Viability of Microsoft vs Apple for Investors - Assignment Example

Analytical Report Comparing the Viability of Microsoft vs. Apple for Investors Transmittal Letter Scottsdale Investment Club Student Details. Here is the analytical report you requested for the comparison between Microsoft and Apple. Our recommendation is that Apple is the more potentially profitable investment choice. Given that you had already carried out a quantitative analysis and are well versed with financial details, we have concentrated a qualitative evaluation. It is focused on the competitiveness of both firms in the contemporary market as they each try to improve their dominance and market share in PC, Software and Smartphone manufacture and distribution. Information on both companies was easily available on the internet although we had to rely a great deal on consumer forums and online magazines since most of the information required is current and little formal research has been carried out. If there are any questions or need for further clarification please contact us on my email Yours Sincerely Signature Name Table of Contents Transmittal Letter 1 Executive Summary 3 Past Performance 3 Specialization 4  Branding 5 Customer Loyalty 5 Future orientation 7 Marketing Success 7 Fig 1. Apple increased sales after marketing 8 Conclusion and recommendations 8 References 10 Executive Summary Microsoft and Apple are the two of the biggest global leaders in PC software and mobile devices; their rivalry has over the years been escalated by the competition for customers heating up both with and without the US. Both companies are highly profitable and in the past half-decade, they have proved reasonably capable of incredible innovation and adaptation to changes in their respective market environments. Scottsdale Investment Club, has already carried out a quantitative study into both firms, however before making the final choice, they need to examine the firms through a qualitative perspective. This will enable them to determine which the best firm for an investor based on is; past success, future projections, consumer response to marketing, specialization brand recognition and consumer loyalty. This analysis objectively examines each of the above and concludes that of the two firms, Apple is the most promising company in which to invest. Past Performance Microsoft started as a near monopoly in the PC softwaremarket and although Apple had made a PC before them, Microsoft controlled the supply of software, which included their Windows XP and later windows 7. However, in the last 5 years, Apple has come up with its own strategy that has seen it overtake Microsoft as the world’s most valuable company. The last decade has been dominated by Apple through its remarkable innovations a near cult following while Microsoft has been struggling to reinvent itself and keep up. Today, Microsoft has released smartphones and tablets, devices that it would probably never have gotten into producing had it not been for Apple’sretrospective vision. Clearly, although Microsoft’s profit margins may be currently higher, Apple is the market leader driving innovation as other try to duplicate so they can keep up. Microsoft has been forced -mostly by Apple- to divest into smartphones this saw its acquisition of Nokia on which it has used to launch its windows 8 smartphone software (Rowinski, 2013). However, it is worth noting that despite having been around for slightly over 5 years, the windows smartphone has not managed to increase its market share to double digits. Apple’s market share stood at “42% in 2014 while Microsoft was a mere 3.3 %” (Rowinski, 2013). This is evidence that despite its determination to enter the smartphone market, Microsoft has failed to make as momentousinroads into Apple smartphone market. Specialization Over the past decade, it Microsoft has distinguished itself as the leader in software while Apple has taken the hardware lead. However, with its recent acquisition of Nokia, Microsoft is expected to fully vertically integrate. Indeed, it immediately used the Nokia hardware to release smartphones based on the windows platform and design tablets. However while the vertical integration has enabled it to compete in the smartphone market, it has failed to make a decisive impact with its aforementioned single digits market share. Nevertheless, according to some analysts the slow growth trajectory is because Microsoft has not yet acquired all of Nokia’s patents and when it does, it will literally have its fate in its own hands. However, becoming a device and services company is not something that a company can do overnight and given the size of both Microsoft and Nokia, it may take a great deal of time and effort. Microsoft is undergoing a great deal of re-organization and the imminent retirement of CEO Steve Ballmer and given the changes the integration will bring about, the shift could make or break the company. On the other hand, Apple has been in charge of both its hardware and softwarefor long, Steve Jobs was emphatic on the need for vertical integration and the creation of practical and functional tools. As a result, Apple has does not only have custom made software and hardware, it operates a mostly closed circuit in which its users can only access their IOS based offering. This has made it more specialized than Microsoft with its Mac-Books being generally recognized as the better and more powerful brand a factor underpinned in their high prices.  Branding Apple’s brand is without doubt the most valuable in the world standing at “$104.7 billion followed by Google at $68 and Microsoft holds their place at $62.8 billion” (Jackson, 2014). Apple has over the years cultivated a brand image based on their product’s unique identity encouraging users to identify with the product and the beliefs and values of the firm. Through the iconic leadership of its founder, Apple distinguished itself as a leader in innovation and while it may not have been market leader like Microsoft’s, its brand is much more recognizable. Microsoft on the other hand has utilized its number one position in the PC market as a peg on which its brand was position. People typically want to associate with the best and biggest and consequently for several years Microsoft appeared to have been big enough not to need to invest too much in innovations. However, they have failed to channel this dominance into a concrete brand position; they mistakenly believed that their solutions were more competitive than they really were. Consequently, they have become a big brand with numerous hardware