IBM Passes Microsoft in Market Capitalization

I mentioned a few months ago that it might happen, and it now has. The financial markets now assign more value to IBM than to Microsoft. That is, after the close of Wall Street trading on September 29, 2011, IBM had a slightly higher market capitalization than Microsoft. Market capitalization refers to the total value of a company's shares of stock.

It's hard to say exactly what caused this flip-flop in market positions. However, Amazon's announcement of their new Microsoft-free Kindle Fire, priced at only $199, might have nudged the market. Microsoft derives about 60% of its revenues from its twin Windows and Office software franchises, and, like the iPad, the Kindle isn't tied to either of those Microsoft products. Mobile devices are eroding (or at least containing) Microsoft's previously unassailable client device business. Those mobile devices also rely heavily on cloud delivery of computing services, almost always using Linux-based servers and middleware which Microsoft does not produce.

Microsoft fully capitalized on one of history's smartest business deals when, back in 1981, Microsoft agreed to supply the operating system for IBM's then-new personal computer. However, Microsoft insisted on a non-exclusive deal with IBM. Microsoft also insisted on retaining ownership and copyrights in their operating system. IBM was desperate for an operating system, particularly since Digital Research rebuffed IBM at least initially. IBM still very much viewed itself as a box-pushing company at that time, and IBM's lawyers and management agreed to Microsoft's terms. Later, IBM considered but rejected the idea of buying Microsoft (and Intel) outright. The rest, as they say, is history.

What's particularly ironic now is that arguably Microsoft relied far too long on a strikingly similar box-pushing business model (Windows and Office) while IBM, chastened in the early 1990s, figured out how to recreate itself, in large part recognizing the enormous value of having a rich, business solution-supporting software portfolio. That's not to say that Microsoft doesn't: its server-oriented middleware business is fairly large and one of the few moderate successes in recent years. However, Microsoft's middleware exclusively runs on Microsoft operating systems, and that's a challenge for the company and for prospective customers. In particular, Microsoft is losing a lot of potential business with Silicon Valley-based cloud-oriented companies, precisely the sort of customers Microsoft would have won in the past.

I think this market capitalization flip-flop helps demonstrate why the future of the mainframe is extremely bright. What every current or prospective mainframe customer wants to see is a stable, prosperous supplier with a great business model, growing sales, aggressive investment in the platform and its software to stay six steps ahead of competitors, continuous improvements in price-performance, and increasing architectural relevancy in areas such as cloud, security, etc. We're seeing all that, and that's great news for now and for the future.

by Timothy Sipples September 29, 2011 in Financial


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was completely astonished! Thanks for sharing this with me!

Posted by: Free Software Download | Oct 5, 2011 2:28:53 AM

I thank you very interesting

Posted by: Software Download | Dec 5, 2011 11:36:59 AM

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Posted by: Pointblank | Jan 26, 2012 7:46:31 AM

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