cassette-300x218Look at the photo with this column. It’s of an audio microcassette I found in my desk drawer yesterday while madly looking for something else in my overgrown office. As you may be able to read on the picture, it is an interview with Bill Gates from June, 1998. That’s the interview I did for my ill-fated Vanity Fair piece on the relationship between Bill Gates and Steve Jobs. It is almost sixty minutes entirely devoted to Bill talking about Steve. Quite a historical document, especially since its contents have never been published. And they won’t be here, either, except for one short quote that stood out when I listened to the tape today after almost 12 years.

“What I can’t figure out is why he (Steve Jobs) is even trying (to be the CEO of Apple)? ” wondered Bill. “He knows he can’t win.”

It is easy to see what Gates meant if you look at a comparison of the two companies in June, 1998. Microsoft stock was around $29 with a market capitalization of $250 billion. Apple’s stock was at $7.25, triple what it had been a year before when Microsoft had stepped-in to bolster Apple with a $150 million investment, but still worth a market cap of only $6 billion. In terms of products, market share, cash flow, and general strategy Microsoft had it all over Apple in 1998 and the idea that Jobs would ever catch up to Gates was, at the time, ludicrous.

But look at the two companies today. Jobs is still running Apple despite cancer and a liver transplant while Gates has moved on to saving the world at the Gates Foundation. Microsoft is worth $240 billion, a tiny drop from 12 years ago, with the shares now around $27 (down from $29). Nothing gained in more than a decade. Apple shares, on the other hand, have gone from $7.25 to almost $240, Apple’s market cap has risen more than 33X from $6 billion to $220 billion. And Cupertino’s cash hoard today is almost exactly the same as Microsoft’s at around $40 billion.

It’s pretty easy to argue that Jobs did win. Certainly Apple has the mojo lately with its string of home run products like the iMac, iPod, iPhone, and now the iPad. Even Mac market share is up in the double digits and Apple’s profit margins are the best in the industry. The trend line is definitely up for Apple and mildly down for Microsoft.

What Bill Gates didn’t count on when he declared Jobs a loser back in 1998, was the Californian’s tenacity. It took 12 years to do it, but Apple is well positioned now to take Microsoft’s crown.

I mean it. Look at the downward price erosion of Microsoft Office caused by a combination of Open Office and iWork, which is down to $30 on the iPad.

How long will it be until Apple is giving iWork away to sell hardware — an option Microsoft doesn’t have? Not long. By then a bit more of Redmond’s goose will have been cooked.

Digital market leadership is now Apple’s — not Microsoft’s — to lose.