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.

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