April 26, 2010 was a big day for Apple. That was the day it surpassed Microsoft as the most valuable technology company.

Kids who have grown up with the iMac, iPod and iPad may greet the news with a yawn. But those of us who remember the early days are somewhat stunned. Who would have thought ten years ago (let alone twenty or thirty) that Apple, which proudly refused to compromise its way to market share, would ever overtake big, bad Microsoft?

Nobody knows what’s going to happen from here, whether this is a temporary blip or a permanent changing of the guard. But as I look at the future prospects of both companies I can’t help drawing a parallel to similar organizations in another rapidly-changing, highly-competitive sector.

Microsoft is GM. Apple is BMW.

Microsoft, like GM, is big, covers just about everything, and makes products that work well most of the time but have a spotty quality reputation and for the most part don’t excite anyone.  Apple, like BMW, sticks to its core competency, is relentless about design and performance, and as a result is able to command a premium price.

Microsoft, like GM, seems to think building better products is enough, not understanding (or in denial about) the legacy of mediocrity associated with its brand. Apple, like BMW, is completely clear about the power and value of its brand and the vital importance of remaining true to it.

Take two stylish new cars, identical in every respect. Badge one with one of GM’s brands and attach the BMW brand to the other. Which one will people prefer? For which will they pay a premium? Do the same with a new computer or wireless device using the Microsoft and Apple logos, and ask the same questions. The difference is attributable to the brands, the meaning and value of which are driven by the quality and performance of the products to which they’ve been attached over the decades.

I don’t suggest anyone write Microsoft off. The company is run by really smart people, and it’s possible they have the next killer app in the garage right now. But Apple is smart, too, and it understands the whole-brain dimensions of its industry better than anyone.

None of us—and none of them—can predict the future. But I have more confidence that Apple and BMW understand people better than Microsoft and GM. For companies whose focus must always be on the next generation, that’s the holy grail.

I’m talking about the iPad. But not in the way you think.

Yes, from what I’m hearing it’s a remarkable innovation (I ordered the 3G version, so I won’t get my own grubby hands on one until later this month). And yes, with Apple products remarkable is expected. But this observation isn’t about the device, it’s about a matter-of-fact comment made by a gentleman named Derek Hoffman in a USA Today article about the iPad.

“I’m holding out for the next version so Apple can work out all the problems,” Hoffman said. “The second generation model will be faster, better and cheaper.”

Most people who read that probably won’t think twice about it. We all know it’s true. But that’s what’s so remarkable. We all know it’s true.The next generation iPad (and all of the next generation e-readers, laptops, cell phones, etc.) will be faster, better and cheaper. That’s the glory of the free market, the blessing of the invisible hand and the fruit of an economic system that fosters competition, rewards innovation, and lets the individual decisions made by millions of individuals guide the evolution of industries to better meet their needs. We’re all better off for it.

Reading Hoffman’s quip, I couldn’t help but be reminded of our national healthcare debate. Market forces have been so good to us when it comes to consumer electronics and every other product and service category; they would be good to us in healthcare as well, if we took off the regulatory and tax policy shackles that have woven their way in, around and through the industry over the past several decades. But we seem to be going the opposite way.

The marketplace is a giant ocean; its force is like water. It will find its own way, no matter how we attempt to divert or control it. The fact that we continue to try is, I suppose, expected. How remarkable things could be if we just let go.

You can hardly turn around these days without running into some sort of reference to innovation. Dozens of books about the topic line the shelves at Borders and Barnes & Noble, from The Art of Innovation to The Myths of Innovation. Innovation is rapidly becoming the latest business buzzword.

But before you dump “innovation” into the jargon dustbin along with “reengineering”, “rightsizing” and “paradigm shift”, consider this: the need for innovation has never been greater than it is today.

Doug Hall is founder and CEO of Eureka! Ranch, an organization that helps companies define, refine and improve their new ideas. In an interview with SmallBiz magazine, Hall defined innovation as that which “moves companies and their offerings along a continuum from providing commodity products or services to having a monopoly that is extremely difficult to combat.”

Hall’s definition is spot-on, and made even more significant by the fact that no company’s position along that continuum is static. If you’re not actively moving your company away from commoditization, it’s destined for it. The extent to which any business proposition or value equation is achieving success in the marketplace is the extent to which it will attract competitors who want what it’s got. There’s simply no free pass to sustainable success.

If you’re making money you’re making noise, and competitors are bound to notice. They’ll deconstruct your products, mimic your pricing structure, duplicate your distribution system, infiltrate your customer relationships, and do anything else they can to take your margin and market share. In so doing, they’ll be creating acceptable substitutes for your products and services, which without intervention will inevitably lead to a price war in which no one wins. Unless you can stay ahead of the game through continuous renewal and change (i.e. innovation), your competitors will commoditize you right out of business.

