Google vs. Microsoft = Microsoft vs IBM 30 years ago

This battle of the titans has been brewing for 5 years or more. It is inevitable. Not because of animosity between the companies, but because of underlying business and technology trends driven by new customers and technology advances. There are lots of examples of this happening in many different industries. Think Toyota vs. Ford 30 years ago, or Microsoft vs. IBM.

The New York Times has a story today "Google Gets Ready To Rumble With Microsoft". The NYT interviews Google CEO Eric Schmidt, and one quote sums up the Google view that the future of computing is web based applications and services hosted in "the cloud" on the web.

To explain, Mr. Schmidt steps up to a white board. He draws a rectangle and rattles off a list of things that can be done in the Web-based cloud, and he notes that this list is expanding as Internet connection speeds become faster and Internet software improves. In a sliver of the rectangle, about 10 percent, he marks off what can’t be done in the cloud, like high-end graphics processing. So, in Google’s thinking, will 90 percent of computing eventually reside in the cloud?

“In our view, yes,” Mr. Schmidt says. “It’s a 90-10 thing.” Inside the cloud resides “almost everything you do in a company, almost everything a knowledge worker does.”

Jeff Raikes, President of Microsoft's Business Division, responds by saying;

“It’s, of course, totally inaccurate compared with where the market is today and where the market is headed,” says Jeff Raikes, president of Microsoft’s business division, which includes the Office products. TO Mr. Raikes, the company’s third-longest-serving executive, after Mr. Gates and Mr. Ballmer, the Google challenge is an attack on Microsoft that is both misguided and arrogant. “The focus is on competitive self-interest; it’s on trying to undermine Microsoft, rather than what customers want to do,” he says.

Henry Blodget, former Wall Street analyst and currently of Silicon Alley Insider, casts the debate as the classic "Innovators Dilemma", made famous by Harvard's Clayton Christensen. Henry distills the essence of 'The Innovators Dilemma" and the situation between Google and Microsoft in a few short paragraphs;

Disruptive technologies do not destroy existing market leaders overnight. They do not get adopted by the entire market at the same time. They do not initially seem to be "better" products (in fact, in the early going, they are often distinctly "worse.") They are not initially a viable option for mainstream users. They do not win head-to-head feature tests. Initially, they do not even seem to be a threat.

Disruptive technologies begin by providing a cheaper, more convenient, simpler solution that meets the needs of the low-end of the market.  Low-end users don't need all the features in the Incumbent's product, so they rapidly adopt the  simpler solution. Meanwhile, the Incumbent canvasses its mainstream customers, reassures itself that they want the feature-rich products, and dismisses the Disruptor as a niche player in an undesirable market segment.

But then the Disruptor improves its products, adding more features while keeping the convenience and low cost. Now the product appeals to more mainstream users, who adopt it not because it's "better" but because it's simpler and cheaper. Seeing this, the Incumbent continues adding ever more features and functionality to its core product to try to maintain its value proposition for higher end customers. And so on. Eventually, the Incumbent's product overshoots the needs of the mass market, the Disruptor grabs the mainstream customers, and, lo and behold, the technology has been "disrupted."

It is important to remember that Microsoft has played the role of "Disruptor" in the past, and learned a lot along the way. Jeff Raikes and Ray Ozzie totally get it. The people in charge of Office and Live get it. .

Microsoft has a carefully planned strategy to provide customers with the best of both worlds; packaged software for applications that require lots of graphics and computing power, complimented by web based services for easy access and group collaboration. Microsoft calls this "Software plus Services", and it is important because the user experience is seamless and synchronized no matter where you are. Microsoft has invested billions in huge data centers to support this vision.

On the business side there is another delicate balance. Microsoft Office is a $15 Billion dollar business. Balancing that business with advertising supported web services, or monthly subscriptions, will happen gradually over time.

Another important thing to remember is that this isn't a "winner take all" scenario. This is a huge market and there is room for different solutions and business models. Look at IBM. They are still a very large and successful company 30 years after they were "disrupted" by Microsoft.

