I’ve heard all sorts of chatter about the Google foray into spreadsheets, and none of it resonates with me. Here are 3 key aspects of this worth thinking about:
>
1. Strategically, Google is shooting at half of the Microsoft franchise
Microsoft, despite alot of hoopla you have heard about all its other product offerings, makes the vast lion’s share of its money via its Operating System and via Office. Nothing else it does is generates nearly the profitable cash flow as those two money printing presses do.
Think long term strategy: From a military perspective, Google is opening a second front in the war Microsoft launched against them. You want to come after our core busines? Allow us to return the favor.
Google doesn’t have to kill Office — they only have to siphon off a small percentage of purchases to hurt Mister Softee’s bottom line. Remember, once software development costs are paid for, the marginal cost of each subsequent sale is almost zero; its 99% profit. If Google captures 1% of potential office sales, that’s a lot of cash — pure profit — off of the bottom line to Redmond.
That’s right, Google is aiming at Microsoft’s P/E.
>
2. Time is on Google’s — Not Microsoft’s — side
After IBM’s anti-Trust action, they were hamstrung. That’s in large part why the PC revolution was fomented elsehwere — Apple, Microsoft, and Intel, and not at IBM, who no longer even makes PCs.
Because of their overly aggresive anti-competitive behavior in the 1990s, Mister Softee is in a similar position. Their core business is the PC Operating system, followed by its Office suite. With more and more of computing moving to the web, Redmond loses its leverage, its monopoly advantage.
Cheap PC horsepower, lots of connectivity and increasing broadband has unleashed tons of entrepreneurial energy and creativity. The future is decentralizing. It will come from millions of new start ups, not stodgy old Microsoft. Look at all the fresh apps for GoogleMaps. Google was smart to create the online version, and then let everyone else develop for it. They tapped into the entreprenuerial zeitgeist. Compare that with the strategy of Microsoft with its Xbox.
>
3. A free version of a web based Office will only benefit Dell and HP
A few weeks ago, I got a snail mail offer from Dell for a pretty fast 2.4Ghz machine — 17" CRT included — for the "low low price" of $300. I was about to buy (yet another) machine for the office — when it dawned on me that Office Professional-Small Business cost $320 — more than the PC itself. I decided to pass. (I could have gotten Office Basic — Word, Excel and Outlook — for $70). I suspect this process occurs lots of times in small businesses in America.
In Google’s short history, they have continuously rolled out more and more offerings. I suspect that 5 years from now, we will look back to discover that a full featured Office equivalent has developed.
In the alternative, is there anyway this ends up helping Microsoft? I can’t think of any.
Last, consider this, from John at GMSV:
"It’s high time, isn’t it, that Google cops to having designs on Microsoft’s software business. The company now offers an e-mail program with built in IM and upwards of 2.5 gigabytes of storage space, an HTML editor and a calendar program. It’s developing a universally accessible network drive and likely a Web-based word processor as well. And now it’s got a spreadsheet program to boot. And it insists it has no plans whatsoever to compete with Microsoft’s core PC software business? Please.
Indeed.
And people wonder why Microsoft’s stock price has done nothing for 5 years . . .
>
UPDATE: June 7, 2006 1:34pm
Blog Roll — Google vs. Microsoft
This got picked up by the WSJ, which also referenced Henry Blodget and GMSV‘s takes on the subject . . .
>
UPDATE: June 14, 2006 6:54am
The NYTimes reports on the new Googleplex in Oregon:
Local residents are at once enthusiastic and puzzled about their affluent but secretive new neighbor, a successor to the aluminum manufacturers that once came seeking the cheap power that flows from the dams holding back the powerful Columbia. The project has created hundreds of construction jobs, caused local real estate prices to jump 40 percent and is expected to create 60 to 200 permanent jobs in a town of 12,000 people when the center opens later this year…
The rate at which the Google computing system has grown is as remarkable as its size. In March 2001, when the company was serving about 70 million Web pages daily, it had 8,000 computers, according to a Microsoft researcher granted anonymity to talk about a detailed tour he was given at one of Google’s Silicon Valley computing centers. By 2003 the number had grown to 100,000.
Today even the closest Google watchers have lost precise count of how big the system is. The best guess is that Google now has more than 450,000 servers spread over at least 25 locations around the world. The company has major operations in Ireland, and a big computing center has recently been completed in Atlanta. Connecting these centers is a high-capacity fiber optic network that the company has assembled over the last few years.
Google has found that for search engines, every millisecond longer it takes to give users their results leads to lower satisfaction. So the speed of light ends up being a constraint, and the company wants to put significant processing power close to all of its users.
Microsoft’s Internet computing effort is currently based on 200,000 servers, and the company expects that number to grow to 800,000 by 2011 under its most aggressive forecast, according to a company document."
Hiding in Plain Sight, Google Seeks an Expansion of Power
JOHN MARKOFF and SAUL HANSELL
NYTimes, June 14, 2006
http://www.nytimes.com/2006/06/14/technology/14search.html
I just don’t understand how they can get as much for Office as the whole machine. that has held me back as well from buying a new machine.
You think MSFT’s stock has gone nowhere for 5 years because of Google? Are you insane?
BR: No, I think the stock has gone now where for 5 years because they are a dinosaur who’s fastest growth is behind them, ans who’s stock isn’t cheap enough (yet) to be a true value play.
Yet another product from Google that doesn’t improve its search engine, which like MSFT’s operating system is where the cash lies. One of these days, someone is going to come out with a better search engine and Google is going to be fried. Google’s core technology is stagnant, and all they’re doing is buying other companies to add little bells and whistles to an existing design. That’s taken as a bad sign for any other company except Google.
Boy O Boy O Boy – Even Barry has turned bullish on Google. Being that my portfolio consists mostly of deeply out-of-the money puts on Google, this is certainly food for thought.
Barry – please be wrong on this one :-)
Barry usually comes off as well seasoned until he talks about MSFT. His hatred of the company is so strong he just throws his objectivity out the window and it becomes an emotional thing.
PUUHLEASE!
Now, I love Google search but let’s be real. They haven’t done shit beyond develop search. The Microsoft Excel users, I mean serious users, will scoff at this silliness. You aren’t going to slap a ten layer, 500 line interactive spread sheet into Google’s product. This is the same old Star Office bullsh*t Sun tried to jam down people’s throat with about zero penetration. In fact, if one watched the press releases with Sun half a year or year ago you know this is Star Office modified.
