Tales And Trials. Two Rich Giants: Apple, Microsoft

Few rivalries in the technology field are as fierce, bitter, divisive, and long running as Apple vs. Microsoft. Paradoxically, both are similar yet very different.

Yet, neither is a true direct competitor of the other. Both are hugely successful for stockholders and their respective executives.

Both are wildly rich. What will Apple and Microsoft do with all their riches?

For all the historical rivalry, Apple and Microsoft don’t really compete directly against each other’s product offerings. Apple designs software and hardware. Microsoft designs software (Xbox360 notwithstanding).

The Mac is a computer designed and built by Apple. It runs OS X, also designed by Apple. Many popular Mac applications, from iLife to Aperture, from iWork to Final Cut, are designed by Apple for Apple’s hardware and OS.

Microsoft, on the other hand, mostly builds software for PCs (Mac Office notwithstanding)—Windows Vista, Microsoft Office, and other tools and applications.

A few exceptions exist. Microsoft has the Zune portable media player to compete against Apple’s iPod. Microsoft has MSN. Apple has a few hundred retail stores. Apple wins design awards. Microsoft wins business deals, high margin revenue growth, and insane profits.

Apple has tens of millions of zealously loyal fans. Microsoft has tens of millions of customers that hate Microsoft.

Both companies share one very important business objective in common. Both are highly profitable and have tens of billions of dollars in the bank. That’s billions.

What have Apple and Microsoft done with their profits through the years, and what will they do with current and future profits?

Just a decade ago, Apple was down to their last one or two billion dollars. Today, the Mac maker has over $20-billion in the bank. Microsoft has even more.

Historically, Apple does not give shareholders a dividend. As long as the stock goes up, shareholders may not mind. Microsoft provides an anemic dividend, but has initiated a number of stock buy back programs to help prop up the languishing stock.

Microsoft also gave back over $30-billion to shareholders. With a 90-percent market share, and 80-percent profit margins, Microsoft can afford to buy their own stock, or give money away.

What of Apple? The Cupertino company does buy other companies, but is notoriously tight fisted with bit purchases, preferring strategic buys such as Logic, FinalCut, and a chip designer.

Microsoft has invested many tens of billions of dollars in ventures which have yet to provide a return on investment, if not significant market share. Microsoft’s search and advertising business is weak and getting weaker. Xbox has never made money.

In fact, despite many tens of billions of dollars available, most of Microsoft’s profits in recent years have gone—not to new technology, not to successful new products, not to improved customer service, or security, but instead devoted to shareholder dividends and stock buy back plans (another was announced this week).

What should these tech giants, long time competitors, fierce rivals do with their many billions of dollars in cash?

Buy Adobe? Buy Yahoo!?

While Microsoft has twiddled their collective executive thumbs, or, put another way, fiddled around while Redmond burned, Apple has moved quickly into new markets—the iPod media player, the iPhone, the iTunes Store, the Apps Store, Apple’s retail stores. Each one a rousing success.

What has Microsoft done in the same time period? Count profits and lick wounds.

I suspect that Apple will continue with whatever world domination plan that co-founder Steve Jobs dreamed up years ago. If Apple’s success over the past five or six years means anything, the company is right on track and not easily slowed, certainly not stopped.

I suspect that Microsoft will continue enjoying the fruits of their once glorious world domination, never fully realizing that the world has changed, is changing, will change. They can either be changed by the world or effect their own change. Right now it’s the former.

What do you think? What should Apple and Microsoft do with their respective tens of billions of dollars?