Everybody is talking about Apple this week. We should be talking about Microsoft.
Apple hit a milestone last week, becoming the first company to achieve a market valuation of $1 trillion. Between the usual anti-capitalist banalities — Oh, inequality! Corporate concentration! The shrinking middle class! The horrifying spectacle of Asian people working in manufacturing jobs! — there have been a few mildly awestruck appreciations of the fact that, not so very long ago, Apple was on the verge of bankruptcy, about 90 days away from running out of cash, according to the late Steve Jobs. Apple was so diminished that there were rumors that it was going to become a small and not especially important division of Sony.
Microsoft was riding high. Bill Gates was the wealthiest man in the world and a cult figure. Conservatives loved him for boasting that his company had no Washington office (this was before the antitrust lawsuit; Microsoft has staffed up in Washington since that sorry episode) and Republicans, knowing nothing about his politics, dreamed of running him as a presidential candidate. (The Republicans eventually figured out that Gates wasn’t one of them, but never quite got over their superstitious regard for wealthy businessmen.) He camped out on the cover of Time magazine: “Computer Software: The Magic Inside the Machine!” “Bill Gates: My Twelve Rules for Success in the Digital Age!” “The Private World of Bill Gates! Master of the Universe!” Microsoft, the business and tech press assured us, was going to rule the world. Steve Jobs and his cute little computers? Stuff for graphic designers laying out bistro menus in Soho, maybe.
It didn’t work out that way, exactly. Microsoft, once denounced as a monopolist because of its dominance of the operating-system business, is no longer the biggest fish in that pond: Google’s Android is now the world’s most popular operating system. Microsoft was slow to appreciate the importance of the Internet and was a generation behind Apple in the smartphone business, which is the main thing that drove Apple to its current $1 trillion valuation. But Microsoft has learned how to eke out a living in . . . all the boring stuff that Microsoft does: In May, it passed Alphabet, Google’s parent company, to become the third-most-valuable corporation in the world, behind Apple and Amazon, another cute little business (an online bookstore) that grew into a colossus. The Wall Street Journal expects that Apple, Google, Microsoft, and Amazon may reach a combined value of $4 trillion in the near future.
Facebook used to be on that list. It probably will be again, but its recent downward turn — it lost 20 percent of its market capitalization, or $120 billion in value — has dulled its luster a bit, and all the nice California progressives are blaming poor Mark Zuckerberg for the election of Donald Trump.
That’s the way things go: Firms that once looked invulnerable slip and slide, and some of them disappear. Names that used to define the Dow Jones Industrial index — firms such as U.S. Steel, whose very name suggested indestructibility — have disappeared or been reduced to shadows of their former glory. U.S. Steel was the first company to achieve a market valuation of $1 billion; by 2014, it was no longer big enough to make the S&P 500.
The steel business may seem like a dusty remnant of the J. P. Morgan era, but what Microsoft and Apple have in common is that they are, in corporate terms, a couple of old geezers, founded in 1975 and 1976, respectively. They are already survivors: In the 1950s, the average age of an S&P 500 company was about 60 years, but by last year it had declined to under 20 years. Shake Shack went from food cart to IPO in a decade. If Facebook were a person, it wouldn’t be old enough to drive. Many big names survive, but that hides underlying changes: The corporate entities today known as Baker Hughes, DowDuPont, Activision Blizzard, and AbbVie (formerly Abbott Labs) all are under ten years old; ExxonMobil and ConocoPhillips are under 20 years old.
The iPhone has existed for a little more than a decade, and Google for a little more than two.
The Bill Gates for President movement ran out of steam a long time ago. (The Draft Steve Ballmer movement was never a thing, and Satya Nadella, born in Hyderabad, is ineligible for the office.) Steve Jobs’s epigones have proved somewhat less charismatic, but Apple is, for the moment, the top dog. Maybe that will last. Maybe it won’t. There was a time when some believed that we’d be ruled by 10,000-year dynasties of Rockefellers and Morgans.
It is not as though there was or is some big bucket marked ‘income’ and Apple figured out a way to sneak itself a bigger share of it. Apple got big — and $1 trillion is big — mostly by inventing something new, radically expanding the possibilities of familiar products. It didn’t take over a market — it created one.
With big, enormously profitable firms such as Apple and Facebook, there are two competing forces at work. One is the power of size: Big companies can do things that smaller companies usually cannot. (Walmart, for example, dictates terms of business to its vendors to a self-serving extent that practically no other retailer could dream of.) Apple is a big company with a lot of little partners who are not eager to cross their biggest customer, which can put would-be competitors at a disadvantage. Social-media companies such as Facebook and Twitter benefit from the telephone effect: In the early days, telephones were not all that useful to their owners, because most people didn’t have them, so there were few people to call. That changed once most households had a telephone. The more people use Facebook or Twitter, the more useful Facebook and Twitter become. (To an extent; Matt Yglesias is on Twitter.) Those who have tried to launch competitors from scratch have found it tough going. And all those big firms are sitting on giant piles of ready cash, meaning that if they spot a small, nimble competitor on the horizon, they can just buy it up.
And those giant piles of cash are the second force. When a firm or an industry produces extraordinary profits, that draws competition. It’s not some straight-line graph from an economics textbook (and even the economic textbooks don’t claim that it is) but there is a lot of capital out there looking to get a piece of what Apple and Google have. (And, of course, Apple and Google are among each other’s toughest competitors.) That drives innovation, which is what this is all really about. Mobile phones existed before Steve Jobs put on his turtleneck and showed off that first iPhone — they just weren’t very good. Microsoft didn’t invent the operating system. (As critics will remind you, Microsoft didn’t even really invent the operating system it got big selling.) But it made it more useful. Electric cars could be found on the streets of New York and London in the 19th century — but Tesla made them cool, and made it clear that there was enough money in that market to really get BMW and the rest into the game. (Now, even Harley-Davidson is going electric.) That’s how competitive markets work, and they do work — if we let them.
Apple’s market milestone has occasioned a great deal of dumb talk about corporations’ “share” of income vs. what’s paid out in wages and other forms of compensation for workers, or about the share of certain markets commanded by this or that big company. But it is not as though there was or is some big bucket marked “income” and Apple figured out a way to sneak itself a bigger share of it. Apple got big — and $1 trillion is big — mostly by inventing something new, radically expanding the possibilities of familiar products. It didn’t take over a market — it created one. Income isn’t a bag of marbles that get traded around and divided up. Some companies — some people — make new marbles.
Apple wasn’t the only company that made crazy money in the smartphone market: Google’s Android business piggybacked on Apple’s innovation, and everybody who’s ever sold a smartphone app is along for the ride, too. That’s where new and better things come from. That’s how material progress happens. Material progress isn’t the only good thing in life, but it isn’t something to turn your nose up at, either.
We live in an age of wonders, full of new and delightful things made possible by the beneficial collision between imagination, intelligence, and money that we call, for lack of a better word, capitalism. But it also is an age full of old and familiar things: envy, resentment, ignorance, fear, greed, laziness, mediocrity. The former have a funny way of bringing out the latter, which is why it is so unsurprising to hear new calls — often from Republicans — for government intervention in and regulation of the part of our economy that is, at the moment, working best.
Apple went from corporate basket-case to $1 trillion bigfoot in 21 years, its corporate low point having come in 1997. Time flies: 21 years before that, Apple was just a little project in a garage in Los Altos, Calif.
Lots of garages out there.