Google to Kill Microsoft? Please Explain.

The consensus about the Google-Sun non-deal, as well as some lucid comments here, is that Google has indeed painted a bullseye on the little company in Redmond.  If so, here's what I don't understand:

What part of Microsoft, exactly, is Google going to "kill"? 

Yes, Google is crushing Microsoft in the web business and will likely continue to, but this is a tiny fraction of Microsoft's empire.  Yes, Google may now help distribute a free office suite, but cheap/free office suites have been around for years and haven't dented the Office juggernaut (for good reasons: it's a superb set of programs and, all things considered, not that expensive for corporate use).  Yes, Google could presumably launch a browser or device operating system, but Microsoft generates no revenue from the browser and little from non-PC device operating systems.

To attack Microsoft's main cash generators, meanwhile--Office and Windows--(and get paid to do it)--Google would have to completely refocus itself.  In the process, it would probably open the door for someone else (Yahoo!? Microsoft?) to swoop in and attack its own core competency: search. 

Google and Microsoft are clearly focused on the same future prize--consumer web services--but this will not threaten Microsoft's core business for years.  Microsoft's real problem is a lack of growth in the core business: it is this--not Google--that is the big threat to the morale and market cap of the company.

Comments

[DonDodge]

Henry, Great analysis. You didn't fall for the hype and looked deeper into the real business implications and likely outcomes.

There is a long list of companies who thought they could dethrone Microsoft and it hasn't happened after 30 years.

Web service based applications are all the rage right now...they were 5 years ago too when I was at Bowstreet, one of the first web service development companies. The direction was right...our timing was not. I did a more thorough story on "The coming web services tsunami" on my blog, The Next Big Thing, found here
http://dondodge.typepad.com/the_next_big_thing/2005/09/the_coming_web_.html

Welcome back! I have always enjoyed your insights.

Don Dodge

[venkat]

You Moron, you haven't learned anything in life from your amazon fiasco. Google will unseat Microsoft from the desktop world in another few years. Please keep your crap to yourself. Google's office suit and a Future OS will be the last nail in Microsoft coffin.
Everybody knew you had no idea about business, now you have come to talk about technology. God save this world from morons like you

[Rachel Hyman]

Continuing to blame Henry Blodget for his failures during the internet boom is like continuing to blame your parents for your relationship problems when you're in your 30's...move on. If you've got a substantive opinion, state it, but the name calling is unnecessary...its say's a lot more about you than it does about HB. (response to Venkat)

[Jake Kaldenbaugh]

Henry,
Google and Sun's offering will have a very real impact on Office adoption, especially by newer generations of "knowledge workers". I don't think that Google has to retool - I think they just have to let Sun manage the development of the OpenOffice and make sure that they can deliver it at a high enough availability for users.
However, I think Microsoft has a lot of potential with the next release of it's server-based products. What I'm seeing from Redmond is a major step up from the bundled jalopies they're currently offering.
So, I guess what I'm saying is that I agree to some extent that Google will not "kill" Microsoft, but I do think that they're virtual office offering will have a significant impact in the market. Google has the chops and the cred to put critical mass behind this effort.
Best,
Jake

[Preston Wily]

Henry,

I agree with Jake - I think that it is irrelevant that there have been open office suites for years. None of them had any credibility and Google might be able to establish that credibility with consumers (which Sun has not been able to do on its own).

Venkat, the name calling really is unneccessary. I respect your opinion but nobody is forcing you to read this blog.

Preston

[Robert Halloran]

The past problem with virtual office suites has been getting traction in the market against MS. Google has enough visibility to accomplish this. Add the item that came out in the Massachusetts discussions that your documents will have to be converted going to Office 12 anyway, and they have additional leverage (convert to Office 12 and keep paying MS, or OpenOffice/StarOffice and pay less/nothing?). The Java push may also help offset .NET takeup. Incremental successes winning the war?

[venkat]

Probably i went overboard with my comments on Henry Blodget. But I am seeing a pattern will all media commentators to ridicule google and open source products. Like the one which fox carried about open file format. When everything is moving to a digital medium why the hell on earth someone wants to store data on proprietary format like word and excel. How sure you are that MS-Word and excel will exist 20 years from now. What happens to all those record stored in those format. Simple common sense demands that it should happen. I have faced a similar experience with tape back up. I had the back up but the drive become obsolete.

For more of my thoughts on google

http://venkatsampath.blogspot.com/2005/09/can-google-upstage-goliath-microsoft.html

[venkat]

MY last post was in response to rachel hyman

[Dimitar Vesselinov]

It's a major deal. Why? Google-Sun is aiming the enterprise market.

