The PC is the center of the world! Much of Microsoft's woe over the past decade has been the result of the market moving away from the company.

In the past 15 years, personal computing has gone from being all about the desktop to being all about the Internet--and the change has begun to blow apart the monopoly that made Microsoft one of the most powerful companies in history.

But much of Microsoft's woe has also been the result of strategic missteps--opportunities the company has either failed to win for failed to go after.

Plenty of frustration has been aimed at the former. Microsoft has spent 15 years hemorrhaging money in its Internet division, for example, and still has nothing to show for it but multi-billion dollar annual losses and distant third- or fourth-place market share. The Zune has been the butt of jokes for years. Windows Mobile has gone from weak to irrelevant. And so on.

Microsoft critics and shareholders tend to obsess about these tangible failures. They wonder why the company has had such a tough time competing with AOL, and Yahoo, and Google, for example. They continue to hope, usually delusionally, that Microsoft will pull off the same come-from-behind wins that it did in the early days of the PC industry.

Of far greater cost to Microsoft over the past decade, however, has been the explosive growth of massive new markets that the company has just plain missed.

Importantly, these new markets are much closer to Microsoft's core competency than "search" or "Internet service providers" ever were. They are markets in which Microsoft's monopoly would have given it a major competitive advantage. And they are markets that are now worth more than the entire "search" or Internet advertising industry put together.

What new markets are we talking about?

Apple's.

Yes, Apple still sells some personal computers (Macs). But mostly what Apple sells are personal computing products that it has invented out of thin air in just the past decade: iPods, iPhones, and iPads.

Collectively, these products (plus the Macs), have combined to make Apple worth more than Microsoft. And almost all of this value has been created in the past 10 years.

Thanks, Steve B. Arguably, Microsoft would have had a much better chance competing against Apple in these markets than it ever had competing against AOL, Yahoo, and Google. This is because the products Apple sells are much closer to Microsoft's original core competency than the Internet companies'--and because much of Apple's value is attributable to its success at becoming a platform. (Microsoft knows a lot about being a platform).

Yes, you can argue that Apple sells integrated hardware/software devices, not just software, and that Microsoft is no good at making integrated devices. But Microsoft has actually demonstrated that, when it puts its mind and money to it, it can build excellent integrated devices (see the Xbox. And even some of the Zunes. The latter arrived late, which is to be expected given Microsoft's lack of focus on them. But the products were eventually good). Microsoft has also demonstrated that it can manage the channel-conflict that results from selling these devices.

So, it's worth imagining for a moment what would have happened if Microsoft had never gotten distracted by Google's search business (or AOL or Yahoo's ISP and ad businesses) and, instead, focused all that money and effort on developing the new markets that Apple now owns:

Personal connected devices (iPods),

Smartphones (iPhones), and

Tablets (iPads)

Oops--you got obsessed with the wrong guy. If Microsoft had gone after those markets aggressively, Apple might never have been able to come back from the dead. If Apple hadn't come back from the dead, the Mac's puny-but-growing share of the PC market might have dwindled to zero, meaning that Microsoft would have owned the whole thing. More importantly, Microsoft might now own Apple's share of the huge new markets above.

How much would that have been worth to Microsoft shareholders to own these markets, even with the same lack of success on the Internet front?

A lot.

We're just playing a 20-20 hindsight parlor game, of course, so you can make your own estimates. But to produce a quick one, it seems reasonable to just add Microsoft and Apple's stock-market values together.

If you do that, you conclude that Microsoft's stock price need not have fallen by more than half over the past decade, from ~$60 to $24.

You conclude instead that, if Microsoft had gone after and won these huge new markets that are much closer to its core business than Google's, it would now be by far the most valuable company in the US, with a market value of about $500 billion. And its stock, meanwhile, would be trading near an all-time high, around $70 per share.