Google vs. Microsoft: Is This a Stupid Fight?

Rob Enderle

I'm often convinced that most of the battles we see in the technology market are avoidable and largely counterproductive. A stupid fight is one that goes on between two companies that are more natural partners than competitors. What started me down this path with the Microsoft-Google battle is a post by Yaron Galai (it's short and worth reading) about something Marc Cuban said on the textbook mistake most new companies make: not knowing what business they are in.

 

This got me to thinking that Microsoft and Google aren't in the same business.

 

Microsoft was built on the idea of being the software arm for hardware companies. It does other stuff but the vast majority of its revenue comes as a result of the original IBM consent decree, which split hardware and software in the computer market.

 

Google is in the advertising business. It does other stuff, but the vast majority of its revenue comes from advertising.

 

In an ideal world, Google would run on Microsoft software and Microsoft's OEM partners would pay Google to market their offerings. We are clearly not in an ideal world and neither company is performing optimally at the moment. In a weird way, Microsoft didn't like IBM's model, and by focusing on it, emulated many of IBM's mistakes. Google is apparently doing the same thing with Microsoft. Let's explore that.


 

Drifting Away from Your Core

 

It is easy to forget what business you are in. At the beginning of the decade, Intel was going into children's toys and hosting, and was closing down a huge investment in video conferencing. AMD slapped it pretty hard and now it is solidly back in its core business and doing better as a result. I could go down a list of firms that simply forgot what business they are in, from Chrysler to Lockheed, and you would likely find multiple examples in every industry.

 

In business school, at least when I was there, this idea of knowing your business was drilled in constantly. Yet, as companies grow, it is far from uncommon that they forget and either let their market move on without them (the classic buggy business vs. transportation business mistake) or suddenly think that any attractive business should be theirs (the Google vs. Yahoo mistake).

 

Google Lost and Confused

 

At one time, one of Google's interview questions supposedly asked the applicant what business Google was in. This is a question I am increasingly wondering whether Google's own CEO can answer accurately because it isn't in the operating system business or application business based on current revenue, yet those efforts are taking up an inordinate amount of resources. And increasingly failing.

 

If Google is in the advertising business, wouldn't it make more sense to invest in trying to understand that business and figuring out ways to make advertising more easily measured, more effective, and thus more valuable? Google's own advertising should be held up as an example of excellence in the technology market, yet Apple easily does better work. The current Droid campaign, while excellent, is evidently driven by Verizon, not Google.

 

Microsoft Struggling for Relevance

 

At one time, Microsoft was THE power in the technology market. It grew up as a company completing solutions on both desktops and servers but so far has missed with smartphones. Its primary customer was the hardware OEM, but Microsoft has drifted away from that, going directly to consumers with packaged products like the Zune and Xbox, and selling directly to corporations, bypassing partners. As a result, Microsoft has increasingly looked like a competitor to these critical OEM partners. These partners have responded with large investments in Linux and now seem to be embracing Google's platforms, as the partnerships that founded Microsoft continue to erode. Microsoft doesn't seem to realize that Google's solutions aren't the problem -- they are the symptom of a company that has lost track of its core customers and is drifting closer to destroying the very revenue engine that made it what it was.

 

Wrapping Up: The Stupid Battle

 

Both companies' chosen markets are hardly healthy and both firms are bleeding good people. Microsoft's hardware partners are struggling through collapsing margins and the most successful hardware maker is Apple, the firm that uses the least Microsoft technology. It's run by the CEO of the Decade, and having that award go to the one guy that didn't use Microsoft technology is certainly something that would concern me, were I in their shoes. Microsoft should be focused on making one of its partners the next CEO of the Decade.

 

In a downturn, folks stop funding marketing -- and marketing is what pays for advertising. Currently, content companies are failing at an alarming rate and if people start spending less time on the Web, because there are fewer things that interest them, ads drop in value, along with Google's income. Google should be focused on increasing ad value, not eliminating it. Rather than Rupert Murdoch being the poster child for what needs to be done (avoid Google), the company should be ensuring that he sees Google as a critical part of his success (rather than a thief). Google should be working to ensure that the next CEO of the decade is someone that aggressively uses Google technology. (Steve Jobs, who is recognized for his advertising brilliance, is eliminating Google technology at the moment).