Ultimately the customers decide who wins. Great companies adapt to changes in the marketplace. Lazy companies cling to their "tried and true" business models in the face of disruptive forces. Microsoft is a great company...so is Google. Both will be successful in their own way...and the customer wins either way. That is the American way!

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Comments

[Andrew]

Don,
"It is important to remember that Microsoft has played the role of "Disruptor" in the past, and learned a lot along the way. Jeff Raikes and Ray Ozzie totally get it. The people in charge of Office and Live get it."

We both used to work for Digital,a firm that famously disrupted and then was disrupted. Can you draw some contrasts between the Microsoft you now work for and the DEC you used to work for?

[G]

Don - great post - glad you followed through on yesterday's NYT article.

A few humble add-on observations -

In order for disruptive technologies to become “complete solutions” they need to create platforms (real ones) as MSFT did when they introduced Desktop computing to compete with IBM's mainframe computing. And behind the scenes, the Intel Chip was the real disruptor – just as the Web today is the real disruptor behind Google.

Search as medium is powerful – and Google has excelled at this game. However, unlike the "desktop as a platform", the "web as a platform" is too broad to capture and maintain control (and by its nature will never be owned by anyone including Google). Platforms play the role of gateways – the web is not a gateway, but a destination cloud. Given the ease with which the next set of disruptors with minimal effort can capture customers for the solutions offered by the disruptor - dominance over the web holds as much water as the old saying "the sun never sets over the British Empire". Unlike the early days of desktop computing, where MSFT solutions by nature had significant switching costs, the solutions on the web have pretty minimal switching costs. Therein lies Google's challenge - and the reason why Google is forced to introduce novel ideas like Android - one where, an ecosystem entrenched in existing platforms, with high switching costs will add Android support as "supplemental" solutions (maybe). “Advertising as a business model” is not disruptive in the truest sense – it is an evolution (or in some sense a mutation) of already existing business models. Challenges from Linux taught MSFT to evolve and improve – an example of the evolution of business models.

Solutions offered on the "web a platform" assumption will remain challenging endeavors past the niche utilities - a fact quite often overlooked in commentaries broadcast by the generalist in the media.

As you and Henry have pointed out (by referencing Clayton Christensen)- disruptors are first and foremost niche players - who eventually can succeed in moving to “comprehensive solution set” status by introducing solid products with a full set of utilities for the mainstream user – an effort exemplified by many including MSFT for a very long time.

Sustainable market dominance belongs to people like CSCO with infrastructure products - Operators who own the last mile and spectrums, MSFT which owns the desktop.

Google does not own the very thing it its the platform. Search is a medium, not a platform - as of now they own a business model - one which will evolve (or mutate) over time. In order for Google to become a platform player, it will have to do more of what MSFT is doing - an upstream effort (as with Salmon laying eggs).

[Sprague Dawley]

The Times article accepts without question many Google "talking points" without delving into Microsoft's clear strategy for migrating its huge customer base into the "cloud". THEIR cloud.

Blodget makes hay with the "disruptor" analogy, but doesn't seem to get that the significant disruptor in the office productivity space was/is Ray Ozzie -- not Eric Schmidt.

[Scott Lawton (Blogcosm)]

Sprague: leaving aside Ray Ozzie's considerable past accomplishments, as of today do you think it's fair to say he has disrupted or is disrupting the office productivity space? Zoho seems farthest along, and Google is likely to either slowly pass them or buy them.

"Microsoft Office is a $15 Billion dollar business."

Although not inevitable, the mostly likely outcome is that someone else is going to win by shrinking this market. (Click on my name for some earlier thoughts.)

[Don Dodge]

Andrew, I remember our days working together at Digital Equipment Corp. DEC was the classic example of the Innovators Dilemma. In fact, Clayton Christensen, the author of the book, spent a lot of time at DEC study our situation.

DEC made lots of mistakes that Microsoft will not make. Ken Olsen was a stubborn man, unwilling to accept ideas like Unix, PCs, and standards based Internet email. He called Unix "snake oil" and called PCs "toys". DEC was a "one trick pony".

