Google "Helped" Microsoft Pass Apple Ahead of Schedule. How Have These Three Traded Places Over 20 Years?

For half of the past 20 years, one of these three companies has been the most valuable in the world.

When U.S. markets closed last Friday, Google Finance generated a big story all by itself: Microsoft's market cap was US$753.34 billion, Apple's was US$746.82 billion, and Apple had lost the top spot to the rival it has fought for decades.

Both numbers were wrong. Going by shares outstanding and Friday's after-hours price, Microsoft was worth US$796 billion and Apple US$817.5 billion. Apple was still the most valuable company in the world.

But Google's mistake was only a day early. On Monday, Microsoft passed Apple during the session. Apple pulled back ahead later, but the two US$800 billion companies are now separated by about US$3 billion, and the slightest tremor can change which one leads.

In the overnight and morning sessions alone, they swapped places at least ten times. At the close, Apple led Microsoft by US$5.6 billion.

The last time Microsoft was worth more than Apple was over eight years ago. WeChat did not exist yet. Google had just moved its Chinese-language search engine to Hong Kong. Microsoft was still selling boxed Windows 7 discs in software shops. And Apple's newest phone, the iPhone 3GS, had to be plugged into a computer and signed in to iTunes before you could use it.

All three — Apple, Microsoft and Google — have been the most valuable company in the world at some point in the past 20 years. Apple and Microsoft held the title longest, taking about nine of those years between them.

Market value does not measure whether a company innovates. It is only Wall Street's judgment of what a company is worth, based on what has already happened, and it is revised every minute.

But the way these companies have risen and fallen does track what has changed in the technology industry, in business, and in the world.

1998 | Microsoft Reaches the Top, and the PC Carries It for a Decade

In 1998 there was no sign that Apple would ever take the world's top spot from Microsoft. Its legendary CEO, Steve Jobs, had returned only the year before, and the company had enough cash to run for 90 days. Wall Street was guessing who would buy it. One issue of Wired put the colored Apple logo on the cover, wrapped in a crown of thorns, under a one-word headline: "Pray".

In his first months back, Jobs met every team himself and cut every product line he judged unnecessary. By the January 1998 earnings call, Apple had gone from a deep loss to a thin profit, and Jobs, still the interim CEO, told CNN Money, "We're back." Soon after, he poached a young executive named Tim Cook from Compaq to run the supply chain and clear out inventory. Cook did well: in under six months, Apple's inventory fell 80%.

Few people believed Apple had won anything back. Tony Fadell, who would join a few years later and become the father of the iPod, was at the time preparing to start a digital music player company. The slogan he had settled on was "the Dell of consumer electronics."

Microsoft was the star of that moment, and also Apple's rescuer. Gates, who had known Jobs as both enemy and friend for 20 years, put US$150 million into Apple and kept Office running on the Mac, on the condition that every Mac also ship with Internet Explorer. That year, more than 95% of the personal computers built on earth came with Microsoft's browser preinstalled. The gateway to the internet appeared to be entirely in Microsoft's hands.

Browsers — or anything that touched the internet — were what Wall Street cared about. The dot-com bubble was at its peak, and e-commerce, O2O and Linux were all in the air, but the companies investors chased hardest were the ones supplying the internet's infrastructure, companies like Microsoft. That year Microsoft passed General Electric, at US$261.1 billion, to become the most valuable company in America. From its 1986 listing to the top of the rankings, its stock had risen more than 20,000%.

Microsoft was more dominant then than it is now, and Gates was not the Gates of today. He had little interest in philanthropy and was a hard-nosed boss who watched every move inside and outside the company. Teams at Microsoft went through a BillG Review roughly once a year: a representative demonstrated the product to Gates in person and proved the team deserved to draw a salary at the most valuable company in the world.

Words starting with F, and "that's the stupidest thing I've ever heard," were his stock lines in those meetings. One member of the Access team came out with this feedback: "I want to know which fucking university we hire from — fucking tell them to stop hiring there, because they fucking only turn out idiots."

That August, the hard-nosed Gates ran into the worst trouble of his career. The U.S. Department of Justice had opened an antitrust investigation into Microsoft, and he had to appear and answer questions. The case ran three years and ended in a settlement. By then Gates was no longer Microsoft's CEO.

On the whole, though, 1998 was a good year for Microsoft. Windows 98 shipped and tightened its hold on operating systems. Inside, a change of technical blood was under way: a more experienced software team Gates had recruited himself was finishing an operating system called Windows NT. Windows NT would become the basis of every Microsoft operating system after the turn of the millennium.

Gates and Microsoft made the personal computer ordinary, turned it into the infrastructure of the modern office, and built a 20-year business of remarkable efficiency on top of it: a Windows royalty on every machine the PC makers sold. Microsoft never had to sell a computer to a single person. It kept a relatively small sales force and spent its attention on selling software to large customers.

Personal computers kept getting cheaper, more people bought them, and the PC makers' margins thinned out. Microsoft's margins stayed high. In the corporate market, Windows NT let companies replace workstations and dedicated servers with personal computers, which helped Microsoft take the last of the hardware business away from IBM and Sun.

