Google CEO Eric Schmidt delivering an animated speech about search engine strategies. See more Googleplex pictures.
There’s a battle raging across the technological corporate landscape. Whoever wins this battle could dictate the way most of us use computers for the foreseeable future. This battle will be fought on hardware, software and over the Internet. It’s not going to be pretty.
In one corner, we have Microsoft, a corporation founded in 1975 by Bill Gates and Paul Allen. In February 2009, Microsoft shares traded at around $19 a share on NASDAQ. The company’s market capital was nearly $175 billion [source: MSN Money]. The flagship product for Microsoft is the operating system Microsoft Windows. The company has leveraged its relationships with PC manufacturers to dominate the PC market — according to the analytics company Net Applications Inc., Windows accounts for nearly 90 percent of the global operating system market.
And in this corner we have the young challenger: Google. Founded in 1998 by Larry Page and Sergey Brin, Google set out to become the best search engine on the Web. Considering the Web had been around since the early ’90s, Google had a lot of catching up to do. But today, Google is a powerful force on the Web, offering a suite of products ranging from mapping applications to productivity software. In February 2009, Google shares traded on NASDAQ for around $356 per share. Google’s market capital at that time was nearly $117 billion [source: Google Finance].
Both companies suffered setbacks as the global economy began to decline in 2008. Microsoft stock had once traded at more than $30 per share, while Google stock traded at more than $700 per share at its height. In January 2009, Microsoft announced that it would cut 5,000 jobs from the company. That same month, Google cut back on contractors and recruiters. Google also announced it would cut 100 jobs from its internal Human Resources department. It was the first time either company had announced job cutbacks.
Despite these market-driven setbacks, the two companies may still be on a collision course to determine the future of computing. Will the upstart company topple the software veteran?
Google vs. Microsoft
Microsoft Mobile vs. Google Android
Besides waging war over computers and the Internet, both Microsoft and Google offer operating systems for mobile devices like smartphones. The two companies have very different approaches. Windows Mobile is a proprietary operating system (OS). Google Android is open source — Google allows developers to access and alter the code to build or modify applications.
At first glance, Google and Microsoft don’t seem to be the kind of companies that would compete directly with one another. Google’s main product is a search engine and the company’s revenue comes from ad sales. Microsoft’s main product is an operating system and other software. Where’s the conflict?
It turns out there are several points where Microsoft and Google cross paths. Microsoft has its own Web search engine called Live Search. According to Web analysis firms like ComScore, Hitwise and Neilsen/Netratings, Google searches accounted for more than 60 percent of all online searches in the spring of 2008. By comparison, Microsoft searches amounted to less than 10 percent of all searches [source: Web.com].
Google and Microsoft both offer suites of productivity software. Microsoft Office is a popular software suite that includes word processing, database management and spreadsheet applications. These desktop programs tend to be robust and include a lot of features that the average user may not need all that often but professionals regularly rely upon for their work.
Google has its own productivity software suite: Google Docs. Google’s productivity software is Web-based, meaning you access the applications through a Web browser. The applications aren’t as robust as Microsoft Office. But Google says that many consumers simply want software that’s good enough to fulfill basic functions. Since Google Docs is Web-based, consumers can access their applications and data from any computer that has an Internet connection.
Not to be outdone, Microsoft has its own online productivity software suite called Office Live Workspace (OLW). Like Google Docs, OLW is a stripped-down version of a full productivity software suite that allows users to access data and collaborate on projects from any Internet-connected computer.
Both Google and Microsoft offer Web-based e-mail platforms. Both companies are investing millions of dollars into cloud computing solutions. And both recognize the growing importance of the Internet for the average consumer. Google may have an advantage over Microsoft because it’s a Web-based company; however, Microsoft has decades of experience in application development and consumer research. Let’s look at some more strengths and weaknesses of each company.
Google and Microsoft Strengths and Weaknesses
One advantage Google may have over Microsoft is public perception. Part of Google’s philosophy is “you can make money without doing evil” [source: Google]. Google has built a reputation on innovation and customer service. The company’s headquarters — the Googleplex — is famous for its unique amenities and offices.
Microsoft used to have a similar reputation. But after years of dominating the operating system marketplace, Microsoft has become the establishment. In 2007 and 2008, Microsoft had to weather a storm of criticism aimed at Windows Vista. Windows Vista suffered from a series of stability problems, security issues and compatibility errors when it was first released. While software patches helped address many of those problems, many people had already decided to avoid the OS and wait for the next generation.
Google’s position on the Web is solid. According to the analysis firm Efficient Frontier, Google held 76 percent of the search engine advertisement market in the third quarter of 2008. Gmail, Google’s Web-based e-mail, grew 43 percent from 2007 to 2008 [source: Zafra]. In addition to its search engine, Google offers consumers online productivity software, video and photo sharing services and mapping applications. While Google supports offline applications through its Google Gears product, it doesn’t produce many desktop applications.