Those who aren’t serious Office users, well, they couldn’t use a spreadsheet to save their life anyway. So, who’s gonna buy this? I’ll tell you who, the same people who bought Star Office. That would be NO ONE.
Google has this aura around it that is almost laughable. The two playboys who created this company are to be applauded and even worshiped by us mortals for living the American dream. But, they are far from immortal. Yet, people some how think these guys are some type of business genius for creating some very slick technology. Uh…ok. I have the confidence they can grow into that capability but today? No way. To the contrary, if you look back at the history, they had no idea what they created or how to monetize it. Great business vision there. In fact, they offered to sell it numerous times before Yahoo offered to buy it. And, the back up plan was to sell it to Doubleclick I believe for some paltry sum of $100 millionish. Where’d I get this info? A Barry Diller interview? Who’s Barry Diller? Likely one of the top 5 media, content and entertainment minds of the last forty years. Oh, and the CEO of Ask.com amongst other things. (Btw, a search engine that was recommended by the Wall Street Journal for their recent enhancements.) So, would you rather have Barry Diller, a content and media visionary and business genius extraordinaire running the ship or Larry and Sergy the two lab rats?
So, what does all of this mean? Uh, Google’s forays beyond search have typically sucked at best. They’ve proven no business acumen beyond monetizing search and this is hocus pocus. Search ten years from now will be so different than today that there are high odds the innovations to monetize it won’t land between their walls and the most attention this product will draw is the pre-announce.
That doesn’t mean I think Microsoft is any better. They aren’t. But, long term, if they can unlock their intellectual property, dump that Nazi-yes-man-culture-Bal”less”mer create an environment of rewarded risk and get some sense of urgency back, I’d much rather own Mister Softy. But right now I wouldn’t touch either with a ten foot pole. Because, if the consumer quits spending who’s gonna buy those ads? Small business focused on the consumer? Big business “playing” with online advertising with no formally developed ROI in most instances. Uh? Yea.
MSFT’s done zip … so has INTC , CSCO , AMAT , LLTC , BRCM , etc…… and the NAZZ is still 60% off its highs …. these companies P/E’s have imploded from 70-80-90/E or more to 15/-20/E…. MULTIPLE CONTRACTION has been the biggest culprit — and rightly so …. for all its faults , delays , etc. , MSFT has lost no market share in OS
barry, your conclusions seem to be drawn from stock movement..Big mistake.
Google is getting into dead zone. Slowly but surely. Vista will be a huge problema para google. Google finance/chat suck. Google blogs are often taken down. Besides, google search, as much as it is still relatively good, often does a poor service. It is based on how often sites are visited. A cute concept but a brilliant and abstract treatise on a library shelf would never be found this way.
Besides, MS office is the BEST product out there. For that you gotta salute MS. And you know how hard it is to make people shift from one sostware to another ..
Review what Barry said. He isn’t bullish on GOOG, he’s saying GOOG could easily start trimming off a few percentage of Office users, which hurts MSFT.
IOW, Cody might be wrong on MSFT.
“Google’s forays beyond search have typically sucked at best.”
So the reviews on gmail and Picassa are wrong?
I agree google sucks and after China and turnig over searches to tghe government I use them as little as possible.
I also think mr softie sucks, but to Barry’s point, why should office cost more the the damn PC? Its like buying $1200 tires for a $800 car.
1) I keep saying the same thing about Google as i do Apple — I love the company, but I think the stock is too risky.
2) If someone comes along and builds a significantly better user experience for Search, than Google would be in trouble.
3) All Google needs to do is skim some buyers away from Office and it hurts MSFT.
4) Microsoft put lots and lots of cash in my pocket — so I have no animosity towards them at all — but I still think their products stink.
Barry:
Stick to Macro. There are 100 other people out there blathering on about MSFT/YHOO/GOOG.
Follow the law of comparitive advantage. You are a surgeon who should be cutting flesh, not typing in the back office.
There’s been a certain amount of sneering at the google product because it has less functionality on many dimensions than does the MS product. The work of Clayton Christensen on the history of disruptive innovation, across several industries, would suggest that MS better not breathe too easy; interesting thoughts here.
B –
Google has a decent search engine (I’m a software guy, and I can tell you that Google does a better job of indexing msft’s site than msft does) but they also have world-class operations.
In addition to their search technology, they also produced a lot of custom technology to bind all that commodity hardware and open source software together.
Their internal IT processes are world-class. You make no mention of Google’s operations in your discussion, but ‘zero’ is probably not an accurate valuation of their internal IP.
On another note; I use OpenOffice to produce many documents; I don’t see it as an inferior product, especially if all you produce are garden-variety docs, which IME is what the majority of people use it for.
M$FT threats that should but don’t matter:
http://www.openoffice.org/
Massachusetts Open Document Format
Vista Delay v3.1
Adobe threatened antitrust suit
Symantec trade secrets suit
A fundamentally insecure OS by design
OS X
Wholesale third world piracy
M$FT advantages that shouldn’t but do matter:
inertia
size
What happened to IBM with hardware is ripe to happen to Microsoft in software.
Picasa is really not that innovative, it’s basically a Windows clone of iPhoto.
Google vs Microsoft
Barry Ritholtz:I’ve heard all sorts of chatter about the Google foray into spreadsheets, and none of it resonates with me. Here are 3 key aspects of this worth thinking about: 1. Strategically, Google is shooting at half of the Microsoft…
I have to freshen up something I wrote about EMC 5 years ago, and apply it towards Apple and Google: Love the company, hate the stock
A clarification. My comments are not a reflection of Barry’s post. So, I’m not busting him. I don’t know if he likes Google as an investment or not. I’m simply stating my perspective on Google. Great search product. Interesting future investment. Still way too much enthusiasm.
http://www.clusty.com is my favorite new search engine.
check it out. results are often cleaner than google and less advertising. If I can’t find what I want on Clusty then I’ll use Google as a backstop but that is a rare occurance ( and typically when I’m doing an image search as opposed to a web search).
GOOG pissed me off with the China thing. I also think they are extremely wasteful with shareholder money… Honestly, I don’t see where they have a competitive advantage outside of brandname recognition anymore.
just my oppinion.
me: For a similar reason why if not one, then a few CDs cost more than a CD player. A computer is no more than a “player” for software.
MIT’s $100 laptop + WiMAX + Google = Developing country computing?