As frightening as this prospect might be, many companies are intimidated by the concept of innovation. They somehow think it’s the purview only of organizations with massive R&D departments funded by equally massive budgets, not the typical small- or medium-sized business. But this reflects an incomplete and unrealistic understanding of what innovation is really all about.

One of the reasons executives think this way is because we tend to associate innovation with breakthrough leaps forward–advances that change the playing field, shift competitive dynamics, make the covers of Forbes and Business Week and end up as business school case studies. Certainly, big innovations can be big news, and for good reason (Doug Hall’s research shows that major breakthroughs are worth four times as much as minor innovations). Naturally, they’re the ones that get the most press.

But the systematic introduction of even small improvements along the commodity-monopoly continuum can compound to deliver just as much (if not more) impact as a single big breakthrough. Popular Science says of innovations, “The objects don’t necessarily need to be beautiful. They don’t have to be eco-friendly. They don’t even have to be difficult to build. They just have to push past what we thought was possible just twelve months ago.” To that I would add that they don’t have to be big. They just have to be consistent.

If you spend just a few hours critically analyzing your industry from a customer’s perspective (perhaps even involving customers themselves), you’ll identify dozens of pain points about which somebody ought to do something. Airline seats should be comfortable. Take-out orders shouldn’t be wrong. Physician’s handwriting should be legible. The better you can anticipate what customers will be wanting/needing/expecting down the road, the more likely you can be the leader that first addresses the issue. No one, as they say, ever asked for a microwave oven. Or even a curved shower rod.

Want to keep commoditization at bay? Focus on innovation. No matter what size, shape or form your company is.

The big news this week in Medialand is NBC’s decision to cancel The Jay Leno Show and move the eponymous comedian back to a late-night time slot. About the short-lived experiment, Jeff Gaspin, NBC Universal’s Chairman of Television Entertainment, said, “I don’t think it’s wrong to take chances…Sometimes they work. Sometimes they don’t.”

Fair enough. But with a little more imagination, NBC might have been able to predict the outcome. The much-hyped decision to launch The Jay Leno Show was made in part based on economics—it’s a whole lot cheaper to produce an hour of live TV than an episode of Law & Order. While the show was profitable for NBC, it’s not terribly surprising that it would lag its competition in the ratings—especially in its first season, when loyal viewers of competitive offerings were caught up in current storylines.

The Jay Leno Show’s low ratings created a “lead-in” problem for NBC affiliates, who rely on audience carryover to provide viewers for their late local news. Michael Fiorile, chairman of NBC’s affiliate board, said NBC’s Leno strategy “has been devastating for a number of late newscasts around the country.”

While that’s unfortunate, it also underscores an unhealthy dependency that too often blinds local news providers to their task. And it provides a valuable business lesson for us all.

Most people tend to think of the television industry as something “other” than the product and service sectors that comprise the rest of the economy. But in reality it’s no different. Television news is a “product” that consumers “buy” (we pay for free TV with our time), and competitors are called to offer their prospective customers an experience that is unique, relevant, and valuable, just like any other business.

When a local affiliate complains about the network not offering a good enough lead-in for its local news, it’s like McDonald’s complaining that the Burger King across the street has better access to traffic. While that may be true, it can also serve as an all-too convenient cop-out. McDonald’s job is not to complain about the way the street is designed, but to get people to cross it–by offering something intriguing and unique (a task the company has performed quite well in recent years).

That’s where TV news falls down. Local news directors too often live in a “be better” bubble. That causes them to overstate the impact of their slogans, overvalue being first on the scene of an accident, and overpromote their handsome/pretty/ smart/honest/capable/talented/sincere news anchors. If they instead applied their intelligence and intensity (the news directors I’ve met have both in abundance) to seeking new ways to truly differentiate their offerings from the competition, we could see some real innovation in how local news is delivered. I suspect most viewers—and most people in the industry—would agree that there’s plenty of room for improvement.

Jay Leno is proven product whose success is in part dependent on how well he’s packaged and distributed. Local news is no different, and as Gaspin said, it’s not wrong to take chances. If only more news directors would.

Retail sales are projected to decline this holiday season for the second year in a row, an occurrence unprecedented in the entire history of the federal government keeping statistics on such things. Online retailers will continue to face stiff pricing pressure, as they have for more than a year. Free shipping has become almost the ante in such a competitive environment.

That’s why Amazon’s shipping program, Amazon Prime, is so impressive. For a company that ships 100 percent of its products, finding a way to neutralize pressure on shipping costs is no small thing–especially when it’s competing with Walmart, which offers its online customers 97 cent shipping on many products, or the option to pick up their orders at a nearby store for free.

