If you gave the headline of this story a double take, no offense is taken. In fact, its quite understandable, given how ridiculous it may seem at face value.
Google deathly scared of Microsoft? Yeah, that would be counter to all that we read these days about Google’s barely disguised disdain for the guys at Redmond; it would also be counter to their 53.7% crushing dominance of the smartphone market, their competitive position in tablets; and their ownership of search and search marketing.
Oh, and lest we forget, didn’t the FTC just give Google a pass on their antitrust investigation a scant few days ago? Thus it is that the company has a swagger in their step these days. So the last thing you would expect Google to be – with their $45 billion in cash as of September 2012 – is scared of Microsoft.
FTC Slaps Google’s Wrist, Microsoft Criticizes Ruling
To many analysts and writers, Microsoft has made one misstep after another since Bill Gates left. They arrived late to the cloud, to the smartphone, to the tablet and are a distant second in search and search marketing. As the market gravitates very quickly to smaller form factors, devices running on Microsoft’s Windows 8 are only now becoming more than a blip on the charts.
So I ask again, why do I think Google is deathly scared of Microsoft as they engage in bruising battles with them? Why do I think that in their strategic planning, they talk more about Microsoft than they do Apple – with their fearsome iPad, Mini-iPad, MacBook and iPhone.
Here’s why.
Microsoft is No Apple Let’s get Apple out of the way first. I believe Google feels absolutely no fear of Apple. Apple is a high-margin, small market company. Always been, always will be Once you recognize Apple will always make a ton of money and have a limited market share, you understand them and there is no reason to fear.
Google came in from nowhere and took away smartphone leadership from Apple. It may take a little longer, but it is clear they’ll do the same in tablets soon enough. In price-sensitive markets like these, Apple cannot remain #1 forever. It is almost built into Apple’s DNA to be the Mercedes Benz of devices. Make a ton of profit, but leave the mass market to the Toyotas, Hondas and Fords.
Clearly Apple’s foresight and overwhelming first-mover advantage of the iPad has given them the lion’s share of the tablet market, but just as the Christmas sales numbers show, their overall share of the market is falling. Not their profitability, mind you, but their share.
Again I say this; just as Google gained supremacy (in market share, not profit…yet) in the smartphone market, they will inexorably do the same in tablets. And ultimately find a way to make more money doing it.
Microsoft is a different animal altogether. Yes, they have made mistakes and the Windows 8 campaign has indeed gotten off to a shaky start. Also, apps are ramping up, but are not yet comparable in numbers to those in the Google and Apple stores.
Here’s a question. Who did the same thing to Apple in the 1980s that Google’s Android is doing to Apple now? If you said Microsoft, you would be correct. Apple’s PC actually pre-dated the first commercial Windows PC, but then got crushed in the office and home.
What do they say? Those who forget history are destined to repeat it. The IBM PC, in a few years, quickly pushed Apple to a distant second place.
Here’s a major reason. The Wintel combo that IBM, then Dell, then Compaq sold were OPEN systems, in contrast to Apple’s closed system. Google is scared of Microsoft because they are also an OPEN system.
There’s Strength in Numbers Rather than just focusing on Microsoft and their Surface devices, Google now has to be on their guard against the device makers – any of whom could set the mobile markets on fire.
They must watch out for Microsoft and Dell, but also for Lenovo, Acer and Asus – any of whom can come in at any price point and deliver a crushing blow to Kindle Fire, Google Nexus and other Android-based devices.
Sal Marvasti in SeekingAlpha states;
Windows Phone 8 provides a mix of the benefits of Apple (cohesiveness) and Android (dynamic and competitive). For Windows Phone there are only three major manufacturers, with only a handful of models each. The hardware is tightly controlled, unlike Android, while still being more flexible than Apple.
Even folks like Samsung, with the marketing leading S3 smartphone have no intrinsic loyalty towards Google. If their sales of Windows Phone 8 smartphones began to climb, guess where their attention would turn?
It could more easily than you think, turn into the Google Nexus vs everyone else (who have jumped on the Microsoft bandwagon).
That is another reason I believe Google is deathly scared of Microsoft.
Mountains of Cash Next, do you know how much poor old Microsoft has in the bank? Almost $67 billion. Yep, that would be “billion” with a B. You gotta fear companies who have $67 billion in the bank, and who last year, made over $16 billion in profit after taxes.
Add to that determined companies like Lenovo, Acer, Dell and the rest, and that strength is multiplied. Apple is only Apple, there is no ‘ecosystem’ of other Apple-compatible smartphones or tablets. That threat is easy to manage, easier to beat.
A Better Operating System There is another very real reason Google is scared of Microsoft in my view of things. This may be a hard one to hear and is somewhat subjective, but hear me out.
Windows 8 is better than Android. OK, let me rephrase that controversial statement. Windows 8 has the potential to be a lot better than Android.
What do I mean by that? Well, do you remember the first few reviews of Windows 8? Yep, almost everyone griped about the problem with drivers, about the infamous Start Button (or lack therof), the vanishing Task Bar etc. etc.
If I were Microsoft, I’d be ecstatic. Why? Very few reviewers actually came out and panned Windows 8 as being inferior to either Android or iOS. Those that did were not using a touch-enabled screen.
The latter two are more polished right now – after many iterations, I quite agree. But Windows 8, the Metro style, and Live Tiles are to my mind, just a superior approach to ‘dead’ icons of Android and iOS.
