Something often missed by supposed experts on the whole Apple vs Microsoft thing is that Microsoft isn’t nearly as all-powerful as might be imagined. Microsoft was originally a software company but recently it has attempted to move into hardware, meeting with universally poor results (the Xbox, Zune and MSN TV have delivered a $5 billion loss in the last four years alone). Apple was originally a hardware and software company, so from the start Apple has made both.

Of course, Microsoft is more successful and much bigger than Apple anyway right? Okay, but how much more successful? Well, that depends on how you look at it. Most people look at how much of the desktop operating system (OS) market Microsoft has. This is often claimed to be over 90%. In 2007 it’s probably more like in the 80%-90% range – still, it’s easily the biggest part of the pie. Apple has about 6% of the operating system market in the USA, and worldwide about 3%. So clearly Microsoft is much more successful right? With much more profit, right? Well yes, but not 30 times!

Selling software has made Microsoft (and its key shareholders) rich, but software isn’t nearly as profitable as hardware. Apple sells both, and in fact, it is the sales of hardware that make it possible for Apple to develop software. Mac OS X (the software) exists because of the considerable income generated from the overall few sales of Macintosh computers (the hardware).

A comparison of Apple vs Microsoft, based not on OS marketshare but on company profit, paints a startlingly different picture. In the first quarter of 2006 (a typical period for both companies), Microsoft earned $3.4 billion while Apple earned $1 billion. That’s right, Apple is earning around a third of what Microsoft earns, yet Microsoft has nearly 30 times the worldwide desktop operating system market. Suddenly some things make sense.

This is the reason why Apple doesn’t drop it’s hardware business and just make Mac OS X for every PC; it would be financial suicide. Why is Microsoft’s head, Steve Ballmer, so eager to run down Apple at every opportunity? Because Apple’s hardware is so profitable that they’d only have to triple their profits to make the same money as Microsoft! So if Apple can continue to sell boatloads of its iPods plus the new Apple TVs and upcoming iPhones, and increase it global Mac sales to nearer 9% of all desktop computers sold, Apple will rival Microsoft for commercial strength.

Some readers will know that in the early 1990s, Apple did have 10% of the market. As Apple lost sight of its core strengths, the company lost sales. However, Apple has regained its vision; made crystal clear by the phenomenal sales of the iPod. And you know what really gives Ballmer sleepless nights? Apple now sells 10% (and growing) of all laptops in the USA and 70-80% of all MP3 players worldwide. Can Apple triple its other markets sectors? As of April 2007, the growth of overall Macintosh sales is triple that of the other PC brands. A lost sale from any one of the many PC manufacturers is always a lost sale for Microsoft too.

Microsoft’s market dominance is built upon people’s perception that they don’t have a choice. People pick their computer based on what everyone else has, and Microsoft’s Windows has been ‘it’ for decades. The iPod and the success of Mac OS X, plus the likely impact of the Apple TV and iPhone has promoted Apple again as a viable purveyor of computers, and people are buying them in increasing numbers. Apple’s continued growth at Microsoft’s expense is now inevitable. After a long delay, people are again choosing better products because they know Apple isn’t about to implode. Apple is beginning its next growth phase.