/still won’t buy their stock!
Office is here to stay. The value of the training and support is many many times the cost of the software. Very difficult to overcome that
I slightly different take on this by Nicholas Carr
http://www.roughtype.com/archives/2006/06/googles_office.php
I agree with eithtnine .. OpenOffice works for me.
Microsoft is of the mindset it has to compete with its previous product which gets itself more and more into bloatware. Gives an opening for smaller lightweight competing products …
I’ve actually worked for a company that tried to make the switch to Open Office. Eventually, the MS Office licenses made their way back onto everyone’s desktops.
The “pain in the butt” factor of not using MS Office is just too high.
Two things to add to this discussion:
1. I think the biggest competitive advantage Google is sporting right now is their human capital. Most of my closest friends are programmers who have told me that the best of the best are dying to get jobs at Google. They have the best minds and the best programmers fighting for jobs there. Sure, their products outside of search may not be the best, but give it time.
2. Along the lines of giving it time, lets not forget how horrible the first few iterations of MS Office were. It wasn’t until Office 2000 that I could use any part it without wanting to claw my eyes out. Most of Google’s products (spreadsheet included) have just launched. We’ve got to give them time to work out some of the bugs and add functionality. Comparing a product that has been in development and use for 15-20 years to a product that just launched doesn’t accomplish much.
http://tinyurl.com/p96g6
Check out this post (link above) from Firefox developer Blake Ross. It contains clues as to why the bully from Redmond is ultimately not going to win this fight, no matter how much cash it has in the bank. Monkeyboy (Steve Ballmer) and crew aren’t just fighting Google, they are fighting lots of little guys out there in a pig-headed rearguard action to save the shrinkwrap software model from oblivion. Their tactics are neanderthal, their innovation quotient nil. Microsoft is loathed by the software community, and deservedly so. Their long range gun strategy doesn’t work anymore–no longer is it feasible to crank out version after crappy version until a competitor cries uncle. The development cycles have become fast for that tactic: picture a steamroller trying to run over a rabbit. Or rather, a hundred rabbits at once.
I had a substantial chunk of commentary on why I think Microsoft may well lose to Google, but it got stuck in the spam filter. Maybe Barry will salvage it when he gets a chance.
“I think the biggest competitive advantage Google is sporting right now is their human capital.”
Wasn’t it Buffet who refused to invest in companies who’s greatest assets walked out the door every night at 5:00pm?
Except when he bailed out Salomon Brothers.
PIPEs, distressed debt, structured derivatives deals… that folksy homegrown schtick is a load of bull.
As is most of the ‘Uncle Warren’ type advice that Buffett gives to shareholders. The guy is a shrewd operator with a track record that is 95% non-replicable by John and Jane Investor. He pretends to be Wilford Brimley (remember the oatmeal ads?) because he likes the image. And the PR is great for Berkshire.
Plus, one-shot cliches unattached to anything substantial are just begging to get smacked around like a cheap pinyata. In my humble opinion.
getting a lot of these:
Your comment has not been posted because we think it might be comment spam. If you believe you have received this message in error, please contact the author of this weblog.
Is there some way to disable the comment spam filter for a post? Comments talking about Microsoft or its products here are likely to be relevant, but are being filtered as comment spam. Isn’t the Turing Test enough? I gave up on a comment I wrote this morning that I couldn’t edit in any way to get past the comment spam filter.
The quick summary of my comment is that software is too cheap to make for any company to be profitable in the long run just by selling software.
I don’t think people understand that Microsoft and Google have very different business models, enough so to outweigh Microsoft’s cash advantage and potentially bring victory to Google.
Microsoft is a two-product warhorse (Office and Windows) that sucks at innovation and fights with long range guns. Their motto for new products is, we don’t care if versions 1.0 through 9.0 completely suck, we still have the cash and the patience to beat you. Microsoft is also tied to the desktop–they don’t see anything good coming from web-based software and services. The windows ‘live’ stuff is a disaster. Vista will be no savior. I have a cousin who works for Microsoft; I asked him what the advantages for Vista will be over XP, and he admitted it is almost all corporate client type stuff and security type stuff. No big switch impetus there. The idea that Microsoft could get away with selling Vista on its improved security features is silly; that would mean trashing XP as a bug-ridden piece of junk in contrast.
Google, in contrast to the two-product anti-innovation that is Microsoft, is developing a light-infantry, innovation swarm, “idea-factory” model, working on the premise that the way to have great ideas is to have lots of ideas. They understand that turning out new products rapid fire is a) the best way to potentially hit on the next big thing, and b) the best way to motivate a restless and intelligent workforce. Google doesn’t care if nine products out of ten don’t do much if the tenth is a smash, because even the so-so offerings keep the smart engineers happy and cultivate the “Google is cool” meme. When people bitch about how the latest Google offerings are “okay but not great” or “not impressive,” this is the point they are missing. We don’t know which new Google products will be great, and neither does Google. Google is also very invested in the free-software, web-based, kill-the-box approach. They would be perfectly happy in a world where installed software didn’t exist at all, assuming the bandwidth was good enough.
The conventional take on search, and how search will be ‘radically different’ in a few years, and how Google is going to get its search capabilities blown up by some other company out of the blue, is totally off-base in my opinion. It’s more likely that the potential for algorithmic search has been pretty much maxed out, and that most improvements from here will be incremental. The idea that some new company is going to come along with a mind-blowingly better way to do search is pretty much smoke and mirrors. Basic search is likely to improve in very small and subtle ways, if at all, in terms of how well things work after you type words in the little white box.
People also don’t get that Google’s business model is leveraged to its brand recognition and its total product reach as a way to leverage ads and serve ads. The more ad-servable products Google delivers, the more cachet it develops with advertisers and favor it keeps with users, on top of the additional revenue it gets. A lot of Google’s power comes from its ad serves–the fact that it is THE place to go to see and be seen in the online advertising space. They have the numbers and the push. Google’s goal isn’t to come up with their own uber-product like office or windows, it’s to create dozens of small inroads and combine them into a massive force that creates advertising revenue lock-in and facilitates increasing returns. In encouraging a move to the free-software, web-based-software world, Google is not only trying to kill the box where Microsoft’s profits reside, they are also putting the squeeze on other software developers who want to sell their stuff shrink-wrap rather than delivering it free… and Google’s biz model gets a thumbs up from consumers b/c everyone loves free software as long as it’s not buggy and it works.
