Google Paints Bullseye on Microsoft; I Eat Crow

It has been obvious for some time that my theory of a year ago--that Google and Microsoft weren't really going to go to war with each other (because Microsoft had already lost the web game and because Google wasn't going to be stupid enough to take aim at Microsoft's crown jewels)--was wrong.  I was right about the first part--Microsoft is still nowhere on the web--but wrong about the second: Google clearly has its sights set on that pot of Office gold.

So, what is the current status of the office productivity battle?  And what are the long-term implications?  The current status is that Google's offerings are fine for low-end use but won't start meaningfully cannibalizing Microsoft's sales for years.  No self-respecting IT manager at a Fortune 500 company is suddenly going to throw out the global standard and bet his or her job on the sideline business of an Internet media company.  Over the years, a parade of web and technology titans--AOL, Oracle, Sun, Yahoo--have tried to upend parts of the Redmond monopoly, and all have found the crossover from their core business to PC software far harder than it looked.  And if Google is serious about stealing some of Microsoft's sales and support customers, it will undoubtedly find this transition hard, too.

On the other hand, Google's current offerings--Gmail, Docs & Spreadsheets, etc.--bear all the markings of a classic disruptive technology.  As Harvard professor Clayton Christensen observed, disruption begins when a dominant market leader has built so so much functionality into its core products that it has begun to over-serve its core customers.  Some of these customers, realizing that a simpler, cheaper product will do, abandon the old technology.  At first, this does not concern the incumbent, as it maintains a chokehold on the highest margin business--the high-end customers who need most of that complicated functionality and support.  But, gradually, as the lower end product gets better, and the incumbent is forced to migrate to even more complex and expensive solutions, more of the overall customer base defects.  And, then, voila, one day the incumbent wakes up and discovers that it is DEC, Sears, or AOL...and by then it's far too late to do anything about it.

From a long-term perspective, Google's initial offerings look mighty disruptive.  And although Microsoft will no doubt assert until it's blue in the face that it has long since gotten Google religion and is already adapting all of its products for web-based delivery, it will likely find this easier to say than do--if only because each new free or low-priced subscription seat of a web-based Office won't immediately drop a couple of hundred dollars to the bottom line.

At the same time, by targeting Microsoft's crown jewels, Google is risking not only failure but its own monopolistic dominance of its core business--search.  Selling and servicing technology solutions is a fundamentally different business than selling and providing advertising solutions, and will eventually require the creation of an entirely new sales and service organization.  No company in history has dominated the hearts and minds of both marketers and IT buyers, although several have tried.  Even with Google's awesome talents and power, therefore, success is far from guaranteed.  Especially because the opponent in question, a sleeping giant that has so thoroughly dominated its industry that not one but two governments were forced to try to stop it, won't likely give up without a fight.

Comments

[cfJeff]

Open Office (http://www.openoffice.org/) is a better alternative for productivity on the cheap at the moment.

But let's face it. On-line is where it's at. This is only version 1 and Google is way ahead at this point.

[Still Inside]

I still submit that the entire "kill Office" strategy at GOOG is a smoke screen for the DOJ.

There's so much money in having the de facto monopoly in Internet Search that there's no logical reason why GOOG would want to go after the enterprise application market, especially since there's no money in it for a player like Google since they'll need to give away the product if they are going to have even the slightest chance of moving the Office needle (which they don't). The only thing they *might* be able to pull off is reducing MSFT revenues, but MSFT's biggest problem, by far, is the installed base: people don't have a reason to upgrade to the next version of Office because the current one works fine. This means there's even less reason to move to a new thing that GOOG makes though.

MSFT has indeed failed miserably on the MSN front. They haven't even put a dent in the GOOG monopoly-in-progress for Internet search, and there's no sign they will anytime soon. YHOO is dead in the water as well, which means that the only thing that GOOG should fear is another monopoly using their power to get in the way of their own.

Hence the groundwork for the antitrust case which competing with MSFT in this way lays down. If MSFT tried anything "funny" (viz. building a search box into Windows that went only to MSN), then GOOG could cry to the DOJ to the effect, "MSFT is doing this to protect their monopoly in Office because we are competing with them". This was the basis of the NSCP case years ago, and remember that GOOG is stacked full of NSCP veterans.

People taken in by this stuff and are busy re-learning how to use the word processor they mastered eight years ago for no particular reason other than being hip are just pawns in a multi-billion dollar game. GOOG doesn't take these applications seriously as products per se, but I'm sure they are loving the free PR that inevitably comes with every single "Office- [or Windows-] killer" that's come along in the last 15 years.

GOOG is now getting hit with stories to the effect of, "Foosearch.com is a Google Killer--sell your GOOG stock now! Use this new site even though it's crap because its actually better because the VCs told us so!". Stories like that are getting serious traction with trusted sources and (ahem) influencial blogs. It's cosmic justice for a company that vowed to never be evil.

SI

[sufiy]

Google is locket in DownTrend Channel and all these news are not helping:

http://sufiy.blogspot.com/search?q=google

Regards,

Sufiy.

[Anders Kargaard Jensen]

Good point cfJeff - online is where it's at.. and will be.. its just a matter of time before everyone is only basically everywhere for a fraction of the cost today..

Google Apps will take market share.. and more importantly hurt MSs warchest to come after Google with investments in search..

[Neal S. Lachman]

Anders,

For the second time you claim that "everyone will be online in a matter of time". That is a claim without base.

First of all, currently the number of broadband subscribers in the OECD is 181 million (as of June 2006).

And ABI Research forecasts that the total number of DSL and cable broadband users in the world will grow over the next five years to reach 480 million subscribers by 2012.

The number of PCs that have MS Office - according to a source from MarketWatch.com around 450 million. The number of broadband subscribers is approx 200 million (including non-OECD countries).

Thus, the present TOTAL market for an online application such as Google Office cannot exceed more than what I figured out earlier. I think there will be a maximum opportunity for Google Office of 50 million non-commercial and 25 million comemrcial users. That is 75 million, and not EVERYBODY.

[Victor]

Is Yahoo back in the race because of Panama?

http://www.businessweek.com/technology/content/feb2007/tc20070226_665895.htm?campaign_id=yhoo

[federica]

What is with all the Microsoft astroturfing? All these "random" people insisting Google apps will never be a trend is a bit too convenient.

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[pankajunk.wordpress.com]

Another emerging arena of the Google-MS battle is the "online productivity" arena, in which Google Apps represents Google, and Microsoft BPOS represents Microsoft. The kind of promotional effort that Google and MS have put in both these products indicates their importance. Since there aren't many good comparisons around, we recently did a Google Apps vs. Microsoft BPOS comparison chart.

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