Apple & Microsoft: Just a Little Bit of History Repeating

Douglas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

In the type of juxtaposition that leads to unlikely connections, two recent news stories popped up on my screen that made me take pause and consider, particularly as both involved technology behemoths Apple (NASDAQ: AAPL) and Microsoft (NASDAQ: MSFT). The two stories were Is Apple Becoming Microsoft? and Has Microsoft Captured Some of Apple’s Magic?

Both stories focus on the relative position of these two players from both a present and historical context. While I have zero doubt that Apple fans would answer both questions with a resounding no, and Microsoft advocates are pulling for an affirmative, the discussion itself is interesting and worth consideration.

A Split Decision

While I reach a split decision on the two questions, let’s consider them in order. I do not believe that Apple is becoming Microsoft, at least not as that author draws the parallels. While there has certainly been a bit of stagnation and maturing in Apple’s approach to the market, it is far too soon to believe that the company is ready to turn in its cutting edge approach for a stable and uninspired march forward. Both companies lost an iconic leader and both became the most valuable company on the planet, but Apple faces different challenges that should lead to a different outcome.

The one startling similarity that does exist between Apple today and Microsoft at its pinnacle is the apparent belief by supporters that the company is invincible. This belief has a tendency to lull both shareholders and consumers into a false sense of security that can quickly be destroyed when an outside innovation redefines the competition altogether. While Tim Cook and his Cupertino brethren may be pleased with the loyalty they enjoy, this should not allow this to be the basis for slowing down the push forward that has gotten them to the top. Despite this concern, the answer to this question is Apple is not becoming Microsoft.

A Branding Disconnect

While the author answers the second question in the negative, I believe that Microsoft is capturing some of the Apple magic, albeit in a slightly different way than was explored. The primary takeaway from the study featured in the piece is that while consumers have had a very positive reaction to recent Microsoft marketing, and, to a slightly lesser extent, its new products, general attitude about the company have not changed. There is a very strange disconnect at play to be able to say that you like the product but still think somewhat poorly of the company.

Clearly Microsoft needs to spend more time and money changing the consumer attitude towards its brand, but that need dovetails with another concern revealed in the study. Seasoned Microsoft users are concerned that too much progress will force them to relearn a system that already works very well. This is not a new problem for the company, as various versions of Office have experienced similar complaints. Still, as the company works to change perception, some of these growing pains are inevitable.

Where I part company with the author and see some Apple-style magic at work at Microsoft is with the breadth of its recent product rollouts. Even if you ultimately are not swayed yet by a particular device, there can be no question that the company has rejoined the fight in a serious way. In the last few months, Microsoft has rolled out Windows 8, the Surface tablet, a new generation of Windows smartphones, Xbox Music Service and sparked the release of a new generation of notebook/ tablet hybrids. The company is aggressively working to fill out its own ecosystem and is sending the message that it should be taken seriously. The Apple magic I see is the complete saturation of the public consciousness that this company is important.

This last perception may not have become as pervasive as the company would like, but I am somewhat skeptical of the results of the above-mentioned study. I think shoppers still want to think that Apple is cool and Microsoft is not; this explains how you may think the Surface is cool and still find it “unfashionable” to buy from Microsoft. As the company gains increasing market penetration, attitudes should change.

The Trade

Given the answers reached on the above two questions, both of these stocks are not only buys at current levels, they are must-owns in your core portfolio. Apple is far from done and Microsoft is slowly being reborn. I think there is a lot of upside in both stock and would own both.

Mr. Ehrman has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Microsoft. Motley Fool newsletter services recommend Apple and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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