Microsoft's Bing search engine and Google Wave are two very distinct and different products, but they showcase where in the ecosystem each vendor is as well as current strengths and possible strategic mistakes. Let's take a look at both efforts, less from a product standpoint and more from the perspective of what they say about the companies.
Search: Bing Exploiting Google's Weakness
In search, Microsoft is a distant third of the big three. The executive team is under substantial pressure to either improve their game or exit the effort. Google is dominant and is starting to take its dominance for granted. Microsoft did the same thing for operating systems and now faces credible competition from Linux on servers and from Apple, and soon Android, on the desktop.
The challenge for a dominant vendor is to remain adequate; the opportunity for a challenger is that if the dominant vendor takes its dominance for granted, it can move around them. That is the intention of Bing. What it does it anticipate the results people are trying to get to and get them there faster. In effect, it is rethinking the purpose of search and cherry-picking key areas like health care and shopping, where changes are badly needed. The vulnerability clearly showcases that Google is slowing as it takes its dominance for granted and that Microsoft is now acting less as a dominant company and more as a challenger. Rather than using brute force, something that got it into trouble with Netscape, it's now attempting to innovate around Google. It is actually an impressive piece of work and should, depending on how long it takes Google to respond, move market share. However, Microsoft is still largely thinking linearly. Google apparently is not.
Owning the Desktop: Wave
Just as Bing is about taking search from Google, Wave is about taking the desktop one step at a time from Microsoft. Google Apps was a linear approach to challenging Office. Wave, however, is non-linear and looking at where people are spending their time and moving all of that to a Google property. Approaching a problem in this fashion certainly can catch a competitor napping but it is also far more risky and very difficult to execute.
What Wave does is aggregate a large number of Web properties that people frequent onto one custom page. In effect, rather than using Windows as the connection to all of these applications, you can now use Google, much like Chrome initially was used to connect back to Google Apps. On this vector, Google renders Windows redundant over time and then comes in at the end and, because it owns the key window, steals the OS, probably with a future version of Android. The difficulty is that Google's model, unlike Microsoft's, is based on advertising revenue. To make the model work, it has to take a percentage, up to 100 percent, of the revenue that otherwise might flow to the properties it is aggregating. While that's fine for Google properties, others, like Facebook, will likely see this as a problem and work hard to break Wave, much like like AOL did when Microsoft tried to create a common IM client almost a decade ago.
To make this work, it will need to closely collaborate with the products it is aggregating so that a fair revenue-sharing arraignment for those parties is created. Collaborative agreements aren't Google's forte. It will be interesting to see how quickly it can come up with a workable solution for everyone, not just a Google-driven mashup.
Wrapping Up: The Nature of Risk
For Microsoft, as a mature company, the risks are clearly higher. Its approach to competitive problems is vastly more conservative. That lowers the impact of those programs substantially along with the likelihood that the backing executive will be shot for failure. Microsoft could scale to #2 in search with this effort, but it is doubtful it can get to #1 before Google can respond. Google is structuring to displace Microsoft at #1, but is much less likely to be successful. But for it, the risk of failure isn't as important so it is much more willing to approach the opportunity aggressively.
This remains a distinct difference between the two firms -- the willingness to take risks in the first place and then what level of risk is acceptable. It is also interesting to note that both firms are spending a lot of intellectual capital going after the revenue owned by the other and seemingly not enough protecting the dominant markets they already own. In the end, I think Microsoft is still too unwilling to take big risks to truly surprise Google and take the lead. Google is too willing to take big risks and increasingly looking foolhardy locking itself out of the enterprise market. Both need to search for middle ground.