Scott McNealy:
“We are going after revenue, growth, profits, customers…We are going afer the community…”

"Google should and will diversify its revenue model. They remember Netscape's doom and won't repeat the same mistake. The advertising model won't be enough in the future."
http://divedi.blogspot.com/2005/01/google-broadband-2.html

Google Enterprise Solutions
http://www.google.com/enterprise/

[brandon]

well i think that henry may have taken his assumptions too far, however- i too think that the sun-google thing is a non event. that is about the least exciting thing to hear from a PR. theyre going to help distribute Java. I distribute Java. Wow. google CLEARLY has its sites fixed on a global media/technology empire, and will do anything to partner with anyone or build anything that goes against anything that their competitors have. Gtalk? there is no one in the sales/strategy side that said "wow this will surely take over AIM and skype". this was simply a move to be everywhere and have a product for everything (whether or not it goes anywhere). anyhow, all of google's xthousand engineers have to be up to something during the workday.

[luckya]

Hi Henry,
First things first, don't be bothered by the hatemail you receive.You never FORCED anyone to buy anything, did you?You made some guys rich, and some lost a lot, that's how it goes in the stockmarket.Those who lost should have done more DD.Everyone heard about a p/e, I guess.My question for you is: What's your take about the future of Akami technologies?

[Pat]

Their are some really great comments posted here. I tend to agree with many of them. Henry, to your question. Here's my thinking. If your a MSFT PM in charge of office, server, or any other product, your priorities are to drive your own P&L. With P&L responsibility, you're constantly in search of growth opptys, cost savings...anything that produces the numbers and makes your product more relevant for consumers.

This is where GOOG, YHOO, etc pose a challenge. What is MSFT's core competancy? Software/application development and probably brow beating and acting as a monopolist. Well, the game has changed. Many of today's (and yesterday's) leading software developers, technologists, and business strategiests want to work for Goog or Yhoo, not MSFT.

When I worked on the Street, our senior mgmt always reminded us that the Firm's most important assets walked out of an elevator each night. That's the real story here...not declining margins, profitability, open office, or anything else. Those things may happen in time, as folks here suggest...but what about the future? What can MSFT do that GOOG or YHOO can't? In my book, the answer is nothing...and not only that but Goog and Yhoo are only accelerating / getting started, MSFT is only now starting to restruture to compete. The reason why Goog will beat MSFT is because they're wired to create or harvest tomorrow's technology growth opportunites whereas MSFT is trying to milk a dying cow.

[Lizzie Tudor]

As to your comment about free office suites not denting Msft in the past- maybe there is a chance that "its different this time".

Outlook stands to lose significantly if the Google calendaring app is any good. The link is there but no product yet - calendar.google.com . A web based calendar is superior to enterprise-only outlook for many reasons. As it stands the Web version of outlook is weak, and Outlook is the one office application that all employees in a company must use (there are many employees who never use Excel, and many only use word as a notepad).

Once one MS office application gets replaced in an org, the economics of MSFTs licensing model don't add up for many customers. We'll see soon if a web calendar/meeting maker can make the difference, and cause some large orgs to look at open source.

[Al]

is there a tremendous difference in quality between the two products?

Will OpenOffice be as widely marketed as MS OFFice?

Can Sun afford to spend huge amounts on advertising just
for market share? Is it worth it? Do they have a change?

I guess only the future may tell us.

I haven t heard of any fortunetellers since the Delphi oracle that predicted Socrates death, that was right.

But there s nothing wrong with analyzing based on one s experience and on the data available.

Do your thing Henry.

[dahowlett]

Nice to see you back Henry. What people forget is that during your 'Wall Street years' you (and a few others) recognised potential and duly trumpeted it.

OK - so you were deemed to be a naughty boy and got slapped for it. OK - some of your stuff was a tad outrageous. But hey - who said there's no redemption? And this is a new world where caution hasn't been swept away but where innovation does pay. A lot of interesting deals going down right now eh?

As to the Google-Sun thing - I have to say I got over-excited by the possibilities only to end up seeing the pre-announcement hype as PR rubbish. Pity I'm still tempted to buy into it.

Interesting analysis and one with which I might otherwise agree if it wasn't for the fact I've migrated almost everything I use to some sort of web service as a way of reducing time wasted looking for stuff, digesting it and then spitting it back out in some other form. That didn't happen by design but by default. But then I'm a fully paid up member of that group which lives in the ether for a living and so has little 'need' for heavyweight desktop applications. Others are not so fortunate.

[alon]

microsoft is going to have a very stable contact point with the future generationwith its xbox 360 consule , i think this might change thing on their end

[Kevin Heisler]

Looking forward to your insights and research into internet companies. Hope you'll provide depth beyond the typical speculation. Predictions about the rise and fall of a monolith are fun, but yield very little useful information.
See www.domainexpertise.blogspot.com

Google's core competency isn't search. It's advertising sales. That's what drives revenue and the creation of all the "innovations" and mash-ups. Google's algorithm for pay-per-click maximizes their profits and extracts the full market value of each online ad from advertisers.

