Apple Overtakes Microsoft as 2nd Largest U.S. Company

Something happened yesterday. Something big. And yet it remained largely unreported in the traditional news outlets, but tech sites everywhere perked up. The big news was that Apple had finally overtaken Microsoft in terms of market capitalization. Market capitalization is simply a public company's value measured as their share price x number of shares. It's a simple formula that more or less tells you the value of the company. For a company that almost closed its doors during the 90's this is an incredible testimony to the leadership of Steve Jobs and the new board at Apple.

Yesterday, Apple's shares rose as much 2.8 percent on the Nasdaq. When Microsoft's shares dropped a bit, the result was Apple's market value rose above $229 billion, pushing it into the lead behind only Exxon Mobile Corporation. Here's a snapshot of the three largest company's market caps as of this quarter:

To give you an idea of the incredible growth of this company, largely due to the iPod and iPhone and Apple's commitment to be a value and leader in the laptop segment, shares of Apple are worth more than 10 times what they were a decade ago. Apple hasn't had a higher market value than Microsoft since 1989. Just for reference, that predates both Windows 3.1 and Mac System 7 (remember back that far?) Color monitors weren't in most users homes and if you had a Mac it was likely a Macintosh II or Macintosh Plus.

In 1997, Apple took a $150 million investment from Microsoft in order to stay solvent. back then, Microsoft was over 5x larger than the ailing Apple.

So what's going on? Analysts are all over this, and it seems that it's a referendum on the importance of innovation. Apple has it, Microsoft doesn't. It's not that Microsoft doesn't innovate at all, but it does so on a much smaller scale. Rather, much of its efforts seem focused on playing catch-up - many times to Apple. Think about the recently dropped tablet Microsoft had been working on to compete with the iPad, or the stumbled Zune media player, or even the history of Windows playing catch-up to feature Apple released in its Mac OS. It seems clear that the corporate ethos surround Microsoft stifles creativity and indeed is more reflective of a giant ship with a tiny rudder. It takes a long time to change directions and those more maneuverable ships, though often smaller, are able to quickly turn as needed to pursue greatness.

Conversely, the downside is that Steve Jobs appears to be the rudder that steers Apple quickly. When he eventually gives up the reigns it will be interesting to see if the company can continue in its present role as a quick, thinking, visionary-led corporate anomaly. One thing is for sure, no one saw this coming 20 years ago.