see what has become of Bill Jobs. I mean Steve Gates. I mean…

Maybe a week ago, the market capitalization of Apple exceeded that of Microsoft for the first time in history, dislodging the latter from the lofty perch that it has held for years and years.

To me, the significance of this is more about a “popularity bubble” that I think Apple is experiencing.  There are a lot of intangibles for Apple, and one could argue that it is in fact more valuable than Microsoft in the long run.  I think the value of intellectual property might be pretty close between the two, in reality, but Apple has begun moving into some markets (um…with the iPad) that are still growth markets.

The question, to me, is whether this potential for growth is worth as much as investors think it is.  I’m really not sure.  First, let’s acknowledge that the market for computers is flat and margins are basically zero.  There is no growth in the personal computer market, no matter how many Macbooks and iMacs are sold.  They just don’t make enough money off of each one.  And, while Apple’s ability to adopt technology just before competitors (USB, WiFi, among others) is at times uncanny (and its marketing teams’ ability to hype the bejesus out of those advantages is just remarkable), it is probably also more expensive for them to be introducing those features before others.

So computers are a dead end.  Portable music players are beginning to plateau, I wager (I haven’t looked at the numbers in a while), and IMO the inclusion of a video camera on the 5th Generation iPod Nano is a sign that designers are beginning to grasp at straws.

Portable media via innovative mobile devices…that’s where the iPod Touch, iPhone, and iPad come in.  And it’s also why Steve Jobs is turning into Bill Gates.

This is going to be way more than a single post can hold, but I’ll see if I can get a hang of my point somewhere along the line.

When Microsoft first introduced the XBox, it did so at a loss, and continued to sell them for below cost (negative margin) for some time.  This wasn’t because they wanted to get their foot in the door of console gaming – it was because, just as they wanted a “PC on every desktop,” they now wanted a “Microsoft entertainment unit in every house.”  The XBox was the first step into building a home media center based on Microsoft’s products.  If Toshiba hadn’t been such a group of idiots and HD-DVD had prevailed over Blu-ray, then XBox 360, based on HD-DVD, would be the linch-pin that Microsoft had been working towards all along.

Now, Apple is eyeing the mobile…device market in the same way.  It’s important to avoid the term “mobile computing” because that, I think, limits the way people perceive  the market.  Mobile media, media players, omnipresent connectivity, etc.

Just as Microsoft took a loss on the XBox to get in the door and protect its toehold, Apple is fighting for this mobile market with serious tenacity.  Look at how its approached smartphones.  Android has made HUGE inroads (the number 2 smartphone OS, ahead of the iPhone…) and Apple is suing not just anyone, but choosing to attack the little kid on the block.  They’re the bully, picking on HTC while steering clear of Motorola and its plethora of patents.  All of a sudden there are tens of thousands of applications for Android and Apple is showing its colors.

The iPad is another example.  Apple didn’t just enter this market, they entered it to kill off the Kindle, smother netbooks, and maybe eventually beat up on the tablet market, too (that would take a while considering how tablets have developed a nice share in the medical industry, for instance).  Jobs has said as much about the Kindle.

I’m going to use this post as fodder for later ones, as I think this branches out into several other ones.  I question Apple’s strategy.  I question the way they are going about developing the ancillary components of the iPad.  I question their decision to have such a volatile CEO at the helm.

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