Today, Apple's market cap passed that of its long time rival. Twelve years ago the conventional wisdom held that the PC OEM model and the Wintel (Windows/Intel) platform allowed for a greater rate of innovation and a cost curve that Apple could never match. In hindsight, this argument seems farcical.
At that time, strategy orthodoxy encouraged companies to specialize at the component level - chips, operating systems, applications, assembly - and that specialized best-of-breed vendors would outperform vertically integrated companies. In fact, the idea of a company that produced both hardware and software was laughable and a strategy destined for a stale product line, bloated costs, and market share losses.
What happened and why was conventional wisdom so wrong? The world of best-of-breed has been replaced by a world of vertical integration, whereby the frictions of assembling best-of-breed components are driving people to buy pre-integrated systems. Oracle's acquisition of Sun is based on Jobs' vision of system level selling - hardware, software, peripherals. Ellison argued that customers want to buy a a solution - not a set of components that are integrated by systems integrators to deliver value. He argues, why not sell an pre-integrated solution, whereby each layer of the solution is designed to work best with the layer below and above it?
iPod/iTunes - software, computer, device, peripheral
iPad- App Store
Perhaps the insight is that as systems and "solutions" grew more complex - the incremental value of driving down marginal costs on a per component basis was overshadowed by the increase in marginal costs of assembling the components to solve the intended problem - ie listen to music, watch a movie, use an application.
Apple moved from competing on abstract utilities and generic cost per cpu to competing on systems designed to satisfy higher level consumer needs - consume media, produce media, share, network.... Integrated value not only supports much higher prices - compare a Dell laptop to a MacBook Pro - but also much higher level of consumer satisfaction.
Best of breed is dead - long live systems.