Debate Rages On in Microsoft vs. Google Web War
Folks responded with good points to my post from yesterday, "Why Microsoft is So Far Behind Google on the Web," a riff on how Microsoft lets Google buy what it wants -- AdMob, YouTube, DoubleClick -- without challenging or responding to its nemesis. The comments that praise Microsoft for its frugality regarding Internet businesses have the tenor of "well, Google buys companies that don't make any money." Spoken like people who don't believe that every Web service can be infused with online ads. That's why Google continues to target successful companies like Yelp and online real estate specialist Trulia. Google sees the potential to expand its online ad companies. Microsoft either doesn't see this, or prefers to pump money elsewhere. NotaMsftTroll wrote:
Your argument misses the fact that the sexiest social networks and web properties don't make any money--how much has Google spent and lost on YouTube over the years? So why shouldn't Microsoft sit on the sidelines? Investing in Opalis and beefing up System Center isn't going to win over the cool kids in Silicon Valley, but that's an impossible mission for MSFT and one that, as a shareholder, I'm glad the company isn't too interested in. True, making good advertising money from social networks has proven elusive. It's salient that this author mentioned YouTube, which hasn't made money, but it's getting there. As for YouTube, Google CFO Patrick Pichette and other Google execs have promised YouTube is on the path to profitability thanks to improved display advertising with DoubleClick, etc. Google didn't make money over night when it launched, but by 2004 AdWords was absolutely humming. MsftDoesOtherBusinessToo meanwhile chimed in:
Google uses its advertising dollars to constantly spend on companies and services that lose money. Sooner or later the gravy train of "look at all the cool, hip things we give away for free so please continue to use our core platform" will go away and the shareholders will all run for the hills. Microsoft is a company that has a history of making money - something that shareholders find oddly attractive. That's part of why Microsoft is lost at sea when it comes to the Internet companies. Microsoft looks at these startups as though they are a month away from being dot-com busts circa 2000. They see the money these companies are losing, or have yet to make, and stay away. They want businesses that are making money or are an inch away from it. Microsoft is not thinking about innovation so much as whether or not a new property will help it turn a buck. Google thinks about the technology and whether or not it will fit in with its properties. Google knows it always has its search ad business reaping 95 percent of its revenues, so it can afford to gamble a little more. Meanwhile, Bruce Wagner has his own theory for Microsoft's hesitance to chow down on Web startups:
Microsoft makes its money in old-fashioned software - Windows and Office. They are almost as terrified of apps "as a service" on the web, as they are terrified of the public finding out about Ubuntu Linux. They view it as the death of their industry and the cash cow that has served them so well. Developing for the web therefore seems to go against everything they stand for - like working for the enemy almost.... I believed that, too, before this summer. But then Microsoft rallied Live Search from death's door with Bing, the most exciting search technology to challenge Google yet. So Microsoft knows a little something about making cool Web products, even if the innovation is relegated to search. Collins Stewart analyst Sandeep Aggarwal noted in a Dec. 23 research note:
MSFT has been gaining traction in search for the past 5-6 months after years of disappointment and we are encouraged by the trend reversal. However, with MSFT's laser focus on search, it is missing out on three other big opportunities for the Internet i.e. mobile, display, and social. Mobile Internet and social could have been a natural evolution of MSFT's core offerings. Which is why it is surprising Microsoft was surprised Google was going after Yelp. But I can debate with shareholders and Microsoft aficionados about Microsoft's innovation and M&A practice to exhaustion without resolution. Instead, I'll refer you to the perspective of Don Dodge, who's one of the rare superstars to play for both Microsoft and now Google. Dodge praises Microsoft up and down. He loved working there. He didn't want to leave, but Microsoft laid him off. Now he gets to help Google beat Microsoft in the Web game. There is a certain irony and justice there. Dodge made some comments that highlight the differences between Microsoft and Google to the Seattle Post-Intelligencer in a pre-holiday interview, and it's a must read if you follow the Web war Google is waging with Microsoft. Dodge compared Microsoft in 2009 to IBM in 1985. Ouch. He said:
Microsoft is still a powerful company - $60 billion in revenue and very profitable - but I think after 20 years they are losing the innovation edge. The most innovative companies today are Google, Apple and Facebook. Very few companies can dominate an industry for more than 20 years. It is just the natural competitive cycle. Another factor - Bill Gates leaving the company. The transition was smooth, but not having Bill there every day has far-reaching implications. Specifically, Dodge pointed to the emergence of the Internet cloud and the fact that our smartphones will become our PCs, leveraging the cloud from anywhere:
Microsoft has product offerings in each of these areas, but they weren't the high-priority programs. Windows Mobile is struggling, and Windows Azure is just starting to emerge, so the focus was elsewhere. At Google, Chrome (browser), Google App Engine and Google Apps (cloud), and Android (mobile) are top priorities, so I am spending a lot more time in these areas than I did at Microsoft. Make of that what you will. I make of it that the key Web innovation is still going on at Google, not Microsoft. I hope and expect Microsoft to provide Google more competition on the Web in 2010. |
Comments (8)
"...I am spending a lot more time in these areas than I did at Microsoft."
He's spending a lot more time in those areas at Google, rather than Microsoft, is precisely the reason he was laid off.
Microsoft doesn't need people who would not, in its assessment, contribute effectively to their top priority innovations. Perhaps the whole reason that he got laid off was because he failed to recognize the how much MSFT cared about those areas, and ultimately he never followed the MSFT culture which states that if you want to get some major change, you start circulating a memo to everybody you can find and tell them your ideas. Maybe he was the one clinging to the past, and that's why Microsoft didn't need him anymore.