Microsoft is completely different. First, Bill Gates and Steve Ballmer are much better business people. They are extremely competitive, never complacent, always looking to improve and adapt.

Microsoft made its name (trick one) with DOS on the PC. Their second trick was Windows...and extending it to the server. Windows on a server in the data center was inconceivable 20 years ago. Now it is a HUGE business. That was trick number two. The next big move was development tools. Visual Studio is an enormous business toady. Lets call that trick number three. Trick number four was SQL Server. Again, it was inconceivable that a PC software company could develop a world class database for the enterprise. Today SQL Server is a multi-billion dollar business. Trick number five was Sharepoint as a document management system. Trick number six was Xbox. Trick number seven was Windows Mobile. I could go on and on.

To those who think Microsoft just got lucky with DOS and created a monopoly. Think again. Making the leap from Windows on the desktop to Windows on the server was HUGE...and had nothing to do with its dominance on the PC.

The SQL Server database won its market all on its own. No "tie-ins" with Windows desktop. The same goes for Visual Studio, Sharepoint, Xbox, and Windows Mobile. Each of those are great products built from the ground up, that won their markets on their own, with no help from Windows.

Microsoft continually reinvents itself, and adapts to change in the marketplace. I believe Microsoft will continue to lead, adapt, and succceed for a very long time to come. No Innovators Dilemma here.

[Sach]

Microsoft has the best chance to influence the paradigm shift (towards cloud computing) if they play it right.

http://tinyurl.com/3ct9qu

[Srini Kumar]

Users are stoked. I want to see a $300 webOS laptop that's light, thin and durable. I just want to use that and leave the real laptop at home when I'm on the road anyway (it'll have Gears too right?)

It won't be either of them that wins this market, however, because Google isn't the only product development outfit in Web 2.0, and Microsoft just has too much baggage.

MS and Google are like white and black on the Office chessboard, but the USERS are the players, and maybe they're tired of playing chess. Maybe they'd rather create in a different way instead and abandon the Office paradigm altogether.

[Soumitra]

While Microsoft and Google are in a prize fight egged on by the tech media and our own egos, Amazon quietly is doing the real disruption. With EC2, S3, SQS, Turk and now Simple DB, they are quietly assembling the components to lay the foundation for a Cloud based platform.

[fusepad]

Forget about 100% cloud computing. Thats like telling a single malt scotch drinker to go blended. There are definite advantages to cloud computing (scale, social, convenience). However, the desktop is not going away and google is not going to change that no matter how many phd cantidates they throw at the problem.

[Xofis]

Srini, the $300 Web laptop already exists, Asus' EEE.

What this Google PR regurg NYT story misses is there's no clear path to extending features upstream, because the browser is such a piss-poor app platform. And once you do extend, you're in the MS business. Code is code, libraries are libraries, there's a certain amount of conservation taht goes on.

[Andrew]

Don,
Thanks for your thoughtful response to my question about DEC and MSFT.

[Rich Waters]

This is an interesting discussion, but I think we're just at the starting line. Cloud computing is an interesting consumer play, but it's not sustainable for businesses. Why? Because once all their data moves into the cloud, they are subject to the holdup problem - telcos can charge whatever they want for bandwidth, Google can introduce access charges or costs for additional functionality that current Office users enjoy.

No - Google is accelerating the industry's movement toward...something. But it won't be cloud computing. It will likely be toward something like anywhere computing, where your work is saved to a PC and a web server at the same time.

[Dustin Bouch]

As you accurately implied with you excerpt from The Innovators Dilemma, online office apps are a classic case of disruptive technology. The key to the whole puzzle lies in price and ease of use. Microsoft office is overly complicated and too expensive for the average user. Anyone who currently uses Office 2007 is painfully aware of both of these facts at $500 for a suite of software with so many features that it barely runs (just do an internet search for "Office 2007 issues" and you will find a endless list of unhappy users). If Microsoft doesn't quickly recognize that most users of Excel or Word just need a cheap, simple solution, they WILL be "disrupted" out of the market.