Google’s success isn’t guaranteed, but I think they are a lot stronger than many people think. (Not that I would buy the stock.) Microsoft is also a lot weaker than people think. In large part it goes back to the DNA and basic strategy of the two companies: Microsoft is crusty anti-innovation bully fighting a rear-guard action to save the box, while Google is an upstart trying to monetize its smarts and cachet by throwing off products left and right, with the goal of building them into a tidal wave of ad revenue.
In my opinion, the fitness landscape clearly favors Google at this point, even when you factor in Microsoft’s cash reserves. Mister Softee is a flailing beast with a corporate vision and a stagnant culture that have both become a threat to its own survival. The best engineers and developers aren’t going to Microsoft anymore; they know where that road goes. The best new entrepreneurial ideas aren’t being fed to Microsoft; they are too hated for their bullying tactics, and their record of squashing little guys like bugs is just too well known.
The Google guys stumbled into their current business model, but maybe that gave them an even more powerful edge than we realize. Hitting a grand slam by accident may have convinced them that trying to come up with the next killer app via top down strategy was a fool’s errand; better to become an innovation center, cultivate as many ideas as possible, and see what the market responds to instead. It’s an interesting experiment, and one that could very well win the long haul if they don’t screw it up.
It was “Search Engine Colossus” that was causing the problem . . . Thats a known spammer and a banned phrase
Its deleted now from the list
Post away!
An important takeaway from Google vs Microsoft is that this is no longer a space for organic growth. Google and Microsoft, two rivals with great brands, name recognition, deep pockets, and ability to raise plenty of additional cash as needed are going to go at each others’ throats. In that process they will reduce each others gross margins and net profits. Consumers will be unambiguous winners. IMHO, both companies’ stock prices will be hurt by this competition because they both have to either lower their prices or give away some of their products to be able to compete with each other and their other rivals. As a result we will see multiple compression for these companies and their rivals.
Something else I’d like to point out is the constant argument people make about Microsoft’s billions of cash. Microsoft has been generating billions of net profit each quarter for many years. But it hasn’t figured out how to share its profits with its shareholders. It has figured out how to share its profits with employees and executives, but not the people who own the company. If it couldn’t share its profits (save for a one time $3 payout in 2004) when it had a near monopoly and margins were good, how do we expect it to be able to share profits when times are getting tougher with huge competitive threats, rising expenses, growing employee base (rising costs), and lower employee morale (programmer productivity is higher when morale is higher)? What good is it to have a company that grew to be one of the world’s most profitable and valuable company, but still not be able have figured out a way to share income stream with shareholders? What exactly are shareholders supposed to buy Microsoft for? For growth? Well, that is history. For dividends? Sorry, no dividends here. No growth. No dividends. So investors are supposed to buy MSFT and flip it to a greater fool? Is that what investing is all about?
You know we can all agree to disagree but isn’t it a stretch to state the since Google stumbled upon their business it might be a good thing.
Business is not about the book or concept of the month that people can go out and buy. It’s about blocking and tackling. To say that Google is an innovation machine and Microsoft it tied to a thick client amongst other questionable generalities is rather odd to me. If Microsoft gets pointed in the right direction, they could rule the world. Big if.
Google has monetized one product. Paid search. That’s it. Microsoft has more products, copyright and patents than Google will likely develop in decades, if ever. Microsoft has so much intellectual capital that is available via products and services that it boggles the mind. There are literally over a thousand products from security to wireless to server software to gaming to systems management to education to server middleware to server database software to applications to productivity tools to operating systems to consulting services to web tools to application development to paid search to portals and on and on and on. They are far from “tied” to the desktop although it is a cash cow of enormous proportions. To the contrary, Microsoft is also the global leader in server licenses. Guess what is behind all of those web pages? Servers. Just an example of many fallacies about Microsoft.
Now, I’m not a big fan of Microsoft and I like what the boys at Google have done but Google is far from “the” innovation machine when Microsoft announces more new capabilities every day than Google has announced since its existence. Oh, and search isn’t exactly what I would call as defensible. The reality is Yahoo, Ask, Microsoft and Google’s technical capabilities in search are not that far apart. Indexed search has been around for forty years. They’ve got a few tricks up their sleeve but so does Yahoo and Microsoft and it in no way guarantees anything. Nor does its brand. And given the crudeness with which data is manipulated today, I would not presume a totally new experience on the web could not develop. To the contrary, there is tremendous room for improvement and innovation.
You are too infatuated with Google IMO. A reason to like the company but not to think they are going to somehow take down Microsoft. I am not even convinced they can compete on anything other than search. Googlemania.
I for one am more intrigued by the biz model than the company itself. A far more likely scenario than one or the other company getting “taken down” is to have one go on new levels of dominance while the other becomes a half-crippled value stock, or a slowly imploding star like Sun Microsystems (which still has some good half life left in it).
And if Google does “win,” it won’t be one company beating another so much as a new fitness landscape rendering a once dominant company powerless.
Plus, correct me if I’m wrong, but isn’t that cornucopia of softee products mentioned actually a cost center on balance? What are they losing with each X-box now, a hunnert bucks or so? The empire has a death star. Blow up the core and the periphery divisions no longer matter.
We forget that a lot of the whizbang stuff cancels itself out. You have to be materially better than the rest to avoid commodity hell, or have an edge that the rest don’t have. Softee has their cash cow duo, but it’s getting harder to defend. Goog has something that most don’t give them credit for, an advertising reach and an innovation stream with potential lock-in effects.
And sure, GOOG could drop the ball and get crushed. I just think they’re be the better bet given the point spread, that’s all. For those who favor Softee, you might find this amusing:
http://tinyurl.com/eodqh
[I suspect that 5 years from now, we will look back to discover that a full featured Office equivalent has developed]
I’ll take your action on that one. As a heavy, heavy Office user (and someone who has tried every Office-variant going out of frustration with office), I can report the following user data:
1. Object Linking & Embedding (that is what you and I call “putting a chart into a document”) is horribly slow, crash-prone and memory bloating in Office.
2. In every other Office-a-like package, it is *much* *much* worse.
I don’t know why this is, but it suggests to me that OLE is hella difficult and the sort of thing you need a lot of time & effort and a lot of integration with the operating system to achieve. I bet that Google Office will founder on the same rock as OpenOffice, which is a perfectly good software suite for people who don’t need to put charts in documents very often, ie nobody.
