Apple Surpasses Microsoft, But Google Is Another Story

Now that Apple's (AAPL) market cap has surpassed Microsoft (MSFT), where next? The short answer (as far as Apple fanboys who cheered today's news are concerned) is "lookout Exxon, we're coming for you!"

The last time Apple had a higher market value than Microsoft was in December 1989. Apple shares are now worth more than 10 times what they were a decade ago. Given how ego-centric the Gates/Balmer vs. Jobs battle has been through the years, one can't help wonder if Apple's market cap ascendancy was the final trigger for Tuesday's senior management shakeup in Redmond.

Tech investors who have ridden Apple shares to the current valuation are naturally wondering whether Apple can sustain its incredible stock price momentum?

While Apple is certainly on a roll, the company faces several headwinds:

• Mounting antitrust risk - Ironically, today there was news of additionalantitrust scrutiny of Apple's business practices, this time related to iTunes. Microsoft stumbled after the U.S. government began its long and protracted antitrust case against the company and its Windows operating system monopoly. The iTunes inquiry is not nearly as central to Apple's business as Windows was to Microsoft's. But this is also not the first or even second time the federal regulators have more than poked around Apple's business practices.
• Apple vs. Google - In Q1 smartphones featuring Google's (GOOG) mobile operating system, Android, outsold the iPhone. An iPad competitorfeaturing the Android operating system was officially announced by Dell (DELL) on Tuesday. In the consumer space, I would definitely put my money on the fruit-logoed company when it comes to Apple vs. Microsoft or Apple vs. Dell. But Apple vs. Google is a different story. Google is able to attract superior software engineering talent. While talent comes and goes, the next Google advantage which I highlight below sticks around.
• Battle of the Big Brass Brands - At the risk of getting flamed by the Apple online fanboy gestapo, I believe Google's brand is more trusted than Apple's. And not entirely due to Google's "Don't be evil" ethos. Perhaps more important is the nature of Apple's and Google's respective business models. Apple has to charge consumers money for its products and periodically suffers criticism and backlash for gouging customers. In contrast, on the rare occasion where Google actually charges a customer anything is when it offers some ridiculously inexpensive bargain, such as Google's pricing for storage. Where they compete head-to-head, Apple charges $99/year for MobileMe while Google offers basically the same service for free. Apple's recent iPhoto upgrade (as part of iLife) cost customers $79, while Google doesn't charge for its Picasa upgrades. With the retail consumer that both companies are now directly competing head-on for Google is the undisputed "King of Free". That's going to be tough for Apple to compete with ultimately unless it can come up with something similar to Google's behind the scenes money-minting machine called AdSense and AdWords (which Apple is beginning to try and do with iAd.).
• In a lawsuit, only the lawyers win - Nokia (NOK) recently announced another lawsuit against Apple. Previously Apple announced that it was suing smartphone maker HTC for infringing 20 iPhone patents. There has been talk of Palm (PALM), recently acquired by deep pocketed HP (HPQ), of both suing Apple and/or being sued by Apple. It's unclear what the result of these legal battles will be, but they certainly pose at a minimum a distraction to Steve Jobs and Co., and in the case of the Nokia lawsuit, a threat to one of Apple's hottest new products.