But getting more advertisers into the auctions is the greatest challenge they face. Creating more inventory will become harder and harder over time. If Google could get more people to search for -- and buy -- new products and services, they'd have no problem supporting their growth. But the online population shows no signs of growing substantially or changing its collective behavior.

With each new traffic source, the value of the traffic to the major advertiser diminishes. Adsense (contextual ads) are really just text "banners" and old school hyperlinks. Desktop search enabling people to do more research may drive traffic, but won't drive revenue to Google and major marketers.

[venkat]

Henry, People have been saying for a long time that google is a mirage. Last year when google came up with dutch auction style IPO, wall street firms were so against google for not allowing them to dictate the IPO price. We know who won finally?
Culture of Innovtation have been lost on companies like Microsoft, Oracle, SAP etc. They no longer believe in organic growth, most of them prefer to grow by acquisition. Microsoft was never successful in creating a email service of its now. It has to go and buy hotmail, also Larry ellison thinks that only way one can push oracle up is buying every small company in Town. On the contrary google has grown thru innovation and pure code writing. This alone proves google will be winner.
As for office, In another 10 years Most of the developing nations and states like Massachusette and california(who care for their people) will start legislating to use open source file format to protect themselves from greedy Microsoft and also to make sure that all documents remain accessible and readable if tomorrow microsoft goes out of business. File formats will go the same way as browser war. Microsoft file format may still remain the popular one but it would definitely be a open source format

[Dimitar Vesselinov]

"On the contrary google has grown thru innovation and pure code writing."

It's not true.

Google Acquisitions
http://ifindkarma.typepad.com/relax/2004/10/google_acquisit.html

Who Will Google Buy Next?
http://www.kuro5hin.org/story/2005/6/12/143721/743

[venkat]

Google's acquisiton were small companies unlike Microsoft and Oracle. Google's acquistion were aimed at technology rather than at growth

[Pat]

Apparently the folks at Wharton agree with my perspective that MSFT should fear GOOG because of the brain drain issue and the risk of disintermediation.

http://knowledge.wharton.upenn.edu/article/1296.cfm

[Vaibhav]

Henry:

Welcome back! Definitely right on Gogole here. It is going to be very difficult to attack MSFT's core business of OS and Office. A lot of people are missing the fact OpenOffice/StarOffice have had only mediocre success and to think that Gogole can come in and play its magic is a stetch.

Google is obviously sitting on a huge pile of cash right now which allows them to undertake a lot of interesting initiatives, but why are we forgetting that they make money from 1 single thing - advertising. And we have ALL seen advertising revenues vaporize earlier. Can't it happen again? I, for one, barely click on any Google ads. Do you? How much time will it be, before others stop clicking text ads as well - and instead search for what they want..on Google.

Assuming that Google will always have the muscle to do what it is doing now is fundamentally flawed. Gogole attacking MSFT is still a mirage, I believe.

[Vaibhav]

Oops. Sorry for those typos, Google!

[Robert Young]

Henry, with all due respect, my take in this "MSFT v. GOOG" war is a bit different than yours... please see my view at http://gigaom.com/2005/08/26/google-the-ultimate-deflator/

IMHO, it's actually the Internet itself that's a threat to MSFT... because, as I wrote in my blog article, the internet *deflates* traditional biz models. It's all rooted on the fact that the internet is one huge copying machine that, at the end of day, reduces the marginal cost of reproduction to zero. And as economic theory dictates, marginal cost = price. Bits are becoming free, regardless of what those bits actually are. Without the need to physically "package" those bits (e.g. MS Windows and Office inside PC boxes, or even music and films inside CDs and DVDs), the fundamental assumptions of economics, and thus, biz models are inevitably affected.

GOOG just happens to be the best at optimizing such new economics, at the moment. They can generate billions of cash flow without having to charge their users one penny. The ad engine they've built compensates for the new order of the attention & accountability economics.

So, I guess I disagree with your (insighful) analysis.

[Anders Kargaard Jensen]

Earlier attempts by open source to make inroads on Microsoft suffered severely from lack of distribution. Distribution is what Google is bringing to the table. At the same time they are investing in Wi-Fi and cable network throughout the country. That all means, that this IS a different time around.

MSFT gets 41% of their operating income from Office, with a new improved Open Office from Sun and delivered through and integrated into Google's offerings supported by probably free high speed network - MSFT WILL loose market share (90% can only go down). By taking away their most important revenue stream - then yes - Google has a chance of if not killing, then crippling Microsoft.

Thanks for your always interesting reading!

Cheers
Anders (http://investinsearch.blogspot.com/)