Ok, I like this topic alot. So, how about an alternative view. Not anything you need to agree with but a totally different perspective. This concept of search being a high value business and a sustainable business model has no precedence. And, we do have precedence. Indexed search is older than I am. We will see a progression of web technology likely in a similar path to how business has seen a development of access to data over the past fifty years. There is no difference except the net is in its infancy. But, as Sun coined, the network is the computer. Still a 1970 model but it is coming true.
So, first was the ability to replace filing cabinets and manual repetitious work with computers that digitized data and made access much easier and cost effective. That was about the time the dinosaurs were killed off. Then came an ability to actually organize the data and access it via these organizations. That was….indexed search. That’s where we are today with Google. Google, Yahoo, Microsoft Search, Ask, etc. They are glorified “database-ish” creatures on the internet.
From a marketing perspective, we are in the cromagnon era. So paid search is likely to go away at some point. The concept of personalization, a holy grail of marketing, is so foreign on the net that we actually type in these crude keywords and get fifty million responses and a few dozen paid advertisers to that result. 99.999 percent of those search results are irrelevant to what we are looking for. That’s equivalent to computer technology that is over thirty years old. So, just as the glorified Adabase, IMS, DB2, Oracle, SQL Server, Informix, Sybase, Progress were relegated to commoditized middleware, so likely will search as we know it along with Google, Yahoo, etc. unless they evolve well beyond where they are today. Can they do it? I don’t know but none of the aforementioned database vendors were able to sans Oracle which ventured into the application business to save their database business. They are still around in some form but what value did they ultimately provide when true applications were built to use the data? They didn’t own the content and so they were simply tools. So, the answer was/is none.
So, in personalization marketing the key questions are who owns the customer, the customer profile and the data or in this case the content? Well, just as databases were simply enablers, so are search engines. Who owns the customer profile and the customer? Some could say Google today which is the only reason their model works. But, really do they? Well, people go there as a starting point so for the time being yes. But the real answer is no. The access provider owns the customer and his data. Verizon, Cingular, ATT Wireless, Sprint, Time Warner, etc. They know the customer profile and have the ability to collect, organize and personalize information around their customers. They just haven’t figured out how to monetize that yet. Oh, they want to. And they likely will. They are already rattling their sabre that Google and Yahoo are going to have to start paying them fees for access to their customers. Who knows what will happen but they want some of that coconut creme pie. The only thing Google knows is you are in Mexico using Windows XP. Verizon knows your name, your age, can collect your likes, dislikes, etc. Who owns the content? Disney. Sony Entertainment. United Healthcare. Fox. CBS. The NYT. It ain’t Google. But, Yahoo gets it. They do own much of the data and they are trying desperately for more and more content. I think Google likely sees the writing on the wall, hence what looks like a push to become a portal. But, I think that is dangerous, difficult and I even wonder the long term viability of portals as access methods change.
So, how will this play out? Well, soon enough being tethered to a PC tube will be less than desirable and likely not the method many access the net most often. Eventually we’ll always be web aware regardless of where we are. Starting to happen today. That isn’t conducive to lugging around a PC. Whether those are personal devices, cell phones, web access via your car or devices similar to earsets with microphones or whatever. It won’t be a 19″ LCD display and it won’t be that long until this unfolds. And you won’t be doing Google searches on the fly as part of your “connectedness”. You’ll likely have front end applications start to develop. Search may become a transparent backend as has happened in corporate America with little value as databases have become today. The value will be in the applications. In business that is accounting, ERP, supply chain management or whatever your company jewels are. For your personal use and business use it might be the same and it might also be your personal applications. Finding the closest pizza joint with thin crust, accessing your medical profile, accessing current events, listening to music, watching a movie, turning on your washing machine or whatever. Smarter people than me will figure this out.
And, with mobility, you won’t likely be looking at some goofy list of ten thousand generic search results with paid ads. Your access will likely be personalized. Will Google do that? Maybe. But not without paying your provider who has the data. And the provider might not want to share it at all. You might not even have a screen for much of the access. It might be voice only. Even if you have visual access, you likely won’t be squinting through a minature display to view Google ads or wearing some type of visual display capability to browse Google’s highly rudimentary search. Because you’ll be mobile and the net will be an extension of your life as an instantaneous productivity tool. Not likely something you hack through and twizzle through Google on the fly. You might want to look up what a word means or ask a question but the answers will likely not be presented in a form which is conducive to paid search.
Now, this won’t happen tomorrow. But, eventually, the companies who own the customer and web access and those who own the content you want will likely rule the roost. Not the search provider. Not that they will go away or I don’t think they will. So, in this future world does Google have an inside track to maintain its dominance using its only method of generating revenue? I don’t think so. But, maybe they will. I can guarantee you no one wants them to including all of the content providers, all of the access providers and all of the yet to be determined application providers. So, I’d say it’s a pretty good bet they had better develop a business model beyond today quite quickly. Because if history and the development of access to information in the business world is any indicator, their future ain’t too bright.
So, all of this said, who wins in this scenario? Content providers and businesses servicing corporations and consumers. Who provides these companies with the tools they need to enable or build applications to drive the content on the net? Who has the development tools, the systems management, the server software, the personalization software, the content management, the security and digital rights capability, the middleware, the mobility software, the productivity applications, the online gaming, etc, etc, etc. None of this has anything to do with PCs. But, uuuuuuhhh, that would be Microsoft. They are the #1 or #2 IT vendor in every data center around the globe without including PCs. That means they benefit from any technology revolution in the global corporate markets. Building applications and infrastructure for the net is just such an endeavor. Oh, and how does paid search play into this? Uh….I don’t know. But, Microsoft is not out of that game either although they are floundering and IMO will continue to do so in paid search.
And Microsoft has five multi-billion dollar business units which are very profitable and could be very successful on their own. So, who is the company that, what did you say? “but isn’t that cornucopia of softee products mentioned actually a cost center on balance? What are they losing with each X-box now, a hunnert bucks or so? The empire has a death star. Blow up the core and the periphery divisions no longer matter.”?????
Actually, that would be Google with paid search. Google’s future isn’t the guaranteed world of riches people think. It may be a powerhouse in ten years. But, it likely won’t be from paid search as we know it.
So, Microsoft has alot of problems to fix but IMO it is almost hilarious to look at a free Google spreadsheet others have tried to pawn off for years and think they are now going to take on MSFT.
