You may have heard the news that Apple has cut a deal to offer its millions of iTunes subscribers same day downloads of both major and independent studio DVD releases for $15 a pop. This is yet another milestone first for Apple as the company asserts its dominance in the Internet distribution ecosystem that includes not only a top-flight digital content distribution web site, but the number one selling personal media players that have added mightily to Apple’s fortunes. iPhone and AppleTV followed as the vision of unbridled access to affordable digital content took root and grew.

Steve Sechrist
Senior Analyst and Editor

Microsoft with its Zune personal media player and Zune.net web site is still in catch-up mode. The company recently announced its Zune 2.5 update that brings new functionality like the ability to synchronize multiple devices (nice), queue up new tracks for loading, plus gapless playback and auto-playlist functions. MS also cut a deal with iTunes defector NBC to offer that content on the newly revamped Zune Marketplace online media store now part of its social networking site (Zune Social). One new element Zune began offering is a subscription service that models Rhapsody and Napster, allowing unlimited downloads for a monthly fee.

But beyond the minutia of product offerings it’s important to note a key distinction between these two companies. Apple and Microsoft are long-time archrivals, like Sherlock Holmes and Professor Moriarti if you will. They seem to be forever cast in battle over the hearts and minds of consumers wanting to enjoy the fruits of the digital era; one that both MS and Apple (in part) have ushered in under two entirely different philosophies.

For its part, Apple is the innovator. Practically re-inventing the music industry, the company brought order from the chaos of Napster driven peer-to-peer download sharing, with its modest price, user-friendly interface, and slick new iPod devices that pushed the limits of technology and won over a whole new generation by offering solutions not products. Apple looks at the world from the eyes of the consumer and asks what do they want? Then with the bulldog tenacity embodied in co-founder Steve Jobs, it goes on to deliver above and beyond the consumer’s (and often the engineers) expectations.

Microsoft is a company that plays it safe with a follower strategy. It identifies market segments that offer strategic benefit and often take a second to market approach. In most cases Microsoft would rather buy technology than build it in house. Even the Zune PMP sold under the Microsoft brand is actually an OEM (original equipment manufacturer) product the company buys from Toshiba.

Here’s one more example. Type "list of acquisitions by Microsoft" into Wikipedia and you will find an astounding one hundred nineteen companies starting in 1986 with Dynamic Systems Research for $1.5M the company that brought you Windows. Top acquisition by the company was for $6B in May last year for Internet ad company aQuantive.

Now do the same thing for Apple, a company founded just shy of one year after Microsoft, (April 1, 1976 vs. April 4, 1975 respectively). The list is thirteen companies in the same period of time, starting in 1996 (a full decade later than MS) with top price of $400M paid for NeXT computer, and that deal was more to get Steve Jobs back than to source a new technology.

But with its market cap at $272B to Apple’s $160B, Microsoft must be doing something right, and the second to market, follower strategy is working. For its part, Microsoft listens well to consumers and eventually, over a seemingly endless iterative process, improves its products until they get it right. They are smart, savvy and opportunistic. Apple will continue changing the world, while Microsoft watches and positions itself (and stockholders) to benefit.

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