Matt Krantz, USA TODAY
Microsoft just got Googled.
Online search leader Google jumped past Microsoft in terms of market value for the first time Monday, another sign of the rise of companies that have found ways to dominate the Internet and mobile computing. Google is now worth $249.1 billion, edging out Microsoft at $247.2 billion.
"There's been a huge structural shift where traditional software is changing to cloud-based services," says Andrew Lange of Morningstar.
Google is the latest company to elbow Microsoft aside in the pecking order of the world's most valuable companies. Google's domination of online tracking and advertising allowed it to expand its reach into operating systems for mobile devices, even as it has made inroads with cloud-based productivity tools.
During the age of personal computers, Microsoft was the perennial most-valuable company in the world. But Microsoft was first knocked to No. 2 by ExxonMobil, following the massive rise in oil prices in 2008. And Microsoft has since fallen to No. 3 after Apple's lead in highly profitable smartphones and tablets made it the world's most valuable company.
There are several factors powering the rise of Google's value above that of Microsoft, including the:
-- Rise of mobile computing. Devices running Google's Android operating system continue to dominate smartphones. Despite a tight partnership with Nokia and critical acclaim for its Windows Phone operating system, Microsoft's smartphone operating system is stuck with a low-single-digit percentage of the market.
-- Anemic personal computer growth. Cautious guidance and weak growth from stalwarts in the PC business, ranging from hard drive makers, PC makers and chipmaker Intel, have turned investors negative on the PC business. "Things are looking bad in the PC world," says Angelo Zino, analyst at S&P Equity Research. Microsoft gets 80% of its profit from PC-centric businesses, he says. Rising demand for low-cost tablets continues to be a threat to Microsoft's business.
-- Great attention on large Internet-based companies. Investors remain focused on the biggest companies tied to growth of the Internet, including Google but also Amazon, says Ben Schachter of Macquarie Research. Furthermore, Microsoft's Bing search engine has yet to take any meaningful share from Google, he says.
It's too soon to count out Microsoft, though, as the company is about to unleash a raft of Internet-based products, Lange says, who says the stock has a fair value of $35 a share.
Microsoft this month is bringing a wave of new products, including Windows 8, which will give tablet computers the power of a full fledged PC for the first time. Windows Phone 8 is also due out this year with new designs from Nokia and Samsung. The company also has cloud-based hosting services for companies and consumers as well as a Internet-powered refresh of Office coming.
"There's no reason Microsoft can't get back to No. 1," Lange says. "If Apple can do it, Microsoft can, too."