Posts filed under “Investing”
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.
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
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