 

When a company gets to be the size of Google or Microsoft, in my experience, the greatest threat is internal, not external. If both firms focused substantially more effort on their own knitting and less on each other's, both would be much healthier and more successful.

 

What's this mean for you?

 

Typically you want to invest in things core to the competence of the company. For Google, that isn't platforms or applications and for Microsoft, it isn't advertising.

 

We'll talk more about this in a future post.



Add Comment      Leave a comment on this blog post
Dec 2, 2009 1:36 AM a. asdf a. asdf  says:

The more I think about it, the more I reject the idea of a core business, especially in the case of monopolies. Your core business is any area where you can gain a competitive edge and operate profitably. As a company, you owe that to your investors and shareholders.

In the case of Microsoft, its core business is OS, yet I don't see what value was gained in trying to "improve" upon XP with Vista, Win7. They have poured billions into it, and in the end you have a slower, fatter, and less compatible product. And XP had a monopoly on the OS market to begin with.

In the case of Apple, music players and phones were never their core business. They saw an opportunity to improve what was on the market and they got rewarded for it.

Wasn't this idea of a core business that got GM into trouble? If GM in its heyday had tried to go into other markets, maybe motorcycles, construction equipment, or even lawnmowers, wouldn't be in a better shape now? It could now just shut down the car division since it has a competitive disadvantage in the marketplace and operate profitably in other markets.

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Dec 2, 2009 2:03 AM David Harris David Harris  says:

All companies have a core business.  Their primary market, secondary market, and the niche market may all change over time, but all companies have a core business. 

Microsoft's role is software development, and has been since Day 1.  Bill Gates didn't diversify Microsoft into other industries, such as lawnmower repair or bison ranches.  Generally speaking, they know what they do and who their market is.  The catch becomes adding more value (whether that's hardware, software, or services) to improve revenue in consecutive quarters to impress shareholders.

Steve Jobs said he would rather compete with Sony than Microsoft (that tidbit was in an interview when he won "CEO Of The Decade").  That shift in thinking changed Apple from being a "computer company" to a "consumer electronics company."  Their secondary market became their new primary market.

GM diversified too much, and are suffering from too many brands.  Instead of sticking with a couple of stable, reliable, revenue-producing models, they started new lines (Saturn) and invested in other car companies (Opel).  How come Ford and Toyota made a profit this year, when GM didn't?  I'm sure that GM's insular thinking didn't help much.  (Microsoft developed insular thinking once, focusing on thinking "inside their own box"; Google has been developing a similar thought process for a few years now).

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Dec 2, 2009 3:03 AM Jake Kronika Jake Kronika  says:

As I was reading the section where you criticize Google for not spending time focusing on improving advertising, I was reminded of two recent posts on the official Google Blog.

The first deals with the recent agreement to acquire California startup Teracent, which has developed software to dynamically build better advertising that is "customized and chosen from thousands of different creative elements, automatically and in real-time, by machine-learning algorithms".

http://googleblog.blogspot.com/2009/11/displaying-best-display-ad-with.html

The second lists a number of formatting changes and content enhancements that Google is incorporating into their search results to provide more useful (and presumably more successful) advertising.

http://googleblog.blogspot.com/2009/11/new-search-ad-formats.html

While I agree with the fact that Google has spent a lot of time and money on markets that are not necessarily aligned directly with their advertising revenue, it is often through the public consumption of these other products that advertising revenue is earned, as Google displays their advertisements in as many places as possible. The mere fact that Google's advertisements are innocuous and often even appealing (particularly when compared to Flash advertisements that take over entire web pages on some other sites) makes them all the more successful.

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Dec 2, 2009 4:53 AM Michael Jones Michael Jones  says:

Microsoft and Google are both 900 pound gorillas.  Google may be in the business of advertising, but it sells that through data mining that is tied to everything.  Microsoft may be in the business of software, but it sells it's software by being the defacto standard for everything.  The common denominator here is "everything".  For both companies to succeed, the must be in everything to some degree.  Both have tapped their original revenue stream near it's maximum payoff.  Everyone has a computer (or two) most of which are on Windows and everyone uses Google as their go to search engine no matter how much Microsoft pays folks to use Bing. 

