Gates vs. Jobs: The Rematch — 20 years ago today
How Apple compares with Microsoft today compared to 20 years ago when my Wall Street Journal editorial predicted that Steve Jobs would ‘gain significant market share’ on his old buddy Bill.
March 2000 was post-commercialization of the Internet but pre-smartphone. Even the greatest futurist at the time could not have predicted the impact the Apple iPhone IOS and its grand imitator Android would have on global culture and economics.
By the date of my March 13th, 2000 Wall Street Journal editorial below, Steve Jobs had imagined the first iPod, but he did not unveil it until Macworld in October of 2001. Led by Steve Jobs, the PC industry was about to make a dramatic shift into high speed and create trillions of dollars of new wealth in its wake.
Cutting through all the geek talk about Apple’s new modern OS X operating system, and all its leapfrog benefits, the real inspiration for this editorial was knowing that Steve Jobs was going to make the PC industry (to borrow his favorite adverb) ‘insanely’ interesting again. And when you do the basic math, Jobs’ drive to create insanely great products catapulted during this period created the most valuable company on the planet by 2012. In August 2018, Apple would become the first public company to cross the $1 trillion market cap value line.
If one adjusts the stock prices for Apple, Microsoft, and Google on March 13, 2000, for dividends and splits, Apple’s stock has gone from $3 to $210, and Microsoft went from $31 to $141. Google was a private company in 2000, having been founded in 1998, so it's market cap wasn’t public at the time. Google went public on August 19, 2004, at $54 per share (adjusted), valuing the company at more than $23 billion at the time, compared to a stock price of $1,235 and a market cap of $857 billion today.
All in all, the three tech Goliaths have created a whopping $2.5 trillion in new market cap since 2000. To think the consensus back in 2000 was that all things cool about the PC had largely been invented, and all we could hope for was smaller and faster.
To Microsoft’s credit, after losing its way under Steve Ballmer for several years, Microsoft miraculously regained its title as the most valuable company in November 2018. Under the brilliant management of Satya Nadella, who was appointed CEO in 2014, Microsoft’s stock has tripled, driven by a 27 percent annual revenue growth rate.
To be sure, Apple, Microsft, and Google are very different companies. To do a thorough analysis, here assigning market value numbers to the specific innovations that drove that value created by each would be too complex for this post. The monumental event of this era was the emergence of the phone as a new PC. The smartphone put Internet access on steroids. By mid-2018, for the first time, over half the citizens of the world (3.8 billion people) are officially connected to the Internet — representing the greatest record of market penetration known in commercial history.
The other key innovation during the 2000s was the cloud. The Holy Trinity of enterprise cloud services: Amazon AWS, Microsoft Azure, and Google Cloud, now represent $15 billion in revenue and growing at an incredible 58%. And this stuff is still peanuts compared to the revenue generated by all the consumer apps like Netflix, Apple Store, Spotify, HBO NOW, and up-and-comers like Twitch, Tinder, and Square’s Cash App, all largely accessed by smartphones and tablets.
In retrospect, I am not sure whether Mr. Jobs nor Mr. Gates could have imagined the trillions of dollars of wealth they would create in the last 20 years. As always, Mr. Gates played the PC business game like he plays Bridge—win and dominate. “Bridge helps you think. It’s a game you can play your entire life and keep getting better and better. It’s also deliciously simple in the rules but deliciously complex in doing well,” he says.
On the other hand, Mr. Jobs was driven by the belief that if Apple made products that ‘delighted’ people, they could win the PC game over time. But he eschewed customer surveys in hist pursuit of product delight. “Get closer than ever to your customers. So close, in fact, that you tell them what they need well before they realize it themselves,” shared Mr. Jobs.
When referring to Bill Gates, Mr. Jobs once said, “He’d be a broader guy if he had dropped acid once or gone off to an ashram when he was younger. Doing LSD was one of the two or three most important things I have done in my life.” (While we are on the subject of psychedelics, we highly recommend Michael Pollan’s How To Change Your Mind: What the New Science of Psychedelics Teaches Us About Consciousness, Dying, Addiction, Depression, and Transcendence).
To catch Microsoft, Mr. Jobs went from 3% to 14% in PC market share, pioneered a hugely profitable smartphone business, dominated the Tablet PC market (70% market share), and building a hugely successful services business (includes Apple Music, Apple Pay, iTunes, and the App Store, iCloud and Apple Care, and licensing). In Apple’s services unit, it more than doubled from $16.1 billion in sales in 2013 to $37 billion in 2018. It is now the second-largest contributor to overall sales behind the iPhone, which accounted for 63 percent of total sales in 2018.
