A specter is haunting Redmond, Washington.
In the 19th century, you had Standard Oil. By 1890, Standard Oil controlled 88% of the refined oil flows in the United States. In 1904 when the lawsuit began it controlled 91% of production and 85% of final sales. In 1911 the company was broken up into several smaller companies.
In the 20th century, you had Microsoft. Microsoft currently has around 90 percent share of the client operating system market with Windows (but this will fall to 58 percent by 2007).
It might fall even more than that. One reason, of course, could be Google’s entry in the market. Of course, the market in question is not that of operating systems but rather, web browsers.
Let’s make one thing clear: Google realized long ago that MSFT and not Yahoo! was its biggest “risk factor,” and that it should not get defensive about search, but rather, it should go on the offensive and hit MSFT’s core. MSFT’s core of course, is not its Internet Explorer (IE) browser, but rather, its Windows Operating System (OS) and Microsoft Office Suite of Productivity Systems. The odd thing is that consumers do not see the OS per se, they know MSFT Office more than anything else. In other words, consumers do not play with the OS, they play with the MSFT Office productivity program suite. But because the OS is there, then MSFT can bundle its Office Suite, as well as its browser and capture market share, revenues and profits seamlessly.
The OS and Office Suite were so important that MSFT leveraged them to “Netscape” Netscape Navigator and make IE the market share leader in browsers.
Problem: Google realized that it could not beat MSFT directly because MSFT’s operating system was sitting on every PC. And because the OS is there, then by nature so would MSFT’s Office as well as its IE browser.
The first thing that pops up when a PC starts is the MSFT brand. Only once people logged on would they come across the Google brand, and even then, this would be after they see MSN.com, MSN search, Hotmail email etc.
Obviously, this was not a level playing field.
Today Google has one edge: its global market share of search, which flirts with 50%. That’s enormous. People use the Web first to send emails, then to search. That is why Google needed Gmail.
But Google knew that hubris aside, MSFT’s $30 billion war chest could pose a risk to its search market share, so it decided to get on the offensive and hit one of MSFT’s pillars: Office. Let’s pause for one second: Google, while a technology company, is a consumer brand. MSFT, while a technology company, is also a consumer brand but it gets its mojo by virtue of being a business brand. What I mean is that it is by virtue of integrating its OS into other business’ products (laptops, PC, PDAs etc) that MSFT became MSFT. If we were to ask what came first: the OS or the Office, the answer is clear: the OS.
But for Google to survive long term and not become an asterix in the history of business, it needs to attack MSFT and not sit back. It has chosen, by the looks of their R&D / product development (click here for more) and acquisitions (click here for more), to use its own brand equity amongst consumers and attack MSFT’s Office suite. To do that, it has decided to not develop or acquire one but bypass it through a browser.
This way, Google could compete with Internet Explorer (which has seen its market share erode to Mozilla’s Firefox, Opera and Safari… and, I suppose, Navigator) and start to eat away at MSFT’s stranglehold on people’s computing habits.
Let’s back up a bit: this week Google CEO’s Eric Schmidt stated that Google “was not interested in developing a browser,” notice he said develop, as in from scratch, in-house. Don’t be surprised if by the end of the year, Google acquires a small company that has developed a browser that Google fancies.
Why is a browser necessary for Google? And why should it acquire and not develop one in-house?
Read on.
These days, with the Internet being rigid and robust in terms of uptime and speed, people can technically do everything online. In fact, the mere notion of being handcuffed to one workstation/laptop/PC/etc. has become almost outdated. I have some files on my old PC in my home office, I do plenty on my laptop at both home and work, but I already realize that the future will be more about me logging into a system which will seamlessly retrieve all of my files, documents, etc. no matter where and on what device I am logging in from; be it a hotel, my office, my home, an airport, etc.