Two million people have become members of Amazon Prime, paying $79 for automatic two-day shipping on all of their purchases. Not surprisingly, they tend to be Amazon’s most frequent customers, which means they’re still getting a pretty good deal. But the program helps ensure they’ll turn to Amazon first when they have a new purchase occasion, and the numbers indicate they increase their spending with the company some 20 percent after signing up.

Just goes to show you that innovation isn’t the exclusive purview of the R&D; department. While many online retailers have thrown in the towel on shipping charges, Amazon found a way offset them while increasing order flow. The company took one of its biggest lemons and turned it into a refreshing beverage.

Makes me wonder about the bitter aspects of my industry and how how my company might do something to sweeten them up. What about yours?

There has been a flurry of news lately about Barnes & Noble’s new e-reader, the Nook. It will compete head on with Amazon’s Kindle and Sony’s Reader, offering additional features such as limited book sharing and newspaper subscriptions. If successful, of course, those features will be matched by the Nook’s competitors, just as Barnes & Noble has matched their price points.

It’s fascinating to watch these three powerful companies–the dominant bricks-and-mortar bookseller, the dominant online bookseller, and a long-dominate electronic industry player–compete in this new arena. And word is that Apple’s e-reader isn’t far behind, which will further mix things up (and will be good for us all).

I couldn’t help noticing, however, a little aside in a recent Wall Street Journal article about the Nook. The article was talking about how Nook users would be able to receive discounts and other special offers when they walk into the store, a smart use by Barnes & Noble of its one true competitive advantage over Amazon. But the piece went on to say this: “Eventually, the company says, customers will be able to read entire e-books for free inside the physical store.”

Read entire e-books for free? Why would Barnes & Noble want to give away content? How’s this for a reason: the company may have up its strategic sleeve the idea that it can become the other Third Place.

Starbucks has always been an appealing place to linger, and many people go there to enjoy a good read as they nurse their lattes (most Starbucks locations sell a handful of newspapers and books to encourage just such behavior). While Barnes & Noble has in recent years been adding coffee bars to many of its locations, they have always seemed to be somewhat of an afterthought and secondary to the company’s primary purpose of selling books. But by offering free in-store content with the Nook, Barnes & Noble seems to clearly be saying that this is they place they want people to linger. And Since none of us can be in two places at one time, Starbucks and Barnes & Noble may increasingly butt heads.

It’s a fascinating world in which we live, where two previously unrelated companies can wake up and find themselves arch-competitors, and it’s fun to watch such changing dynamics unfold. Keep your eye on Barnes & Noble as it continues to take advantage of its physical locations (the one thing its current big competitor, Amazon, can’t match). In combating one foe it may have just picked a fight with another.

The news is out. Sales of the much-ballyhood Palm Pre are…a disappointment. The new smartphone, launched to compete head-on with Apple’s groundbreaking iPhone, has lost its momentum.

The Pre, which was launched June 6, got off to a good start but has faded in recent weeks. According to the Wall Street Journal, analysts projected lower sales in the current period than had been expected, and Palm reported a loss of nearly $165 million for its most recent quarter–the first full quarter to include Pre sales results.

Jon Rubinstein, Palm’s CEO, says the company “will face near-term pressures until we transition to a more diversified carrier base and expand our family of webOS products, but we are confident we’re on the path to success.” Makes you wonder if this is a case of actions speaking louder than words, as Palm recently cut the Pre’s price by 25 percent (tied to a two-year service agreement), and is issuing 16 million more shares of common stock to overcome a cash problem.

The Pre, by all accounts, is a terrific phone, and offers some enhancements that the iPhone doesn’t yet have (see “Features, Smeachers”). But drafting behind the leader isn’t the same as taking the lead, and being a little bit better often isn’t enough. Especially when the guy up front has his own race strategy (Apple cut the price of its first generation iPhone to 99 bucks within two days of the Pre’s launch).

Perhaps Palm will do better with Pixi, a phone targeted at youth, which should be available in time for Christmas. If it’s different enough from other offerings in the marketplace, Palm may get it share of attention (and accolades). But if it’s another me-too product, the Pixi will get little more than a yawn.

Sometimes a company, like an athlete, falls behind and simply has to catch up. But “catching up” is not a strategy for victory. Innovation is all about finding a way to get–and stay–out front.

Dot one…Recognizing the remarkable success of Apple’s iPhone, Palm launches the Pre, which (according to its ads), “does things iPhone can’t.” True enough, and as an iPhone user I must say that the Pre’s exclusive features are appealing. There’s just one problem–I don’t believe for a minute that the iPhone won’t adopt the same features within months. Given the time and psychological costs associated with switching not just my phone, but my service provider, I’m content to wait.