and software but their brand focus appears hazy and myopic. Even as they try to rebrand themselves through the new windows 8 and smartphone integration, to most customers, they are essentially a PC firm struggling to enter the Phone market (Puder& Antebi, 2013). Customer Loyalty Customer loyalty is one of the major determinants of a company’s future success; loyal customers will stick to the brand and will be more patient and less likely to shift to other brands. Today, Apple clients are the engenderment of loyalty; most of them have admitted that they cannot imagine themselves using products other than the IPhone or MacBook.A study found that majority iPhone owners claim to be blindly loyal to their handset manufacturer,they are so loyal that they would not even consider researching on what other manufacturers offer before upgrading. Apple has capitalized on this loyalty by keeping their devices in a closed ecosystem such that their clients can almost use Apple products and services (Jackson, 2014). Given their reputation for innovation, this strategy is aimed at retaining their current customers and attracting new ones. The fact that their products are the most expensive in both the PC and smartphone markets attest to the enviable loyalty of their customers. The implication of this is that they can afford to take bigger risk since their customers are loyal enough to stick around and also given the price of their products, it leaving in itself is quite difficult. Microsoft, on the other hand has never quite mastered the art of wooing customers into such blind loyalty. While conceding many people are indeed loyal to their products, this is on a practical level in that they are providing utilitarian products that are affordable. A Microsoft customer is open to new products if they are more affordable and functional and as a result, they are bound to suffer negative consequence if their risks do not yield desired results. For example, Microsoft has recently experiencedconsiderable backlash after it tried to get its techno savvy clients to convince their peers still using XP to upgrade to Windows 8.1 be exposed to security risk such as the possibility of hacking. The negative customer reaction proved that they had overestimated their customer loyalty;conversely,Apple is notorious for its regular and expensive upgrades, which their customers usually blindly acquiesce to and even encourage. Future orientation Obviously, an investor will want to know which is the more future-oriented for the two companies; the projection can be made by observing present performances of the firms and predicting how each might fare in posterity. Currently, Microsoft is has opened up its Office Software to Apple clients and despite the assumption by investors that the move would not have much of an impact, over 12 million downloads of the software were made within the first week (Kelleher, 2014). This openness in the face of a more closed Apple has been applauded as brilliant strategic move since it may convince Apple users to buy Microsoft software in the future. However, on the downside, it helps Apple even further isolate its hardware consumers from the new devices Microsoft in trying to introduce to the market since they can enjoy the style of Apple and Microsoft’s practicality without needing to shift. In addition, given that sky drive and Windows OS have been unable to create much of an impact in Apples customer base, it is apparent that Apples future prospects in terms of relevance and profitability are more promising. Marketing Success According to its annual projection, Apple spent slightly over $900 billion in 2013 on advertising, $691 million in 2010 and $ 501 million in 2009. The total sales for the three years were $108.249, $65.225 and $42.905 respectively (YCharts 2013). Fig 1. Apple increased sales after marketing This translates into an average of one percent of the annual expenditure being spent on marketing and resulting in and profit increases of around 25%. On the other hand, Microsoft does not appear to have been very successful in impressing perspective clients. In the same years, it spent approximately 2.2 % of its income on advertisement but only improved revenue by 12%. Evidently, Microsoft either does not have a very effective advertisement strategy of its products are not user friendly enough to appeal to consumers even after billions are spent on adds. Ultimately, investors will benefit most from a business that has a record of accomplishments and return on investments; from a marketing viewpoint, Appleis a clear winner. Conclusion and recommendations In conclusion, based on the factors considered, while admitting that Microsoft does have an undeniable competitive advantage in different spheres, Apple emerges as the most reliable company in which to invest. It has a history of making comebacks and weathering challenges and its customer loyalty gives it an nearly illogical advantage over its Microsoft. In addition, they have proved themselves the market leaders in terms of innovation, which is why many of Microsoft products such as touch phones and tablets are modelled after theirs Apple’s customer loyalty and the fact that people have been found to respond positively to respond to their marketing strategies gives it a considerable lead.Apple, is set to keep growing and gaining more market segments as Microsoft struggle in the shadow of its monopolistic and somewhat conservative past to establish itself in a field where innovation and constant upgrades are the norm. References Jackson, E. (2014). Apple Isn't A Hardware Or Software Company - It's An Ecosystem Company. Forbes. Retrieved from http://www.forbes.com/sites/ericjackson/2014/06/03/Apple-isnt-a-hardware-or-software-company-its-an-ecosystem-company/ Kelleher, K. (2014). Satya Nadella needs more than one trick to fix Microsoft. Fortune MagazineRetrieved from http://fortune.com/2014/04/18/satya-nadella-needs-more-than-one-trick-to-fix-microsoft/ Puder, A., & Antebi, O. (2013). Cross-compiling android applications to ios and windows phone 7. Mobile Networks and Applications, 18(1), 3-21. Rowinski, Dan. (2013). Game Of Phones: Apple Vs. Google Vs. Microsoft Define Next Decade. Readwrite.comRetrieved from http://readwrite.com/2013/09/03/where-microsoft-now-fits-in-the-mobile-industry-with-nokia-addition YCharts. (2013) Who Spends More on Ads -- Apple or Microsoft? Another Lesson in Quality vs Quantity. Forbes.Retrieved fromhttp://www.forbes.com/sites/ycharts/2012/08/02/who-spends-more-on-ads-Apple-or-microsoft-another-lesson-in-quality-vs-quantity/ Read More