APPLE
Description

Computers are still an important part of its mix, but these days music-related products are at the top of Apple's playlist. Apple Computer's desktop and laptop computers -- all of which feature its OS X operating system -- include its Mac mini, iMac, and MacBook for the consumer and education markets, and more powerful Power Mac and MacBook Pro for high-end consumers and professionals involved in design and publishing. The company scored a runaway hit with its digital music players (iPod) and online music store (iTunes). Other products include servers (Xserve), wireless networking equipment (Airport), and publishing and multimedia software. The company's FileMaker subsidiary makes database software.

Only co-founder, CEO, and Apple crusader Steve Jobs may have expected the level of success the company's music-related products have enjoyed. In 2003 Apple announced the launch of an online music service called the iTunes Music Store that lets computer users purchase and download songs for 99 cents each. Apple has since expanded the offerings to include music videos, audiobooks, television shows, and other content. The store's catalog, which has helped spur sales of Apple's popular iPod digital music and video players, includes songs from the five largest record labels, as well as television content from ABC, NBC, and a number of cable networks. The company has launched international versions of its iTunes Music Store that serve Canada and European Union countries. Early in 2006 it began offering select television content on a subscription basis with a service called Multi-Pass. Later that year the company launched an online movie service, and previewed a device called iTV for watching downloaded content on televisions.

Since debuting the iPod in 2001, Apple has provided regular updates to the line, including color displays and and flash memory-based models. Late in 2005 Apple, Motorola, and Cingular Wireless announced the debut of a mobile phone with iTunes functionality. Apple also unveiled the iPod nano, an updated (and even smaller) version of its miniature iPod model, as well as an iPod capable of playing video. In 2006 Apple reached a settlement in a dispute with Creative Technology over technology used in digital music players; Apple agreed to pay the company $100 million in exchange for a license to use Creative's patent related to navigation and organization.

Once the world's top PC maker, Apple Computer has been relegated to niche status in a market dominated by "Wintel" machines (computers using Microsoft Windows software and Intel processors). Macintosh computers run Apple's own UNIX-based operating system. The uniqueness of Apple's computers is a double-edged sword for the company. The graphical interface and form factor of Macintosh computers reflect the aesthetic of Jobs, who has long championed the importance of visually attractive, user-friendly design. The features that distinguish Macs have allowed the company to maintain a loyal following willing to pay premium prices and overlook any interoperability issues with Windows (a factor that Apple largely addressed with its OS X operating system). However, Apple's market share has dwindled as prices for commoditized Windows-based machines continue to fall.

In addition to its proprietary operating system, a traditional differentiator for Apple had been its use of IBM's PowerPC processors (manufactured by IBM and Freescale). However, in 2005 Apple announced it would begin incorporating Intel chips into its PC lines. At the time of the announcement Adobe Systems and Microsoft both pledged continued development of their Macintosh applications. Apple debuted its first Intel-based computers early in 2006, and it completed the transition across its entire line later that year. The company also released software that allows its Intel-based computers to run Microsoft's XP operating system.

Apple shares a long and thorny history with Microsoft. Although it provides an alternative to Microsoft's omnipresent operating system, Apple's relative size and market share restrict its threat to the software giant's stranglehold. The companies have long maintained a working relationship; the Mac-compatible version of Microsoft's popular office suite is a key software title for Apple, and Apple has scored crossover hits with Windows-friendly editions of iPod and iTunes. Soon after Apple released its Safari Web browser, however, Microsoft announced it would cease development of the Apple version of its ubiquitous Internet Explorer.

In an effort to boost its appeal among consumers, the company has opened more than 100 Apple retail stores across the US; it also has stores in Canada, Japan, and the UK. Apple generated 17% of its sales through its retail channel in fiscal 2005.