But who doesn't want a peice of Microsoft's OS and software pie?  Anybody remember back when Windows 3.0 came out.  It was still anybody's game and everybody wanted it bad.  It could have been Apple (if not for their expensive and limited proprietary hardware and licening model) as easily as it was  MS who won the destktop OS market.  Open source moves too slow to play in this game, but Google has the capital, resources and experience to be a formidible competitor.

Who doesn't want a peice of Google's search engine / launch portal pie?  They have been handsomely rewarded for developing the technologies that we all use daily and quite frankly take for granted.  They are the home page of choice of millions of Microsoft IE users.

There must always be competition or companies will put out piles of steaming mule dung like Windows Vista.  Once Apple and Linux picked up steam out of folks curiosity, Microsoft imediately started working on 7 and 32-bit Windows 7 is not a steamer.  Still, the 64-bit computing world is vastly in it's infancy and delivering an OS via VDI is as new as can be.  It's anybodys game again in those two areas, though MS dominace makes them have the advantage.

Partnerships many times hurt innovation and promote price fixing and a lack of options.  Please do compete for each others security blanket Google and Microsoft.  Stupid or not, keep fighting.  I want both of you scared.

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Dec 2, 2009 12:28 PM a. asdf a. asdf  says:

--"Microsoft has drifted away from that, going directly to consumers with packaged products like the Zune and Xbox, and selling directly to corporations, bypassing partners."

I believe the cost of the Xbox is subsidized by Microsoft, so I don't know how OEM's selling Xbox hardware to consumers with the OS coming from Microsoft would work. And you would also have different hardware specs from different OEM's, with some games running (or running better) on some Xbox's and not others. Plus it would probably run up costs since you have more companies making less product each, instead of just one company that is able to negotiate better prices with suppliers.

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Dec 2, 2009 12:32 PM David Harris David Harris  says:

Rob - I have to say that this is an excellent article (bigger than a blog, smaller than a novella).  I agree that Google trying to take on Microsoft makes absolutely NO sense: not for their partners or for their consumers. 

Both companies are being run by business-savvy (and tech-savvy) folks: Eric Schmidt was at Sun and Novell before joining Google, and Steve Ballmer has been a Microsoft-insider for a long time.

Both companies seem to have forgotten WHAT pays the bills and WHO pays those bills: their technology and the customer, respectively.  Sure, Steve Jobs may rattle Microsoft's cage ... and Rupert Murdock may get under Google's skin ... but the companies are forgetting where they came from, what their primary market used to be (and what their niche market is now), and look forward using those markets. 

Both companies seem to be using "scope-creep" to develop new niche markets, instead of developing products (and services) that people actually want ... like Steve Jobs has done so well.

I look forward to future blogs!

David Harris

www.harriscg.com

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Dec 3, 2009 6:39 AM Rob Enderle Rob Enderle  says: in response to Ann All

Thanks for all the questions, I figered there was enough here to do another post which I did here:  http://www.itbusinessedge.com/cm/blogs/enderle/revisiting-the-google-vs-microsoft-fight-questions-answered/?cs=37890

Agree Microsoft has historically not been very strong with advertising (better recently)

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Dec 3, 2009 10:49 AM Ann All Ann All  says:

Great post, and excellent comments. But  a nit to pick: "If Google is in the advertising business, wouldn't it make more sense to invest in trying to understand that business and figuring out ways to make advertising more easily measured, more effective, and thus more valuable? Google's own advertising should be held up as an example of excellence in the technology market, yet Apple easily does better work. The current Droid campaign, while excellent, is evidently driven by Verizon, not Google." Google is in the business of helping other folks optimize their advertising. You are comparing apples to oranges by noting "Apple easily does better work" with its creative campaigns for its own products. (Yes, it hires better agencies.) I wrote a post a while back about a boneheaded ad campaign for Google Apps: http://www.itbusinessedge.com/cm/blogs/all/google-not-doing-itself-any-favors-with-apps-ad-campaign/?cs=34637

But Microsoft's ads are notoriously bad. "Let's have a Windows 7 party!"

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