Hmm. I sort of share your view on search in that I’m not sure search is as important as a lot of folks think it is.
But I don’t think that view is necessarily damning to Google. Part of Google’s goal in developing a steady stream of new products is to create a powerful brand and installed user base that goes beyond search.
There is a new search engine out now, clusty, that has a nifty sorting action that Google doesn’t. But really, so what? How many people are really going to switch? Internet explorer has shown us how locked-in people can get with their behavior. Even though Firefox is a zillion times better, IE6 is ‘good enough’ for most, and so it still has 90% of the market even though it is a buggy piece of crap. IE7 is merely an annoyed response to Firefox challenging the 10% barrier. Point being, Google doesn’t live or die by being ‘the best’ search bar none. Their brand and reach gives them a lot of flexibility there, and even some room to slack on search improvement a little in pursuit of expansion in other areas.
I do differentiate though between search and advertising. In whatever form it takes, Google has latched on to the future of advertising in my opinion, in terms of free content / free software linked up to messages the viewer actually has an interest in responding to. And if anyone ever works out the holy grail of advertising–customized video commercials, via TV or the web–who has a better shot in that space than Google?
In terms of customized content down the road, who has the consumer’s trust in that area? Microsoft? Heck no. They are seen as an overbearing bully with a reputation for getting things wrong the first three or four times and not caring. The media companies? What, you mean like Sony, who installed dangerous spyware on its users’ computers and then lied about it? Or the baby bells, who are guilty of some of the most anti-competitive behavior around and are seen as duplicitous dinosaurs with crap service fighting to save their copper wire profits?
Also, how personalized does search need to get really? At what point does it become superfluous to have a user’s background details? If I want good pizza and the search engine can read my GPS coordinates off my cell phone no matter where I am in the United States, what additional level of personalization need there be? I don’t see Microsoft figuring that stuff out. And I have a hard time imagining smart folks wanting to partner with them, precisely because of their history of soul-crushing bully tactics. (And by the way, who in the name of God would want to work with Monkeyboy Ballmer anyway? I mean really, who could take that oaf seriously?)
I’ll certainly agree with you that there is way too much variation in future business models, and future customer demands, to declare a certain winner here and now. But with that said, who generally wins in a volatile and uncertain landscape? The most flexible and the most innovative… NOT the biggest and the meanest. I’d rather be able to bend it like Beckham and have a lot of attractive partnering options than be stomping around like Andre the Giant.
Also, re Microsoft Office and how hard it is to embed objects. That reminds me of a joke I heard in college.
Q: How does Microsoft change a lightbulb?
A: They don’t. Bill Gates declares darkness the industry standard.
There is truth in that joke, and it reminds me of the office comment because I have to wonder, how long have we put up with lousy software because Microsoft either squished or scared off or diverted the talent who could have improved things? How do we know there wouldn’t be a much better version of Office out there by now if not for the legal suppression of Redmond?
Last but not least, if there was ever an environment supportive of a new Office killer, this is it. You’ve got development tools like Ajax flying around like crazy, computer horsepower increasing rapidly, and all kinds of young developers with entrepreneur fever. Guys like Paul Graham are spreading the startup religion and all these programmers are salivating over the thought of being the next Flickr or getting bought by Google as the core for their next beta product.
(Speaking of which, who cares if their first spreadsheets offering is just so-so? Do we really think they aren’t listening and trying to take full advantage of the ocean of feedback they get on every product they release? Why are we willing to wait for Microsoft version 6 or 7 version to get things right, and then snicker at Google because version 1.0 isn’t the holy grail? Just sayin’ is all.)
So,
If you aren’t very big on search, how is Google going to get paid? The majority of their revenue comes from all of those search results people click on………………from the paid advertisers?
e, If search becomes less relevant as the net develops, how is Google going to get paid? Adsense sucks and that contributes little.
As for personalization, you talk to anyone at any major marketing firm or major corporation that is a marketing powerhouse? How personalized to you need to get? Ask them how personalized they get today. P&G knows down to the color of your eyes who their target audience is. Do you think an advertiser wants to spend $5 million with Google when those who might actually click on their search result ad might not be anyone that they are actually targeting? So, the ROI is what? Likely quite negative. Marketeers don’t like pissing in the wind with their dollars any more than you do. Today, corporate profits are at record highs and the marketing team might have some extra play money to waste on Google. Don’t bet that trend will continue without some type of proven ROI. And without personalization, don’t expect that ROI to be worthy for many clients. That is, unless they just have carte blanche to spend. Know any companies like that? I don’t.
You are awfully bearish on Microsoft for reasons of spread sheets and office. Yet their business revenue is growing handsomely. Yes, they have alot of problems. But business is where the spending is and that is where the hefty profits are. Global IT spending is in excess of $2 trillion. Do, you honestly think they are targeting or get more than a rounding error of their revenue from consumers as it pertains to spreadsheets or application development?
Their business model has had zero to do with you or consumers since the beginning sans gaming. It goes like this. Win the high margin corporate office and what are consumers going to buy? That’s right. What they use at work. That is one reason Apple will always be a niche player. Can’t crack the corporate market.
Microsoft is what $50 billion? They are focused on infrastructure and the corporate world. Yet, you as a consumer think they are falling down in serving you? You think they care about Ajax or Paul Graham? Is IBM or Disney or GE going to roll out Ajax or some free spreadsheet without support to 300,000 users? Ain’t no way. Hell, Microsoft has never targeted the consumer. Google is a one trick pony with alot of potholes ahead. And, alot of competition. Who’s going to serve up all of that content think they have a chance to win? Well, now do you really think the actual content providers want it to be Google? Uh……..
Now, I’m not a fan of Microsoft and never have been but I seriously doubt Google is in any way really going to hurt Microsoft with their only revenue producing product, paid search. Can Google transform itself into something it is not? Surely it is possible. Maybe even reasonable odds. Will they be the leader? Do you want to pay 90 times earnings in that bet? I’d much rather own Microsoft here. Although, I wouldn’t buy either.
They have a good shot at getting paid because they are at the forefront of the new advertising trends you speak of. Advertisers overpaid for TV and Radio for decades with essentially zero feedback, so there’s a long and profitable history of pissing in the wind there (profitable for the big ad agency days of yore). Adsense may still suck relative to future possibilities of how good customized advertising can be, but methinks Goog is the furthest down that road (a road MSFT isn’t even on) and the most innovation capable of the contenders. When I said I don’t buy the importance of paid search I meant that I don’t buy the odds of some new algorithm automatically lifting up some new upstart and making Google a has-been.