With the passing of Steve Jobs and Bill Gates focused on saving the greater humanity, only the good Lord above can predict what will be in store for the PC industry over the next 20 years. My bet is because each of the current Big Tech Four (Microsft, Apple, Google, and Amazon) have made their livelihoods off of the centralization of computing and commercial power, they are all ripe for major disruption. The next chapter of innovation will be driven by millions of highly distributed blockchain applications with no central administrators. As Facebook is attempting to do with Libra, each of Big Tech brands will need to pivot and embrace the new reality of how the distributed ‘trusted network’ model will dramatically upend the way the world conducts commerce. The most impactful consumer trend in the current boom is the next generation’s complete and total mistrust of institutions and their insistence on transacting peer-to-peer, whether it comes to sending cash, hailing a ride, or ordering in. The impressive list of Libra supporters illustrates how many of the world’s biggest brands are starting to get it and at least hedging their bets on the new paradigm.
As I did in my editorial conclusion below, I will ‘stick out my neck out’ and bet that Apple will be—given its life-long commitment to customer privacy and security—the least disrupted of the Big Four in the next 20 years. Google, on the other hand, will end up taking the biggest hit. Due to their addiction to selling their customers like products, without any true respect for their privacy, Google runs the risk of becoming massively marginalized. As Steve Jobs aptly put it to a roaring audience of Apple employees at one of their Town Hall’s at One Infinite Loop in early 2010, “This ‘don’t be evil’ mantra at Google is bullshit.”
Economist and futurist George Gilder makes the case in his hugely popular new book, Life After Google: The Fall of Big Data and the Rise of the Blockchain Economy, that a ‘new internet’ based on the blockchain will kill off tech giants as users demand more control of their privacy. “Users want security and greater control over their own data. Google has become a walled garden that sells its customers like products and collects all the money,’” says Gilder. We agree.
Google is also in the cross-hairs of Congress over its threat to the freedom of speech. “We are using Google because of the power this Big Tech monopoly has over influencing our discourse, our freedom of speech, and ultimately our ability to hold fair elections,” says presidential candidate Tulsi Gabbard (D-HI). “If they can do this to me, a sitting member of Congress, running for the highest office in the land, this means they can do it this to anyone running for any level of office, just because they don’t like what you are saying.”
Google’s reckoning threatens its treasure trove of user data, as users will invariably move to more decentralized systems to handle their data and information. Both Gilder and our editors believe that the major disruption of centrally administered systems will lead to an entrepreneurial business boom on the new Internet like Tim Berners Lee’s World Wide Web publishing platform ignited the first boom. ‘The Google dream is a supermind in the sky that knows everything. The disrupters’ dream is to distribute information as human minds are distributed,’ says Mr. Gilder.
If Facebook pulls off its new stable coin Libra, I bet they will temporarily reign as the world’s most valuable company until Amazon joins the revolution by issuing their own coin. Finally, somewhere in the mix, a dozen new AI and blockchain and crypto tech unicorns will also rise and help turn the world of innovation around one more time by happily taking on the old Titans of Tech in new ways we can not even fathom.
Gates vs. Jobs: The Rematch
Wall Street Journal — March 13, 2000
Anthony B. Perkins, editor-in-chief of Red Herring and co-author of “The Internet Bubble” (HarperCollins, 1999).
Apple Computer’s iCEO, Steve Jobs (the ‘i’ now stands for Internet rather than interim), tells a story about a recent dinner with Bill Gates in which they talked about how they used to be the youngest guys in the business, and now they are the graybeards. That both men are just 44 is ironic enough. More profoundly, Mr. Jobs and Mr. Gates find themselves once again, after a 15-year reprieve, locked in head-to-head competition over the leadership of the personal computer industry.
This last statement may surprise you. How can Apple Computer, with barely over 3% worldwide PC market share, be a competitor to the mighty Microsoft? Sure, Mr. Jobs has guided the company he co-founded out of a garage in 1976 back to consistent profitability and revenue growth. Best of all, he has also increased Apple’s stock price tenfold since retaking command for shareholders. But will Apple become anything more than a computer maker for a high-end niche, the Porsche of PCs? “What’s wrong with owning 100% of the Macintosh market?” industry pundit Stewart Alsop used to say. And Mr. Jobs is certainly making a business out of Apple’s monopoly of the Mac market again.
‘New Platform’
To dig deeper into what I believe is a bigger competition, however, consider what Mr. Gates said at the World Economic Forum in Davos, Switzerland, in January about his new job as “chief software architect.” First, he reiterated that he would spend 100% of his time on product design. Specifically, he said he would “evaluate all the new technologies coming out of our research group, and out of the software industry as a whole, and develop a three-year plan to create a new platform so users can easily access, manage and share information, whether stored on a personal device or out on the Web.”
Mr. Gates’s ambitions go far beyond Windows 2000, which began shipping last month. He aims at “building a whole new user and Internet interface, and a whole new set of applications that go behind it.” During the development process, much of the old Windows code will be thrown away, and what will emerge will be a more modern, “Linux-like” operating system platform.