It's only a perception that MSFT is falling behind. Sometimes, people aren't able to let go of the image they had of a company, even if they worked there and know what's happening, and they think they're onto something new once they transition.
Posted by TopTechWire | December 24, 2009 3:25 PM
"ultimately he never followed the MSFT culture which states that if you want to get some major change, you start circulating a memo to everybody you can find and tell them your ideas."
That worked out well for Jerry Maguire, didn't it? :)
Seriously though, I think Dan was very much in touch with the way of the Web, and Microsoft wasn't. Don's skill sets make him a better fit for Google at this time, and the company can leverage his insight of the Microsoft operations and culture as a competitive advantage. That's Google's real gain here.
Posted by Clint Boulton
| December 24, 2009 3:30 PM
Bing may never achieve competitive market share versus google. As windows OS continue to lose market share to Apple and Android, especially in mobile devices, fewer customers will start out with Bing as their default browser. The small 4% penetration of the superior Chrome browser is testimony to the power of inertia but inertia and superior search will keep google far ahead of Bing.
Posted by gil | December 24, 2009 5:10 PM
"The comments that praise Microsoft for its frugality regarding Internet businesses have the tenor of "well, Google buys companies that don't make any money." Spoken like people who don't believe that every Web service can be infused with online ads."
Care to tally up exactly how much money YouTube has lost Google so far year-after-year, add that figure to the cost of acquisition, and then work out how much the company needs to make on ads via the service over, say, the next ten years to make that money back?
Let's be conservative and say that YouTube has lost $100m per year since it was bought (and note that Credit Suisse estimated its losses for 2009 alone at $475m). That, plus the $1.65 billion cost of buying it, will peg the cost to Google so far at around $2 billion.
This means that for Google to turn a single cent of profit on the deal by 2020, it needs to average $200m in profit on YouTube alone every year between now and then. With NONE of that profit being reinvested.
Google is awash with cash because of ad revenue from its SEARCH pages. Nothing else makes significant money, and the vast majority of its other services make losses.
Every web service can be suffused with online ads: however, that doesn't mean they are profitable, especially in the case of bandwidth-intensive services like YouTube. Ads are not magic pixie dust.
Posted by Ian Betteridge | December 25, 2009 5:44 AM
Microsoft is like IBM in the 80s, because we are undergoing another fundamental change in computing. In the 80s, computer hardware downsized from mainframe to PC, and IBM lost the new era to Microsoft.
Now hardware is downsizing again, as the smartphone will become the #1 client for accessing the internet. This time Microsoft has been kicked out of the game, and the new era will be owned by Google's Android and Apple's iPhone, both based upon open-source software underpinnings.
Microsoft's Windows Mobile phone OS is a trainwreck with no hope of recovery, as handset OEMs phase it out and developers desert it. Its business model is flawed.
Microsoft will also lose the web war. As smartphones become the dominant platform, Internet Explorer will be nowhere to be seen, as Webkit browsers take over. Its foolish rejection of HTML 5 will come back to bite it.
Posted by Penny Howard | December 25, 2009 6:13 AM
Ian:
I believe in the limitless power of online ads because most people are sheep. Pixie dust? Nah, more like the One Ring
Posted by Clint Boulton
| December 25, 2009 9:40 AM
Hindsight on Window's mobile platform is simple academics. Foresight to acknowledge that AAPL has created a convoluted and unsustainable business model with theirs takes business sense.
Google, Dell, and the open source community are gonna blow this (yes I have one) iPhone heap out of the water. It's their own fault, and it's a bad business model. Several of my most tech-savvy/wealthy friends have already tossed their iPhones for the likes of the Magic and Hero (HTC, wait until Dell gets rolling). They haven't even glanced back either. I will complete my iPhone application contribution, but I'll never market it under the AAPL terms which more resembles selling ones soul to satan than any terms agreement I'm comfortable with. I'll post it to the hack service and be done with it. You know, that service that gets something like a million hits a minute and earns AAPL 0.
Internet Explorer is not going anywhere. My 3 million hits a month still have it at 80%. We all like to root for the underdog, but AAPL and GOOG have different offerings and between them don't pose any threat to MSFT's empire. AAPL should be afraid of android, but their conceit will end them. Chrome is the best for speed, but for features it sucks.
Your anti-MSFT sentiment is frankly skewed and biased and will not serve you well in making investment decisions. Be it software, or stock.
Posted by Reticon | December 26, 2009 10:59 PM
You know, it doesn't matter how cool MS looks as long as they continue their "laser focus" on making web applications feel better on Windows than Linux or Mac or whatever. One look at their business practices over the years, vendor lock-in, lying to customers about their competitors, and attempting to co-opt open source projects for their own platforms, and promoting RAND standards rather than open standards, I could go on, but you get the idea. But as long as they are doing that, I'm not touching MS as a consumer. MS is behind on the web because just don't get that the web needs open standards.
So for now, I'm content to watch them at work as they get cannibalized in the virtualization market. I want to see them get their patents wiped out by Bilski so that they have to leave everyone else alone and compete on the merits rather than their patents. Eventually, they will fall into irrelevance and we'll all have a chair to sit in.
I just don't see Google pushing closed standards the way MS is doing. So when MS promotes a truly open standard in all of their products, I might come back.
Posted by Scott Dunn | December 27, 2009 7:56 AM