I agree that Microsoft has big bucks in the embedded corporate IT world, but relying on inertia and complacency sounds like a recipe for riding off into the sunset, settling down and becoming a widows-and-orphans value stock that throws off a reliable dividend far into the horizon. Ballmer and crew seem too ornery and proud and pig-headed to make that play. Maybe you could say Google isn’t Microsoft’s worst enemy, Microsoft is Microsoft’s worst enemy. Some empires just don’t know when to put their feet up.
p.s. I wouldn’t buy either either, so we can agree on that one…
p.p.s. Here’s what Bill Gates should do: fire Ballmer, close out all unprofitable divisions, declare a moratorium on all R&D that isn’t tied to a historically profitable product, and then hire a Buffett or a Lampert clone to run the company’s cash. Now that would be one hell of a buying opportunity.
Software is a commodity with almost no reproduction cost. Once it is written, everyone can benefit from it. Microsoft’s biggest threat is Open Source software, which will eventually dominate the software market. MS Office might be better than OpenOffice, but is it better by enough to justify $300 per person? Will it continue to be that much better for another 5 years? There is nothing that Microsoft can do that can’t be done by a large group of people in their spare time. They have to improve their software fast enough to justify the cost. But there are only so many features you can add before people don’t care anymore. Once those features are available for free, nobody will pay for your software.
Microsoft screwed up by not seeing how big the internet would be in advance. The internet is built on Unix, and Microsoft has never managed to capture a significant portion of the server market. The free software is better and Microsoft can’t compete on price, so their server marketshare has probably already peaked. Microsoft is not an infrastructure company and never will be.
If you want to talk about internet infrastructure, look at Akamai. Everyone uses Akamai on a daily basis. They have servers all over the world, and they serve up web pages to you from a nearby server instead of one in some corporate headquarters. Google is one of their customers, and so is anyone else that wants to provide web pages to millions of people. Their stock actually went up when they had a software glitch a few years ago because people realized then that the internet falls apart without Akamai. The big ISPs are the only companies that would stand a chance of competing with them. But the ISPs are probably better off selling Akamai bandwidth rather than developing the algorithms to figure out when a customer wants a page they can serve up locally and then trying to sell web caching that only reaches their customers to some content provider.
Microsoft will survive for a long time on momentum, but they have to come up with something of value to survive for the long run. Google will probably figure out something they can make money with. Google’s stock is definitely overpriced right now, but will probably remain overpriced for a while. There is a very large “cool factor” premium in their stock.
“””””The internet is built on Unix, and Microsoft has never managed to capture a significant portion of the server market. The free software is better and Microsoft can’t compete on price, so their server marketshare has probably already peaked. Microsoft is not an infrastructure company and never will be.”””””
Wanna bet on that? Unix server market share is actually declining. Microsoft is now the global leader in server licenses. And, there are more Linux pages on the net than Unix. And, I’ll take that bet all day long that open source will eventually rule. You ever been in a corporate data center? You honestly think Wal-mart is going to bet their global supply chain on some hack coming up with code that has no support? Uh, don’t think so. In fact, not to give away any trade secrets of Wal-mart but I just so happen to know Wal-mart runs its global supply chain and logistics system on the most bloody expensive operating system out there. And that is their design requirement. The reason they do that? Because reliability is 5 nines and the operating system, the microcode and the hardware actually have redundant capabilities and the ability to fix themselves without even alerting Wal-mart something is wrong. You got a freeware solution that does that?
So, in a world where real-time is becoming more and mroe important to compete and the cost of downtime at companies is measured in millions or even billions of dollars a minute in the case of a JPMorgan or some other massive institution, they aren’t going to be running downloaded Linux, MySQL and Apache. There is no evidence to support any of that. Maybe individuals and hacks are looking for something for free. But corporations actually tinkered with Linux and freeware over the past few years and that dog didn’t hunt. Most have given up and stayed with tried and true.
Don’t confuse a CIO’s responsibilities with your desire to download free software because you don’t want to pay $99 for a license. The CIO isn’t going to take a call from the CEO asking why the f*ck their systems are down and how are they going to answer shareholder lawsuits or regulatory questions because they downloaded some goop from the internet and decided to run their company on it. There are criminal, legal, fiduciary, shareholder and JOB consequences.
I won’t belabor the point but there have been study after study after study by some very capable organizations that freeware and Linux are massive cost centers to support.
Free software comes with the same limited warranty as commercial software: you can get your money back if the software fails badly enough. Microsoft won’t give out a dime to a company that loses money because of bugs in their software.
There are companies that provide support for Linux and other free products, including IBM. Companies like Google and Akamai where the server is the product run Linux, so it clearly is cost-effective if you know what you are doing. The arguments for using Microsoft are the same as the arguments for using IBM in the early 80’s. IBM lost marketshare badly, and so will MS. They’re big and have momentum, so they have a long time to find a new business model. They will almost certainly figure out some new way to make money. But charging for software was only a viable business model for a few decades.
I’m not saying this will happen quickly. I’m saying that commercial software is a doomed business model in the long run. There are only so many ways of writing code to do something. Millions of volunteers can outcode thousands of payed employees. Microsoft is sufficiently despised by the computer industry that they won’t get the best coders, especially now that Google is competing for them. Which means that there is no reason to think that Microsoft will come up with ideas that won’t be implemented at almost the same time by other people. You can’t charge $300 for something that is no better than a similar product that is available for free. Eventually OpenOffice will have all the features people care about, and then nobody will switch from OpenOffice to MS Office. Which means that Microsoft’s market share can only decrease. This isn’t some company that they can try to outlast or bankrupt in price wars. Microsoft will fade out of any product market because software is a tool that can be reproduced for free.
If you don’t want to believe me, you can just read the news:
http://news.zdnet.co.uk/0,39020330,39273865,00.htm
Dell is reporting that Linux is now requested for 25% of their enterprise servers. That isn’t people putting a webserver in their basement to show off pictures of their children. Enterprise level servers are for mission-critical applications.
Oh come on. You must be in a trance. I don’t need to read some blog on Zdnet written by a motor head calling for the end of paid software………..who has never been out of his bedroom and has no idea what it’s like to run a multi-billion dollar company.