After all, if Google’s mission is to “organize the world’s information and make it universally accessible and useful,” you’d think that they would also have on their To Do list the objective of making yours or mine information readily available. Say you are sitting in a restaurant talking to someone about a project, instead of saying: “I’ll email you the report when I get back to the office,” you would suddenly be able to, with your cell phone or PDA, log in, attach and email the report to anyone even if on said PDA or cell you cannot really open, view and change the file (for screen size purposes, for example).
But even then, go back to Google’s acquisitions and you will see that Google is positioning itself for just that: a world where the world’s information will be increasingly accessed from mobile, handheld devices and not PCs or laptops. Of course, that is at least a full decade away, if not more.
(Google might also want to operate in a world where you turn a device on and the info is there, as opposed to today’s reality where you turn on your laptop and the info you are looking for takes 1-5 minutes to retreive, but that’s a separate discussion)
People will continue accessing the bulk of the ”stuff” they access from PCs, laptops for years to come much the same way that cars still roll on pavement and do not fly, even in 2006.
But long term, it’s inevitable that we want information anywhere and ASAP.
Google has already decided that their answer to MSFT Office needs to be online because that will make it a better - or dare we say it - more relevant suite of productivity systems. It’s also decided that because it is an online company, of course.
Already, MSFT has become a bit irrelevant because it has been slow to put its Suite online. If I had to estimate, the frequency of times I’ve opened Word to “Create a New File” has gone down every year since I began working in IT and new media. Am I alone? Probably not. The reason is simple, there are more and more alternatives for one. And second, I’d rather not have some things on a Word document because its retrieval might be harder than numerous alternatives.
MSFT needs to migrate their services online, and they have begun doing so, but they seem hellbent on doing so to capitalize on advertising, without realizing that they need to do so for mere survival, and not for added monetization. Advertising revenues might come as a result of this migration, but it should not be the raison d’etre of the migration.
Google knows this and understood it early on. Recently it acquired Writely, a free web word processor which lets you share and collaborate your work online. That’s obviously positioning it against Microsoft Word.
When you look at any of Google’s acquisition in a vaccum, you often ask “why?” But when they line up one next to another, you see that Google wants people to essentially bypass MSFT Office altogether. Of course, Google needs to do a lot more, in terms of Excel, Powerpoint, Outlook, Access, FrontPage, etc. but slowly but surely, it is lining up its own version of everything MSFT offers.
Google’s Gmail, despite all of its shortcomings, already offers a good alternative to Outlook. If only the darn thing would not be down every once in a while… but then again, Outlook is always “down” until you connect to the Web to download your email, so all factors being equal, I have set up our entire office on Gmail to provide a better communications environment.
Obviously, in the absense of a web portal, all of these offerings create a haphazard mix of products and services that are nowhere near close being a threat to MSFT. That is, unless Google offers a browser that integrates its search box, Gmail, Google maps, Google earth, Picasa image management, Google News, Trends, Google Calendar etc. etc.
With 50% of the global search market share in its backpocket, Google can easily convince a lot of people to try the browser. Before you know it, suddenly, Google becomes the proverbial windows to the World Wide Web. It does not need an OS, it does not need a suite of productivity systems like Office.
If you doubt Google’s ability to penetrate MSFT’s shield, just think of how many people have downloaded Google’s toolbar. I have. So downloading a browser is really just a marginal obstacle to overcome. Google has such a strong brand equity amongst consumers online that getting them to swap IE for Google’s browser will be relatively simple.
As you can see, if Google wanted to develop its own browser, good or bad, it could almost instantly cut IE’s market share in half.
So imagine how quickly it could strike MSFT’s fortress by acquiring a company that already has an expertise (and market share) in the browser space…
In this context, it is not impossible for Google to become as big of a monopoly as Standard Oil or MSFT were (do I need to insert “allegedly” before MSFT?) in the 19th and 20th century respectively. After all, if people go to the Web to email, search, check the news, weather, etc., all within Google’s browser, you can imagine that its stranglehold on Web traffic (measured by Google Analytics, of course) would be considerable and enough to make Messers Gates and Rockefeller blush.
Indeed, a specter is haunting Redmond, and it emanates from Mountain View, California.
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