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Ballmer, black turtlenecks, and Microsoft's next big idea

The battle to re-top Apple's market cap

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Beyond the core

Meanwhile, Microsoft is outside its core businesses, in new growth markets. This is where the company is being marked down, despite its size and safely predictable revenue.

Market-changing innovation has boosted the perception of Apple among investors. Plus, the company has turned new ideas into money.

Apple is in the midst of a successful run with the iPhone and now the iPad. People love them to the extent that the iPhone has carved out a quarter of the US smart phone market in less than three years. Moreover, with the iPod, iPhone and the iPad, Apple has - once again - shaken up incumbents. Handset makers, lazy carriers, PC makers, and, yes, Microsoft are rushing to offer multitouch phones and tablet devices.

What's more, Apple is its own PR machine. What does Apple need with PR when Steve Jobs can wage a one-man-war against Adobe Software's Flash that keeps everyone talking about the iPad?

On entertainment and devices, Microsoft's recent efforts to steal the magic of the iPod with the Zune fizzled, and the Zune got shuffled from device to online service, while the supposed iPad-rival Courier Tablet was canceled.

Tellingly, the head of the division responsible for Zune and Windows Mobile - president Robbie Bach - has submitted his resignation from Microsoft, while Zune brain and Xbox creator J Allard has left the company.

The biggest Microsoft buzz that's even remotely analogous to the iPhone is Windows Phone 7, but even there, Microsoft is following Apple. Windows Phone 7 comes after Steve Ballmer laughed off the iPhone, saying Microsoft made perfectly good phones. So good, in fact, that Windows Mobile has been losing market share to Apple and now Google's Android.

Microsoft is not just following on devices - it's also following on the internet. The company is spending more than it's getting from its Bing search engine in order to catch Google - the younger company it let get ahead. Such is the money being shoveled into Bing that Microsoft's Online Business is losing billions and hurting the company's overall performance.

On the cloud, Microsoft is spending billions of dollars and incurring delays in building its own software fabric and data centers to catch Amazon, the online book warehouse that set the gold standard for running hosted applications.

Let's be clear here. Microsoft has not stopped innovating. It has been doggedly refining Bing, for example, polishing its engine to bring in useful, related data associated with a search. Engineers and researchers in the corners of Redmond have also come up with some compelling ideas: the Silverlight media player was an afterthought to Windows Presentation Foundation (WPF), but now it's on the sharp end of the action against Adobe's Flash Player. Microsoft is also working on a browser/operating system codenamed Gazelle.

It's just that with so many of these projects, Microsoft is a follower not a leader. It's spending billions of dollars to catch percentage points of market share from Google or — worse — lose market share to Apple and Google’s Android in mobile. Meanwhile, Apple has the glow of success about it, becoming the company every handset and device wants to be.

To answer Apple's surge, Microsoft must recapture its old vision and then execute to grow significantly in new areas.

Microsoft has two potential options: the first is to buy its way into the game. In the cloud, for example, Microsoft could acquire a market share leader or idea maker and quit trying to build its own version of the wheel. The second option is harder: start the search for the next, really big idea in computing, put it into practice and have everybody follow it.

Time for Ballmer to slip into a black turtleneck. ®

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