Google and Apple are two of the most profitable companies on the globe today. They seem to share little in common except that achievement. They took very different paths to the stratosphere.
Google, after all, is less than a decade and a half old, a child of the web with a successful approach to advertising, built around a search engine and many services to enhance the user’s experience. Apple is more than twice as old. Its original product, personal computers, makes up a fraction of its sales today, while its future profitability lies with a mix of software in iTunes and new hardware introduced in the last decade—namely, phones, tablets, and portable music devices.
What economic insight emerges from setting these two firms next to one another? A brief discussion of both of their businesses will reveal something trite and something deep. The trite part is this: Some settings produce lots of market value, and some firms capture large parts of that value, but those rarely happen together. The deep part forms the key insight today: these examples are fabulously profitable because they are unique.
Once upon a time, a couple of smart fellows perceived a technological and business opportunity. They founded a firm, leaving academic programs. They worked hard, caught a break, and began living an economic fairy tale. Their new company grew, making profits every year, even during difficult economic times. The firm hired with abandon, taking its pick from among the best talent.
After a dozen years, the firm’s hallways overflowed with a lively entrepreneurial spirit. Seasoned executives and sophisticated technical staff had ample cash to explore almost every ambitious idea. For the next dozen years, the firm’s managers aspired to undertake something audacious and ambitious—to build the most innovative firm of all time.
Who does this economic fairy tale describe? It describes two firms: Google in 2010 and, by ticklish coincidence, Microsoft almost 20 years earlier.
Can history repeat itself? Surely not. Past events at Microsoft cannot forecast with precision what Google will do tomorrow.
It is tempting to scratch this itch, nonetheless. Comparing two leading firms at the crest of their teen years could generate insights into why (and how) Google’s fairy tale might or might not reach a happy ending. (more…)