The groundwork of those years secured Microsoft's next decade and more. After the bubble burst, Microsoft was still one of the most valuable companies in the world, and Gates was still the richest man in it.

But as Gates prepared to face the Justice Department, the seeds of change were already in the ground. Jeff Bezos, then the star of internet startups, invited two Stanford students to his house for breakfast and gave them an angel investment. His Amazon had gone public a year earlier and was still trying to convince the world it had a reason to exist.

Page, at the other end of the table, later said the meeting helped a great deal, though the founder he admired was Jobs. What none of them knew — not even Jobs — was that a few Apple employees had formed a small group called ENRI and were meeting in their spare time to argue about the future of human-computer interaction. They would arrive at an idea: several fingers moving on a screen at once to work a software interface.

2004 | Google Goes Public Six Years In, Worth Twice as Much as Apple

That year Wall Street handled the largest, and probably the messiest, IPO it had yet seen. SEC investigators had to read Playboy on the clock to work out whether what Google's two founders had said in an interview broke the quiet-period rules. The article ended up as one of the documents Google filed for the listing.

Estimates of what a Google share was worth ranged from US$15 to US$85. Deep into the roadshow, Google CEO Larry Page answered a question about revenue prospects with a shrug: "If I told you, you'd just ask again."

"Google is not a conventional company. We do not intend to become one." That was the first line of the letter Larry Page and Sergey Brin wrote to investors when the company finally listed in 2004.

For all the friction, Wall Street took Google anyway. The US$1.67 billion it raised on the first day was the largest IPO in the world at the time.

A company that reached the public markets six years after it was founded was, without question, an encouragement to every startup. Google had taken over the on-ramp to the internet for 65 million people worldwide, and that endless traffic turned into billions of dollars of advertising revenue on its books each year.

Microsoft was no longer the most valuable company in the world by then. General Electric and the merged ExxonMobil had taken over. But Microsoft was still in the top three.

Google's success showed clearly enough that Microsoft's plan to strangle new internet companies by owning the browser had failed. At the 1998 hearings, answering the Justice Department, Gates had said that "no company can control the internet." The testimony sounded insincere at the time. It came true.

What broke the monopoly was better technology and a better experience. Gmail, Google Maps, Google Photos, Chrome — one Google product after another became the standard in its category.

A few years later even Chrome would replace IE as the most widely used browser in the world, though Microsoft had never stopped preinstalling IE on Windows.

On its first day of trading, Google was worth US$23 billion, twice what Apple was worth. The iPod and the new Macs had pulled Apple out of danger and it no longer feared bankruptcy, but money was still tight. ENRI, that small team, could not get new Macs approved and for a while had to study multi-touch on Windows PCs the members put together themselves. That year the concept turned into a plan to build a phone, and the best engineers from teams across Apple joined it in secret.

Apple's iPhone project was invisible because it was guarded. Amazon's new project that year sat in plain daylight and nobody could make sense of it. In late 2004, a post of under 100 words announced the AWS blog and said Amazon's AWS developer relations team would share information about AWS there. That was the beginning of commercial cloud computing. Over the next decade and more it would carry hundreds of billions of dollars of Amazon's market value and become the competitor that gives Microsoft and Google their worst headaches today.

2010 | Apple Passes Microsoft as the Smartphone Replaces the PC

In June 2010, the D8 conference run by The Wall Street Journal gave Jobs his last public conversation before his death. Asked how he felt about Apple passing Microsoft in market value, he said: "It's surreal. Market value doesn't mean anything. It isn't important. It isn't what gets us up to work in the morning, and it doesn't make consumers buy our products."

It was the first time since the 1980s that Apple had been worth more than Microsoft. Apple was then using its newest product, the iPhone 4, to prove that "five years ahead of the industry," the claim made at the first iPhone launch, had not been a boast. The New York Times read the swap this way: "Wall Street is calling an end to one era and the beginning of a new one — the most important technology product is no longer the one on your desk, but the one in your hand."

If Microsoft passing General Electric in 1998 established that technology companies were a real force, Apple passing Microsoft in 2010 and closing on ExxonMobil marked the victory of the phone. That year, global PC shipments fell below phone shipments for the first time.

In that hour on stage, the company Jobs talked about most was not Microsoft but Google, the ally he had beaten Microsoft alongside. From 2007 to 2010, the iPhone shipped with only three internet services preinstalled, and all three were Google's: search, maps and YouTube.

Google was no longer Apple's ally. With Samsung, Motorola and others joining in, Android was becoming the alternative to the iPhone, and Google was improving it fast. Within three years, second-tier phone makers like Samsung and HTC were eating into the older generation of phone companies that had held on to their own operating systems.

By 2011, Android was the largest operating system in the world. The phone had replaced the personal computer as the way in to the internet.

"There's something really interesting going on with phones," Jobs said. He admitted Apple would compete with Google head-on, but not in search, where most people expected the fight; in mobile. "They're not imitations of desktops or laptops. If people want to know which restaurant to go to, they won't type 'Japanese food' and 'Palo Alto' into a search engine. They'll go to Yelp, or whatever app they want, and search there."