The company remains focused on product innovations that solidify its popularity in classrooms, Web design shops, and graphic arts studios. Although more than a quarter of its sales are to schools, Apple has felt increasing pressure in that market, particularly from Dell. While Apple continues to roll out unique hardware offerings, the company has also looked to software development to drive sales. Many of the company's multimedia applications -- including iTunes, iMovie, and iPhoto -- are available for free, but the company charges for bundled versions of its software.

MICROSOFT
Description

Microsoft's ambitions are anything but small. The world's #1 software company provides a variety of products and services, including its Windows operating systems and Office software suite. The company has expanded into markets such as video game consoles, interactive television, and Internet access. With its core markets maturing, Microsoft is targeting services for growth, looking to transform its software applications into Web-based services for enterprises and consumers. Microsoft has reached settlements to end a slew of antitrust investigations and lawsuits, including agreeing to uniformly license its operating systems and allowing manufacturers to include competing software with Windows.

Late in 2005 the company announced a reorganization designed to streamline its decision-making and speed up execution across its divisions. Its units include Microsoft Platform Products and Services (Windows Client Group, Server and Tools Group, MSN), Microsoft Business (Information Worker Group, Microsoft Business Solutions), and Entertainment and Devices (Home and Entertainment Group, Mobile and Embedded Devices Group).

While desktop applications and platforms remain the cornerstone of its operations, Microsoft has inexorably expanded its product lines, which include video game consoles, enterprise software, computer peripherals, software development tools, and Internet access services. In 2006 the company launched its Zune brand of digital entertainment products and services. The first Zune product, a 30GB digital media player, will compete directly against Apple Computer's iPod.

Microsoft has also reached major settlement agreements with Netscape (paying the company about $750 million); Sun Microsystems ($1.6 billion in addition to royalty payments on certain technologies); Novell ($536 million to settle a suit tied to Novell's NetWare software; Gateway ($150 million); IBM ($775 million and extending $75 million in credit towards Microsoft software deployment); RealNetworks ($761 million in cash and promotions); and Daum Communications ($30 million in cash, advertising, and other terms).

Despite the litigation that has plagued it in recent years, the company has continued to forge ahead in its strategy to extend its core software products into Web-based services for businesses and consumers. By transforming itself from a traditional software provider to a broader technology services and media company, Microsoft hopes to position its operating systems, software, and services as a de facto standard for accessing, communicating, and doing business over the Internet. The company also operates in the Web search space, directly challenging incumbents such as Yahoo! and Google. It has also partnered with mobile devices makers such as Hewlett-Packard and Motorola to develop handheld computers and mobile phones that utilize Microsoft Windows Mobile and Windows Media software.

Microsoft has used selective acquisitions (including the purchases of Navision and Great Plains Software) to expand its enterprise software offerings, which include applications for customer relationship management and accounting. Along with rival enterprise software providers such as SAP and PeopleSoft, Microsoft is increasingly targeting small and midsized businesses. In 2005 it acquired collaboration software maker Groove Networks (founded by Lotus Notes developer Ray Ozzie), anti-virus security provider Sybari Software, email security developer FrontBridge Technologies, and identity management software provider Alacris. Microsoft also bought file synchronization specialist FolderShare, and media-streams.com, a developer of VoIP technology.

Early in 2006 Microsoft acquired Apptimum, a developer of software used to transfer data between computers, and Onfolio, an Internet content collection and organization technology provider.

In November 2006 the company announced a partnership deal with long-time rival (and Linux proponent) Novell to more closely integrate Novell's open-source Linux software platform with Microsoft's Windows operating system. The agreement included Microsoft paying Novell $240 million up front in subscription fees, as well as an additional $108 million for use of patents; Novell will pay Microsoft at least $40 million over five years for use of Microsoft's patents, based on a percentage of revenue from Novell's open-source products. Microsoft also agreed not to sign a similar agreement with any other Linux distributor for three years

Chairman Bill Gates owns about 10% of Microsoft; CEO Steve Ballmer owns nearly 4%. Gates stepped down from his role as chief software architect in June 2006 to concentrate on his charitable work through the Bill & Melinda Gates Foundation.