I am quite aware Redhat, IBM, HP and now even Sun will offer to support Linux. Are people signing up? Uh, not. Why? Because you know what kind of support you get? Bandaid support. Example. Dell has their build-to-order system on Linux (they don’t but it’s an example.), the system(s) drops a major turd and flatlines. You have support with Redhat so you pick up the phone. What is Redhat going to do? I’ll tell you what they are going to do. They’re going to punt. They fiddle around a little bit, find out they can’t fix it and they send a request off to Linux hell. The system dump is posted on some public board and the Linux hackers look at it as they have time. Someone eventually comes up with an idea so Redhat picks up the possible fix and tells Dell to install it six days later. Oh, not the fix? Here we go again. It’s a f*cking joke. You think I am exaggerating? I’ve seen a $65 billion dollar customer experience this exact problem. And this was a little piddly ass project that the CIO got his balls ripped off from the VP of marketing. The systems had been in for test all of a month. You know what they did? Ditched it and went with Microsoft.
So, how would Microsoft handle this problem under an enterprise software agreement? You’d pick up the phone and call Microsoft’s premium business support. Not the retards you get for free when you buy a $99 Microsoft product but a real tech heavy. They’d answer the phone, walk you through a series of tests and perform an analysis is their problem journals contained in the OS. They’d either guide you through a fix or you’d soon be transferred to “level 2” which are the people who wrote the code. And, if there was a bug, you’d likely be issued a fix on the fly. Same with IBM, Sun and HP systems.
You live in a large padded room if you think the world is somehow going to get something for nothing. You get free stock advice? You trust it? You think the world is going to start writing millions of lines of complex software code for free and you are just so happen going to get to run your company on it? You live in a padded room. CIO’s live on the hot seat. Ain’t gonna happen. A novel concept though. People with nothing better to do sit around and write software for free then you run your company on it. Not to say there isn’t some freeware that’s nice for your desktop PC. But SAP, Oracle, Cerner, Siemens, etc aren’t going to be replaced by freeware and neither is IBM, Sun, Microsoft, etc. I don’t mind bantering back and forth when someone has a well thought out view that I don’t agree with but on this topic, you are out of your league. Period.
A quick search on google turns up a number of companies moving critical software to Linux. Including SIAC (emailing daily reports to brokers) and BOX (ticker-processing software). You can continue to believe that nobody is doing it, but you are wrong. Your comments sound like they are about 3-4 years out of date. Technology changes quickly.
Oracle is currently much better than any open source database. A company like Walmart needs the added features and performance of Oracle. But the corner drugstore doesn’t. Open Source captures the bottom of the market easily, and then moves up. Continuous incremental improvements add up to a lot over time. In 5-10 years, MySQL could easily be better than Oracle currently is. How much further can companies push features and performance of software? At what point is it good enough for 99% of the users? At what point is it cheaper for Walmart to hire some programmers to maintain a high-performance version of MySQL than to pay for Oracle?
Microsoft started the commercial software industry. That industry has already lasted for over 25 years. It will probably last for another 10-15. But eventually you have to accept that software is just algorithms, and nobody is going to pay for algorithms. Especially when most algorithm research is done in universities and published in academic papers. It sounds like Microsoft has already set up enterprise-level support. That is a long-term profitable business. Writing code is not. Google is trying to sell targeted advertising space. That may or may not be profitable.
Lots of interesting arguments here. The synthesis is how each (google, microsoft, linux) can hurt each others’ profits. Looks like a simple case of a maturing industry with shrinking profit margins and shrinking p/e ratios.
B, I’m sure telecoms will say whatever the need to if they think someone else is stupid enough to cough up dollars in return. Their claim that companies such as Google and Yahoo have to share their profits with them because they are bringing them customers is a bit ridiculous. It is like car companies and tire companies demanding that malls and other retail businesses share their profits because they are bringing customers to them. Or electric utilities demanding Microsoft shares its profits with them because customers are using electricity to run their PCs. Customers are already paying telecoms and utilities for the services they provide. End of story. You are right the telecoms have more customer information (and we know they are willing to share that illegally with Big Brother) than Google or Yahoo, but it is not clear how useful that is to them. Unless they do heavy, big ass datamining of web pages and web sites their customers visit, they can’t make any sense of what their customers are doing. Registered users of web sites provide those web sites a good deal of usage info, even if the demographic info of a regd user isn’t as much as that available to a telecom. Telecoms are utilities and should know their place in the hierarchy. If they want to make money off of the internet let them do something cool and useful and customers will gladly pay them for the value add. Simply providing a pipe doesn’t make them anymore valuable than my power or water provider.
Google vs Microsoft: Part II (NYT’s Version)
Last week, we discussed Google’s spreadsheet and word processor in context of a $300 PC offer from Dell; The PC — monitor included — cost more than the full version of Microsoft Office:A few weeks ago, I got a snail mail offer from Dell for a pretty …
Did Gates jump at the top?
Timing is everything. I suspect Microsoft are going to find life a lot tougher in the years ahead then they have in the past. (Read this article and associated links and comments for a good overview The Big Picture: Google vs Microsoft: Now We’re Getti…
No, I think Google is correct in saying they aren’t looking to compete with Microsoft in the software business; instead it appears to me that they are planning on making Microsoft’s software business obsolete. When people catch on and Google gets around to packaging this as one concise free offering (which I’m sure it will be) it won’t be competition. It will be Microsoft scratching their heads wondering what happened. Microsoft stopped innovating a long time ago. Google is secretly taking over the world and you know what? I don’t really have any objections.
Nobody can beat Google as far as their search engine is concerned and may be very soon they will excel in other fields like software developement also.
Tina, ur an arse. The fact is that the google founder tried to sell their product but nobody would buy it saying that their search engine was just as good as google if not better. Well look who is laughing now. M$ tried to purchase google a few years ago but offered them a silly amont for their business. At least the google founders didnt do what other businesses did and sell up to M$ just because M$ wanted to purchase their way into search. Also the fact that both M$ and Yahoo have both changed their sites for speed and ease of use just shows what they now think of google.
I personally wish the google would purchase the new open office and and cut a deal with dell, hp, acer, packard bell and other companied to give open office away on new PCs. This would put a spanner in M$ office. Te new open office is a great package and is free to download.
Microsoft is also the global leader in server licenses. Guess what is behind all of those web pages?
LAMP.