Even though Windows 8 is still working through those rough edges, at it’s core, it is a different, superior cognitive approach to the UI – and a better one to boot.
Now, better does not always guarantee victory, as we all know. But Google surely recognizes that Microsoft and their hardware partners have the resources to chip and chip and chip away at them and Apple to ultimately create significant market share for themselves.
Every service pack and point release will make things better for Windows 8. Every new utility that replaces the Start Button and Task Bar and enables booting straight to the desktop UI will remove all the irritants that annoyed many of the first users of Windows 8.
Windows 8 is already a pleasure to use (love that shortened bootup time also!); in 6-12 months, it will be an irresistible proposition for millions.
This is Not Like the Search Market The smartphone and tablet market is not search. If Google thinks it is (which I don’t think is the case), that would be a grievous mistake and one that will cost them.
Google has been able to see off Yahoo, Bing and all comers successfully in search and more successfully with Adsense and Adwords search marketing. However, they know that with devices, that almost-monopoly cannot be created or defended that easily.
It is an entirely different game.
All they need to do is to see how easily they took market share from Apple to understand that despite the loyalty brought about by ecosystems of services, you can bleed market share just like that.
It does not require a stretch of the imagination to see Microsoft doing to them what they are doing to Apple.
Microsoft Understands the Enterprise The next reason Google is scared of Microsoft is that, much better than Apple, Microsoft understands business. Not only that, but their systems still drive the majority of computing in the enterprise while Google does not.
The moment enterprises – who are still forking over cash on Windows 7 licenses by the way – see the potential of Windows 8, especially on newer form factors, Microsoft will have a built-in advantage in regard to integration.
Yes, I know that BYOD trends see all kinds of OSs being used, with iOS and Android leading. But Microsoft can, and in my estimate, will gain traction over time and the pendulum could conceivably begin to swing in its direction.
The last chaotic, weak quarter of 2012 with the launches of Windows 8 and Microsoft Surface will not be repeated. Every quarter going forward will see stronger performance from Windows 8-based devices as it gets established.
Google’s Own Actions Why do you think Google has engaged in juvenile hamstringing of their apps on Windows 8? First the issue with Exchange Active Sync and access to Gmail, and then blocking Google Maps on Windows Phone 8.
It’s simple – Google recognizes the threat much more than the casual observer. If they didn’t think Microsoft was such a threat, they wouldn’t – as it is alleged – have reportedly asked senior managers to obstruct their apps’ smooth working on the Windows 8 and Windows Phone 8 platforms.
Who’s Making the Money? The most amusing thing here is that Microsoft – with its massive portfolio of patents – was up until recently making more money from Android than from its own mobile platforms.
Why?
Because Microsoft has licensed its patents to major hardware vendors, such as HTC and according to Goldman Sachs, in 2011, Microsoft may have made almost half a billion dollars from Android licensing fees.
What many don’t realize is that Google actually makes no money directly from Android, licensing it for free to hardware vendors. Instead, they seek to make money from the ‘ecosystem’ of Google services.
However, many of these services are free, such as Gmail, Google Maps and a whole host of others. Google Docs is a paid service, as well as search marketing, but all in all, Google is NOT making out like bandits.
So here’s the deal: if Microsoft is making money off Android (less now with Exchange ActiveSync done and buried) and off Windows 8 and Windows Phone 8 systems through OS licensing, the fact is, they could actually make a lot more money than Google in mobile with a much smaller market share.
Google is not even making the same kind of money from its App Store that Apple is. Marvasti, in SeekingAlpha, writes that they make 1/9 of what Apple makes off its App Store. He also adds that the ‘promised revenue’ from advertising is not close to what Google say it is.
Microsoft is Making Gains in Search The next reason Google fears Microsoft is that it is the only company out there with the ability to hurt them in their core business – search and search marketing.
It wouldn’t take a lot – acquiring Yahoo would give Microsoft almost 30% of search in the U.S. They have the ability also to build out search marketing equivalents of Adwords and Adsense very quickly. (Why they haven’t done this so far exasperates me!)
The day they decide to do it, online advertising will go from hegemony to a duopoly welcomed by every website owner and online advertiser.
Marvasti also adds:
Although Google is growing faster than Microsoft, its growth is slowing while Microsoft’s growth in the Internet and Search business is at a steady average of over 10% year on year since 2010. Microsoft runs an old software house business model rapidly adapting to the new online world; so overall growth is muted. However, this pace can only accelerate with the help of mobile penetration and it may exceed Google over the next year.
The EU is Not the FTC As we earlier mentioned, the FTC pretty much gave Google a pass on misuse of patents and skewing of their search results to favor their products.
Here’s what we know.
The EU will not do the same. They have been investigating Google for the past two years and have vowed that their investigation will not be hampered by the FTC action.
Moreover, in Europe the member of the European Commission responsible for Competition, Manuel Almunia has made it clear that he will close his investigation of Google only with a formal, binding order that addresses search bias and other issues. This will give the advantage to Microsoft and others seeking relief.
So overall, you can see that Google has every reason to be afraid of Microsoft. They see beyond the headlines and know better then we do the grave threat Microsoft is to practically all their businesses – core and no-core.
If Microsoft executes even moderately well, Google knows it will have a really tough time on its hands.
The onus then is on Microsoft to live up to their potential and press their strengths.
source:windows8enterprise