For Web surfers, single-browser access to our computers and the rest of the world is a welcome dream. For Mr. Gates, it’s more than a dream — it’s bet-the-company time. This is the same kind of gamble Microsoft made during the transition from DOS to Windows or developed Windows NT. “But the stakes of this bet are even higher,” Mr. Gates said, “because the stakes in our business are greater than they have ever been, and that’s why I have to give 100% of my attention to the big picture.”
Meanwhile, Apple has re-emerged as an industry player primarily because Mr. Jobs has focused on the company’s product-development and marketing campaigns like a laser. He reduced the product line to four easily understood and well-differentiated classes of sleek machines, some packaged in vibrantly colored, translucent computer cases. He promoted these new creations with equally slick and fun advertising campaigns that made the 20 million existing Mac users feel young again and seduced a whole new generation into becoming Mac converts. Roughly 30% of iMac buyers are first-time PC users. Apple’s new buzz is summed up in the banner that adorns the company’s headquarters in Cupertino, Calif.: “The re-birth of cool!”
Sounding exactly like Mr. Gates, Mr. Jobs aspires to marry the iMac to the Internet with an easy-to-use new operating system and a set of complementary Web services. “The user experience is what we care about most, and we are expanding that experience beyond the box by making better use of the Internet,” Mr. Jobs told the throng attending January’s annual MacWorld trade show in San Francisco.
Here lies the crux of the competition between Microsoft and Apple, and the reason I believe Steve & Co. deserve attention. Apple has already leapfrogged ahead of Microsoft in the Internet innovation game. At MacWorld, Mr. Jobs showed off his newest baby, a completely new implementation of the Macintosh operating system called OS X (that’s a Roman numeral 10), including a new user interface called Aqua. Designed by a team headed by Avie Tevanian, Mr. Jobs’s chief software guru, OS X represents more than a glimpse of the dream Bill Gates is chasing.
For the all-important constituency of software application developers, OS X makes it easy to recompile their older applications to run “native” in the new operating system with higher performance and stability. And OS X comes equipped with a set of tools and interfaces called Cocoa that allows developers to create new applications in about a tenth of the time it would take to write for Windows. The goal here is to lure back developers, who had drifted away from Apple because of its dwindling market share.
For the iMac user, OS X is far less likely to crash, and it offers far superior Internet access. Its new graphics system called Quartz makes it easy to view any text document or graphic file received over the Internet. Mr. Jobs came to MacWorld armed with a whole new set of free Internet services, called iTools, such as online data-storage services, tools for building personal home pages, and e-mail and greeting-card services.
To be sure, many of these Web services are currently available from companies such as Yahoo! and AOL, but Apple’s key innovation here is integrating them into the operating system, a technical achievement that is, as Mr. Gates acknowledged in Davos, “the new Holy Grail” of the computer business. Said Mr. Jobs: “I actually think that our new Internet services are going to be equal to the OS X in making the Macintosh stand out.”
An interesting side note is that Apple has a head start on Microsoft because most of its innovations are based upon technologies first developed at NeXT, including NextStep, a Unix-like operating system that the European physicist Tim Berners-Lee and his team used to develop the original foundation of the Web. In many ways, this connection vindicates the 12 years Mr. Jobs spent in the wilderness at NeXT and soothed the cynics who claimed that the $400 million Apple paid to acquire NeXT in 1997 was a funny-money deal of grandiose proportions.
The bottom line is that while Apple and Microsoft may be pursuing different technologies, they are trying to execute essentially the same business model. The goal is to create a proprietary Internet operating-system platform and unique Web services that can run only using that platform. The major difference is that Mr. Jobs is also in the business of selling hardware, and he is proposing to provide most of his Web services for free. On the other hand, Mr. Gates will strive to hold on to Microsoft’s existing model of selling both the operating system and the applications. No matter how the economics shake out, both Mr. Gates and Mr. Jobs must face a world that is moving increasingly toward open Internet standards and will be, by nature, hostile to colonization efforts pursued by either company.
Also in Davos was the software industry’s other Bill — Bill Joy, the crafty co-founder and chief scientist at Sun Microsystems. “There has been no innovation in the PC business for 15 years!” he moaned to all who would listen.
Making the PC Industry Interesting Again
Mr. Joy is right. And it’s no coincidence that the last time we saw real innovation in the PC market, Steve Jobs was still at Apple and unveiling the Mac, with its now-ubiquitous graphical user interface, a feat that would take Mr. Gates almost 10 years to imitate successfully. Well, Mr. Jobs is back, and he and the Internet are making the PC world interesting again.
While Mr. Jobs’s new operating system is due in stores this summer, Mr. Gates is still straddling the old world with Windows 2000. Just like the last time around, Mr. Jobs has gained the early technology edge, while Mr. Gates maintains the market edge. Most industry seers would bet on King Bill. I will stick out my neck and put my chips on Apple. At a minimum, I think Mr. Jobs will gain significant market share in this next round. No matter what, Bill is right to make it his full-time job keeping up with his buddy Steve.
