confidence by its shareholders, which saw its valuation in terms of market cap double to over 500 million in 2017 (Rothaermel, 2019). Therefore, the future promises to be bright under the current CEO with the new strategy paying dividends.

References

Economou, V. P., & Chatzikonstantinou, P. G. (2009). Gaining Company's Sustained Competitive Advantage, Is Really a Necessary Precondition for Improved Organizational Performance? The Case of TQM. European Research Studies, 12(3). ftp://ftp.repec.org/opt/ReDIF/RePEc/ers/papers/09_3_p7.pdf.

Regalado, A. (2011). Who coined cloud computing? MIT Technology Review. Retrieved from https://www.technologyreview.com/s/425970/who-coined-cloud-computing/

Rothaermel, F. (2019). Strategic Management. New York, NY: McGraw Hill.