Gary Hamel, a management guru, said, "The business system in the digital age is no longer characterized by continuity. It is difficult for the Internet to give birth to companies that rely solely on a single business, like oil or real estate giants, to thrive forever."

Looking at the global history of technology, there are few technology companies that can maintain their momentum across cycles. Even a strong company like Microsoft was given a death sentence by many before 2014. However, what makes Microsoft remarkable is its ability to ascend to the throne in one era, fall from grace in the next, and then reclaim its throne in the following era.

As the third article in the 'NASDAQ Seven Sisters' series, this article will introduce Microsoft.

01. The heritage of a veteran powerhouse: the absolute king of the PC era

Microsoft's journey began in 1980 when IBM chose to partner with them to develop an operating system for their new personal computers. Based on Seattle Computer Products' DOS operating system, Microsoft created the DOS operating system for IBM PCs. With the popularity of IBM PCs, DOS quickly dominated the market. Microsoft continued to upgrade and refine DOS, gradually shaping the prototype of the Windows operating system.

In 1990, Microsoft launched Windows 3.0, a milestone product in its history. The success of Windows 3.0 established Microsoft's leading position in the PC operating system market. Subsequently, Microsoft introduced influential products such as Office software suite and Internet Explorer, further consolidating its position at the forefront of the global technology industry.

During the PC era, Microsoft was undoubtedly one of the most influential companies globally. Its alliance with Intel, known as the Wintel alliance, cemented Microsoft's long-term dominance in the operating system field. At its peak, Windows PCs with X86 processors accounted for nearly 100% of the personal computer market.

Leveraging its vast market share, Microsoft enjoyed a network effect that solidified its position. With Windows installed on everyone's computers and Office as the go-to office software, it was hard to imagine a world without Microsoft at the time.

02. Microsoft's regret: missing the mobile internet era

Even a company like Microsoft made strategic missteps. As the mobile internet wave swept the globe, companies like Amazon, Google, Facebook, and a resurgent Apple emerged as dominant players. They permeated people's work and lives.

The mobile internet wave significantly reduced the prominence of the Windows operating system. Today, smartphones enable us to write emails, hold video conferences, shop, and scroll through social media apps like TikTok, making PCs no longer the sole smart device for consumers. Moreover, Android and iOS dominate the smart device market, leaving little room for Microsoft. Consequently, consumers' attention naturally shifted away from Microsoft.

This impression is closely tied to Steve Ballmer, Microsoft's former CEO. During his tenure, Windows enjoyed near-monopoly market share, with virtually every PC sold requiring a licensing fee to Microsoft. This allowed Microsoft to generate billions in revenue annually.

History has repeatedly shown that past successes can become obstacles to future triumphs. Successful people often become trapped in their own success stories, hesitant to explore new paths.

Ballmer believed that Microsoft could rely solely on Windows to maintain its dominance, unaware that the times had changed. Users were increasingly accessing the internet through iPhones and Android devices, leading to a saturation of the PC operating system market.

By the time Ballmer realized this, it was too late. Microsoft had missed out on search engines, smartphones, social networks, and other emerging trends, becoming virtually invisible in these fields.

After internal and external struggles and conflicts with the board, Ballmer, who had worked at Microsoft for 32 years, announced his departure in fiscal year 2014. In February of that year, Microsoft officially appointed Satya Nadella as its new CEO.

At the time, Microsoft's smartphone business was struggling against Apple and Google. Its acquisition of Nokia seemed doomed, with Windows Phone's paltry market share becoming a laughingstock. Additionally, the poor performance of Surface devices indicated that Microsoft was falling behind in the mobile era.

Within two years of taking office, Nadella made crucial decisions. He abandoned the mobile phone business: in July 2015, Microsoft announced significant layoffs at Nokia and wrote off $7.6 billion, effectively ending its mobile phone ambitions. Microsoft abandoned its plans to replicate Apple's success in the mobile market and withdrew from mobile operating systems.

Microsoft's flagship products, including Office, fully embraced iOS and Android. Previously, Office was not available on iOS and Android to boost Windows Mobile's user base. With the abandonment of mobile OS ambitions, Office became a vital tool for Microsoft to capture the mobile market. As Windows could no longer drive growth, resources needed to be reallocated to other high-growth areas.

03. New aspirations: the AI era is crucial

Perhaps due to missing out on the mobile internet era, Microsoft is determined not to falter in the AI era.

Industry experts suggest that Microsoft stands a good chance of emerging as the ultimate winner in the AI wave. For years, Microsoft's dominance in the PC sector, particularly in operating systems and Office products, has been unshakeable. In recent years, Microsoft has continued to make breakthroughs in Bing search, Edge browser, Azure cloud computing, and gaming, all of which represent significant user engagement and vast market opportunities.

In the PC era, Microsoft was the lucky one: the Wintel alliance served as the foundation for all applications, generating immense patent royalties.

Yet, this veteran refuses to let go in the new era. As the AI era dawns, computational power and large models are poised to become the infrastructure of the future. Surprisingly, Microsoft is once again at the forefront. The prevailing consensus is that NVIDIA and Microsoft will emerge as the two kings of the AI era.

NVIDIA's role is straightforward: it's like selling shovels during a gold rush. Just as OPEC's production quotas halted global industrial activity in the 1970s, NVIDIA's chip supply disruptions can cause seismic shifts in the tech industry.

Microsoft, on the other hand, is poised to define the AI era through its early adoption in applications. With over 1 billion users globally, the integration of ChatGPT into Microsoft Office significantly enhances user efficiency, boosting both consumer and business willingness to pay. Furthermore, the added functionality of Microsoft 365 Copilot is expected to drive price increases across Microsoft's office product line, leading to both volume and price growth.

04. Common ground between Microsoft and Apple: profiting from technological leadership

From dominating the PC era to missing the mobile internet era and rising again in the AI era, Microsoft's core competency lies in its relentless innovation and trial-and-error approach, backed by strong cash flows and a robust R&D team. Stable revenue from its PC business segment fuels continuous innovation, enabling Microsoft to withstand and overcome failures.

Behind its relentless innovation and experimentation lies a singular goal: to profit from technological leadership. Microsoft and Apple have alternately held the top spot in global market capitalization.

While they differ in their approaches, with Microsoft adapting to market changes and capturing opportunities and Apple focusing on product innovation, user experience, and ecosystem integration, they share a common thread: profiting from technological superiority. Commercial competition essentially boils down to two dimensions: either creating products that others cannot, or producing them more cost-effectively. The former offers a lasting advantage, while the latter leads to relentless competition. In stable times, both approaches can yield profits, albeit with varying degrees of effort.

However, in an era of technological upheaval, the differences become starkly apparent. The experiences of Microsoft and Apple offer invaluable lessons for Chinese tech companies.