Jobs judged the decline of the search engine on phones correctly. He still underestimated what Android would become.

And information did stop flowing the way Google had planned, opened up for Google to index and hand back out. More and more of it sat inside separate apps: Amazon, Facebook and Twitter in the United States, WeChat and Taobao in China. Search engines were no longer the service with the most say, and the whole information ecosystem broke into pieces. Even Google, which controlled Android, could not turn that around.

The internet stopped being open. Power in the digital world moved from the companies that controlled search and operating systems to whichever service occupied users' time.

Google had its own troubles to handle at that moment. It was fighting Apple for the future of the phone, and it had walked out of China, the fastest-growing internet market in the world. Eight years later, its grip on the phone is as firm as Microsoft's grip on the PC once was, but its executives now think about China differently. Plenty of employees still hold the old convictions: on November 27 this year, in a single day, more than 400 Google engineers signed an open letter opposing work on a Chinese search engine.

2016 | Google Briefly Catches Apple, and Every Giant Hits a Ceiling

At the end of 2016, Donald Trump, still president-elect, met America's technology elite in New York. Bezos, Cook, Page, Nadella and Sandberg were among those in the room.

He told them he was there to help them do better, and that he would back anything the government could do toward that.

That lasted a few minutes. Trump soon warned that Amazon would face an antitrust investigation and that Apple should build iPhones in the United States rather than China. Add Google, which he did not name, and all three of the most valuable companies in that room had been through enormous change in the previous few years.

Apple was in its first decline in 13 years. The iPhone, which brought in 60% of revenue, could not sustain the growth of the previous eight years, and every other hardware product, iPad and Mac included, was selling less than before. Apple had misjudged how badly the 6s would sell, finished goods piled up, and it spent US$2 billion clearing iPhones stuck in the sales channel.

Over the five years to 2016, the advertising revenue Google made from each user barely moved, hovering around US$7.50. The reorganization that began in 2015 was under way: the CFO Page and Brin had hired from Morgan Stanley was cutting costs across the company and moving the cash-burning experiments out of Google.

Microsoft was taking Windows apart piece by piece. Nadella merged the Windows software and hardware groups so that Windows software, the cash cow, absorbed hardware's losses. Under Microsoft's structure at the time, every division head was measured on his own profit and loss, so the move was bound to drag the Windows division's numbers down.

When results and user growth approach a ceiling at the same time, the rankings flip easily. In February 2016, Google briefly passed Apple to become the most valuable company in the world.

The most optimistic of them that year was Amazon. AWS kept supplying Bezos with ammunition, and Amazon went after the leader in one field after another, from e-commerce in India to original film and television. For a while it worked: in 2016 Amazon bought Manchester by the Sea for US$10 million, and the next year the film took two Oscars, best original screenplay and best actor.

Even so, this was probably the last quiet stretch these companies would get.

2018 | Money Could Not Buy Back Wall Street's Confidence

U.S. stocks looked fine early in the year. Apart from one collective crash in February, the three main indexes kept setting records through September. Investors spent the run betting on which American company would be the first worth US$1 trillion.

Apple crossed that symbolic round number in early August, with Amazon right behind it.

This is also the year Microsoft shook off Google, then Amazon, and started closing on Apple.

Not because Microsoft rose much. Measured from the day Apple first touched a trillion dollars, Microsoft's market cap has actually fallen. The other big technology companies fell faster.

Amazon's relationship with the trillion-dollar mark lasted less than a day. It led the fall, and at the worst point it had erased US$293.5 billion from its early-September peak. Apple did worse: after it gave disappointing guidance for the holiday quarter, more than US$303 billion came off its US$1.12 trillion high.

Google's slide started earlier. After dropping 4.77% on April 24 this year, it was passed by Microsoft, and Amazon and Apple were passed in turn after that. Microsoft's march up the list has nothing to do with how fast it climbed. The others simply fell hard.

These companies made adjustments after hitting the ceiling in 2016, but nobody broke through it. Apple raised the price of the iPhone X to fix its falling margins; the fix held less than a year, this year's entire new lineup sold poorly, and Apple announced on an earnings call that it would stop reporting how many devices it sells.

The market's earlier optimism was not confidence in these companies' futures either. It rested largely on the enormous buybacks they announced — spending money on their own shares to prop up sentiment.

In February, Apple hinted on its earnings call that it would spend nearly all of its US$163 billion in net cash on buybacks, dividends, stock compensation and acquisitions. In May it announced another US$100 billion buyback and US$3.7 billion in dividends. The stock rose 11.3% over the next four days, lifting a market value that had been sitting around US$820 billion to US$900 billion.

Microsoft and Google had plans of their own. Trump's tax law lowered the cost of bringing overseas profits and cash home. Google planned to repurchase US$8.6 billion; Microsoft kept working through the US$40 billion buyback it announced in 2016.

Three companies spent US$150 billion trading their own stock, and bought less than a year of Wall Street's confidence.

Charts by Feng Xiuxia

Cover image/Reddit; the wide cover image comes from the AllThingsD annual conference.