A bright upstart is creeping up on Apple — yes, it’s Microsoft

Large technology companies survive by fundamentally transforming, and then dominating their markets. In recent years, Apple has been the company most admired for its ability to keep out in front and repeatedly renew itself.

Microsoft, in contrast, is a company that had seen its one-time dominance of the enterprise market eroded. It missed out entirely on the launch of key categories – smartphones and tablets – and was generally considered to be an ocean-going liner of a business: lumbering, corporate and nigh-on impossible to turn around once set on a course.

Yet Apple’s crown is under assault, and perhaps from an unexpected place. Microsoft is back, after years in the wilderness, and is reversing received wisdom on these old rivals.

One has trendy industrial design, open architecture, a focus on quality and a Jobsian chief executive. The other is Apple, with stagnating design – the crippling effects of an overworked staff – and lacking a new hit product.

Apple is still the largest company in the world and, by any meaningful measure, one of the most successful, but it has lost momentum lately. Year on year revenue is down, iPhone sales have fallen for consecutive quarters for the first time in the product’s history, and the Apple Watch (the only new product launched under the latest chief executive) has struggled. Finally, after years of taking a small but meaningful market share in the personal computer market, Apple Mac sales are also dropping.

These are symptoms that indicate a larger problem, rather than the cause itself. The cause is that the design-led, mould-breaking product innovation that drove Apple’s renaissance appears to have stalled.

The latest operating systems, iOS9 and iOS10, have been riddled with issues. Simplifying ports on both the iPhone and the Macbook Air has been met with derision by users, and high-profile attempts to take on new markets, such as Ping and Apple radio, are faltering.

Meanwhile, Microsoft has got its mojo back. After Steve Ballmer’s 14-year reign as chief executive, the company promoted Satya Nadella, the head of its cloud and enterprise division, to the role. The most recent product launch – focused on hardware – captured all the magic of a Steve Jobs event (hop over to these guys if you want to know how to launch a product in a similarly spectacular way), but with the added bonus of Microsoft’s ability to appeal to a wider audience.

Microsoft produced a genuinely innovative suite of products at a barnstorming launch that provided a stark contrast to Apple’s lacklustre iPhone7 launch, which gave rise to a cringeworthy claim that it took “courage” to take fundamental features – such as headphone jacks – out of the product.

Microsoft’s first laptop is a device that smartly bridges the gap between computer and tablet and certainly does so better than the iPad Pro. In Windows 10, Microsoft has learnt from earlier mistakes to develop an operating system that allows different devices to work seamlessly together.

Nadella has also moved decisively on the artificial intelligence trend. It has bought the UK’s Swiftkey and developed its in-house Cortana machine learning technology, revealing a view of the future where computers will use the data we all create and consume to help us automate the mundane processes of daily life.

It’s a bold, singular vision, and one that is capturing the imagination of the next generation of application developers, hungry for the next platform.

But even if Microsoft had hit this rich seam of innovation a few years back, would Apple have been so far behind? I don’t think so.

Apple’s problems are two-fold. The company’s success over the past decade was driven by its ability to lead consumers into new markets, by creating products that they didn’t know they wanted: no one asked for a tablet for Christmas before the iPad. That sort of product bravery requires vision. In Steve Jobs it had the kind of leader who could make such calls.

Today’s Apple is run less idiosyncratically and arguably more maturely. A group of Jobs’s key lieutenants (Sir Jony Ive, Craig Federighi and Eddy Cue) work with current chief executive Tim Cook, co-operatively. But rational management does not allow for the sort of giant leaps required to keep the industry and consumers tantalised.

Second, Apple is suffering from its own success. With such a large number of products and app developers, it now has to deal with the sort of interdependent complexity that made Microsoft’s early 2000 products such a nightmare. Apple wasn’t necessarily building better products – it had just benefited from starting small.

Meanwhile, in Nadella, Microsoft has found a leader with the energy and momentum of a young Bill Gates.

A fiercely intelligent engineer with a similarly deep affinity and connection with technology as its founder, Microsoft’s new chief is returning the company to its roots. He has identified the important trends of the near future, and intends to put Microsoft into the foundations of those trends.

Right now the most sought-after technology that engineers in Silicon Valley want to play with is the HoloLens. The high-speed, high-resolution, augmented reality platform looks more like science fiction than even Hollywood’s own attempts.

But HoloLens wasn’t built by a hot new start-up, nor by Google, Apple or Facebook. It was built, entirely in-house by Microsoft.

Now which company looks like the large ocean liner that is so difficult to change from its course, once set? For the first time in a long time, it is not Microsoft.