1. This chapter introduces several approaches to assessing a firms competitive advantage. Using any one of these approaches, can you ascertain whether Microsoft has a competitive advantage over Apple? Why or why not? From which approach is Microsoft looking the best? Explain. 2. Microsoft CEO Satya Nadella has made drastic changes to Microsofts strategy. What was Microsofts strategy before Nadella was appointed CEO in 2014? What is it now under his leadership? Do you agree that Nadella has formulated a promising business model? Why or why not? 3. Looking three to five years into the future, who do you expect will have a competitive advantage: Apple or Microsoft? Explain.

The Quest for Competitive the most valuable tech company globally with $510 billion in Advantage: Apple vs. Microsoft market capitalization. In contrast, in 1997, Apple was near bankruptcy and struggling to survive with less than 5 percent market share in BY THE FALL OF 2018, Apple was the first company ever to the PC market. But in the fall of 2001, when it introduced the be valued at more than \$1 trillion. However, by the spring of iPod, its portable digital music player, Apple's revitalization 2019, its market capitalization had fallen by more than took off. Eighteen months later, its rise would continue with 21 percent (approximately $230 billion). From 2009 to 2019 , the opening of its online store, iTunes, which was then Microsoft's market cap had risen from a low of $145 billion quickly followed by the opening of its first brick-and-mortar to over $880 billion-an increase of almost 500 percent. How retail stores; today, these stores earn the highest sales per did this happen? square foot of any retail outlet, including luxury stores. To understand the ups and downs of firm performance and Apple didn't stop there. In 2007, the company revolutioncompetitive advantage, it is helpful to look at a longer time ized the smartphone market with the introduction of the horizon. Apple and Microsoft have been fierce rivals since they were both founded in the mid-1970s. Although Apple has dominated the market in the decade since the introduction of the iPhone in 2007, in the early decades of the PC revo: lution, Microsoft was the undisputed leader. It set the standard in the world of personal Wahav/Alamy Stock Photo computers with its Windows operating system, which about computer that is fully integrated with its iOS operating system, running basically all the 90 percent of all PCs run. Microsoft's business model was to apps available for the iPhone. Not to be stopped, in 2017, Apple create a large base of users for this operating system and then introduced its 10th anniversary iPhone to great fanfare. It had a to make money by selling with it application software such as curved screen and was priced at about \$1,000. The sticker price the ubiquitous Office suite (containing Word, Excel, Power- increased to $1,100 when, in September 2018, Apple introduced Point, Outlook, and other software programs). the iPhone XS Max. In looking for the next big thing, in 2019. Microsoft replicated this hugely successful business Apple entered the entertainment industry with Apple TV. model with its corporate customers. Once servers became among other new strategic initiatives in mobile payment services ubiquitous in corporations, Microsoft offered IT departments and online gaming. e-mail systems, databases, and other business applications that competitive advantage is transitory, Given the rough-andthat tightly integrated with Windows. As a result, 80 percent tumble competition combined with relentless technological of Microsoft's total revenues were tied either directly or indi- rectly to its Windows franchise. Microsoft's strategy of offer- pross and innovation, it is hard to gain a competitive ing bundled discounted software with its operating system. advantage in the first place, and it is even harder to sustain it.' which became an industry standard, allowed it to create a Part Il of this ChapterCase appears in Section 5.3. strong strategic position and to extract high profits for many years. It also allowed Microsoft to overtake IBM in 2000 as NOTE: A five-year financial ratio review related to this ChapterCase is available in Connect