Today's Tech Market: Branding Is the Name of the Game

Includes: GOOG, MSFT
by: Yankee Group

By Carl Howe

After Google (NASDAQ:GOOG) broke the $500 mark yesterday, Paul Kedrosky has put up a very interesting chart of how Google's market capitalization has grown versus Microsoft's (NASDAQ:MSFT). Google currently is hovering around 50% of Microsoft, and has been in the 50% to 60% range for about a year. Not bad for a company that started in 2004 with a market cap of 8% of Microsoft's.

So just for fun, I thought I would play a more limited game with a few other tech stocks. Unfortunately, I don't have the graph of market caps for all these companies, but I can compute their percentages of Microsoft's cap today along with their year-over-year growth in earnings and revenues. The data here is intraday from Yahoo Finance as of about 10 am yesterday.
[click to enlarge]
Carl Howe Chart
Look at the numbers for Google, and it's pretty evident why we can expect its market cap to keep growing for a while: any company growing at nearly 100% a year is one where a lot of investors like to have a position. And while Cisco is still a larger company than Google at present, I wouldn't expect that to last long with one quarter the growth rate. Below, is a SmartMoney market map showing Google's gains since the beginning of the year.
Google market map
I'd argue the growth shift we're seeing here is actually a more profound one than the numbers suggest. What we're seeing is the gradual collapse of the old personal computer titans who believed that user marketing was a nuisance that got in the way of the grand old business technology sale. The companies that are adding significantly to their market caps -- Google and Apple (NASDAQ:AAPL) -- have built strong consumer brands that actually eclipse the technology that they are selling at any given instant.

And Cisco (NASDAQ:CSCO)-- another company with consistent growth lately -- has begun a branding effort to make its own name a household word in the digital home. Compare their branding initiatives with those of companies like Microsoft, who doesn't even put its name on its latest Zune music player.

The map of the technology market is changing, and investors are placing their bets on where the growth will be. Google breaking the $500 a share barrier was just one of the milestones that got people's attention. But the increasing power of their brand and marketing is another. With Google already a verb, it isn't going to be worth half as much as Microsoft for long. And when we start measuring companies as percentages of the market capitalization of Google, we'll know that the technology-is-all PC era has come to an end.