Dot two…Ford launches the all-new Taurus by touting “radar that monitors and alerts you when sensors detect vehicles in front of you…” and “hands-free, voice-activated communications and entertainment.” Like those of the Palm Pre, these features are highly attractive and I would like to benefit from both when I purchase my next vehicle. In all likelihood, I will, because if they’re as appealing to most people as they are to me, soon enough they’ll be available options (if not standard equipment) on most cars.

Connecting the dots…good luck trying to differentiate your brand based on features. As Joseph B. White, automotive columnist for the Wall Street Journal put it in his review of Mercedes’ new E550 Coupe, “Electronic gadgets such as radar-assisted cruise control or blind-spot hazard detection are falling down the technology-cost curve so fast that premium brands have only slits for windows of exclusivity on much of this hardware.”

Slits for windows of exclusivity. It’s true for cars, and it’s true for cell phones. It’s also true for computers. And hotels. And hamburgers (witness the recent scuffle between McDonald’s and Carl’s Jr over their “angus” burgers). Feature filching is a fact of life in just about every category of product or service. Unless an innovation is protected by intellectual property laws (and often in spite of that), not only can a given company not “own” it in consumers’ minds, but by hanging its hat on a feature it may inadvertently be sowing seeds that its competitors will reap.

What, then, is a marketer to do? Keep innovating, of course–that’s the ante. And when you do develop an exciting advance, do all you can to make the most of it. But keep in mind that it’s not individual innovations that will build brand equity, it’s your unique arc of innovation, presented in a credible, relevant, winsome and consistent context, that will ultimately differentiate your brand from its competition.

Fortune Magazine recently published a thought piece by Xerox Chairman Anne Mulcahy(who retired from her CEO post July 1 after eight years at the helm) on the topic of innovation.

Mulcahy is one of those rare corporate leaders who has made tough decisions during tough times and lived to tell about it. She may have been, in fact, one of the most underrated CEOs in business over the course of the past decade. A few excerpts of her comments reveal why:

On the Past:

“When Xerox went through a downturn of its own making earlier this decade, everywhere I went, lenders and investors were demanding I cut our R&D; spending. But to me, Xerox innovation was sacred. Why avoid financial bankruptcy only to face technological bankruptcy down the road?”

On the Present:

“I know from experience one of the biggest mistakes that can be made right now is to slash investments in innovation. And by innovation, I don’t just mean product research and development. It can also be innovating in new markets, launching new businesses, and even disruptive innovation in work processes… In the cost-cutting discussions we’re having right now – and there are many – I remind my team that the next generation of technology and services will be born out of decisions we make at this unique moment in time.”

On the Future:

“To be sure, a company’s R&D; investment pool looks tempting in tough times. And draining it might save a few jobs or help make the quarterly results less painful. However, if you fail to fund the future, all you’ll be left with is a really lean company trying to churn old ideas into new business.”

Wise words, those. I hope she writes more.

Intel is a perennial member of the Fortune 500 (#8 this year) and among the more than 30 percent of corporations that saw revenues decline in 2008. But the company hasn’t lost its nerve (see “What Not To Cut“). One of the main reasons why is the confident consistency of the company’s chairman, Craig Barrett. Barrett was recently interviewed by the Wall Street Journal’s Michael S. Malone, and his comments reveal a man who has become convinced of the inviolable need for investing in innovation, regardless of external circumstances.

Barrett says, “The job of the CEO is not to reward the short-term speculator of your stock, but to do a good job long term for your shareholders, employees and customers. You don’t invest for ‘let’s have a 20% lay-off tomorrow to prop up our stock’ or ‘let’s cut R&D; to get a positive response from Wall Street.’ Thank God for Moore’s Law, because it won’t let us think like that; because if we do we get hammered.”

He learned that lesson the hard way. In When Growth Stalls I document one of the company’s rare failures to maintain its technological leadership position, and the inroads an aggressive AMD achieved against Intel’s market share. About that hiccup Barrett said, “We won’t let that happen again.”

I believe him, at least as long as the culture that Gordon Moore, Andy Grove and Barrett have nurtured over the years holds up. Barrett says that occasionally companies will be tempted to say, “What’s with the pell mell rush to improve our technology every two years? Let’s slow down to say, four years, and only have to invest half as much capital.” About that he says, “It always sounds like a cool idea, and it always ends up with that company losing market share.”

Over three-plus decades at Intel, Barrett has faced down every kind of market tectonic, sometimes with more success than others. He knows that the economy is cyclical. He understands that today’s technology is tomorrow’s artifact. And he actually appreciates competition. “It’s like athletes,” he says. “To be a great company you need great competitors. It’s what keeps you alive and keeps you honest.”