Apple, Microsoft Need to Innovate, If They Can

NEW YORK (TheStreet) -- Accuse me of speaking out of both sides of my mouth. If that's what we call it these days, I'm not only guilty as charged, but proud of it.

In fact, I have an article forthcoming on the tragedy of pundits and peanut galleries portraying critical and reflective thinking as "flip-flopping" and "double talk," particularly in politics and the stock market.

But first, we must deal with the schizophrenia that surrounds Apple ( AAPL) and Microsoft ( MSFT).

Relative to Apple's greatness and Microsoft's mediocrity, it absolutely is all quite schizophrenic.

Where's the Innovation?

Talk about having trouble discerning reality.

Pandora ( P) leads the Internet radio space. It continues to pioneer personalization and discovery.

Over the last year or so, lowlifes such as Nokia ( NOK) and Research in Motion ( RIMM) to more logical players like Clear Channel ( CCMO) have introduced little more than shells of Pandora's service. Copycat after copycat has emerged, yet Pandora's audience, ratings and revenue continue to grow.

Now, rumors indicate that Apple might throw its hat in the same or a similar ring. Microsoft made its entrance official this week with xBox Music. Brilliant, enter a category somebody else not only created, but dominates and fail just like you did with Zune.

As I Tweeted on Monday, I am allowed to disagree, even vehemently, with CNBC and TheStreet's Jim Cramer, who thinks xBox Music is a Pandora killer. Yes, Jim lets dissent flow freely, even deep inside Cramerica.

In all seriousness, if you think for a second that Microsoft presents any threat whatsoever here, just examine the lowdown on the cost and effort associated with subscribing to xBox Music, courtesy of a Web site dedicated to gaming, IGN. Final verdict: xBox Music is Useless on xBox, but it could possibly, maybe, um, you never know turn into something in 2013 if everything just happens to fall into place for Microsoft from a mobile standpoint.

This move by Microsoft (and possible move by Apple) is the poster child for a lack of innovation at the top.

The bull case for MSFT sounds more like a plea.

On CNBC's "Squawk on the Street", Richard Sherlund of Nomura Securities said the following about Windows 8:
  • It will have a slow roll out.
  • It's "not terribly seductive ..."

He then goes on to argue a $37 price target on the stock on the basis of sub-$1,000 product becoming more common in 2013 and OS upgrades by enterprise customers because they need Microsoft Office.

Get a load of these numbers from Digitimes: Q3 2012 PC notebook shipments dropped 11.6% year-over-year and 4.5% sequentially. Apple saw shipments increase by 30% between Q2 and Q3 2012.

Right. I'll buy MSFT on hopes the PC market crash will reverse because of software Microsoft, in a bonehead move, makes available to anybody willing to pay to license it. If Microsoft had any faith in Windows 8 and the hardware that will run it, it would keep a tight lid on Office.

But it has no faith because it does not have an original way forward. It's using somebody else's existing way forward.

Though not to such a pathetic extent, that's what's happening at Apple. Tim Cook can only "refresh" existing product lines for so long.

When we get iPad Mini later this month (and, I am on record calling the Mini a good idea if we get premium pricing), we'll also get Apple's solid Retina Display slapped onto a smaller model MacBook.

This is all fine and good. Just like my 15-inch MacBook Pro with Retina Display, a 13-inch model will be out of this world, luring a slightly more frugal consumer.

No worries. Unless, of course, this is all Apple has got -- building, not very creatively, on what already exists.

Because of its head start and abysmal competition, things aren't nearly as dire at Apple. However -- and, again, it's all relative -- the company needs a groundbreaking iTV or something we haven't heard about yet almost as badly as Microsoft needs Windows 8 to defy the odds and achieve success across platforms.

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Rocco Pendola is a private investor with nearly 20 years experience in various forms of media, ranging from radio to print. His work has appeared in academic journals as well as dozens of online and offline publications. He uses his broad experience to help inform his coverage of the stock market, primarily in the technology, Internet and new media spaces. He has taken a long-term approach to investing, focusing on dividend-paying stocks, since he opened his first account as a teenager. Pendola, 37, is based in Santa Monica, Calif., where he lives with his wife and child.

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