Microsoft has a much stronger hold on the desktop application market. Besides the Windows OS, Microsoft produces the Office suite of productivity software, software for computer servers and the Web browser Internet Explorer. Another important Microsoft product is its line of Xbox consoles and games. The video game market is one area of strength for Microsoft that Google has yet to touch.
If consumers begin to buy inexpensive machines with limited processing power, Google will have an advantage. That’s because almost all of its products are Web services. The only piece of software you need to access most of Google’s services is a Web browser. In 2008, Google introduced its own browser: Google Chrome. Chrome may be the first step toward a Web-based operating system.
If consumers decide that they prefer to buy the latest and greatest computer hardware, Microsoft has the advantage. Their products tend to have more features because they rely on the computer’s native processing power to run. Web services tend to be less complex — not because the computers running the applications are less powerful but because broadband speeds aren’t fast enough for an ideal consumer experience.
Google and Microsoft Partnerships and Rivalries
A key strategy for both Google and Microsoft is to seek out smaller companies that are good at creating certain products or services and then either partnering with them or buying them outright. Both Google and Microsoft have made some high-profile deals that have strengthened their place in the market.
In 2005, Google purchased 15 companies for a total of $85 million. These companies ranged from an analytics start up called Urchin to a 3D drawing application called SketchUp [source: Google]. One of Google’s largest acquisition deals was for the online advertising company DoubleClick. Google purchased DoubleClick in 2007 for $3.1 billion [source: Economic Times]. Google also has formed partnerships with companies like AOL, NBC and the DISH Network. Most of these deals focus on online or over-the-air advertising.
Microsoft purchased 16 companies in 2008 alone [source: Microsoft]. Like Google, Microsoft looks for companies that provide products or services that complement Microsoft’s core business. These companies often become the divisions in Microsoft behind products like the Xbox game console or Zune music player.
Microsoft and Google have battled over some of the same companies. For example, both companies sought to provide search services to Verizon’s mobile devices. Google had been providing the services up through 2008. Microsoft offered Verizon a better deal for its search services. Verizon recently switched to Microsoft — Steve Ballmer, CEO of Microsoft, announced the deal at the 2009 Consumer Electronics Show.
Microsoft and Google have also struggled over another major company: Yahoo. Yahoo experienced financial problems in 2008. Microsoft made a bid to acquire Yahoo. This acquisition would have allowed Microsoft to gain some ground on Google in the search-engine market. But Yahoo executives refused to sell the company for the price Microsoft suggested. Google swept in to make an advertising partnership deal with Yahoo. But the U.S. government objected because that would mean Google would hold a practical monopoly on the search ad sales market. In the end, neither company landed a groundbreaking deal with Yahoo in 2008.
Not everything is a competition between the two companies. Google and Microsoft have joined forces to petition the Federal Communications Commission (FCC). They want to be able to access unused bands in the television frequency spectrum, known as white spaces. Google, Microsoft, HP and Motorola joined forces to create the White Spaces Database Group. This group will submit new protocols and standards companies will have to follow in order to take advantage of the white spaces. Future mobile devices may use this bandwidth to transmit and receive data wirelessly.
Microsoft and Google Future
It’s likely that Google and Microsoft will compete even more in the future. Both companies are expanding their core businesses. Microsoft is trying to gain ground online while Google creates services that fulfill the same functions as traditional desktop software. Both companies are on the lookout for potential acquisitions or partnerships to bolster their position in the market.
Neither company is in a bad position. Both have suffered losses as the global economy has gone into a decline. Both have had to make sacrifices and cut jobs for the first time in their respective histories. But both are still worth several billion dollars and continue to develop new products and services.
Google seems to have a great deal of momentum. The company has a reputation for innovation. It’s famous for giving employees 20 percent of their work week to pursue special projects. Many of these special projects end up in Google Labs, a special section on Google that allows users to experiment with new services. Eventually, these services may graduate into fully-realized products from Google.
On the other hand, many Google services seem to be stuck in beta. Beta is the industry term for products that are in a testing phase — they aren’t yet in a finalized format and users may encounter bugs or other problems while testing the product. Google introduced Gmail in 2004. Five years later, the service is still in the beta phase. And despite multiple attempts at diversification, Google’s search engine is its only breakout financial success. Ninety-seven percent of Google’s revenue comes from online ads [source: Portfolio.com].
The public and corporate reaction to Windows Vista was a blow to Microsoft. The Windows operating system is a core Microsoft product. As more people learn about cloud computing and question the value of powerful personal computers, the company must adapt to the new market environment. Microsoft has several initiatives it has designed to capitalize on cloud computing. While the Vista problem may have put the company off balance, Microsoft hasn’t been knocked down yet.
Competition may turn fierce on some fronts, but it looks like Google won’t be dealing the death blow to Microsoft any time soon.